WEBVTT 00:00:00.000 --> 00:00:03.100 If you pull a $10 bill out of your pocket right 00:00:03.100 --> 00:00:05.799 now, you are actually looking at a piece of paper 00:00:05.799 --> 00:00:09.099 that has lost about 97 % of its purchasing power 00:00:09.099 --> 00:00:12.019 since this country was founded. Yeah, it's wild. 00:00:12.199 --> 00:00:16.199 Right. And yet, the entire global economy basically 00:00:16.199 --> 00:00:19.719 depends on you and, well, everyone else on Earth 00:00:19.719 --> 00:00:23.059 believing it's worth exactly $10. So today's 00:00:23.059 --> 00:00:26.359 deep dive is all about what I like to call the 00:00:26.359 --> 00:00:29.120 greatest collective hallucination in human history, 00:00:29.600 --> 00:00:31.679 the United States dollar. I mean, it really is 00:00:31.679 --> 00:00:34.100 the absolute definition of shifting sands. We 00:00:34.100 --> 00:00:36.740 tend to treat cash as this static, mathematically 00:00:36.740 --> 00:00:40.079 precise object, you know, but it's history and 00:00:40.079 --> 00:00:42.280 really is underlying macroeconomic mechanics. 00:00:42.460 --> 00:00:44.200 They tell a completely different story. Totally. 00:00:44.329 --> 00:00:47.210 And we are taking a massive stack of source material 00:00:47.210 --> 00:00:49.770 today, a really comprehensive Wikipedia deep 00:00:49.770 --> 00:00:53.210 dive to track how a silver coin from this random 00:00:53.210 --> 00:00:55.789 Bohemian Valley transformed into the bedrock 00:00:55.789 --> 00:00:59.009 of the modern world. Our mission here is to reveal 00:00:59.009 --> 00:01:02.250 the bizarre historical quirks behind the money 00:01:02.250 --> 00:01:06.090 you spend every single day and how modern monetary 00:01:06.090 --> 00:01:08.510 policy actually dictates the reality of your 00:01:08.510 --> 00:01:11.849 wallet. Honestly, I couldn't ask for a better 00:01:11.849 --> 00:01:14.129 expert guide to help connect all these crazy 00:01:14.129 --> 00:01:17.640 historical dots to modern macroeconomics. Well, 00:01:17.640 --> 00:01:20.239 thanks. The evolution of this currency is, honestly, 00:01:20.420 --> 00:01:22.560 one of the best lenses we have for understanding 00:01:22.560 --> 00:01:25.040 global power, human psychology, and just the 00:01:25.040 --> 00:01:28.459 entire concept of value itself. Yes. So to really 00:01:28.459 --> 00:01:30.760 understand that collective hallucination, we 00:01:30.760 --> 00:01:33.000 actually have to cross the Atlantic first, because 00:01:33.000 --> 00:01:35.719 the word dollar itself isn't even American. No, 00:01:35.780 --> 00:01:38.319 not at all. The sources trace it back to a 16th 00:01:38.319 --> 00:01:40.959 century Bohemian valley called Yo Capemstal. 00:01:41.239 --> 00:01:43.319 OK, let's unpack this. How did we get it from 00:01:43.319 --> 00:01:45.879 Jokumstal to dollar? Right. So Count Haranama 00:01:45.879 --> 00:01:48.340 -Schlick was minting these silver crines there, 00:01:48.359 --> 00:01:50.480 and they became known as Jokumstalers, named 00:01:50.480 --> 00:01:52.840 directly after the valley. But naturally, people 00:01:52.840 --> 00:01:55.120 shortened that massive mouthful to just taler. 00:01:55.280 --> 00:01:58.400 Makes sense. Taler is a lot easier to say. Exactly. 00:01:58.799 --> 00:02:01.280 And as the coin spread across trade routes, the 00:02:01.280 --> 00:02:03.700 Dutch began calling it dolder. And then English 00:02:03.700 --> 00:02:05.659 speakers eventually settled on the pronunciation 00:02:05.659 --> 00:02:10.319 dollar. Wow. Yeah. But here's the kicker. While 00:02:10.319 --> 00:02:12.780 the name came from Bohemia, the physical model 00:02:12.780 --> 00:02:15.939 for our actual money was entirely Spanish. The 00:02:15.939 --> 00:02:18.379 Spanish -American eight real coin. That's the 00:02:18.379 --> 00:02:20.580 one. The famous piece of eight, right? Or the 00:02:20.580 --> 00:02:23.039 Spanish peso. Because those were minted in places 00:02:23.039 --> 00:02:25.620 like Mexico City and Lima and they just flooded 00:02:25.620 --> 00:02:28.599 global trade networks for centuries. Was the 00:02:28.599 --> 00:02:31.280 Spanish peso essentially the universal colonial 00:02:31.280 --> 00:02:33.439 credit card? Oh, absolutely. It was everywhere. 00:02:33.599 --> 00:02:36.689 Like, did the newly formed U .S. government basically 00:02:36.689 --> 00:02:39.569 just copy -paste a dominant foreign currency 00:02:39.569 --> 00:02:42.509 to jumpstart its own economy? What's fascinating 00:02:42.509 --> 00:02:45.009 here is that Alexander Hamilton took that copy 00:02:45.009 --> 00:02:47.870 -paste job quite literally with the 1792 Coinage 00:02:47.870 --> 00:02:50.530 Act. Oh, really? Yeah. Instead of inventing a 00:02:50.530 --> 00:02:53.389 brand new monetary standard from thin air, he 00:02:53.389 --> 00:02:55.969 gathered a random selection of worn Spanish dollars 00:02:55.969 --> 00:02:57.969 that were, you know, actively circulating in 00:02:57.969 --> 00:03:00.189 the colonies at the time, and he essayed them. 00:03:00.270 --> 00:03:02.129 Wait, so he literally just weighed the local 00:03:02.129 --> 00:03:04.530 pocket change. He literally weighed the change 00:03:04.530 --> 00:03:06.580 in people's pockets. He wanted to find their 00:03:06.580 --> 00:03:09.319 average fine silver content, and he found the 00:03:09.319 --> 00:03:13.840 average was exactly 371 .25 grains of fine silver. 00:03:14.379 --> 00:03:16.900 So he just locked that exact weight in as the 00:03:16.900 --> 00:03:19.719 foundational standard for the new U .S. silver 00:03:19.719 --> 00:03:22.599 dollar. That is amazing. And it wasn't just the 00:03:22.599 --> 00:03:24.479 physical way we copied either. I was reading 00:03:24.479 --> 00:03:26.699 the source material on the origins of the dollar 00:03:26.699 --> 00:03:29.960 symbol, and it totally debunks that popular myth 00:03:29.960 --> 00:03:32.139 I learned in school. Oh, the one about the letters 00:03:32.139 --> 00:03:34.360 U and S being layered on top of each other. Yeah. 00:03:34.520 --> 00:03:38.159 like UNS for United States. But the most accepted 00:03:38.159 --> 00:03:41.000 historical theory in our sources is that clerks 00:03:41.000 --> 00:03:43.639 in the 18th century would just write a P and 00:03:43.639 --> 00:03:46.960 an S for pesos. And over time they got lazy or 00:03:46.960 --> 00:03:49.240 efficient and started writing the S over the 00:03:49.240 --> 00:03:52.120 P and that mutated into the dollar sign. Right, 00:03:52.319 --> 00:03:54.419 right. Though there is also an alternative theory 00:03:54.419 --> 00:03:56.560 in the text that had evolved from the Spanish 00:03:56.560 --> 00:03:58.439 coat of arms. Oh right, the one stamped on the 00:03:58.439 --> 00:04:01.340 silver coins. Exactly. The imagery featured the 00:04:01.340 --> 00:04:03.639 pillars of Hercules, which are these two vertical 00:04:03.639 --> 00:04:05.780 bars with a ribbon wrapping around them in an 00:04:05.780 --> 00:04:08.580 S -shape. Oh wow, I can totally see that. Yeah, 00:04:08.659 --> 00:04:11.580 either way, the DNA of our money is deeply, deeply 00:04:11.580 --> 00:04:14.060 Spanish. Which actually perfectly explains the 00:04:14.060 --> 00:04:16.360 weird math of the modern quarter. Oh, the two 00:04:16.360 --> 00:04:19.920 bits thing? Yes. because the U .S. was setting 00:04:19.920 --> 00:04:23.339 up a very logical decimal system, right? Cents, 00:04:23.500 --> 00:04:26.600 dimes, dollars. If you were building a decimal 00:04:26.600 --> 00:04:28.939 system from scratch, you logically introduce 00:04:28.939 --> 00:04:31.480 a 20 -cent coin. You would think so. But the 00:04:31.480 --> 00:04:33.939 Spanish dollar was divided into eight reales, 00:04:34.180 --> 00:04:36.500 which the colonists colloquially called bits. 00:04:36.800 --> 00:04:39.079 Yeah, and because people were just so entrenched 00:04:39.079 --> 00:04:42.459 in spending two bits to buy a drink or like a 00:04:42.459 --> 00:04:45.300 loaf of bread, the U .S. government just yielded 00:04:45.300 --> 00:04:47.399 to human habit. They just gave up on the pure 00:04:47.399 --> 00:04:49.959 decimal idea. Pretty much. They created a 25 00:04:49.959 --> 00:04:52.600 cent coin simply because the colonial mind was 00:04:52.600 --> 00:04:55.040 completely hardwired to divide things into eighths 00:04:55.040 --> 00:04:57.819 instead of tenths. So the math of a quarter was 00:04:57.819 --> 00:05:00.459 driven entirely by human habit. And you see that 00:05:00.459 --> 00:05:03.079 exact same human psychology bleeding into the 00:05:03.079 --> 00:05:05.480 paper money we carry today, too. Even the slang 00:05:05.480 --> 00:05:07.519 we use to describe it. Oh, for sure. The slang 00:05:07.519 --> 00:05:09.759 is great. Like I was reading in the source that 00:05:09.759 --> 00:05:11.899 the term greenback actually started with Abraham 00:05:11.899 --> 00:05:14.319 Lincoln. Yeah, during the Civil War. Right. To 00:05:14.319 --> 00:05:16.600 fund the war, he issued these demand notes and 00:05:16.600 --> 00:05:18.540 the reverse sides are printed with a patented 00:05:18.540 --> 00:05:21.879 black and green ink to prevent photographic counterfeiting. 00:05:22.100 --> 00:05:24.160 And it's stuck. I mean, the global financial 00:05:24.160 --> 00:05:27.139 press still uses greenback as shorthand for the 00:05:27.139 --> 00:05:29.459 U .S. dollar today. It's crazy how sticky these 00:05:29.459 --> 00:05:31.620 terms are. It is. And if you look at the term 00:05:31.620 --> 00:05:34.899 buck, that has even older roots. The sources 00:05:34.899 --> 00:05:37.540 say it dates back to the 18th century frontier 00:05:37.540 --> 00:05:39.860 leather trade, where buckskins were an actual 00:05:39.860 --> 00:05:43.139 primary unit of exchange. Though some historians 00:05:43.139 --> 00:05:45.759 do argue it might also tie back to old poker 00:05:45.759 --> 00:05:48.480 terminology. Yeah, we have so many of these phrases. 00:05:48.779 --> 00:05:52.379 A sawbuck for a 10, a Benjamin for 100, dead 00:05:52.379 --> 00:05:55.600 presidents. But it's funny, our early money, 00:05:55.959 --> 00:05:59.060 specifically. avoided presidents. Right, they 00:05:59.060 --> 00:06:01.060 hated that idea. The founding government felt 00:06:01.060 --> 00:06:03.300 that putting a leader's face on currency was 00:06:03.300 --> 00:06:06.220 dangerously close to the policies of European 00:06:06.220 --> 00:06:08.420 monarchs. Which they had just fought a war to 00:06:08.420 --> 00:06:11.220 escape. Exactly. So they used Greek and Roman 00:06:11.220 --> 00:06:14.500 mythology instead, or composite Native American 00:06:14.500 --> 00:06:17.079 figures. We really didn't see presidents take 00:06:17.079 --> 00:06:18.939 over our pocket change until the 20th century. 00:06:19.160 --> 00:06:21.740 Well currency design is always a reflection of 00:06:21.740 --> 00:06:24.139 national identity at any given moment. Definitely. 00:06:25.220 --> 00:06:27.439 And the physical dimensions of the bills used 00:06:27.439 --> 00:06:30.660 to reflect that too. Like before 1928 paper bills 00:06:30.660 --> 00:06:32.579 were about 30 percent larger than they are today. 00:06:32.800 --> 00:06:35.319 People colloquially called them horse blankets 00:06:35.319 --> 00:06:38.360 or saddle blankets. Horse blankets. The massive 00:06:38.360 --> 00:06:41.639 size of the old bills is funny, but the historical 00:06:41.639 --> 00:06:43.699 denominations are what really caught my eye in 00:06:43.699 --> 00:06:47.360 the reading. Oh, the giant bills. Yes. The government 00:06:47.360 --> 00:06:50.579 used to print a $500 bill, a $1000, even a $10 00:06:50.579 --> 00:06:54.980 ,000 bill, but the absolute peak was a $100 ,000 00:06:54.980 --> 00:06:58.399 note. the series 1934 gold certificate. Right, 00:06:58.540 --> 00:07:01.459 but the source explicitly notes that it was illegal 00:07:01.459 --> 00:07:03.759 for a regular person to own and it was never 00:07:03.759 --> 00:07:06.540 circulated to the public. So I have to ask, if 00:07:06.540 --> 00:07:09.139 you are printing a bill that no citizen is legally 00:07:09.139 --> 00:07:12.040 allowed to hold, what is the actual mechanical 00:07:12.040 --> 00:07:14.319 purpose of it? Why even go through the trouble? 00:07:14.459 --> 00:07:16.439 It's a great question. You have to remember, 00:07:16.600 --> 00:07:19.420 this was before the era of secure electronic 00:07:19.420 --> 00:07:22.279 banking and digital ledgers. The various branches 00:07:22.279 --> 00:07:24.680 of the Federal Reserve still had to settle massive 00:07:24.680 --> 00:07:26.860 debts with one another. Oh, OK. So it was for 00:07:26.860 --> 00:07:29.160 the banks. Exactly. If the New York Fed owed 00:07:29.160 --> 00:07:33.920 the Chicago Fed, say, $50 million, moving physical 00:07:33.920 --> 00:07:37.560 gold or trainloads of small bills was just a 00:07:37.560 --> 00:07:40.079 logistical nightmare. Right. Security risk alone. 00:07:40.189 --> 00:07:43.449 Huge risk. So the $100 ,000 bill was strictly 00:07:43.449 --> 00:07:47.250 a physical tool for interbank transfers. A clerk 00:07:47.250 --> 00:07:49.310 could just put a stack of them in a briefcase, 00:07:49.730 --> 00:07:52.360 move it under heavy guard. and clear the ledger. 00:07:52.459 --> 00:07:55.399 That is wild. Yeah. And once secure wire transfers 00:07:55.399 --> 00:07:57.600 were developed, those massive denominations just 00:07:57.600 --> 00:07:59.939 lost their utility entirely. Because the physical 00:07:59.939 --> 00:08:02.519 tech of money is always adapting. Always. I mean, 00:08:02.620 --> 00:08:05.220 the source notes a really recent update. As of 00:08:05.220 --> 00:08:08.680 2025, the U .S. Mint finally halted the production 00:08:08.680 --> 00:08:11.379 of pennies for circulation. And Venera. Truly. 00:08:11.600 --> 00:08:13.899 And the Bureau of Engraving and Printing is rolling 00:08:13.899 --> 00:08:16.860 out raised tactile features on paper notes to 00:08:16.860 --> 00:08:19.459 help the visually impaired identify denominations. 00:08:19.819 --> 00:08:22.639 Because cache is just a technology. And like 00:08:22.639 --> 00:08:24.899 any technology, its physical form eventually 00:08:24.899 --> 00:08:27.279 has to match the real -world needs of its users. 00:08:27.680 --> 00:08:29.759 But the physical tech is really just the surface 00:08:29.759 --> 00:08:32.519 layer, right? The real mind -bender in these 00:08:32.519 --> 00:08:35.799 sources is how the backing of that paper, the 00:08:35.799 --> 00:08:39.190 thing that actually gives it value, has completely 00:08:39.190 --> 00:08:41.629 shape -shifted over time. Oh, drastically. We 00:08:41.629 --> 00:08:43.730 start with the American Revolution and continental 00:08:43.730 --> 00:08:47.149 currency, which depreciated so fast that people 00:08:47.149 --> 00:08:49.309 started saying worthless things were, quote, 00:08:49.549 --> 00:08:51.830 not worth a continental. Yeah, the Continental 00:08:51.830 --> 00:08:53.970 Congress was essentially printing paper money 00:08:53.970 --> 00:08:56.909 to fund a war, but they lacked the centralized 00:08:56.909 --> 00:08:59.750 power to tax the colonies to pull that money 00:08:59.750 --> 00:09:01.929 back out of circulation. Oh, so the money just 00:09:01.929 --> 00:09:04.909 piled up. Exactly. The supply of paper exploded 00:09:04.909 --> 00:09:08.090 and the value naturally plummeted. Right. So 00:09:08.090 --> 00:09:11.090 to fix that instability, the 1792 Coinage Act 00:09:11.090 --> 00:09:13.669 established a bimetallic standard. The dollar 00:09:13.669 --> 00:09:15.710 was officially defined by a physical weight of 00:09:15.710 --> 00:09:18.110 gold or silver. Right. Then the Coinage Act of 00:09:18.110 --> 00:09:21.710 1873 ends the standard silver dollar, which people 00:09:21.710 --> 00:09:24.389 actually called the Crime of 73, shifting the 00:09:24.389 --> 00:09:27.610 country toward just gold. And by 1900, we are 00:09:27.610 --> 00:09:30.070 fully on the gold standard. Yes. Now, my understanding 00:09:30.070 --> 00:09:32.590 of the gold standard is that your paper dollar 00:09:32.590 --> 00:09:34.789 is essentially a coat check ticket. You hand 00:09:34.789 --> 00:09:36.889 the paper to the bank, and they hand you your 00:09:36.889 --> 00:09:39.309 physical gold. That coat check ticket analogy 00:09:39.309 --> 00:09:42.330 is actually perfectly accurate. A gold standard 00:09:42.330 --> 00:09:45.110 puts a hard physical leash on a government. How 00:09:45.110 --> 00:09:47.950 so? Well, you can only print as many claim tickets 00:09:47.950 --> 00:09:51.049 as you have coats in the closet. So it restrains 00:09:51.049 --> 00:09:53.490 runaway inflation, but it also means during a 00:09:53.490 --> 00:09:56.250 severe economic crisis, the government cannot 00:09:56.250 --> 00:09:59.090 simply print more money to stimulate the economy 00:09:59.090 --> 00:10:03.299 or bail out failing institutions. Ah. which leads 00:10:03.299 --> 00:10:07.240 directly to FDR in 1933, literally confiscating 00:10:07.240 --> 00:10:09.799 gold coins from the public, just to give the 00:10:09.799 --> 00:10:11.480 government more economic breathing room during 00:10:11.480 --> 00:10:13.259 the Depression. Exactly. They needed to print 00:10:13.259 --> 00:10:15.480 more tickets, so they needed all the coats. Here's 00:10:15.480 --> 00:10:17.639 where it gets really interesting. Then we get 00:10:17.639 --> 00:10:21.000 the ultimate break. 1971, President Nixon severs 00:10:21.000 --> 00:10:24.279 all ties between the dollar and gold. The Nixon 00:10:24.279 --> 00:10:26.659 shock. A huge moment. The dollar officially becomes 00:10:26.659 --> 00:10:30.309 a free -sloting currency. So, if we trace this 00:10:30.309 --> 00:10:33.110 timeline, we went from money being an actual 00:10:33.110 --> 00:10:35.929 shiny piece of silver to a paper receipt for 00:10:35.929 --> 00:10:39.990 a shiny piece of gold to just a collective hallucination 00:10:39.990 --> 00:10:42.509 backed by the government's word. If we connect 00:10:42.509 --> 00:10:44.809 this to the bigger picture, yeah, that is exactly 00:10:44.809 --> 00:10:47.809 what happened. This is the exact moment we transitioned 00:10:47.809 --> 00:10:51.110 from a physical claim ticket to pure fiat currency. 00:10:51.450 --> 00:10:54.899 We severed the anchor. Wow. And severing that 00:10:54.899 --> 00:10:58.200 tie was a monumental transfer of power and responsibility. 00:10:58.639 --> 00:11:00.639 It gave the United States the flexibility to 00:11:00.639 --> 00:11:03.120 manage its economy dynamically, but it placed 00:11:03.120 --> 00:11:05.960 the entire burden of maintaining that hallucination 00:11:05.960 --> 00:11:08.740 of value squarely on the central bank. Because 00:11:08.740 --> 00:11:10.639 there's no gold in the vault backing it up anymore. 00:11:10.759 --> 00:11:13.159 Right. If the public loses faith in the purchasing 00:11:13.159 --> 00:11:15.840 power of the dollar, the underlying math won't 00:11:15.840 --> 00:11:17.980 save it, because the underlying math is just 00:11:17.980 --> 00:11:21.460 a ledger of trust. OK, so. If the Federal Reserve 00:11:21.460 --> 00:11:24.019 is managing this ledger to make sure our collective 00:11:24.019 --> 00:11:26.159 belief doesn't collapse, let's look at the actual 00:11:26.159 --> 00:11:28.580 levers they pull. The sources categorize the 00:11:28.580 --> 00:11:33.240 money supply into M0, M1, and M2. Before we talk 00:11:33.240 --> 00:11:35.220 about how they manipulate those supplies, what 00:11:35.220 --> 00:11:37.179 do those categories actually mean for the money 00:11:37.179 --> 00:11:40.039 I use? Simply put, they measure the liquidity 00:11:40.039 --> 00:11:42.379 of money, basically how easily you can spend 00:11:42.379 --> 00:11:45.279 it. M0 is the physical cash in your wallet and 00:11:45.279 --> 00:11:47.820 the vault cash sitting at banks. Okay, pure cash. 00:11:47.899 --> 00:11:52.019 Right. Then M1 is M0 plus your checking accounts. 00:11:52.399 --> 00:11:54.259 Money you can access and spend instantly with 00:11:54.259 --> 00:11:57.919 a debit card. M2 includes all of M1 plus your 00:11:57.919 --> 00:12:00.220 savings accounts, money market funds, and mutual 00:12:00.220 --> 00:12:03.039 funds. So M2 is money that takes a little extra 00:12:03.039 --> 00:12:05.700 effort to turn into spendable cash. Exactly. 00:12:06.220 --> 00:12:08.419 And when the Fed wants to adjust the temperature 00:12:08.419 --> 00:12:11.240 of the economy, they manipulate how much money 00:12:11.240 --> 00:12:13.279 flows through these different liquidity buckets. 00:12:13.379 --> 00:12:15.620 Got it. And the sources outline three main tools 00:12:15.620 --> 00:12:18.779 the Fed uses for this. requirements, the discount 00:12:18.779 --> 00:12:21.120 window, and open market operation. Let's start 00:12:21.120 --> 00:12:23.960 with reserve requirements. If a bank has a billion 00:12:23.960 --> 00:12:26.080 dollars in customer deposits, the Fed dictates 00:12:26.080 --> 00:12:28.019 how much of that cash they actually have to keep 00:12:28.019 --> 00:12:31.559 in the vault. Right. Imagine a commercial bank 00:12:31.559 --> 00:12:34.019 is a bucket of water with a spigot at the bottom. 00:12:34.480 --> 00:12:36.860 The Fed dictates how much water must stay in 00:12:36.860 --> 00:12:39.899 the bucket at all times. If the Fed raises the 00:12:39.899 --> 00:12:42.320 reserve requirement, the bank has to close the 00:12:42.320 --> 00:12:45.039 spigot and lend out less money, which dries up 00:12:45.039 --> 00:12:47.460 credit and slows the broader economy down. And 00:12:47.460 --> 00:12:49.519 if they lower it? If they lower the requirement, 00:12:49.700 --> 00:12:52.600 the bank opens the spigot, money flows out into 00:12:52.600 --> 00:12:54.980 business loans and mortgages, and the economy 00:12:54.980 --> 00:12:58.210 speeds up. OK, that makes sense. Then there's 00:12:58.210 --> 00:13:00.210 the discount window, which kind of sounds like 00:13:00.210 --> 00:13:02.370 a fast food drive through for commercial banks. 00:13:02.750 --> 00:13:04.889 Honestly, it serves a very similar function of 00:13:04.889 --> 00:13:07.409 quick access. It is the interest rate the Fed 00:13:07.409 --> 00:13:10.230 charges banks for short term overnight loans. 00:13:10.330 --> 00:13:12.809 So if the Fed lowers that rate. Borrowing gets 00:13:12.809 --> 00:13:15.450 cheaper for banks and banks subsequently pass 00:13:15.450 --> 00:13:17.909 those cheaper loan rates on to consumers and 00:13:17.909 --> 00:13:20.710 businesses. Right. But open market operations 00:13:20.710 --> 00:13:22.990 seem to be the heavy hitter for controlling the 00:13:22.990 --> 00:13:26.039 money supply. This is where the Fed buys and 00:13:26.039 --> 00:13:28.240 sells treasury bonds. That's their primary tool, 00:13:28.240 --> 00:13:31.059 yeah. But wait, when the Fed buys bonds from 00:13:31.059 --> 00:13:34.059 banks to inject money into the system, where 00:13:34.059 --> 00:13:35.960 does that cash actually come from? Like, they 00:13:35.960 --> 00:13:38.679 aren't moving physical pallets of $100 bills 00:13:38.679 --> 00:13:41.740 from a vault, are they? No, they literally just 00:13:41.740 --> 00:13:44.399 type it into existence. Wait, really? Just keystrokes? 00:13:44.539 --> 00:13:47.240 Just keystrokes. When the Federal Reserve dyes 00:13:47.240 --> 00:13:49.580 a treasury bond from a commercial bank, they 00:13:49.580 --> 00:13:52.710 simply... hit a few keys on a computer and credit 00:13:52.710 --> 00:13:55.269 that bank's reserve account. That is insane. 00:13:55.409 --> 00:13:57.870 They create high -powered M -Zero money out of 00:13:57.870 --> 00:14:00.389 thin air and they manipulate all of these levers 00:14:00.389 --> 00:14:03.320 to balance their dual mandate. keep unemployment 00:14:03.320 --> 00:14:05.899 low, and keep prices stable. OK, here's where 00:14:05.899 --> 00:14:07.940 I really have to push back hard on this idea 00:14:07.940 --> 00:14:10.740 of stable prices. Yeah. Because the source material 00:14:10.740 --> 00:14:13.539 shows a genuinely terrifying chart regarding 00:14:13.539 --> 00:14:15.279 inflation. Yeah, the purchasing power chart. 00:14:15.519 --> 00:14:19.059 Exactly. Since 1774, the dollar has lost about 00:14:19.059 --> 00:14:22.580 97 % of its buying power. Just between 1981 and 00:14:22.580 --> 00:14:26.210 2009, it lost over half its value. So what does 00:14:26.210 --> 00:14:28.470 this all mean for you and me? How can modern 00:14:28.470 --> 00:14:30.690 economists possibly view the Fed's management 00:14:30.690 --> 00:14:33.370 of inflation as a success when the currency is 00:14:33.370 --> 00:14:35.830 constantly bleeding value? It sounds like a total 00:14:35.830 --> 00:14:39.509 paradox, I know, but you have to separate... 00:14:39.230 --> 00:14:42.610 Sudden destructive inflation from controlled 00:14:42.610 --> 00:14:44.509 intentional inflation. Okay, well I'll be through 00:14:44.509 --> 00:14:47.090 that. Well, destructive inflation like the continental 00:14:47.090 --> 00:14:50.289 currency or the stagflation in the 1970s wipes 00:14:50.289 --> 00:14:52.610 out your purchasing power overnight and ruins 00:14:52.610 --> 00:14:55.830 economies. Nobody can plan for it. Right. But 00:14:55.830 --> 00:14:58.610 the Federal Reserve actively targets a low steady 00:14:58.610 --> 00:15:02.360 inflation rate, usually around 2%. They engineered 00:15:02.360 --> 00:15:04.799 the economic period since the 1980s, which is 00:15:04.799 --> 00:15:08.379 often called the Great Moderation, to be entirely 00:15:08.379 --> 00:15:11.539 predictable. But why target any loss of value 00:15:11.539 --> 00:15:14.580 at all? Why not target absolute zero inflation 00:15:14.580 --> 00:15:17.639 so my $10 bill is guaranteed to buy exactly $10 00:15:17.639 --> 00:15:19.679 worth of goods next year? Think about your own 00:15:19.679 --> 00:15:21.779 savings account. If you know that your cash is 00:15:21.779 --> 00:15:24.639 going to buy 2 % fewer groceries next year, you 00:15:24.639 --> 00:15:26.139 aren't going to just leave it sitting under a 00:15:26.139 --> 00:15:28.080 mattress. No, I'd want to invest it to beat that 00:15:28.080 --> 00:15:31.379 2%. Exactly. You are going to put it in an index 00:15:31.379 --> 00:15:34.299 fund, buy a house, or use it to start a business. 00:15:34.820 --> 00:15:37.639 The Fed is purposely putting a tiny ticking clock 00:15:37.639 --> 00:15:39.980 on your money to force you to participate in 00:15:39.980 --> 00:15:42.940 the economy. Oh, wow. So it punishes hoarding. 00:15:43.179 --> 00:15:46.419 Yes, it punishes hoarding and incentivizes investment. 00:15:47.200 --> 00:15:50.159 Furthermore, that 2 % gives the Fed a cushion. 00:15:50.330 --> 00:15:53.090 A cushion for what? Deflation. If inflation was 00:15:53.090 --> 00:15:55.490 at zero and a recession hit, the economy would 00:15:55.490 --> 00:15:58.169 instantly fall into deflation. And deflation 00:15:58.169 --> 00:16:01.029 freezes economic activity completely. Because 00:16:01.029 --> 00:16:03.690 consumers delay their purchases, waiting for 00:16:03.690 --> 00:16:06.389 prices to drop even further tomorrow. Precisely. 00:16:06.769 --> 00:16:08.990 Why buy a car today if it'll be cheaper next 00:16:08.990 --> 00:16:11.649 month? The whole economy just stalls. So the 00:16:11.649 --> 00:16:14.450 97 % loss of value over a couple of centuries 00:16:14.450 --> 00:16:17.549 is basically just the exhaust fume of an engine? 00:16:17.720 --> 00:16:19.700 designed to keep moving forward. That's a great 00:16:19.700 --> 00:16:21.620 way to put it. So the Federal Reserve manages 00:16:21.620 --> 00:16:24.639 that engine domestically. But to truly grasp 00:16:24.639 --> 00:16:27.179 the dollar superpower, we have to look outside 00:16:27.179 --> 00:16:29.879 the borders of the United States. Following World 00:16:29.879 --> 00:16:32.360 War One, the dollar displaced the British pound. 00:16:32.840 --> 00:16:36.720 And then the 1944 Bretton Woods agreement essentially 00:16:36.720 --> 00:16:38.960 crowned the U .S. dollar as the world's primary 00:16:38.960 --> 00:16:41.899 reserve currency. Yeah. At Bretton Woods, 44 00:16:41.899 --> 00:16:44.460 allied nations agreed to peg their own national 00:16:44.460 --> 00:16:46.830 currencies to the U .S. dollar. while the dollar 00:16:46.830 --> 00:16:50.450 remained ped to gold. And even after Nixon severed 00:16:50.450 --> 00:16:53.809 that gold tie in 1971, the geopolitical habit 00:16:53.809 --> 00:16:57.409 was just firmly set. Exactly. The dollar remained 00:16:57.409 --> 00:17:00.470 the unquestioned global standard for trade. And 00:17:00.470 --> 00:17:03.990 the sheer scale of that dominance today is staggering. 00:17:04.549 --> 00:17:07.750 Entire countries like Ecuador, El Salvador, and 00:17:07.750 --> 00:17:10.950 Micronesia use the U .S. dollar as their official 00:17:10.950 --> 00:17:13.450 currency. And unofficially in places like Cambodia 00:17:13.450 --> 00:17:16.349 and Venezuela, too. Right. But what really fascinated 00:17:16.349 --> 00:17:19.049 me in the sources was this concept of euro dollars. 00:17:19.930 --> 00:17:22.309 The sources note that foreign companies and individuals 00:17:22.309 --> 00:17:25.509 hold trillions in euro dollars. What exactly 00:17:25.509 --> 00:17:27.869 is a euro dollar and how does it work if it exists 00:17:27.869 --> 00:17:30.640 entirely outside the United States? The term 00:17:30.640 --> 00:17:33.079 is actually a bit misleading because a euro dollar 00:17:33.079 --> 00:17:35.339 has absolutely nothing to do with the euro currency 00:17:35.339 --> 00:17:37.859 used in Europe. OK, good to know. It simply refers 00:17:37.859 --> 00:17:40.759 to any US dollar denominated deposit held at 00:17:40.759 --> 00:17:43.500 a foreign bank or at a foreign branch of an American 00:17:43.500 --> 00:17:46.220 bank. Give me an example. So if a manufacturing 00:17:46.220 --> 00:17:49.299 company in Tokyo deposits US dollars into a bank 00:17:49.299 --> 00:17:51.920 account in London, those funds are classified 00:17:51.920 --> 00:17:54.220 as euro dollars. So it is basically an offshore 00:17:54.220 --> 00:17:57.200 shadow economy. Precisely. Because those dollars 00:17:57.200 --> 00:18:00.180 are sitting in a bank in London, they fall completely 00:18:00.180 --> 00:18:02.180 outside the jurisdiction of the Federal Reserve. 00:18:02.220 --> 00:18:05.119 Oh, wow. Yeah. They are not subject to the Fed's 00:18:05.119 --> 00:18:07.980 reserve requirements. This creates a massive, 00:18:08.460 --> 00:18:11.500 largely unregulated global pool of liquidity 00:18:11.500 --> 00:18:14.880 that fuels international trade, operating entirely 00:18:14.880 --> 00:18:16.819 separate from the domestic money supply we were 00:18:16.819 --> 00:18:19.039 just talking about. And it is not just digital 00:18:19.039 --> 00:18:21.440 ledgers sitting in London. The source points 00:18:21.440 --> 00:18:25.559 out that 80 % of actual physical U .S. $100 bills 00:18:25.559 --> 00:18:29.259 are currently held overseas. 80%. Yeah. If you 00:18:29.259 --> 00:18:32.099 look at an emerging market experiencing hyperinflation, 00:18:32.660 --> 00:18:35.220 local citizens are actively buying U .S. $100 00:18:35.220 --> 00:18:38.200 bills on the black market as a lifeboat to protect 00:18:38.200 --> 00:18:40.480 their life savings from their own government's 00:18:40.480 --> 00:18:43.259 disastrous monetary policy. The physical $100 00:18:43.259 --> 00:18:45.700 bill is arguably one of America's most successful 00:18:45.700 --> 00:18:49.529 exports. But the U .S. government's real international 00:18:49.529 --> 00:18:51.809 leverage comes from the digital infrastructure, 00:18:52.210 --> 00:18:54.690 right? Like the Swift network. Oh, absolutely. 00:18:55.490 --> 00:18:58.390 Banks use Swift to securely transmit information 00:18:58.390 --> 00:19:01.529 and settle international transactions. Because 00:19:01.529 --> 00:19:04.109 so much of the world's trade from oil to agriculture 00:19:04.109 --> 00:19:07.269 is priced and settled in dollars, the U .S. Treasury 00:19:07.269 --> 00:19:10.369 exercises immense oversight and influence over 00:19:10.369 --> 00:19:12.849 Swift. Which basically turns the dollar into 00:19:12.849 --> 00:19:16.319 a geopolitical weapon. The U .S. can literally 00:19:16.319 --> 00:19:19.240 lock a foreign nation or a rogue entity out of 00:19:19.240 --> 00:19:21.579 the global banking system with targeted sanctions. 00:19:22.380 --> 00:19:24.359 Exactly. But beyond the weaponization, the biggest 00:19:24.359 --> 00:19:26.339 domestic benefit mentioned in the sources is 00:19:26.339 --> 00:19:29.079 something called exorbitant privilege. Because 00:19:29.079 --> 00:19:31.380 everyone needs dollars to trade, the U .S. government 00:19:31.380 --> 00:19:33.339 can borrow trillions of dollars on the global 00:19:33.339 --> 00:19:36.279 capital markets in its own currency at incredibly 00:19:36.279 --> 00:19:39.549 low interest rates. It is an unparalleled macroeconomic 00:19:39.549 --> 00:19:41.650 advantage. I mean, think about it. If an emerging 00:19:41.650 --> 00:19:43.450 nation wants to borrow money internationally 00:19:43.450 --> 00:19:46.410 to build infrastructure, global investors won't 00:19:46.410 --> 00:19:48.730 trust their local currency because it's too volatile. 00:19:48.940 --> 00:19:51.539 Right. So they force that nation to issue debt 00:19:51.539 --> 00:19:54.799 denominated in U .S. dollars. This exposes the 00:19:54.799 --> 00:19:57.420 foreign government to massive risk. If their 00:19:57.420 --> 00:19:59.779 local currency weakens against the strong dollar, 00:20:00.140 --> 00:20:01.980 their debt suddenly becomes much more expensive 00:20:01.980 --> 00:20:04.960 to pay off, which often leads to default. But 00:20:04.960 --> 00:20:07.680 the United States never faces exchange rate risk 00:20:07.680 --> 00:20:10.579 on its own national debt. Never. Because our 00:20:10.579 --> 00:20:13.269 debt is in our own currency. It sounds like the 00:20:13.269 --> 00:20:16.049 US is the only player at a high -stakes global 00:20:16.049 --> 00:20:18.529 poker table who is legally allowed to print their 00:20:18.529 --> 00:20:21.349 own chips to cover their bets. Isn't that an 00:20:21.349 --> 00:20:23.799 incredibly dangerous amount of leverage? Well, 00:20:23.799 --> 00:20:25.940 this raises an important question, and it sparks 00:20:25.940 --> 00:20:28.380 a fierce debate among modern macroeconomists 00:20:28.380 --> 00:20:31.359 today. Is this strong dollar policy actually 00:20:31.359 --> 00:20:33.799 a net positive for everyone? Right, because it 00:20:33.799 --> 00:20:36.619 seems heavily skewed. It is. Yes, the United 00:20:36.619 --> 00:20:39.339 States gets cheap borrowing and immense geopolitical 00:20:39.339 --> 00:20:42.680 leverage. But a globally dominant, highly valued 00:20:42.680 --> 00:20:45.380 dollar makes American -made exports much more 00:20:45.380 --> 00:20:47.599 expensive for the rest of the world to buy, which 00:20:47.599 --> 00:20:50.240 arguably guts domestic manufacturing. I hadn't 00:20:50.240 --> 00:20:52.079 thought of that. And for the rest of the world, 00:20:52.200 --> 00:20:55.559 it creates a delicate, deeply intertwined system 00:20:55.559 --> 00:20:58.039 where a decision made by the Federal Reserve 00:20:58.039 --> 00:21:01.299 to curb inflation in Ohio can accidentally trigger 00:21:01.299 --> 00:21:04.099 a sovereign debt crisis in South America. Because 00:21:04.099 --> 00:21:06.400 their dollar -denominated debt just got more 00:21:06.400 --> 00:21:08.740 expensive. Exactly. The ripples are entirely 00:21:08.740 --> 00:21:11.039 global. Well, we have tracked an incredible journey 00:21:11.039 --> 00:21:14.140 today. We started with silver jocum stalers in 00:21:14.140 --> 00:21:17.140 a Bohemian valley, watched the U .S. adopt Spanish 00:21:17.140 --> 00:21:20.019 pesos and count their quarters in two bits, traced 00:21:20.019 --> 00:21:23.009 the quirky evolution of greenbacks and Don't 00:21:23.009 --> 00:21:25.990 forget the $100 ,000 bills. Oh, right, the giant 00:21:25.990 --> 00:21:28.809 bank notes. And we explored how severing the 00:21:28.809 --> 00:21:31.430 gold standard forced the Fed to actively manage 00:21:31.430 --> 00:21:34.289 our economic hallucination with reserve buckets 00:21:34.289 --> 00:21:37.170 and keystrokes. And finally, we saw how that 00:21:37.170 --> 00:21:39.829 very hallucination conquered the globe, building 00:21:39.829 --> 00:21:42.829 offshore shadow economies of euro dollars and 00:21:42.829 --> 00:21:45.849 giving the U .S. unparalleled exorbitant privilege. 00:21:46.140 --> 00:21:49.019 It truly highlights that money is a living, breathing 00:21:49.019 --> 00:21:52.079 technology. It reflects human psychology, habit, 00:21:52.240 --> 00:21:54.480 and geopolitical power far more than it reflects 00:21:54.480 --> 00:21:57.220 simple mathematics. Absolutely. But I want to 00:21:57.220 --> 00:21:59.400 leave you with one final provocative thought 00:21:59.400 --> 00:22:01.819 to mull over, building on just a brief mention 00:22:01.819 --> 00:22:04.640 in our source material. We have seen how the 00:22:04.640 --> 00:22:07.920 dollar supremacy relies entirely on the US government's 00:22:07.920 --> 00:22:10.299 geographic and geopolitical borders. Right. But 00:22:10.299 --> 00:22:13.440 as decentralized, digital currencies continue 00:22:13.440 --> 00:22:16.359 to evolve in the background. What happens to 00:22:16.359 --> 00:22:18.720 this exorbitant privilege when the technology 00:22:18.720 --> 00:22:21.920 of money completely erases the geographic borders 00:22:21.920 --> 00:22:24.440 that gave national currencies their power in 00:22:24.440 --> 00:22:26.539 the first place? The collective hallucination 00:22:26.539 --> 00:22:28.880 might just be preparing for its most radical 00:22:28.880 --> 00:22:30.900 shift yet. We will definitely have to wait and 00:22:30.900 --> 00:22:33.319 see. Thanks for joining us on this deep dive 00:22:33.319 --> 00:22:35.680 into the real mechanics of your wallet. Stay 00:22:35.680 --> 00:22:37.259 curious and keep exploring.