The U.S. Is Now Buying Yen Transcript, AI Summary & Key Points

00:00 So, something just happened that hasn't happened in 28 years. The United States government is spending its money to save another country's currency. Here's a quick [music] look at the end as Japan and the US warned of further coordinated action in FX markets. That's after confirming the first joint intervention in 15 years to lift the Japanese currency from a near four decade low.

00:23 President Trump, for his part, earlier said the joint intervention was a signal of Washington's friendship with Tokyo. >> We have a good relationship with Japan. We're very strong, very, very strong financially and they are, you know, they have a weakening yen and they wanted a little bit of help and we're always there for Japan. Japan's been very good to us with the exception, of course, of Pearl Harbor.

00:46 >> Now, the most interesting part about this story is how the world found out about this. See, there was a photo of a note that belongs to Scott Bessant, who is the Treasury Secretary of the US. And on that note, it says, quote, "To do by Japanese yen 5 to10 billion end quote." And a photographer from Reuters took that photo which got published for everyone to see.

01:07 And so now we know the United States Treasury is intervening in the Japanese currency market to help save the Japanese yen. Now, this is a really rare thing to happen. So, now there's a few questions like why is the US doing this? And was this photo of the note an accident? Or was it leaked to us on purpose? And there's two theories here. Theory number one says it's a real to-do list and yes, the US is actually buying the yen.

01:36 But theory number two says the picture of that note was not an accident. It was done on purpose in order to trick investors because someone as smart as Scott Bessant does not need to write down a to-do list to buy billions of dollars worth of a currency that for some reason he also needs to write down the ticker symbol of JPY as though he doesn't know.

02:01 He would not need to write it down and be that specific. And also5 to10 billion in the currency market which is a market that trades over a trillion dollars a day is nowhere near enough to affect the markets. If you were going to spend $10 billion buying yen that number would not move the yen. But if that number was secretly photographed where it was released and published where every trader in the world could see it, well that then might change the psychology of the market and therefore its direction.

02:34 And that's because now every trader that was betting against the yen is now asking, do I want to be shorting the yen and betting against it at a time when the US government is now betting on it by buying it? So the question then is, well, if this note was planted, what might have been the reason to do that? Why would Scott Besson want to trick the market like that?

02:55 Turns out there might be a really good reason. So in today's video, we're going to try to answer that question. I want to show you what happened, what this means for the dollar, the markets, and our investments. So, with that said, let's get into it. Hi, my name is Henry Jick. Hope you're doing well. Come for the finance and stay for the US buying some yen.

03:14 We we understand that they are making serious efforts to uh stem the un substantial undervaluation in their currency and Joe this is more than just a market intervention that through our conversations with them we believe that they are going to uh continue to put the right policies in place that will lead the yen to get back to more of a normal equilibrium price.

03:39 So before we get into Scott Besson's note and what's really happening, I just want to give you a little bit of context for why the US is getting involved in Japan's currency market. See, the same week that that note was published, the US national debt crossed $40 trillion for the first time in history. And to put that in context, by the way, in March of 2024, the debt was only $34.5 trillion.

04:03 Today, it's 40. It's $5.5 trillion in just 2 years. And all of that happened without a recession, without a pandemic, without a stimulus package, without a world war. Nothing technically happened, right? This is what the machine just does now. And it's getting faster and faster. And when a country's debt starts growing that fast and it gets that big, you get into what's called a trillemma.

04:32 See, there are three things the United States is desperately trying to do right now. Number one, it's trying to reshore, bring the factories home so the country can make the chips, it can make its own weapons. Because if your adversary nation is making them for you, well, you're in trouble, right? You can't fight your own wars in the Middle East. Not good.

04:56 Number two, it needs price stability. That means the US needs to keep inflation down because politically speaking, people will forgive and maybe forget almost anything except the price of groceries and gas going up. And the third thing the US needs to do is keep the economy stable. And that includes having a strong stock market, keeping unemployment down, keeping the whole machine growing so that the money the US government gets from our taxes keeps flowing in to pay the interest on the $40 trillion.

05:33 So those are the three things it needs to do. But there's a problem. You can only fight two of them. You can't fight all three. Why? Well, it's because if you want to reshore and make stuff in America again, then American factories have to be able to compete with Chinese factories. And they can't do that with a strong dollar because a strong dollar makes everything we build more expensive and everything they build cheap.

06:00 So reshoring needs a weaker dollar. But a weaker dollar means everything we import costs more for us. So there goes controlling prices, right? Inflation goes up. Not good. All right, but let's say we keep the dollar strong and we fight inflation instead. What happens then? We kind of saw a preview of what could happen. See, for the last 6 weeks, the Fed chair Kevin Worsh talked about price stability first, which implies a strong dollar.

06:30 So, what happened was everything went down. Stocks went down. Gold, Bitcoin, they all went down. this whole AI trade, which is the story that's keeping the stock market strong right now, it breaks. And the worst part that's happening is that bond interest rates on what's called the long end treasuries, they're going up, right? The 30-year Treasury went up to 5.27%, which is the highest level since June of 2007.

06:59 That's not good. So, that is the trillemma. Okay? Okay. So then the question is well how's the US going to fix it? Which of the three will the US have to sacrifice? Well if you look at the first one the US wants to reshore. That's a national security threat right? That is not a negotiable thing. Without that we can't spread democracy to the world. Number two the US has to keep the jobs and the bond market stable cuz at $40 trillion worth of debt that's not negotiable either.

07:34 Which means the thing that has to get sacrificed is number three, which are prices. How do we know that this is happening? We know because the bond market, check this out. When the bond market looks at this trillemma and sees no good way out, it does the only thing it can do. It demands to be paid more interest. That's part of why the 30-year bond yield keeps going up.

08:00 Investors are basically saying, "Look, I'll still lend you the money. I know you'll probably pay me back. You're going to print the currency, which means you're going to pay me back with weaker dollars, so pay me more right now." Rates are going up because it's the market's way of demanding to be paid more for the money printing it thinks is inevitably coming.

08:24 And that makes the problem even worse because every point higher on this yield makes the $40 trillion worth of debt more expensive to carry, which means even more borrowing, which means more bonds to sell, which pushes yields even higher. It's like using a credit card to pay down a credit card to pay down a credit card. You get the idea. So based on this evidence, it looks like the bond market believes that in order to solve this trillemma, what needs to get sacrificed is the dollar.

08:50 except it needs to be done in a way that's not obvious to the market. Why? Well, it's because if the US comes out and says, "Hey, we're officially devaluing the dollar." Then everyone holding trillions of dollars of treasuries would start to sell them. The dollar's value would crash and rates would go up to counterbalance it, which would be very bad.

09:16 So a weakening of the dollar is the goal, but it has to be done subtly. It has to be deniable. Which is why when the US actually bought the yen, it also didn't sell dollars to do it. It sold euros, which is the only foreign money the US has. And as a result of that, the yen went up, right? The dollar went down. But on paper, the US never sold a single dollar.

09:41 Now, because the dollar is always measured relative to something else, as we're about to see, that's something else that they're choosing is the yen. And that's because out of the three things from this trillemma, sacrificing the dollar is the only option that doesn't cause an immediate crisis for the US economy. Unfortunately, it does cause a slow one.

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11:55 And now, let's get back to it. So, what needs to happen to sacrifice the dollar is a cooperation with Japan. And that's because Japan is America's banker, right? It's the biggest foreign holder of US government debt with over a trillion dollars worth of treasuries, more than any other country. And that's because for 40 years, Japan sold us cars and chips and machines and Pokémon cards.

12:16 And instead of putting their dollars into their savings accounts, they lent them right back to us by buying US government bonds and collecting the interest on them. That's how the US borrows a huge amount of money, right? It issues bonds. Japan buys them and that in return funds US deficits and that worked because Japan had no better option. Their interest rates were zero and ours were not.

12:40 So their money lived here and then everything started to change. The yen started to collapse. I made a whole video about that so I won't reexlain it here. All you have to remember is that when the yen goes up, aka this chart, when it goes up and strengthens really fast, something called the yen carry trade unwinds, which means everybody sells their US assets to pay back their yen.

13:05 And what happens is we get markets all around the world to correct and possibly crash. We saw a small preview of that in August 2024 when stock markets all around the world went down really fast. Now, this problem has actually existed for a really long time. It's not new. But the longer the yen keeps weakening, the closer Japan gets to the point where it might be forced to make the line on this chart go up to strengthen the yen, which is done by either raising interest rates, which is what they're slowly trying to do,

13:39 or by selling its US treasuries to raise its dollars to buy back its own currency, which they're also doing. And both of these roads lead to the same outcome, right? America's biggest creditor is selling US debt right when the US needs to borrow more money to finance its insane spending, which is getting even worse thanks to the conflict that's happening in the Middle East.

14:04 And that's why the United States is stepping in to buy the yen. It is not rescuing Japan out of generosity. The United States is rescuing Japan because if Japan goes down, it takes the US bond market with it along with all the other markets around the world as well. A weaker dollar though helps America reshore. A stronger yen keeps Japan's pension money from panic selling our Treasury bonds.

14:34 Right? So what the US needs and what Japan needs are the same things. They need the dollar to go down and they need the yen to go up. And that's why Scott Besson is buying the yen. Or at least he's showing us the illusion of that. He's not defending Japan's currency. He's defending America's ability to borrow money at reasonable interest rates. So then the question is, well, how do you weaken the strongest currency in the world without Congress and without spending money that you don't have?

15:08 And here's the answer. And the answer is Scott Besson. He's got a really interesting story that you might not know about because he's actually made billions of dollars for the funds he used to work for by legally manipulating the price of money. In fact, in 1992 when he was in London, he learned about how British homeowners borrowed money. See, in America, most people have what are called 30-year fixed mortgages where your interest rate is locked.

15:33 Even if the Federal Reserve increases interest rates tomorrow, your monthly payment wouldn't change. But in Britain in 1992, almost everyone had what's called a floating rate mortgage, which meant their monthly payment was tied to the Bank of England's interest rate. Now, at the time, Britain also made a promise to keep the pound pegged to the German currency.

15:55 Now, the only weapon a central bank has to defend the strength of its currency is by increasing its interest rates. So, Scott was like, "Okay, hold on. If the Bank of England increased its interest rates to defend the pound, then every homeowner in Britain would go broke, right? There's no way they would ever do that. Their whole economy and governments would collapse, right?

16:18 Let's put that to the test." So in 1992, Scott Besson, who was working for George Soros at the time, told him about this trade. George Soros then bet $10 billion against the British pound. George Soros was like, I bet England is not going to raise interest rates to save their money because their people would go broke. So Britain raised rates from 10 to 12.

16:40 They announced 15% and the market called the bluff because everyone could do the mortgage math. And by that same day, Britain surrendered. The pound crashed and Soros made a billion dollars in a day. It went down in history as the day a hedge fund beat a central bank. They called it black Wednesday. Sometimes you could just beat the market by understanding its psychology.

17:06 And that sometimes it's not the money that you spend to defend your currency. It's your credibility. It's what you say you'll do, right? Which is also why he was able to do it again with the yen. Because in 2012, Japan elected a prime minister named Shinszo AB and he came to power promising to print money in order to weaken the yen in order to revive Japan's economy.

17:31 So Scott Besson was like, "Thanks for telling me the trade ahead of time." So he made a huge bet against the yen. He bet on it to go down. And as Japan started its money printer just like Shinszo AB said it would, the yen collapsed from the high7s to over a hundred per dollar. And that bet made George Soros roughly a billion dollars. It was also called one of the greatest macro trades of the decade.

17:58 So what we're saying then is that Scott Besset might be one of the most successful currency traders who has ever lived. Second maybe to George Soros. He then left, started his own hedge fund with $2 billion of Soros's money, and he kept doing the same thing until Donald Trump made him the Secretary of the Treasury to the United States. So, with all of this in mind and with this context, knowing just how smart he is, do we still believe that note was just an accident?

18:30 Right? Scott Bessence in a room where he knows there's a ton of photographers with a note that's just somehow perfectly turned the right way that says buy Japanese yen with the ticker symbol JPY as though he doesn't know. And also a dollar number that is way too low to technically do anything. But what that note could end up being is the perfect psychological weapon to discourage traders from betting against the yen.

19:00 Which is also why the yen is actually getting stronger right now because Scott Bessen is making the world believe the US government's promise to buy yen is real. And if he happens to be successful, he might never have to spend that much money. He's using the market's psychology against itself. And all that does what? Buying the yen or the illusion of it strengthens it.

19:25 And as measured in dollars, it makes dollars go down. Which seems like that's exactly been the plan that Donald Trump has wanted for a really long time now. So then the question is, well, how is this going to affect the markets and our own investments? And I think the best way to answer that question is to look at it from two possibilities. And the first is to look at an open AI researcher named Leopold Ashen Brener.

19:52 His hedge fund blew up and lost billions of dollars. Now Luke Groman from FFTT asked what timeline is that in? Is Ashen Brener the equivalent of something called long-term capital management which happened in 1998 or was that the new century financial crisis in 2007? Okay, what does any of that mean? So timelinewise, in 1998, a giant hedge fund called LTCM collapsed, right?

20:19 And when they did, Wall Street and the Fed rushed in with a bailout. They lowered interest rates. They added liquidity and stocks went up another 55% higher over the next 18 months. The blowup was actually a buying opportunity. Are we in that timeline? or are we in April 2007 when a big subprime lender called New Century went bankrupt? Everyone said the same thing.

20:45 It was isolated and we should buy the dip, right? So stocks went up a few more% and then lost something like 50%. We don't know. Both of those times in history looked the same. Now either way, what I think is the most interesting part is to look at what happened to gold in both of those cases. For example, after the LTCM bailout of 1998, gold basically never traded lower again.

21:10 And after a new century in 2007, gold also never traded lower again. So whether the crisis was averted or this is just the start of one, the government's response throughout history has always kind of been the same, which is to print money and the stuff that they can't print more of begins to win in a big way. So, if we were to get inside the mind of Scott Besson and try to understand the psychology of the market, when the United States chooses to have a weaker dollar, it's almost like we're being told in advance what

21:45 they're going to do. So, here's how I'm personally thinking about all of this. And again, usual disclaimer, this is not financial advice, but the way that I see it is assets in this world right now are grouped into two different buckets. Things they can print more of and things they can't. Now, dollars they can print. Bonds promises that they pay back in dollars printable.

22:06 But gold, Bitcoin, land, energy, physical assets, right? Commodities, the actual factories that they're trying to rebuild, nobody can just print those. However, before the United States returns to the big print, the markets can continue going down because in order to print, there has to be an event to justify it. Now, one of the darkest versions of this theory was from Luke Groman, and he basically said that everything that the US has been doing so far, like talking about having a strong dollar while not wanting it,

22:44 but doing all these policies that sort of lead to a stronger dollar and then restarting an inflationary war in the Middle East, that all looks like a mistake only if you assume that they're trying to avoid a crisis. But maybe the point is to trigger one. Because think about Kevin Worsh's position, right? His entire reputation is this inflation hawk, right?

23:08 Like he can't just walk out tomorrow and be like, "Hey guys, I'm going to print a ton of money and lower interest rates now." Cuz then his reputation would just be destroyed, right? But in a real crisis with layoffs and a lot of fear, that's when printing trillions of dollars is not a betrayal of his principles, right? It's a rescue because, hey guys, we had no choice.

23:28 And as Luke Gman put it, if that's their plan, then they're right on track, which means the sequence of events might actually be everything goes down first, including gold, including Bitcoin, like we saw in the past 6 weeks. And if and when the pain gets bad enough, perhaps long-term Treasury interest rates go up skyhigh, triggered by what's happening in the Middle East or another conflict or who knows what else.

23:54 Then the printer turns on and then the things they can't print more of start to go up. Now when that happens though, no one knows. Could be this year, could be next year, could be 5 years from now. We have no idea. Everything in this video is just theories built on watching what they're doing cuz they're never going to actually announce any of this, right?

24:17 There's never going to be a press conference where they're like, "All right, guys. We're going to start weakening the dollar and printing lots of money." The whole point is deniability. And it looks like all these little things like selling euros to buy yen and like the note that's leaked. Like all these things are sort of breadcrumbs in this deniability.

24:38 So here's what I'm sort of paying attention to. I'm looking at things like the 10 and 30year Treasury bonds, the strength of the yen, and the price of oil and gold. If the interest rate on the 30-year Treasury bond keeps going up while stocks keep going down, then pressure is building and we're getting closer to the printer. If gold starts going up while the dollar is going down, then the debasement trade is back.

25:04 Now, if you want to know more of my thoughts on the economy and how I'm thinking of possibly investing into these assets, you can find those videos and more in the member section where I post my extra thoughts and I post a little early. If that's valuable to you, the link is down below. Thank you so much for watching this video. I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. Love to see you here next time. Take care.