#844 Russia Sanctions Lead To Long-Term Problems For The U.S.

This episode is a little different than the usual podcast format. There is no guest. Instead, I will share a couple of thoughts I have around a specific topic. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin. Visit compassmining.io to start mining bitcoin today! ======================= The world's 2nd largest crypto exchange, OKEx, has dropped the "E" to become OKX, reflecting its evolution from a traditional crypto exchange to a comprehensive, cross-platform crypto services provider. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Explore DeFi, NFTs and play-to-earning gaming with the world's most powerful crypto exchange. Visit OKX.com to learn more. =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Today's episode is a breakdown of the Russia-Ukraine situation, the financial sanctions that have followed, and what I think is a really important conversation around short-term versus long-term decision-making. I hope that you enjoyed this episode. Before we get into it, I want to first talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes. They leverage LMAX Group's liquidity relationships and ultra-low latency technology. LMAX Digital is the market-leading solution for institutional

• 0:46Anthony Pompliano?

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• 1:29Anthony Pompliano?

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• 2:13Anthony Pompliano?

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• 2:56Anthony Pompliano?

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• 3:21Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:44Anthony Pompliano?

  Good morning, everyone. Bang, bang. The Russia-Ukraine conflict continued to increase in intensity over the weekend. While the violent combat has been playing out on the ground, the United States and their allies have been busy waging economic war against Vladimir Putin and Russia. There were a few key decisions made in the last 72 hours that got me thinking. We are watching a repeat of the conundrum that the Federal Reserve was in during the 2020 COVID crisis. First, let's go back in time and revisit what happened in 2020. During March of that year, the government recognized the severity of the pandemic and ordered government-mandated lockdowns across the country. This created a significant slowdown in the velocity of money, forced thousands of businesses to shut down, led to millions of people filing for unemployment each week, and financial

• 4:28Anthony Pompliano?

  markets saw the worst liquidity crisis since the global financial crisis. The Federal Reserve, in concert with their political colleagues, made the quick decision to do two things: one, manipulate interest rates to 0%, and two, pump trillions of dollars into the financial system. There will be many books written about the efficacy of those decisions, including the size and scope. Regardless of where you come out on the impact of the monetary and fiscal decisions in 2020, it is clear that decision-makers optimize for mitigating short-term pain over the long-term potential consequences. As you would expect, the short-term optimized decisions led to significant long-term issues. We have inflation at the highest level it has been in 40 years, the wealth and equality

• 5:10Anthony Pompliano?

  gap is wider than it has ever been, unemployment is still higher than pre-pandemic, and financial markets swing with significant volatility. Was the short-term trade-off worth it? It is impossible to know. We will never be able to identify how bad the economic situation in 2020 would have become without the Fed and politicians' intervention. We do know how bad the long-term impact has been, though. Short-term optimization in the face of long-term, sound decision-making is a story as old as time. The United States is facing the exact same situation again, this time with a geopolitical twist. Russia's invasion of Ukraine has forced the hand of NATO to respond.

• 5:53Anthony Pompliano?

  The consensus belief is that these countries will refrain from engaging in direct combat, but instead pursue economic sanctions against Putin, Russian banks, various Russian citizens, and the Central Bank of Russia. These hard-hitting measures are meant to inflict maximum pain on the country. It is important to remember that the leader of a country is almost never directly impacted by the financial sanctions levied, but rather the goal of the sanctions is to inflict pain on the citizens of Russia, with the hopes that they will rise up and remove their leader. This is true of the sanctions targeting a variety of Russian oligarchs, but also of the average citizen as well. When Russian banks or the country's central bank are sanctioned, the average citizen in Russia is who feels it most.

• 6:35Anthony Pompliano?

  They can't use the bank, they can't withdraw money, they can't send money to loved ones, it becomes incredibly difficult to purchase goods and services. The billionaires and oligarchs have their assets frozen or confiscated. The list goes on and on. This morning, the United States took these economic sanctions one step further and banned any US citizen or company from conducting business with Russia's central bank. The only other time that the US has ever pursued an action this severe has been in Iran, which has played out over the last decade or so. Now, I'm not an expert on geopolitics, nor am I an expert on the economic impact of financial sanctions on NATO's adversaries. I know enough to be dangerous, but I don't want to waste our time regurgitating what you can read elsewhere.

• 7:18Anthony Pompliano?

  Instead, I think it is important to call out that the United States and NATO are making a very specific trade-off decision: mitigate the short-term problem at the cost of a long-term problem. This is a repeat of the Federal Reserve's decision during 2020. The short-term risks vary from the invasion of Ukraine to all-out nuclear war. It makes sense why the United States and their allies are pursuing the economic sanctions to neutralize as much of these situations as possible. If you're going to err, it is better to err on the side of too aggressive here. But these actions don't come without long-term consequences. Countries around the world have been officially put on notice. If you use the US dollar system, the health and sovereignty of your financial system

• 8:01Anthony Pompliano?

  are solely dependent on keeping a good relationship with the United States. While most countries disagree with Russia's decision to invade Ukraine and are celebrating or participating in the financial sanctions, they will likely all start developing a plan to reduce dependence on the US dollar system in the future. They understand that there is no resiliency without an insurance policy or a backup plan. Economist Steve Hank, who I normally disagree with on a lot, had a great tweet over the weekend where he said "weaponizing the SWIFT international payment system might cut Russia off, but risks eroding the dollar-denominated global financial system. Indeed, it will give rise to alternative systems developed by China and Russia," just another example of why sanctions are counterproductive.

• 8:45Anthony Pompliano?

  Now, the historical options were to hold foreign currencies or gold, but that doesn't seem to be a viable plan for Russia as we are watching in real time. This leads me to believe that countries will choose to build swift equivalents outside the US dollar system. And for example, Russia claims they have one internally already. They'll also choose to set up non-USD accounts with various trading partners, and they'll begin to heavily investigate digital currencies. The Bitcoin community has obviously been saying for years that countries will eventually adopt digital decentralized money. This may be true, or it may not, but it isn't the only option. Take China as an example. The superpower will likely accelerate their plans for a digital renminbi

• 9:28Anthony Pompliano?

  or a central bank digital currency. The Chinese digital currency won't be decentralized, but it will operate on payment rails outside the US dollar system. It provides total control to the Chinese government and prevents any attempts by the US or NATO to sanction China financially. We haven't seen this type of system stress-tested yet, but I think that that situation is coming in the next few years. We also shouldn't discount Bitcoin either. The decentralized currency is a neutral technology that can be used by anyone, either friend or foe. While most people are talking about Russia potentially using Bitcoin to circumvent the sanctions, we saw the Ukrainian government post a Bitcoin address on Twitter and ask for donations to help fund their defense efforts.

• 10:12Anthony Pompliano?

  Consider the fact that millions of Ukrainian and Russian citizens are going to want to move geographically because of this conflict, and it becomes obvious that Bitcoin would be the superior way to take their economic wealth with them. There are no winners in war. The United States and NATO are being forced to respond to the invasion of a sovereign nation by a nuclear-armed country that happens to be one of the largest energy producers in the world. The geopolitical chess that is unfolding is hard to keep up with. It is nearly impossible to know which decisions are right and which are wrong. Eventually, we'll be able to evaluate the efficacy with the benefit of hindsight, but we aren't afforded that luxury today. One thing is clear, though. The United States and their partners are making decisions to mitigate short-term risk,

• 10:55Anthony Pompliano?

  but it will come at the expense of long-term problems. Maybe we can address the long-term problems later, or maybe not. It is unfair to play Monday morning quarterback, so we must simply be aware of the trade-off we are pursuing, and then work to make the best of the situation. I'll continue to spend time learning about this situation and thinking through the various implications. If you have any ideas, or insights, or knowledge to share, please share them with me on Twitter or through the newsletter by just simply responding to the email. Hope each of you has a great start to your day, and I'll talk to you tomorrow. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered.

• 11:40Anthony Pompliano?

  Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more, and I'll meet you guys for the next episode.