Hard assets can provide protection from many risks, but they don’t exist outside the financial system. When credit contracts and liquidity disappears, even assets that investors consider resilient can face pressure as losses, leverage, and forced selling spread through interconnected markets.
Jeff Snider argues that this vulnerability points to a larger problem: a financial system increasingly dependent on liquidity it can’t provide reliably. The opportunity lies in building alternatives that can compete on the qualities that made the existing system indispensable in the first place.
Read the transcript below.
Transcript
Monetary Metals
Welcome back to the Gold Exchange Podcast. My name is Ben Nadelstein of Monetary Metals. I am joined by the one and only Jeff Snider of Eurodollar University. Jeff, welcome back to the show.
Jeff Snider
Hi, Ben. How’s it going? Glad to do this in person. This is a, you know, it’s always a great experience to do a kind of thing with this.
The overlooked risk facing hard asset investors
Monetary Metals
I know we’re now live at the Limitless Conference. We get the whole touch and feel thing here. So, Jeff, we’ve been at this Limitless Conference, obviously a lot about real estate, about gold, some kind of physical assets here. What do you think is the biggest risk for these type of hard asset investors? Because in general, a hard asset investor thinks, well, I’ve got gold, I’ve got my real estate, nothing’s really going to harm my portfolio. What do you think is the risk that they’re not focused on?
Jeff Snider
Well, where do we start, right? The biggest risk I think to most people is some type of liquidity event that forces a repricing of hard assets, right? It’s, you know, monetary system breaks out. I’m not saying this is necessarily the base case, but that’s where it really, where it starts. And there are a bunch of, you know, credit cycle questions that we need to figure out.
Where do they actually go? And private credit is just the tip of the iceberg. So we start out looking at the private credit system, then you get into shadow banking. Mortgages are coming up again. So if the credit cycle starts to turn, liquidity dries up, then it becomes more of a dicey issue than simply, you know, holding hard assets. I mean, we got a taste of that earlier this year when gold prices came down, right? Some liquidations involved with that. That’s a good place to start.
Private credit, contagion and the turning credit cycle
Monetary Metals
And when you say a repricing or this kind of liquidation event, should that be in a certain sector and then that sector dominoes to other sectors? Or if you say, hey, listen, I’m not in private credit, I’m not going to be affected.
Jeff Snider
We don’t know. The contagion risk is there. It’s real. We don’t necessarily have a good sense of it because this part of the system has never been tested before. And it is certainly possible that we have a credit crisis contained within, you know, say private credit and maybe adjacent to it, some of the public credit, the AI debt, right? Some of the AI debt is not going to be paid off, but maybe the system is robust enough that it can handle the losses.
We assign it to some people. It doesn’t lead to a type of liquidation event that reprices things. That’s a possibility too. But there is a growing probability—I don’t know how big it is—that it doesn’t simply stay with, say, private credit providers. You know, Blue Owl goes out of business. We all mourn Blue Owl’s loss, but it doesn’t go any further than that. However, Blue Owl is interconnected with a whole lot of other stuff, including the regular banking system. Plus you’ve got, like I said, the AI debt, which is just astronomical. So if you get in a full-blown credit cycle downturn, where that goes is You know, completely unknown at this point.
How AI debt threatens passive investors
Monetary Metals
And about that kind of AI debt, obviously a lot of people have looked at the revenue of these AI companies and said, am I adding an extra zero here? What am I missing? So do you think that that catalyst is enough to actually push all these big S&P 500, all these index funds into a scenario where people say, this is the first time ever that I’ve actually had to look at my portfolio and say, what is going on? As opposed to just buy and hold up and to the right.
Jeff Snider
There is definitely a risk to passive investors, but passive investors have simply sat back and say, look, I don’t need to worry about this stuff. Stocks go up and they always go up. If they go down, they only go down for a couple months at most and they go right back up. And that’s generally true. But you get to a situation where the credit cycle turns. Michael Burry, to bring him up, a couple weeks ago said, I see the similarities to 1987. I don’t necessarily think that’s the case. I mean, you can see where he’s coming from.
Monetary Metals
Right.
Jeff Snider
The real parallel there was 1987 was the beginning of a credit cycle downturn. So when you put those 2 dynamics together, and remember, after the crash of ’87, stocks stayed low and then didn’t come back up until—was it ’89 or 1990? So a couple of years where it was a difficult place. So that’s really the dynamic. Credit really does determine where everything else goes, including the stock market.
Monetary Metals
Yeah.
Jeff Snider
So if you think I’m sitting here in a passive fund, I’m fine. Well, maybe you are fine in the long run. So 20 years from now, you’ll be fine. But if you’re retiring in the next 10 years, you don’t want to go through another 2008. And again, I’m not saying no to 2008. Well, you go through another legitimate bear market in stocks where stocks are sideways to lower for 10 years. That’s a difficult place to be in.
Why the entire world went all in on AI
Monetary Metals
And I want to make this kind of analogy or metaphor here where in general, the world has never gone all in on one thing. We’ve always had, well, the Chinese are doing this, the US is doing that, Europe’s doing something different. But this kind of feels like the first time where so much CapEx is saying it’s all about this AI bet, where we don’t care about mining or stocks or cash flow.
It’s all about AI. And the analogy would be to the fiat currency system where we’ve never had a world where every single currency was just all based on fiat. There’s been some gold backing, some silver, and maybe these guys print more than someone else, but in general there was a hard asset. And then in 1971, all the rules were done. Okay, everyone is now on a fiat currency. We’re all in on fiat. So is there an analogy here between all in on AI, all in on fiat?
Jeff Snider
The danger is why everybody’s all in on AI. I mean, yeah, that in and of itself is always a problem. I mean, look, everybody knows the principles of diversification. We don’t want to put all your eggs in one basket. That’s where the saying came from. People have been saying that for thousands of years. However, I think the bigger danger is why everybody’s all in on AI. And that’s because nothing else is working.
Monetary Metals
Right.
Jeff Snider
It’s all like, hey, what do we got left?
Monetary Metals
Right.
Jeff Snider
Well, it used to be, okay, like you said, China. China is an emerging power. So let’s buy some stuff over in China because they’re going to grow. US growth is toast. Europe is dead. Let’s invest in China. Well, now China doesn’t work. Where the hell are you going to go? Well, okay, We’ll go somewhere else in some emerging market. Well, now the emerging markets don’t work. You can’t diversify by industry because industry sucks. So it’s almost as if the entire world said, what’s left?
Well, okay, AI has an unknown future. It’s almost like everybody went to Enron and said, Enron, you’re the only game in town. Let’s, let’s see what you got because you have an uncertain future that we can just throw numbers at, right? And with AI, it’s like Enron’s product where We don’t know what AI is worth. It could be worth what everybody says it is. If Elon Musk is right about singularity, which, right. All right. Okay. Obviously it’s going to be worth massive amounts, right? And that’ll pay off. But unfortunately, the real world, it doesn’t really ever work like that.
We’ve seen these adoption cycles every time, which again gets into the original part of our conversation. It’s a lot of risk to take on, not just for the markets and investors. It’s a lot of risk for the economy, right? Every economic system You look at, you know, macroeconomic accounts and data, it’s run by AI. AI is at the margins of basically every—if the AI bubble goes to bust, what is left to hold everything up? So again, I’m not saying that there’s catastrophic risk here, but the downside is real and it is potentially significant.
Monetary Metals
And part of this, right, is this idea of a Great Stagnation where we really just couldn’t figure out where was that growth coming from. 2% GDP growth is just really not It’s not really growth. Yeah, it’s not really growth.
Jeff Snider
Kind of just hanging in there.
What could finally burst the AI bubble
Monetary Metals
And so the idea was, hey, we can find growth in the stock market or different emerging markets or different asset classes or commodity supercycles. So now the new thing, because it’s so opaque and unclear, is going to be AI. And so if that idea actually becomes more concrete and not as great as we thought, is that kind of the last bastion of hope or the last bet that we have?
Jeff Snider
That’s always what pops the bubble when you have to put expectations to the test. And when you put expectations to the test in adoption cycles, and it doesn’t matter which one, I mean, everybody compares to the dot-com. It doesn’t matter. You go back further in history, the railroad, everybody brings up the railroad boom. Same thing. You have these pie-in-the-sky expectations, estimations.
Everybody has a budget, you know, extrapolations that always look terrific. And then the numbers start to come in and it’s like, okay, AI was great when everybody was using it for free. And yes, we could overcome the hallucinations. But now we’re analyzing how this works in our business. And guess what? Our employees, their productivity is not quite reaching the levels that we thought it was. So maybe we have to rein back our AI spending a little bit. It’s still, you know, huge growth. But if the growth rate was supposed to be this and it’s actually this, suddenly you got a problem.
That’s where every adoption cycle hits the wall, when it doesn’t live up to the expectations. And we get more and more signs that people know this. I mean, the big news for me last week was Nvidia. Nvidia announcing, apparently without the consent of all its Wall Street partners, saying, look, we’re going to have all these Wall Street banks sign a memorandum of understanding to finance the purchase of our products. Because why?
Well, number one, our customers are starting to say we don’t have the money for it. We’re not sure it’s worth it. Therefore, maybe we’re not going to do it. I don’t want to say backlash, but there’s already uncomfortable questions being asked. And so Bringing this back to the setup you started with, if all our eggs are in the AI basket and we’re starting to see cracks at the basket place, it doesn’t take a lot to get to, hey, this could end potentially badly.
Monetary Metals
And part of this idea as well is not only is there political backlash, people saying, I don’t want a data center in my backyard. There’s of course financial backlash of people saying, whoa, whoa, whoa, why are we spending all of this on CapEx? I don’t have the money. And then of course there’s also the commodification element. Where, okay, do I need 17 different LLMs? Am I going to pay $20 a month for ChatGPT and Gemini and Claude and Grok and, and, and, and? And so this kind of race to the bottom on price means that no one’s making the revenue. So it seems like there’s lots of different, if you want to say, pins to pop the AI bubble. Is that kind of what you expect? That, hey, either a bunch of these different pins together or one big one kind of pops that bubble?
Jeff Snider
And that’s the part we don’t know is how it unfolds. I mean, it could be just one big, everybody just says, okay, AI, let’s pull back. Or it could be, you know, the slow kind of drain that we saw in the dot-com era.
Monetary Metals
Right.
Jeff Snider
Where it’s sort of like, okay, it loses its luster. Then we start, you know, this company, then that company. Just before you know it, a couple years could pass by and we’ve been in this bust for the entire time. It’s more dangerous with the AI bubble because of the amount of debt that’s involved. And again, when you sit down and think about it, not every one of these companies is going to win.
Monetary Metals
No.
Jeff Snider
They can’t. It’s humanly impossible. So they are all competing against each other to not be the losers, which implies there has to be losers.
Monetary Metals
Right.
Jeff Snider
When there are losers who are concentrated in this fashion, but also the losers are betting hundreds of billions, if not trillions, on not being a loser. What does that say for the downside?
Monetary Metals
Right.
Jeff Snider
So, I mean, yeah, it doesn’t mean Oracle goes bust, right? Because that’s the one everybody points to. The credit default swap is going up. Oracle doesn’t necessarily go bust, but it does bust the AI bubble. And then the consequences flow from there.
Monetary Metals
And the idea or the analogy would be when there was Uber and Lyft, there was the ridesharing wars where Uber would subsidize and venture capital would subsidize Uber. And so you were getting these cheap rides. But then after Lyft kind of took second place pretty for sure and all the other competitors were dead, Uber raised their prices and they could kind of get some of that monopoly power. But in a world with 50 Ubers and 50 Lyfts where there’s open source models and everyone from China has an LLM, it seems like that bloodbath that we saw from Uber and Lyft would be nothing compared to what we’re seeing with the AI.
Jeff Snider
Totally. Yeah, it’s hyperscaling in spending, but also hyperscale in loss potential too.
Monetary Metals
Right.
Jeff Snider
And the other thing is too, There is no guarantee that all the hyperscalers are actually going to be the winners.
Monetary Metals
Even if they win.
Jeff Snider
I don’t necessarily believe the Chinese. I think the Chinese are farther behind, but it could be a Chinese firm that comes up with a solution, or it could be somebody out of complete left field who comes up. I mean, because there’s so much experimentation and open adoption, it could be some small firm working on some kind of trick where they actually replace all the LLMs. There is another way to do AI that is even more—so with this much money on the line, running through the financial system. In fact, it is the backbone of the financial system. It doesn’t have to be catastrophic to be painful.
Monetary Metals
What’s interesting to me is like, if you look at a product like Ozempic, for example, where you can see, hey, listen, people are definitely losing weight, it’s definitely working, we’re definitely getting revenues from this, 1 in 10 Americans are using it. There’s pretty clear math. Whether you like Ozempic or you don’t like Ozempic, you can say, okay, there’s pretty clear revenue math here versus something like AI. The math is a lot less clear. There’s a lot of assumptions that have to be made. And so we’re kind of piling a lot of our debt and a lot of our economy into an assumption-heavy investment as compared to saying, hey, we’re going to spend $12 trillion because we know we’re getting a return on, for example, Ozempic.
Jeff Snider
Well, that was the Nvidia idea, right? It’s like our customers don’t have money. We want them to buy our products, but they have no money. And so the idea of the debt was to bridge that divide, right? So everybody just assumed that, okay, the growth is going to be parabolic. So your customers don’t have money to buy your products today, but they will in 2 years. So the parabolic growth rate of revenue of the companies that are buying all this stuff from Nvidia, you just get them enough debt to get over the finish line. Their growth rates match their projections and everybody has money.
But again, if the projections don’t pan out, you know, the growth rate is a little bit less than everybody expects, suddenly that debt dries up because as we go in the downswing of the credit cycle, people are less willing to take those kinds of risks on if-calls. And if you don’t want to take a risk on if-calls, where are all these companies going to be able to bridge the divide from I don’t have money today, but I will have money tomorrow. I need the debt to get from A to B.
Now I don’t have the debt. I can’t get to B. What does that do to not just the company who can’t—Nvidia no longer has the sales, or Anthropic, OpenAI, they don’t get there, have any pathway either. It’s the cascading effect where all of these things are interconnected, where one single thing goes wrong and it leads to multiple things going wrong in an unpredictable fashion because it’s such a complex system.
How AI displaced Bitcoin and crypto
Monetary Metals
And I want to talk now about crypto because a lot of people said, now that AI is here, it’s the shiny new toy. Who cares about crypto? We’re done with that. Yeah, it was going to change the financial system, but then we heard about AI and that’s the new shiny pet rock. So do you think that there is this kind of crowding out effect where AI has crowded out crypto, crypto crowded out commodities, commodities crowded out the thing before that? So do you think that there is this kind of crowding out effect where investors are like all in on AI? not only with their capital, but also mentally focused on it.
Jeff Snider
That was the downside for specifically Bitcoin, which is not to pick on Bitcoin, but specifically Bitcoin, the downside of Wall Street and institutional adoption. What happens when you go to Wall Street and say, you are the next part of our story, we need you to grow Bitcoin? Well, Wall Street, come on, Wall Street is a bunch of momentum players. They look for the hot thing, they ride it as far as they can, and then they get the hell off the train.
And they don’t care about you any longer. It’s exactly what happened. Wall Street loved crypto coming off the, you know, the bottom of 2022 and 2023. Everybody was in on Bitcoin. Everybody who was in on Bitcoin said, we love Wall Street. We love, you know, the ETFs. We love the productification of cryptocurrencies. And then AI became the hot thing and they dropped off the train. So that doesn’t mean cryptocurrency’s dead.
Monetary Metals
Right.
Jeff Snider
It’s probably dead for the foreseeable future. But again, it goes back to the thing I said before, when nothing else is working and all you have to do is chase momentum, that’s a significant risk as well as also a commentary.
Monetary Metals
And one of the things we’ve discussed in the past is, hey, if you want to try to displace the dollars, the Eurodollars, this kind of monetary undergirding or the plumbing, there’s a lot of plumbing that’s got to get done. You got to connect this to that, the wallet to this, the payment infrastructure, the underlying rails. And so a lot of the talent that was in crypto saying, hey, I’m going to be the next guy that makes Bitcoin a currency, or I’m going to get Ethereum to go on these different rails. If those geniuses are now going to AI, does that mean that the kind of plumbing era of crypto is over? I—
Jeff Snider
the talent drain kind of a thing? I don’t necessarily think so. I think there are enough projects left that are committed for the long haul.
Monetary Metals
Yeah.
Jeff Snider
Because look, I mean, cryptocurrency specifically has been through the ups and downs. Totally. They go through the—what they call—what they call winters. You go through the winter period.
Monetary Metals
So Right.
Jeff Snider
Maybe at the margins. So some of the hot stuff is, you know, moved on to AI until the AI bust happens and then they move on to something else. But I think cryptocurrencies, and really it’s not necessarily the currencies themselves, it’s more the tokenization. That’s, I think, one more interesting thing. The tokenization leads into more interesting conversations and opens more doors moving forward than say specifically Bitcoin or stablecoins. And there I think you’ll keep enough interest, resources, and talent available and therefore capacity to really Turn tokenization into a real thing and a real beneficial, really adoption wave into the future.
Why everything could eventually be tokenized
Monetary Metals
Let’s talk about tokenization because obviously we’re with gold, with Monetary Metals. We do a yield on gold and we have tokenization partners, people who say, hey, this is a great product physically, let’s do a tokenized representation. That makes sense.
Jeff Snider
I mean, it makes sense. It makes so much sense. So much sense.
Monetary Metals
So that tokenization where people say, hey, cool products, cool idea, let’s give it to the masses through tokenization. Do you think that wave has a more kind of sustainable nature to it rather than a, you know, crypto coin? Hey, let’s build Jeff Coin. Let’s build Ben Coin, you know?
Jeff Snider
Yes, because there’s a real use for it. There’s no real use for a Jeff Coin.
Monetary Metals
Not yet.
Jeff Snider
Except to rug pull off of the fools who would invest in it, right? We don’t have to look too far into the future to see how everything will be tokenized. Everything will be tokenized because it just makes sense.
Monetary Metals
It’s better, right? So you’re on the kind of Larry Fink, BlackRock saying, hey, everything is going to be tokenized.
Jeff Snider
Everything will be tokenized. And, you know, I don’t know how long the adoption curve will be, but it would probably be a lot sooner than people think. It’s already being used. It’s already like you guys are using it. So I mean, it’s already being, it’s a good idea that has a real legitimate case today, not 10 years from now. So yeah, tokenization is going to be something that has staying power because it is that useful and that, that realistic. It doesn’t have the extrapolations attached to it.
Monetary Metals
Yeah. The way I see tokenization is very similar to the introduction of the ETF. Hey, this is a wrapper that has all these different benefits. Yeah. You can put real estate in it, gold in it.
Jeff Snider
And what were people doing with ETFs? When they first came out, oh, this, this will never last.
Monetary Metals
This is stupid, right?
Jeff Snider
No, it won’t work. Yeah.
Monetary Metals
And now obviously ETFs are a massive part of the market. Almost everyone is using ETFs.
Jeff Snider
You don’t even think twice about it. ETF is sort of just there. It’s become a part of our financial lexicon.
Monetary Metals
And so do you think the matching of, hey, tokenization, which has this benefit of liquidity and all these kind of crypto benefits, plus a real-world asset and a real-world use case—hey, people like gold, they like gold yields. Let’s get it in a better form through tokenization. Is that the next wave of kind of, hey, crypto went in one direction, now we’re going to put it in another direction?
Jeff Snider
That’s kind of how adoption’s happened. The early people who are, you know, they have their own idea how things go, but, you know, once it hits the real world, you know, what was the old saying?
Monetary Metals
Get punched in the face.
Jeff Snider
Right. So that’s what ends up happening. It starts to get tested in the real world. There are frictions that people don’t anticipate. There are technological limitations that people don’t anticipate. And there are uses that people don’t anticipate. And this is a perfect example. So the Crypto 1.0, for lack of a better terminology, the first wave of crypto was sort of like, let’s replace the dollar. Let’s, let’s, let’s get rid of the central banks. And then it was sort of like, okay, that’s not really happening. What else can we do?
Monetary Metals
Right.
Jeff Snider
Then it’s, oh my God, there’s this thing over here that would actually—if we tokenize stuff, we don’t need to replace the dollar. Right. We could actually open up so many other doors that would, you know, nobody originally got an interest in Bitcoin, whatever I’ve imagined. So the There is a shift toward Crypto 2.0, or really tokenization of Blockchain 2.0.
Could competing currencies weaken the dollar system?
Monetary Metals
And in that world where someone has a wallet, they can have gold yield products, they can have a real estate product, they can have a dollar, they can have a yen if they want. Do you think that lessens the argument for the supremacy of the kind of dollar network where, hey, you just got to be in it because there’s nowhere else to go?
Jeff Snider
Yes. And that’s a good thing. That is absolutely a good thing. That’s the hardest thing to get people to realize is they Oh my God, we lose the dollar’s reserve currency status. That will be terrible. Nobody will buy our—no, it will actually be a good thing if you have the ability to use different currencies in different places at different times that have different benefits or different—right. And different upsides and downsides. It’s a whole different ballgame where it gives power to the people who have that benefit, not necessarily the system.
Monetary Metals
Seniority.
Jeff Snider
Yeah, right. So I think we go to a world where we have multiple different currencies that have different functions and different uses and different benefits. The solution to all problems is always competition.
Monetary Metals
Right.
Jeff Snider
All problems. You get competition, people will find a way to do it. If there’s enough of incentive, opportunity down the road, people will figure out how to do it. So yeah, so opening the door to a future where there are multiple competing currencies, not only beneficial, I think it helps solve the problems that we’re in.
Monetary Metals
And in the past, we’ve kind of poo-pooed the idea there’s this BRICS currency coming and there’s a commodity-backed currency coming. And every couple of years, this kind of like waxes and wanes in popularity.
Jeff Snider
That’s what they were missing. I mean, forget the BRICS because, you know, I don’t see India and China ever getting along enough to have a currency. But you know the idea, right? How can we create a competing system that legitimately competes, not just on paper, not just people talking about it, that performs the function of a legitimate currency? Tokenization would be not necessarily a shortcut or easy way, but it would be a realistic pathway to do so.
Monetary Metals
Yeah, I want to ask you a little bit about the plumbing because obviously, you know, at Monetary Metals, we do the gold products. They have different yields, you know, leases, bonds. And now there’s tokenized versions. There’s, you know, 1,000 different flowers blooming in competitive sense. What are some of the other areas of the underlying monetary plumbing do you think not only Monetary Metals should focus on, but in general this competitive landscape should be focused on to kind of displace some of the problems with the Eurodollar, with the monetary system?
Jeff Snider
Well, you mentioned before what the biggest problem is, is usability. So the, a reserve currency or any real currency, it’s really about Is it widely available and widely accepted? So the hurdle that cryptocurrencies kept running into was making it widely acceptable, right? Because, you know, Bitcoin in El Salvador is a perfect example. Bitcoin was made legal tender in El Salvador and everyone’s like, okay, Bitcoin’s going to take over. It’s emergent money. It’s the best money. It’s perfect money.
And then people say, I can’t use this stuff. Yeah, right. So the other side of it is always how do you make it widely acceptable? And widely acceptable means, you know, how do you get paid in that type of currency? So a gold-backed tokenized currency has a much better shot of getting people to get both sides, getting paid in currency as well as spending the currency.
Monetary Metals
Right.
Jeff Snider
So that’s really where the medium of exchange becomes a powerful medium of exchange. And a lot of that has to do with the frictions of being able to use it. So if more and more people are able to use a currency product, then more and more people will use a currency product.
Monetary Metals
And what do you think has been missing for so long in the kind of monetary realm? Because Obviously, people chose the Eurodollar. They’re like, hey, of the available options, this is what I want. But what’s been missing? What have been people looking for? Obviously, we offer yield and gold as a kind of alternative to dollars and yield on dollars. But what are the things that people are missing? There’s now spendability. Hey, I want to, you know, tap with my Apple Pay. So now that’s kind of digitally available.
Jeff Snider
But that’s what tokenization is, right? Because tokenization allows you to use a competing currency Maybe even in the same environment and use the same payment network, right? You could just, instead of getting out your phone and paying from your, you know, TradFi bank account, your smart wallet, right? You pull up your smart wallet. I get monetary metals. I’m going to use this currency. I really don’t want to spend this currency, but I’m going to spend that currency because this is the only one that people will take. So I’m going to spend the monetary metals. It’s convenience, right?
Monetary Metals
Right.
Jeff Snider
The entire reason people chose the Eurodollar was because it was a more convenient way to do monetary medium of exchange. That’s all it really was. That was the limitation. And so with the first mover advantage where banks created this network system, it really was literally a network effect.
Monetary Metals
Right.
Jeff Snider
Now with tokenization, you don’t need to create a brand new network from scratch. So the hurdle comes way down for a competing currency to become just as useful and convenient as the system we have today. Except the system we have today, first of all, as you said, people don’t really trust it.
Monetary Metals
Right.
Jeff Snider
And the reason we use it is just because there is no competition. So if you don’t trust the system, it doesn’t function the way we want it to function. If we move the hurdle for usability down far enough, somebody starts clearing it and then it opens the door to, oh, we really, it’s not that big a deal to not use dollars. It’s easier to use a gold-backed currency.
Monetary Metals
Right.
Jeff Snider
I could just get out my phone and boom, it’s done. Oh, hell, I’m going to do that. So it was really a technological issue as much as it was, you know, somebody’s mind or sentiment or Trust. It’s how do you make something useful? Yeah.
Monetary Metals
The analogy I often use is like before Uber existed, it was always taxis. So there’s a taxi monopoly and they suck so bad. And then we got technology and apps strong enough that you can text someone and say, hey, I’m coming. You can see a tracker. Hey, look, the car’s on its way. Uber is way better than a taxi. And now people technologically understand, yeah, we don’t need a monopoly with this medallion system. It makes no sense. I’m just going to use Uber. Do you think money is in that same way where people said, listen, it’s hard to spend gold or it’s hard to transact in crypto, but now with tokenization and Apple Pay, it’s kind of easy?
Jeff Snider
It’s there. The opportunity is there. It really is that the technological limitation. That’s a really great analogy with Uber because does anybody even think about taking a taxi these days? I can’t remember the last time you even thought about—I don’t even remember seeing a taxi anymore.
Monetary Metals
I know.
Jeff Snider
So once you get over that hurdle, It’s, you know, economists call it hysteresis. Hysteresis is how much force it takes to get over that hump. And so technologically, that hump was enormous, right? Which is why the Eurodollar lingered far longer than it should have. It went way longer than it did because it had been around for decades. The amount of resources that it required, I mean, people don’t really appreciate there is a fair amount of resources and know-how and capacity that goes into the system. And so that was always the hurdle, almost literally impossible to create a competing system. But now the adoption curve has gotten to the point where it’s realistic and doable.
Monetary Metals
And what do you think are the strongest elements of the Eurodollar system? Not the best, oh, a positive, but what are the strongest elements versus the weakest elements where, hey, this is pretty weak, the competitor could start growing here versus I wouldn’t aim there first?
Jeff Snider
The strongest element of Eurodollar system was before 2007.
Monetary Metals
Okay.
Jeff Snider
Flexibility and usability. It was the one currency that you could use almost anywhere in almost any format. They were very smart about it, linking up, you know, credit card networks. Remember Visa, MasterCard, credit card, they’re payment networks. They’re computer networks. That’s all they really are. So point of sale was huge. You put a computer terminal in every single retail outlet in the world, connect that system to the Eurodollar, connect the Eurodollar to all the back office stuff, like repo markets and payment networks. You put all that together, as far as most people are concerned, works great. I don’t know what it is. I get my phone, before that, a piece of plastic, I stick it in a machine. How does that even work? Nobody cared because it worked.
Monetary Metals
Doesn’t matter.
Jeff Snider
It worked.
Monetary Metals
Right.
Jeff Snider
It was so easy to use and I could use it anywhere.
Monetary Metals
So convenience, usability, this made the Eurodollar work. It’s one of the strongest kind of network effect benefits of the Eurodollar.
Jeff Snider
Absolutely. So now that’s the one thing that a currency that will overturn the Eurodollar has to do that, but do it a little bit better, if not a lot better. Because people, you know how people are. There’s a, you know, human nature inertia, right?
Monetary Metals
Right.
Jeff Snider
Don’t want to change because my thing works.
Monetary Metals
Right.
Jeff Snider
If it works a hell of a lot better, like Uber compared to a taxi, then people will absolutely switch. That’s what needs to happen next is we need to make a currency that is usable and acceptable, at least somewhat better than the Eurodollar system. And I don’t think it’s that difficult. It really is the technological adoption and putting in the resources and being smart about it. Once somebody crosses that hurdle, I think you’ll see a bunch of other ones do it too at the same time.
Monetary Metals
And in terms of the weaknesses of the Eurodollar system, obviously it breaks down sometimes. Sometimes there’s these kind of fits and starts, these booms and busts. Is that kind of the area of penetration where people say, hey, in a crisis, in a moment where people are saying, what is happening? That’s when that kind of competition emerges.
Jeff Snider
Well, that’s the downside to any emerging currency too. Yes. In a word, the Eurodollar’s problem is liquidity. Because before, there was ample liquidity. Before 2007, banks created money. They didn’t care. Everybody was just expanding their balance sheet. So there was always ample liquidity. Right. I mean, within reason, you know, 1997, ’98, there wasn’t liquidity in Asia. But, you know, that was always the—liquidity was there.
And so liquidity is a major issue, which is in many ways a symptom of the network system too. That is going to be a thing that the new currency is going to have to overcome too, because again, liquidity is inherent in everything we do, whether it be commerce or financial. So doing liquidity better than the Eurodollar, which may be not necessarily a high standard these days, but it still has to be something that has to be factored in.
Gold’s advantage in a new monetary system
Monetary Metals
And in this kind of asset or monetary competition, do you think gold, because of its different kind of qualities, like it’s liquid, it’s fractional, every ounce is the same as every other ounce, it’s a global asset, it’s a neutral asset—
Jeff Snider
That’s where gold has so many advantages.
Monetary Metals
Talk to me.
Jeff Snider
Because, you know, one reason why the Eurodollar had such a seamless adoption is it piggybacked off the US dollar denomination, right? As far as most people were concerned, these were US dollars, right? So We don’t have to explain to somebody what gold is. We don’t have to explain to somebody that gold is valuable. You don’t have to explain to somebody that people used gold before we even had written words. Right?
Monetary Metals
Right.
Jeff Snider
So gold has a huge, huge advantage because it is traditionally a monetary form.
Monetary Metals
Versus, hey, Grandma, get into this new Jetcoin. Yeah. Well, I don’t get it. What’s a smart wallet?
Jeff Snider
Right.
Monetary Metals
Right.
Jeff Snider
So gold has so many advantages. And so you pair that up with a usability function and suddenly you got something.
Monetary Metals
Right.
Jeff Snider
Then you’ve got a form of currency that can actually compete realistically in the broad commercial, commercial and financial context.
Monetary Metals
And so before we end here, I want to ask you a question which I ask all my guests. What’s a question I should be asking the future guests of the Gold Exchange Podcast?
Jeff Snider
Where is this hurdle? I mean, if we’re going to talk about, you know, if we’re moving away from macroeconomic SMS, if we’re talking about monetary systems, which, you know, that’s my thing.
Monetary Metals
We sure do.
Jeff Snider
I love monetary systems as you guys do. Can we identify where that hurdle point is, or that point in which it becomes functionally realistic to make currency, gold system, whatever currency it happens to be, a widely available medium that therefore becomes efficient enough that it can actually overturn the system that we have? And then it overturns the wrong word, because I think the future is the dollar will still be there. The Eurodollar will still be there in some form. Probably, it’ll probably be, you know, some kind of—
Monetary Metals
Taxi still exists, right?
Jeff Snider
It’ll be some kind of reserve stablecoin.
Monetary Metals
Right.
Jeff Snider
But it won’t be the money. So think about how do we lower that threshold enough that we have all these competing currencies that suddenly the door swings wide open and they could just jump right through it.
Monetary Metals
And where do people get more Jeff Snider? Because obviously Jeff Coin is out.
Jeff Snider
Jeff Coin? No, we’re not doing a Jeff Coin.
Monetary Metals
We’re not going to do that. So if anyone tweets about Jeff Coin, don’t buy it. But where’s Eurodollar University? Where’s more Jeff Snider?
Jeff Snider
Eurodollar University, we’re on YouTube. We do a daily YouTube show, or almost every day. We actually have a new Eurodollar Talk channel. which Keith was on. He was really the first guy that we had on because I had so many questions for Keith. And as always, Keith was the first.
Monetary Metals
He had the answers.
Jeff Snider
I got the answers. So Keith was our first guy on Eurodollar Talk. That’s the YouTube channel. But Eurodollar University, eurodollar.university is the website.
Monetary Metals
Jeff, as always, now great to meet you in person.
Jeff Snider
Absolutely.
