00:01:45.640is that the two sides have agreed to extend the truce.
00:01:49.720And Trump is back to his usual bluster and his threats, but actually it seems that, at least according to Saudi media, and take it with a grain of salt, it seems that the truce is back on.
00:02:02.880And that they're going to extend the MOU for another 60 days.
00:02:06.700For what purpose, you might ask, what is going to change in the next 60 days?
00:02:10.620it doesn't look like much. It really doesn't look like much because Trump is betting that the
00:02:18.420Iranian economy will break and that will lead to the overthrow of the IRGC or it will make them
00:02:26.420relinquish some of their demands or whatever it is. I just don't see it. As I've mentioned a bunch
00:02:34.220of times Saddam Hussein was willing to starve his people from 1991 till 2013. He had to go in and
00:02:42.880be physically overthrown. He didn't change his mind because of it. The Iranians aren't going
00:02:48.640to change their minds either because why would they? There is no basis for negotiations to happen
00:02:55.320since there is so little trust on the part of the two sides and since if there was a deal that was
00:03:01.760acceptable to the Iranians, it would never be acceptable to the Israelis. And the Israelis can
00:03:07.520still choose to escalate the conflict if they wanted to, and draw the Americans back into it
00:03:13.440as they had done. So, okay, the ceasefire is informally extended, so it seems. We might hear
00:03:21.980some announcement confirming this or denying it, but nothing in the Memorandum of Understanding
00:03:28.400has been implemented. None of the terms that the two parties set have been implemented.
00:03:33.620There is nothing to suggest that the Americans are in the process of actually withdrawing from
00:03:37.720the region, which the Iranians will demand as a minimum condition. And here we are. What does
00:03:44.380that mean? Pretty much nothing, really. Everybody's still stuck in this war. And Trump is denying that
00:03:51.480there's a shortage of munitions. We've covered this in previous episodes, how pretty much the
00:03:56.240media reporting across the board is that the United States is running out of the right kinds
00:04:01.820of ammunition that it needs to fight the Iranians. From missile interceptors to cruise missiles to
00:04:07.300JASMs to pretty much the things that are needed to fight at this range without being exposed to
00:04:14.220air defense. The Iranians are getting new air defense systems, by the way. And Trump is saying
00:04:20.380none of this is true, it's peanuts, we can still fight this war. I don't see it. The Americans are
00:04:29.420really struggling to be able to continue this war, as far as I can tell, because they're running low
00:04:35.780on the number of deployable aircraft carriers. Now the Americans have 11 nuclear-armed aircraft
00:04:42.820carriers, of which only three can really be deployed at any one time. The rest have to be
00:04:47.700either in training or in maintenance and if you deploy them outside of that then eventually
00:04:53.820the there is a time limit on how long you could keep them for and you're seeing that time limit
00:05:00.180in action because the sailors on the Abraham Lincoln seem to be slowly losing their minds
00:05:04.560uh we had one basically uh where was this anyway we had one reportedly trying to kill himself
00:05:12.800and tossing himself overboard and the images of the carriers seem to show them covered with rust
00:05:20.200and the aircraft are covered with writings that are objecting to the war and saying all of this
00:05:26.480for israel all of this for the holy land blah blah blah like the morale of american soldiers
00:05:32.680deployed seems to be falling apart because they can't be convinced of a good reason as to why
00:05:39.680they're fighting. And there is nothing to suggest that there is a winning strategy there.
00:05:45.740And soldiers need to have a moral reason for them to go around and suffer the vagaries of war and
00:05:53.180to go around killing people. And nothing of the sort is being provided. So the United States is
00:06:01.420pulling an aircraft carrier from the Western Pacific, from the area of operations that is
00:06:07.440basically facing China, and that is supposed to be protecting South Korea, Japan, and Taiwan
00:06:14.820from potential Chinese aggression. That aircraft carrier is being pulled in to relieve the Abraham
00:06:21.480Lincoln, while I think the Ford is facing extensive repairs, and there's the George
00:06:28.560Washington. So they're struggling to keep up two carriers deployed at the same time.
00:06:33.220This isn't normal if your plan is to fight a long war, especially a war that is by definition
00:06:41.220being fought at a much higher intensity than the previous wars that the Americans have had to fight
00:06:47.180in Iraq and Afghanistan in recent decades. And if you're China, you're looking at this and going,
00:06:54.080well, that's great. The Americans are struggling to maintain military power in our face.
00:06:59.780and it's happening at a time when the u.s has paused weapon sales to taiwan because they are
00:07:09.640struggling to deliver enough munitions for the uh middle east theater now if you go back
00:07:16.980when trump became president again he appointed elbridge colby a policy wonk very intelligent
00:07:26.360very capable guy, to lead a transformation of American policy so that the United States would
00:07:33.240focus its attention on Asia rather than the Middle East, by which I mean the Asia-Pacific region
00:07:41.160against China rather than the Middle East, with Colby arguing for a lot more support to the
00:07:48.140Taiwanese, a lot more support to Japan and South Korea in order to keep China constrained.
00:07:53.800Now the U.S. is in a position where it can no longer maintain that policy.
00:07:59.880And it's been obvious for some time, because we had this reporting that the Americans weren't delivering in May,
00:08:07.540even though back in March, while the war was still going,
00:08:11.900the Taiwanese were saying that actually the U.S. had very high urgency to speed up weapon deliveries.
00:08:19.280If you can't keep up aircraft carriers except in one part of the world, the Middle East, and you're having to withdraw them in the face of your most formidable adversary, China, that means the war is going quite badly.
00:08:35.940And that means if you resume the war, your ability to confront your declared main enemy, China, is massively degraded.
00:08:44.900And that's what it looks like to me, and I think this is the only explanation for why the Americans have agreed to extend the ceasefire.
00:08:52.600If they could defeat Iran militarily, they would have tried.
00:08:57.080But they did try, and they failed, and now we're in this pattern, in this holding pattern, where there is one ceasefire after the other, and okay, what does it change?
00:09:09.720And this seems to be emboldening the Iranians, because basically the reporting that you're seeing coming out of the media, according to Reuters, is that it's Iran that is now planning to escalate.
00:09:25.340again it's Iran that is now supposedly or at least that is leaking information to the media
00:09:32.240saying that they are planning to escalate in order to push the United States back and force
00:09:38.380it to fully withdraw from the bases in the region maybe they'll let them just stay in Israel
00:09:43.000but this doesn't really look good at all and there is no indication that Hormuz will be open
00:09:50.820anytime soon. Like there's zero reason to believe that. But Trump is betting that time is on his
00:09:57.580side, or at least Trump is saying to the public that time is on his side. We are going to get
00:10:05.080to that in a moment and explain why, in fact, it isn't. So again, confirming the view that the
00:10:12.780Americans are sort of making massive reductions to their presence in the face of China, what it
00:10:19.100looks like it came out of the blue, but Trump has ordered Hexf to stop doing exercises with South
00:10:26.660Korea, because these are inappropriate and hostile towards North Korea, and Trump has an excellent
00:10:33.900relationship with Kim Jong-un. I don't understand. Where is this excellent relationship? What does
00:10:40.300it actually mean? Is Kim going to abandon his nuclear powers? Of course not. Is he going to
00:10:47.660fully reconcile with South Korea or reunify? No. There is nothing to suggest that the North
00:10:55.500Koreans have made any commensurate concessions. This seems to be one-sided from Trump to be able
00:11:01.860to push a narrative that, oh, trust the plan, everything's working. Okay, in what way? All
00:11:09.180that's happening is that Asia, which is supposed to be the main strategic threat, China is supposed
00:11:13.900to be the main strategic threat, is being given more space. And if you're the Philippines, or if
00:11:19.500you're Japan, or if you're Vietnam, and the Americans are kind of counting on you to help
00:11:24.900check the Chinese, you look at that and say, well, I was never as close as the South Koreans,
00:11:32.340but Japan was, obviously. But Vietnam, definitely not. The Philippines,
00:11:36.920never as important as South Korea industrially. That country produces maybe a quarter of the
00:11:43.620world's shipping. So it's a pretty important industrial power. It has a leading chip technology
00:11:51.080through Samsung. And they're being kind of ditched after having had their THAAD missiles taken away
00:11:58.980or their THAAD batteries taken away. And now they're left in the lurch with no communication
00:12:05.800around this so that's not what happens when you're winning and three aircraft carriers are left the
00:12:14.840rest are in docks the pacific is abandoned and if you look at some of the images that are coming out
00:12:22.360uh from the u.s navy from people uh from from the sailors on the boats
00:12:27.880like it's it's really not looking good it's not looking good it seems that they can't make basic
00:12:39.620things function now sailors will tell you apparently that plumbing problems and issues
00:12:47.500with deployment are always the case but it seems that you're hearing a lot more complaints about
00:12:52.940than normal, which again reflects that issue with morale. I have no idea what it is that I'm looking
00:13:00.480at here, but okay. And at the same time, all of the logistics infrastructure of the United States
00:13:11.940in the Gulf has been hammered. The base in Bahrain has been hammered. The bases in the UAE get
00:13:17.880hammered regularly. Dukunport in Oman gets hit every once in a while. So they're cutting off
00:13:24.980the logistics, and that has forced the United States to shift its logistics basing to Diego
00:13:32.920Garcia. So instead of the basing, instead of the logistics support for the U.S. Navy happening in
00:13:41.800gulf itself it's been shifted somewhere here to diego garcia which isn't exactly a sign of
00:13:53.320confidence it's not exactly a sign of the u.s actually succeeding and the options that leaves
00:14:00.840that this leaves the americans with in terms of escalation are very limited because if they go
00:14:06.440back into the war again in full, again, the global economy falls apart. If you remember,
00:14:17.860Scott Bessent had this note that he showed to media that he's going to be buying billions in
00:14:22.600Japanese yen in order to prop up the yen and stop it from losing value. Well, the yen is still
00:14:30.540losing value. And now the yields on the Japanese bonds are almost 3%. They're at 2.9%.
00:14:40.940And the exchange rate for the Japanese yen is still near a 40-year low. Why does this matter?
00:14:48.200I went over this in an episode with Dan on a Brokonomics episode, which is going to come out
00:14:55.180tomorrow. But just to give you an idea briefly, because the Japanese have been printing money
00:15:02.660endlessly with extremely low interest rates, people have been borrowing in Japanese yen
00:15:10.280and then using these Japanese yen to buy other assets. If you borrow in Japanese yen,
00:15:17.080maybe you will have to pay half a percentage point, 1% in interest. If you invest the money
00:15:24.440that you borrowed in other assets somewhere else in the world, you might be getting 3%,
00:15:31.2004%, whatever. If you do that, you then collect that 2% difference, and it's essentially free
00:15:39.140money. And that carry trade is worth hundreds of billions, maybe a trillion dollars. It's a
00:15:46.600massive contributor to the inflation and asset prices that you have all over the world.
00:15:54.100You borrow that money, you only have to pay back a tiny amount, you know that the Federal Reserve
00:15:58.940is going to keep on pumping up the S&P 500 or any bunch of other assets, you invest in those assets
00:16:07.180or you even just invest in American treasuries and you collect that difference. With the interest
00:16:13.240rate on the Japanese yen going up and the value of the yen going down, the ability to continue with
00:16:18.200that trade goes down. So you have to unwind your position, meaning that you have to sell the assets
00:16:24.180that you purchased with borrowed money in order to repay the money that you've borrowed.
00:16:30.580Trump is arguing that time is on his side, but the possible breakdown of the Japanese currency
00:16:37.280shows it isn't. And the reason that the Japanese currency is on the verge of breaking down
00:16:41.880is because Japan imports so much of its energy from the Middle East through the Strait of Hormuz.
00:16:50.520So the Japanese are having to pay for this, but they are an integral link in the global financial
00:16:56.420system. Not just that, the Japanese are also the largest holders of American debt.
00:17:02.040If the Japanese have to sell American treasuries to defend their currency,
00:17:07.320that leads to a cascading effect and pushes American interest rates up.
00:17:14.260And this process is beginning and leading to a wider contagion.
00:17:20.760Britain, which is the second largest holder of American treasuries,
00:17:24.980is now also facing historically high borrowing costs.
00:17:31.740The British have to borrow an insane amount of money
00:17:34.960because they are financing a £3 trillion debt, their financial system is beginning to show
00:17:42.300weakness. And these interest rates are what determines mortgage rates for everybody.
00:17:48.760So if mortgages become unaffordable, house prices fall apart. But so many people in Britain have
00:17:56.960borrowed money to finance the purchases of their house, that if housing costs go down,
00:18:02.180millions of people end up in negative equity effectively bankrupt paying back loans on houses
00:18:09.860that are now much cheaper than the amount borrowed and you're seeing the same thing happening in
00:18:17.500germany the german bond market is at a 30 the yield on german debt is at a 30 year high
00:18:25.980so when trump says we can wait out the iranians because we can crash their economy
00:18:33.900this is simply not true the whole financial system is beginning to unravel and time is on
00:18:41.940iran's side because when these kinds of regimes face massive shortages that actually strengthens
00:18:49.420the grip of the regime over the people because it means that there are fewer resources
00:18:54.860these resources are in the hands of a totalitarian regime that regime decides how to allocate these
00:19:02.660resources and it allocates them based on loyalty and so if you are loyal to the regime you get to
00:19:09.320eat if you are disloyal you and your family starve so the idea that trump has time on his side is a
00:19:18.280fantasy. But because his military options are so evidently lacking, he has to pretend that time is
00:19:26.920on his side. Because if he were to confront the public and say, we lost the war, you can't go
00:19:33.500into a midterm election having confessed to losing a war of choice against a third-rate power like
00:19:41.160Iran. And I'm not dissing the Iranians by calling them a third-rate power. If you accept that the
00:19:47.880americans are first-rate power and the chinese and the russians are second-rate powers the iranians
00:19:53.200are at the top of the list of everyone else but that is what has happened
00:19:58.680and so the americans are left either with the possibility of nuclear escalation
00:20:05.500which marjorie taylor green is saying is being discussed i don't know whether or not to take
00:20:12.600her word on anything, but it is reasonable to assume that on the list of options that are
00:20:18.740presented to a president, one of them would be to use nuclear weapons, nuclear bunker busters maybe,
00:20:25.900to try to penetrate the mountain fortifications that the Iranians have and to get to their
00:20:32.600nuclear program and to get to their underground missile cities. Or you just have to wait
00:20:38.780indefinitely, and the waiting is causing the financial system to break. This is where we are
00:20:45.160in the war. And again, if the Americans had a viable and credible military option that they
00:20:53.140believed would work, other than maybe nuclear, they would use it.