#464 | Saleha Mohsin: How the Dollar's Weaponization Changed the World Order - The Realignment Pod

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Transcripts

Marshall here welcome back to the

YouTube version of the realignment

podcast I've got a great conversation

today with Bloomberg news's slay Mosen

about her new book Paper Soldiers how

the weaponization of the dollar changed

the world order basically not understand

going into this conversation as CA

documents ever since the 1990s there was

a strong bipartisan consensus in

Washington a strong dollar was to the

benefit of America's domestic and

foreign policy however ever since the

election of Donald Trump and events

worldwide from the crisis in Ukraine to

debates about how the US sanctions

regime steps up as a deterrent to

conflict we've seen an increasing of

debate about the de greater which the

strong dollar is a cost rather than

purely a benefit so CA in this

conversation is going to take us into

those debates and why no matter what

happens in the 2024 election this space

is no longer the consensus it used to be

going back to the 1990s hope you all

enjoy this

conversation s musion welcome to the

realignment thank you so much for having

me Marshall yeah I'm really excited to

speak to you not only as an author but

as a fellow podcaster I'd like to start

with uh your background in your beat

real quick obviously you're covering

Washington um from the perspective of

Bloomberg News but that's the biggest

possible beat ever so let's kind of

narrow it down a bit and explain how

that leads to the book we're talking

about today yeah I would say right now I

cover money politics and power and how

that shapes Washington and the rest of

the world Washington is obviously quite

powerful so how some of the decisions

that are made in Washington affect

domestically our country and then

internationally but always with an

economic lens on everything um and then

what led me to the book actually I was a

treasur reporter for Bloomberg at

Washington for six years uh and so it's

a treasury Department book it's all

about the dollar and so that's what led

me to

it why does it feel like the quote

unquote dollar and issues in debates

around American currency policy it feels

like these policy areas have been

incredibly understudied and undercovered

not from a reporter's perspective but

just from a discourse perspective

because you kind of start the book off

in the 1990s with then secretary uh

Robert Rubin he's talking about the

dollar and a strong dollar policy and I

think a lot of folks who listen to the

show will think about okay debates

around immigration in the 90s debates

about American manufacturing the 1990s

but they probably won't think about that

through the lens the dollar I love you

to kind of start off by talking around

that

Dynamic yeah and that's kind of gets to

the Genesis of the book idea um you know

for a journalist it's a natural course

to think about writing a book at some

point and there's so many books about

the Federal Reserve book after book

after book and they're all great and

they all um serve their own special role

in our history in the telling of our

history uh but they don't touch on the

dollar and then if you look at treasury

there's a musical called Hamilton there

are a lot of um uh treasury secretary

autobiographies uh that are terrific and

they are all-encompassing but you know

having covered uh government US currency

or government currency policy you know I

started in Norway tiny little um country

compared to the US but when I was there

one of my first jobs was to ask the

Prime Minister and the Finance Minister

what they thought of their croner and

like its impact it was a Commodities

driven uh economy they had the world's

largest seran wealth fund so there was

and impact then I get to the US and I

learn that the strong dollar policy and

asking a treasury secretary is something

that you do and they it's a you play

chicken they don't want to talk about it

you want to ask them questions Traders

investors are interested it had been

this light theme um for decades and it

was Donald Trump who kind of brought it

to the four that the dollar affects

trade and let's talk about it you know

treasure Finance ministers economic

officials are afraid to talk about

anything that's going to move markets if

they talk about the dollar if they opine

it will move markets so it felt like

there wasn't a lot of Grist there you

know um because no one wanted to talk

about it and then he did he wanted to

discuss it and then I just started

thinking there is so much here our

entire like if you think about uh how we

have power it's the economy stupid like

that's how we have E power in the world

world that's how we're able to export

our foreign policy objectives because we

are the world's largest economy and then

I just kind of took that line down to

where is it specifically and I thought

King Dollar has a lot to do with it

something I'm really curious about could

you explain what it means I was trying

to find the best way to introduce this

topic to folks what does it mean for the

us to have a strong dollar if we're

defining that like as a policy OB Ive

this feels like a category where maybe

the terms aren't helpable because why

would we want to have a weak dollar we

should just have a strong Dollar by

definition explain what having a strong

dollar means and what the actual Overton

window of what the debate actually would

be because I think it's hard to imagine

a politician in private saying yeah look

I'm GNA really desire a weak Dollar in

comparison to a strong dollar so there's

two components to it we'll brush one

aside very quickly it's the exchange

rate the actual value of the dollar

against another currency that is one

thing how how many pounds British pounds

or Japanese Yen can my dollar buy if I

go overseas or if I'm importing Goods

that is one side of the uh argument and

the US um especially in the 990s and up

until Trump uh wanted a strong value for

the dollar because we wanted to import a

lot of goods from overseas that was sort

of the the underpinnings of

globalization let's keep trade open we

have a huge consumer driven economy the

world wants to benefit from it if the

world economy is strong and

interdependent will have a stable uh

geopolitical environment so that that's

one benefit the separate benefit or the

separate definition of a strong dollar

is a dominant dollar a dollar that

Reigns Supreme it's the world's most

important

asset um the world literally runs on

dollars you can't the whole Global

Financial system it's a dollar sign

around everything so if you want to buy

oil if countries want to trade oil if um

a fisherman in papa guini wants to sell

his fish he is probably at some point

going to touch the Global Financial

system if it's a anything above like a

micro sale that means you are touching

the dollar and so that strength that

everyone needs it is another kind of

strength and it's more about dominance

and why does a strong dollar lead to

more Imports versus a weak dollar so

that comes down to just terms of trade

uh if a dollar exchange rate if the

value of the dollar is high that means

anything that China is selling I can buy

more of because the Chinese Zan uh is

weaker in comparison to a strong dollar

let's say it's $5 you can also think

about I think my favorite comparison is

a Big Mac how much how many Big Macs can

you buy with $20 right if the currency

exchange rate is strong it's high then

you go to let's say uh Europe and it's

like five EUR a burger so that got you

four four Burgers if the exchange rate

is weak then your dollar is by fewer

Euros so maybe it's three burgers or

it's two burgers because the Euro by uh

you know supply and demand exchange

rates are higher and the key thing when

you're telling this story you focus on

1995 this uh Robert Rubin speech what

was the US bipartisan say approach to

the dollar before the 1990s and the end

of the Cold War oh it was so exciting

actually I think I would have loved to

have been a treasury reporter in the 80s

uh my my contacts at treasury kind of

joke that o you just want to cover the

plaza or the Louver Accord basically in

the 80s and and a little bit before that

too there was an era of so much currency

intervention by governments including

the US treasure department and what I

mean by that is there's a exchange rate

there's a value of the dollar and the US

government doesn't like it and so they

go in and they either buy a bunch of

dollars to

artificially um uh uh reduce the supply

and then the the value goes up or if

they want it to be weaker for whatever

reason they will sell a bunch of dollars

and increase Supply so the the value

goes down and it was this Kabuki game

where no one really would fully admit it

that it was about to happen until the

treasury Department put out a statement

and they worked quietly behind the

scenes with the Federal Reserve

uh the Federal Reserve would do daily

checks with Traders and sometimes

because then Traders knew that the

government could intervene it's not a

completely free and open and fair market

Big Brother's going to come in and

change it they start like this Tea Leaf

reading routine of like trying to figure

out are they about to and so then

reporters start asking questions to see

like does the treasury secretary or the

chair of the Federal Reserve like the

value at itself at now what words is he

or she going to say that might hint at

what they might do next and Treasury and

fed officials knew this so they would

make calls into to Market participants

and say things leading questions about

the dollar or leading statements about

the dollar to just control it through

like uh verbal interventions like that

and so it took Ruben coming in and they

I think the government kind of realized

this isn't a great situation that

there's so much currency volatility and

people are just parsing our each

utterance about the economy or the

dollar and it's causing problems so he

sought to bring calm to that whole

regime and it's interesting I'm glad you

use the word uh Kabuki because this

process literally involved the Japanese

um talk about um in the 1980s the fact

that you had all the parsing and the

statements you describ you actually had

like meetings like at the Plaza Hotel

very very 1980s coded um talk about that

private process by which these Count's

um leading currencies would kind of

negotiate and find some type of us-led

consensus yeah I talk about this in a

chapter called the birth of a hegemon

which is the birth of the dollar as this

dominant uh asset there in 1985 or 86

there was h a meeting at the Plaza Hotel

in Manhattan where Finance ministers at

the time it was about the G5 and it

included West Germany the US Great

Britain Japan and I think France and

they realized that the they weren't

happy with the strength of the dollar in

that moment and they couldn't figure out

how are we going to manage this and they

realized that it's it's bad for for

everyone you know the dollar is really

really strong compared to other current

currencies it's bad for other countries

let's get together and figure this out

and it was uh treasury secretary Baker

Jim Baker at the time and he uh the

whole cabinet didn't even know Reagan's

entire cabinet didn't even know that

this meeting was going to happen

obviously the president would know they

snuck Finance ministers in through back

doors so that the Press didn't get whiff

of it they all sat down and agreed that

they would all work to uh temper the

Dollar's strength they took their action

and eventually there was a statement

but it was a big deal these big nations

are coming together to control the

dollar um so that they allow that to

happen the dollar weakens and then they

realize oh we did a little bit like too

good of a job so they meet again this

time in France at somewhere near the lra

uh and it's called the lra Accord uh a

couple years later to kind of pair that

back and so you can see how by the time

Reuben comes in

in the early and mid

90s currency Traders are just waiting

constantly for the next time that

there's a secret meeting

somewhere so I guess what I'm trying to

understand then is during this period of

volatility during the 1980s you have all

this parsing of statements and the

reporters and all these different

Accords in different locations just tell

the tell the story of that volatility

from the perspective of let's say like a

Rust Belt American or someone who just

is

30 years later seeing themselves in a

very trumpian light yeah that's a great

question and I love tracing through

history how we got to the populism that

we have today it's a really important

exercise that we should be doing uh

historically and intellectually and

politically

um that kind of volatility basically

unpredictability in markets in the

business environment particularly the

American Business environment because we

are the largest were the biggest

superpower the dollar is the world's

Reserve asset it was in the 80s it means

that farmers

manufactures exporters domestically in

the US and externally they can't make

long-term plans their business plans

because the manufacturing sector relies

heavily on the terms of trade the

exchange rate so you can you know

everyone has researchers and analysts

and economists who help them predict

what it might be and then you can basee

your plans your five or 10 year plan or

two or fiveyear plan around that

prediction but if the government is

coming in and artificially changing it

based on a metric that you don't

actually have they have it but they

don't tell you what their preferred

value is and what necessarily triggers

the US treasur Department to step into

dollar markets or call a meeting of the

five families to to step in then it's a

little unfair

so you can't make those plans um that

that's probably the the core uh way that

it affects affected Americans in the

rust belder in Middle America so I guess

the real question here and you kind of

said this earlier but I want to make

this very clear is we should understand

the

1990s consensus around the Rubin

approach because obviously that

consensus is continued into the George W

Bush Administration the belief then at

the time is we've reduced the volatility

globalization's happened globalization

benefits the us peace trade etc etc etc

how does that consensus actually

actually put it this way how would you

assess the

accuracy of policy makers assessments of

the world from 1995 onwards because I

think the key thing you kind of happen

now with all these debates or de

globalization and populism is people

start to say okay we were a little too

sanguin about the effects of the rise on

right we we we treated China's rise as

inevitable in ways that like cut off

policy debates AKA there actually could

have been a more serious debate about

admitting China to the wtoo in 2000

versus what actually ended up happening

so how would you assess the difference

between like the ideology of Robert

Ruben and Co and the actual way policy

went leading up into

Trump so in the beginning the intentions

were good it was to bring calm and

diffuse the volatility around currency

markets and the current and the US's

currency policy Bob Rubin came up with

the Mantra the strong a strong dollar is

in the nation's interest and just

repeated it repeated it because he

thought this is how I'll make it boring

I'm just going to say the same old thing

over and over again and then they had to

slowly curb the number of

interventions uh and he accomplished

that after a couple of years yeah you'd

have reporters ask about it particularly

when uh there was a switch between de a

democratic and a republican

Administration and you had Paul O'Neal

um he came from industry he worked in

the um aluminum sector and so You' think

manufacturing uh folks probably want a

weaker dollar is the strong dollar

policy over he adopted it so it became

bipartisan so he kept it stable it

wasn't like Administration to

Administration the dollar policy was

changing so it did bring this level of

calm brought the temperature down to

something that's uh underpinning you

know it's it's you know finally reaching

some sort of

stability at the same time you have

globalization really taking root uh

NAFTA you have uh China joining the WTO

in the early 2000s and the rest of the

world kind of rallying around this and

part of that has to do with calm

currency markets and less manipulation

or interventions in currency markets and

so the the US needed to tell China and

other Asian Nations no more meddling in

your currencies we've stopped now you

need to stop and for China it was a very

large shift because they were going from

a command economy sort of all dictated

by the the government uh to slowly an

open market economy and so it's still

you know not settled and um it took it's

been taking them time but the US had to

kind of set that example the intentions

were good right it's a consumer economy

if we can buy more goods from overseas

the American Consumer um has more

purchasing power they can buy more stuff

um they have more

variety it also means you know the

ultimate plan uh after World World War

II at Bretton Woods this big conference

that I write about in the book briefly

where the dollar was crowned King Dollar

as the world's Reserve asset it was all

and that the IMF was created the world

Bank was created was all to knit the

world uh together deeply economically so

that we can't go as easily to war with

each other um and it worked right if

we're economically integrated open trade

lots of trade then we're not going to

constantly be trying to shoot each other

right so that did work what happened was

um you saw the manufacturing sector

wasn't always called the r belt I'm from

Cincinnati Ohio it was it was the boom

boom times you know in the 80s and early

90s uh for the manufacturing sector you

saw those uh factories cloth you know

America is known for company towns you

know in in the book I take you to

Weirton West Virginia where there's a

glass maker I take you to Marine or

sorry a tin maker aluminum or sorry and

I take you to Marine Ohio where there's

a glass maker a plant that has evolved

from different products and is the heart

of the Town everyone works there or

knows somebody who works there the

restaurants and schools serve the people

who work there and that's how you became

a a city when the manufacturing sector

leaves because it is too expensive to uh

pay workers in

America it is because you have to charge

people more for your goods you because

you can't export them overseas if the

dollar is so strong you can't gather up

people the Japanese companies can't

gather up enough yen to buy that car so

everyone's thinking let me buy the

Japanese car because it's just so much

cheaper my dollar is so much stronger

and then China and Japan they don't want

American cars they're twice the price so

those those that manufacturing sector in

the Heartland started to shrivel up and

in the midst of that you've got you know

and people talked about it at Paulo

Neil's Hearing in 20 January of 2000 you

had both Republicans and Democrats

talking about the problems of Steel

Workers and steel

manufacturers um but it was kind of

overlooked because globalization brought

so much so many benefits with it they

thought oh well we just need programs to

retrain people and then they'll find

different jobs and no one really thought

through that you can't really

retrain someone in the middle of their

life into some new job like that there's

a a whole generation of economic

scarring that's going to come with come

with this and those people are kind of

ignored then right and in the middle of

it you've got 911 then you have the

global financial crisis so they kept

being put on the back

burner and it kind of came to the four

and what for me really crystallized it

is in 20 2016 on Election night or like

the the middle of the night I wrote a

story and the headline I've got it in

front of me because I I I come back to

the story often it's Trump magnifies

glass half empty economy to C uh to sway

cast off

workers Trump magnifies glass half empty

economy to sway castoff workers it was

the Forgotten man they

finally their voice was finally heard

that everyone's talking about the global

financial crisis there we got this great

recovery Obama and Clinton and and and

Jeb Bush and everyone saying there was a

the recovery it wasn't as good as it

could have been if you're a republican

Democrat saying oh we fixed it all no

one was talking about the Rust Belt

except for Donald Trump he took his uh

he he held rallies in cities that had

never seen a presidential candidate come

through and he licked his finger stuck

his finger in the wind and decided his

policies if he talked about China and

globalization and people cheered okay

I'm going to work on that rather than

these focus groups to figure out what

policies do people want he just listened

and that's how we get to the overlooked

part and that's populism now we're

seeing the the result of it yeah it's

interesting because the only

modification I'd offer on that story is

someone who cover the spaces Jeb Bush

and Mitt Romney would very conly

critique like the economic recovery

after the 2008 financial crisis they

would just the answer was tax cuts they

would say the answer they would they

would basically um suggest a specific

like free Market oriented approach that

even if it did increase economic growth

in specific ways wouldn't necessarily

address the manufacturing issues you're

describing that a good point you know

free market we're gonna get to you know

Jeb Bush put out this book you know was

about getting to 4% economic growth

that's great and I think a bunch of

different very specific ways but that

would not inherently address some of

those like Midwestern Cincinnati

Michigan concerns we talking about there

so that's a really good way of

articulating how even within the like

disagreement between the two parties

there was this third space that Trump is

obviously obviously covering so one last

question before we get into the second

part of this story and actually this is

part of the title of the book about the

weaponization of the dollar this is the

foreign policy aspect but I think I mean

this is just so important because once

again this is Undercovers people have to

understand all this I'm fascinated by

debates around alternate histories

around us manufacturing like in the

sense that if we're looking at all these

different things that caused uh

manufacturing to flee the US we could

talk about okay cost of Labor we could

talk about automation we could talk

about the strength of the dollar we

could talk about labor unions all all

these different policies I guess what

I'm really asking you is

if let's say Ross perau is President and

in

1995 let's not like guess what Ross

perau is opposed to the dollar would

have been because that's the World War I

compc let's just say for a like you had

a presidency that was oriented around

using a a a weaker dollar to prop up us

manufacturing and exports how much do

you think that would have limited the

flight of manufacturing jobs from this

country because when you tell this story

of alternate choices I just kind of go

back to this idea of like look there

were probably all sorts of things in the

1880s in Great Britain that were that

could have been done to basically

prevent the US from taking manufacturing

jobs but at the end of the day you were

going to transition from Manchester um

to Michigan that's probably going to be

enev to some degree so I'm just curious

how much do you think this dollar story

plays in this broader complicated

picture of the reasons that jobs fled

the

country but just point to 2016 and 17

Again the massive rupture that was

caused when Trump came on the scene and

said these things no one thought he was

going to win I was overseas from 2008 to

2016 in northern Europe and I came to DC

everyone said there's no way Trump's

going to win Republicans were saying

he's just like he's not going to become

the the GOP candidate then he becomes it

there's no way he's going to win no one

expected that anything he was saying

made sense to anyone and it did it

really did and so and at the time

everyone mainstream economists

establishment politicians were broadly

okay with globalization no one was

singing a different tune it was just

Donald Trump so for that to have

happened in the '90s or the early ughs

would have been just as big of a rupture

maybe bigger because again in 2001 and

2008 we had two major crises that took

our eye off of this ball we had 911 and

then the global financial crisis so I

think whenever it was going to happen it

was going to be painful hey it's

Marshall in an exponential era it's more

important than ever for our country to

have alignment between policy makers

Founders and funders however it's rare

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so to take this story Beyond 2016 and

early 2017 what actually happens then

when President Trump is now president

and then you have treasury secretary um

Stephen minuchin you talk about you

begin the book by talking about like an

incident that happens at Davos let's

actually focus on Trump's uh maybe only

maybe first term what actually happens

from the transition from the campaign

trail to the actual policy

implementation phase well first it was

shocked that all of the things that he's

this politician this Donald Trump at

that point as a politician said he was

going to do he actually started to do it

or really try to do it right that

doesn't necessarily always happen

there's lots of fancy talk on the

campaign Trail and then people come into

office and they g a button down he

actually did it everyone loves to talk

tough tough on China on the campaign

Trail China knows this the president

comes to the office he tempers that down

China also knows that's going to happen

didn't happen this time he started uh he

late designated China currency

manipulator he did the the trade tariffs

he ended this big economic dialogue that

the US and China relied on he stopped

all of it because this isn't working for

us um he also you know he talked about

wanting to we weaken the dollar and then

he got into office and he talked about

it beh sitting behind the Resolute desk

with his treasury secretary and his

trade advisor and his National Economic

Council director and said let's do this

um and that's one of the moments that I

covered deeply as a treasur reporter in

that time and then I wrote about in the

book that Donald Trump talked to his

advisers Peter Navaro Larry cudow and

treasur and secretary Sten minian saying

I want to do this now look into it and

Steph minian realize that this is not

the 80s or the 90s the currency Market

is a lot larger so the 70 or 90 billion

dollars that the you the treasure

department has on hand and something

called the exchange rate stabilization

fund fund which is just to stabilize

currency markets is just going to cause

a mere blip and also Qui quick pause to

make this clear for folks because when

we were talking about like the plaza

Accords when the US is

manipulating the system buying its

currency it's using that 70 to 90

billion correct and so the point you're

making

is the economy is just so much bigger

now that you couldn't do you you just

couldn't do a second version of The

Plaza is is is that is that a correct

so um the money in that fund ESF it

fluctuates um and it's not the economy

it's that the currency um markets are so

huge now okay that the US itself

couldn't go in and do something unless

you had allies and As cudow Told Trump

in that moment who's gon to do this with

us no one likes us right now we've

triggered trade Wars everywhere um so

the US didn't have allies in that moment

and always needed the Federal Reserve to

join in and in that moment uh even

though Trump appointed and nominated J

Powell he picked a big bone with him

called him a bonee head publicly you

know and so the FED not just for those

reasons but for deeper reasons of um

intervention probably not working and it

meddling in a way that would be damaging

wasn't going to get on board so what's

super interesting there to your comment

about allies obviously what makes the

80s policy work is to a certain degree

you have as you said it Japan France

West Germany aligned with the US policy

in that category what did these other

economies think about the strength of

the dollar Circa 2017 2018 obviously you

have the Euro you don't just have like

you know the Frank or the deut Mark um

what was the foreign perception of the

strong dollar policy during the Trump

Administration you know it by then it

had been place for almost a quarter of a

century so it was just part of like the

economic assumptions that had been there

for so long let's just keep it because

it's stable and it means nothing's going

to change and you know foreign countries

were benefiting from it you know to have

a better terms of trade and be able to

export to the US this massive consumer

Geren economy that's good for them um so

you know they had no complaints uh until

there's a rupture if the US the leader

of the world is going to cause a rupture

like that especially if it's going to be

have economic blows then it's a concern

for everyone okay so let's get to the

second part of the book weaponization um

what does it mean to weaponize the US

dollar yeah so that's the third

component right like we talked about the

exchange rate side of the dollar we

talked about its strength and dominance

and then we get to uh the safety and

protection and then weaponization that

it offers um because it is the world's

you know it's a national treasure the

world's Reserve asset

um that strength means that

if uh the US thinks that a country is

misbehaving there's lots of ways to put

it terrorism or nuclear proliferation or

whatever uh disrupting the world order

then the US has a right to say well you

can't use the dollar anymore which means

you can't use the Global Financial

system now there's a spectrum of that um

action sanctions are incredi economic

sanctions that's what it means to cut

someone off on the dollar there's a lot

of different ways to do it you can have

carve out so it's not as painful it's

kind of like a vice where you're slowly

tightening it tightening it on someone

to get them to change their behavior but

with nine and that the US had done in

various forms of embargos and such

previously um but 2001 you know 911 hits

and and the First Act in the global war

on terror that George W Bush started was

not a machine gun it was no tanks

rolling anywhere or American like

military boots on the ground it was

through the US Treasury Department it

was with the dollar it was saying we're

cutting off the uh certain terrorist

groups from using the dollar Point Blank

and we are using the power of the dollar

to to track money flows figure out how

terrorists financed the attack so that

we can first stop any other attack from

happening and find out who all was

involved and cut them off so it was the

dollar it was a stroke of a pen

September 24th 2001 after that it was

that then the blood you know started

spilling so then the other immediate uh

perception of like the weaponization of

the dollar is obviously going to be like

the sanction I think the big ones early

21st century this the sanctions policy

towards Russia after Russia invaded

Ukraine tell that side of the story yeah

so you know we've had 20 plus years of

ramping up economic sanctions um in the

wake of 911 in the pay trade act a whole

unit was created inside of Treasury

there's the domestic policy unit

International policy unit and then they

added in 2004 uh terrorism and financial

intelligence and that is basically

Financial intelligence and sanctions set

inside of that and so um little Pro you

know big problems are coming along Iran

um Lebanon Etc you know Russia and the

annexation of Crimea and they're using

this leverage the economic sanctions to

uh bully and to export foreign policy

and to bully

adversaries

um the use of sanctions had has grown um

not 933 between 2001 and I don't know

2021 or

2022 by February 2022 it's a potent

weapon people are scared of it just the

mere threat of

sanctions has an impact by now um

Russia uh triggered what is arguably the

greatest military crisis since World War

II uh a land invasion in Europe and you

know Russia is a G20 country um it is

the world's 11th largest economy it is

so deeply integrated in the world

economy through Commodities you know

aluminum and metals and oil exports

everyone needs that oil everyone needs

that those medals and Putin thought you

know he has started to diverse away

diversify away from the dollar somewhat

in preparation it seems he had a half

trillion dollar War chest and it was

some in dollars and some in other

currencies um he had really deepened

trade with Germany and Europe because of

proximity and he figured well the US

might sanction us it won't be so

damaging Europe won't because it would

be too damaging to Europe and then maybe

even the US wouldn't get involved

because like the plan was from Bretton

Woods we're going to be so

interconnected that if I try to hurt you

you end up hurting yourself right no one

thought the US would take

would lead in such a big action it was

considered the nuclear option in the

Biden White House um the US said we're

going to do it um they knew they had to

do it very quickly uh they did it on a

Saturday they got together uh the

package had been

prepared the G7 had signed on and it

took some persuading because everyone

knew there will be a self-inflicted

wound from pushing Russia away from the

dollar or to begin to is not ultimately

completely cut off um and at 5 something

p.m. on Saturday February 26th the US

announced that we are s sh sanctioning

cutting off the Russian Central Bank

from the dollar and uh we we don't have

to go into it too deeply but also

cutting them off from Swift which is

like a communication system among Banks

and the US LED that and and you know

almost half the world joined and on that

day you know treasury secretary Janet

Ellen I go pretty deeply into it in the

book um she has a moment of hesitation

because she realizes I am the current

Steward of the dollar and are we going

too far with it um the US takes the

action she signs on she realizes this

might be the right thing to do this is

the right thing to do uh when you are

rupturing the world through this great

military crisis maybe this is the moment

that you do this and ever since then

there has just been talk that well the

US has political

volatility and what if Trump comes back

and that um unpredictability still

exists in the US they're so deeply

divided right now and now you're using

the dollar to bully us um maybe it's not

worth being so dependent on the dollar

now that talk has happened constantly

right since for since 1944 when you know

the dollar became the world's Reserve

asset everyone's wondering when is the

demise of this this Reign um but this is

the first time that it's happening with

such urgency there is some action behind

it and uh we can unpack you know where

we think it might go from here I guess

the question would

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be when the sanctions were first

launched once again it's it's the

nuclear option there was this prediction

and perception that this would be

crippling um from Russia's perspective

obviously there have been incredibly

high costs to the sanctions policy but

Russia has been able to weather it to

the degree which they've just continued

the the The Invasion and what ended up

actually mattering um was the actual

Battlefield outcome relative to it um

Russia just had the ability to weaponize

their literal economy transition to a

wartime economy and maybe you're not

perfectly economically efficient but

you're still able to get the job done

there um has that result

impacted the long-term ability of

sanctions to deter conflict Behavior

aggression does China look at that

situation and say hey everyone knows if

there's an invasion of Taiwan separate

from US military intervention there will

almost certainly be a severe us

sanctions policy seeing Russia

weathering and Russia isn't exactly the

greatest economy in the world does that

suggest there's a world where sanctions

have lost a lot of their bite um from a

dictating Behavior

perspective I will say Marshall this

debate is Raging right now in Washington

um I've done a fair bit of reporting on

it sanctions are incredibly complicated

to

explain like you have to know what was

the goal and actually sanctions aren't a

policy it's a tool um you know so when

you're building a house you have a

strategy of how to build a house a map

you've got the sanctions are like the

hammer of putting it all together so if

your house falls down you don't

necessarily blame the hammer for failing

the way people say sanctions have failed

you might be blame the strategy behind

it and sanctions is a large component of

it or the potency of the Hammer of the

sanctions um and they're also hard to

measure because you're talking in

counterfactuals you have to try to guess

like what would have happened if we had

not done it but you can't really measure

that so then you're looking at what's in

front of you and the immediate impact

the the ruble plunged 30% and the the

central bank had to go through a lot to

to prop it up and to keep things going

there's some facts that are out there

one that Russia has lost its Prestige

and standing in the in the in the world

uh maybe they didn't care about it so

who knows if that really hurts them they

have had a lot of money leave they are a

war economy now at the same time and

they have not you know I think it there

was a feeling if you go back and and I

mention it in the book and I it's I I

remember this vividly talking to senior

White House and treasury officials

between February 26 and 2 uh February

22nd and 26 when the first Invasion

happened on the 262nd and the um

sanctions hit on the 26 between that

period it was largely thought that this

invasion is a 72-hour operation Kiev

will

fall um so it didn't fall right away it

still is there that's one piece but the

other side of it is that without

violating sanctions Russia has bought a

billion dollars worth of American and

European microchips for their War

technology MH and that's wild so the war

is still going because they can still do

business because if we sanction

everything we completely cut them off

the pain is too much for us because if

you remember February the first two you

know half of 2022 our gas prices went up

in the US gasoline costs went up because

of the sanctions and so we all face a

bit of economic pain to protect this

tiny democracy that not everyone

necessarily could immediately find on a

map in America um and so it's really

hard to make that

judgment uh which and it's one of those

things where you kind of think well if

you're explaining you're losing the

argument which is one thing I do say to

Administration officials sometimes um

but it it's not an easy question to

answer um if you're China you know from

what I've heard it's part of their

calculus that it will be painful it will

but can Factor it into their planning

now right because they've seen how far

the US is willing to go yeah I really

like your distinction between strategy

and Tool and it seems like when you're

looking at the war in Ukraine clearly a

huge part of the Strategic failure was

the inability to deter a Russian

invasion 2014 to 20121 that was the

clear policy Cara was a surprise they

could go further so let's do what we can

to Det her an actual Invasion that was a

failed part of the policy maybe um an

awareness of that sanctions nuclear

option being on the table um could have

served as a PO possible deterrent to an

invasion um and then that being on the

table in the case of china could serve

as a possible deterrent um when it comes

to Taiwan or other parts of the

indopacific but the key thing is that's

a hammer not the overall um thing you're

working with so okay here's the last big

question then and this is where we get

into the like there's a lot of like

Twitter discourse about this and there's

a lot of marketing a lot of hype um

there's been a lot of talk about you

know bricks Brazil Russia India China

South Africa this started as a you know

Goldman Sachs term um in the 2000s but

quickly kind of turned into like a quasi

real thing but also kind of like an

internet meme there's lots of talks

about how like the bricks are

dissatisfied with the fact that the US

is so dominant um in the world order

today um and we're living in a more

multi-polar world and obviously one of

the ways by which the US maintains the

status quo is the strength of the dollar

and the use of theer of currency um

after the Russia sanctions policy

there's a lot of talk about the bricks

coming together to create an

alternative an alternative system talk

about like just fact check all this

discourse um what's actually happening

because you could have all sorts of

meetings in South Africa that's not the

same thing as actually putting together

a serious plan it's not quite clear

whether Brazil Russia India China and

South Africa actually do have perfectly

aligned monetary and fiscal interests so

yeah just close by giving us a a real

understanding of what this like quasi

alternative system is and could look

like well first of all it's really

happening right there are these meetings

there are actions being taken of

companies saying let's not necessarily

settle our contracts and account whether

I if I sell like a the world's biggest

wood pulp producer and oil is now being

settled in contracts that are outside

the dollar just through bilateral trade

it's actually happening um it's not

happening to the extent that the

headlines and the rhetoric from these

countries might suggest because it's

very hard to move away from the dollar

Russia still needs dollars they can buy

as much material and goods in Indian

rupes the fact of the matter is they

can't no one wants to take those rupes

off their hand they can't use it to

purchase other things the way they can

the dollar um the other component I will

flag is that the the dollar remains a

safe haven asset so when things get

sticky you have a global financial

crisis you have a a global pandemic um

when people are looking for a safe haven

they come to the dollar or the us

treasuries or investments in the US

because they know it's a stable

democracy um but this is happening it's

I think the US needs to pay attention to

it it is paying attention to it it has

put US economic policy makers in a

defensive posture you'll hear Janet

Yellen uh you'll hear fed officials uh

fed a Fed Governor Christopher Waller

just in February gave a speech dedicated

to the dollar which is r a rare topic

for a Fed official to talk about they

always say well US currency policy is

the purview of the Treasury Department

it's almost like we're getting to that

I'm not a crook moment of like there's

nothing to see here that means there is

something you're thinking about it

you're discussing it you spent several

hours writing a a a speech speech and

what your comments are going to

be um so I would say it is worrying

officials and but it's not happening to

the extent that maybe the headlin

suggest it should be paid attention to

but I will actually Point everyone like

a US audience inward right so no matter

what happens overseas there's nothing

wrong with us power uh dollar um

dominance Plateau a little bit coming

down just a little bit and then just

settling there it doesn't have to be as

dominant as it is now to still remain

potent and provide all the things that

has provided the world and the country

itself

um those countries are not you know a

lot of the countries that are moving

away from the dollar they are not uh

democracies like ours so we have rule of

law free and fair elections um

independent agencies so hopefully in 10

15 20 years we remain that we have free

and fair elections and democratically

elected leaders whereas in other

countries that are part of the bricks

plus block that's moving away from the

dollar if their closed autocracy if

their dictator dies as everyone dies or

if he moved out of power then that

instability might bring them back to the

dollar or lose that focus on moving away

from the dollar but I'm again I'm going

to point inward inward because and I got

this you know I my interview with um

George W bush third secretary treasury

secretary Hank pulson was so interesting

and he said and he said this many times

somehow it resonated when he said it to

me when I interviewed him that you know

as long as America's strong and our

economy is strong we're fine so as long

as if we can get over the partisanship

if we can maintain our public finances

in a mature way sure we haven't actually

breed the debt ceiling ceiling but even

if we fight about it constantly and take

that deadline to 1159 before it breaches

and play chicken that fight is bad if we

um Can unite behind

leaders and uh stay strong ourselves

have a strong economy ourselves then it

doesn't matter what happens around the

world the dollar the strength that

strength of the dollar will be able to

endure whatever else is coming at

it very well said um can you just close

us out uh by shouting out your your

actual podcast um you've got a we're

obviously trying to move a book here but

I think he's great to thr some downloads

some way because you do a bunch of

things obviously yeah so the book is

first the book is called Paper Soldiers

how the weaponization of the dollar

changed the world order it is out out

March 19th please order it but I also

have a podcast called the big take DC uh

and some of the topics that we Marshall

you and I talked about um especially

Russia sanctions I talked to the chief

Economist for sanctions at treasury

about have Russian Russian sanctions

from the US that we've LED work worked

or not worked and why and let's get into

it I talk unpack it we come out every

Thursday we talk about um you know my

ethos as a reporter has just been let's

connect what happens in Washington to

the rest of the world and I'm from Ohio

so I'm always going to bring in the like

Midwestern perspective of how it affects

middle Americans uh not just the right

and left coasts so um definitely have a

listen uh it's available on Spotify

apple and wherever you find your

podcasts thanks for joining me on the

realignment this has been really fun

thank you so much

Marshall