Yanis Varoufakis: This Will Trigger Wall Street's Biggest Bubble Burst | LATEST INTERVIEW Trump Iran

0:00 Trump had succeeded during 2025 to extract from Saudi Arabia, from Qatar I remember his visits in Qatar, the the plane gift and all that. There was something far more important happening behind the scenes and that was the Gulf states had um together Saudi Arabia, United Arab Emirates, Qatar, Bahrain and Kuwait together they had pledged and they meant it. They had pledged to invest 1.8 trillion dollars in the next 18 months.

0:34 That is before the end of 2027. In AI and other businesses in the United States. That's 1,800 billion dollars. Plus Saudi Arabia together with the UAE had pledged to buy weaponry from the American military industrial complex of about 1 trillion. Remember the the US military budget used to be about 1 trillion. Now it's going to go up to 1.5 trillion. Another trillion would come from the Gulf states.

1:09 And that would have that that would have been spent within 2026, early 2027. Together we're talking about nearly 3 trillion that was about to flow to Wall Street from the Gulf states. That's gone. And it's gone because the Gulf states have lost their liquidity. They're not selling enough oil, but it's not just oil. You know, um Dubai has uh um diversified from oil to a very large extent. They're into the business of trading gold. Most of Indian gold is being traded through Dubai.

1:40 Hotels, I mean it's a huge tourist business. They are running at 10% um you know, off their capacity. 90% of the rooms are empty. They they they are running I mean it's they've got as I said before, they've got six set some like almost six trillion dollars worth of of American dollars, but that's a stock. It's a stock of dollars, right? It's not a flow. Money the 2.7 2.8 trillions that they had pledged to Bessant or to Trump for the for this year, that was a flow. And that flow dried up.

2:20 Uh and Scott Bessant does his math mathematics, and he can see that if you deny Wall Street one 1.5, 1.6 trillion in a period of 18 months during a period when they are going haywire with um expenditure. I mean, you know, there's a huge bubble. Everybody knows it's a bubble. Everybody knows it's going to burst. But, if as always with bubbles, uh you never know when the bursting is going to take place. It is impossible. It's mathematics You can prove mathematically that it's impossible to to predict when it will burst. Uh and he's really worried that with this bubble in Wall Street, you take out one one one 1.5 trillion dollars of a flow into Wall Street, and people will go excuse the Australianism, ape I'm going to start with a puzzle.

3:12 In the last few weeks, something remarkable happened. Scott Bessant, the US Treasury Secretary, announced uh a 20 billion swap line with the Gulf states. Uh to me, that needs to be shouted from the rooftops as a very significant moment. I read the Wall Street Journal, I read the Financial Times, the New York Times. They were talking about uh a potential bailout for the Gulf states because of the war in Iran. They got it completely wrong.

3:43 The Gulf states really do not need a bailout. Uh if you take Saudi Arabia and the Gulf Cooperation Council states together, they've got about 6 and 1/2 trillion dollars worth of investments and of which one and a half 1.7 is is liquid cash 1.7 trillion. That's 1,700 billion. The 20 billion of a swap line by Scott Bessent is just you know, just a pip-squeak. It's it's not even worth talking about. So, why did he go through the motions of announcing it? Because it's not a it's not a small thing for a swap line to be offered to regimes like the Gulf states.

4:22 Uh I'm going to tell you what my interpretation is. What's happening is that Scott Bessent is absolutely panicking about the financial circuits of Wall Street. And this is a an indication. It's simply a symbolic gesture the swap line that he proposed effectively telling people like himself. Because remember Scott Bessent is a very accomplished um uh poacher that has turned gamekeeper. You know, he made a lot of money out of betting against governments.

4:55 Uh together with George Soros they they broke the Bank of England. So, he knows how that pack of wolves in the markets work and he's he's absolutely terrified that they're about to move in against the bond market and against the the stock markets of the United States. And why is he worried about that? And as I said the 20 billion, he knows that it is not worth uh speaking of in terms of the size of the swap line. It's symbolic.

5:21 Effectively, he's saying, "I'm here and I'm going to bail America out, the American financial markets." I had not a bailout of the Gulf states. So, let me explain that. The period between 1944 that's the Bretton Woods conference and today I break it down into three main uh time frames. The first one is the Bretton Woods period between 1944 and 1971, the 15th of August, the Nixon shock. The second one is between 10 1971 and the great financial collapse of 2008. And the third is beyond that.

5:56 Uh but I'm going to stick to the first two. Uh the Bretton Woods period and the post-Bretton Woods period. Now, when the United States was uh contemplating life after the end of the Second World War, uh the New Dealers in power in Washington, D.C. were absolutely um freaking out about the prospect of the return of the Great Depression. Cuz they knew that the moment the factories wouldn't be producing airplane aircraft carriers and bullets and ammunitions and tanks and so on. Uh and the men came back from the war. Um so, you know, labor demand would come down.

6:33 And labor supply would skyrocket. And they feared they feared that the the United States didn't have the capacity as a political economy to absorb um all the supply that uh the gleaming factories that had massively increased their productivity during the war due to the war could produce. So, it was a simply a question of, you know, how do we maintain our surpluses? This is without slipping into a great depression. And they were they were talking about 1949. They were predicting in 1944 that 1949 would be a new 1929.

7:10 And the answer they gave was the Bretton Woods system. In other words, uh the answer to the question, okay, even if we convert all our factories to produce instead of aircraft carriers and tanks, uh white goods and uh automobiles and uh what, you know, Boeing jets and McDonnell Douglas jets, uh who's going to buy all that stuff? The American economy can't absorb all that. There isn't enough aggregate demand. Effective demand for that in Keynesian terms.

7:41 Um so, the the answer was the Europeans and the Japanese. And where will they find the money to do it? They don't have money. They the money systems of Europe and Japan were gone. The answer was we will create them. And we will dollarize them. And the Bretton Woods system was the dollarization of Europe and Japan with fixed exchange rates and the system founded on the revolving around the International Monetary Fund primarily and to a lesser extent the World Bank.

8:09 The purpose of which would be to you know to promise foreign capitalists that you know um even the to the Greek capitalists that for 30 drachmas they would get $1 as long as they controlled they had capital controls and the American government would determine through the Washington-based IMF how many dollars they would give to the German to the Italian to the Greek capitalists. Okay, it was completely controlled but it was a it was a system that was hinged which was anchored on the American dollar.

8:38 Forget the story that that that that gold was lurking in the in the background because of the convertibility of $35 to 1 oz. That was also symbolic. It was a dollar. Okay? So the dollar was the anchor that um held down a system whereby America's surpluses were recycled to Europe and to Japan in order to maintain them. Okay? And the Vietnam War must not be underestimated because it was the two things. The Vietnam War and the Great Society program by LBJ that which were of course related one to another. There was a causal dialectical relationship between the two. But those two two things together together with the fact that the Japanese and the German capitalists boosted productivity well beyond American productivity.

9:33 American capitalist production productivity. The result was that the that the by 1968-1969, the United States had slipped from a surplus position to a deficit position. And it was then that Henry Kissinger, who was at the NSC at that at that time, the National Security Council, before he moved over to the State Department, put the question to his team. He said, "How can we maintain our hegemony now that uh we are a deficit country?" And a young man called Paul Volcker, who worked for him at the time, 1970, a sleeping minute and said, "We'll make the capitalists of the rest of the world pay for our deficits. We have to increase our deficits and have the capitalists of the rest of the world pay for them."

10:14 And this is the post-1971 period, the period of financialization, neoliberalism, all those words that we use often, with good cause, describe a system where the recycling mechanism of the post-war period was inverted. We between the '50s and the and 1970s late '60s, early '70s, American surpluses were being sent over to Germany and to and to France and to Japan. And uh after that, once America became a deficit country, all state was weaponized to recycle the surpluses of Germany, of Japan, and later China.

10:56 Now, petrodollar, the Arab states, effectively Arab state, the OPEC states, uh played a very important role in this because to begin with, um from 1946-1947 onwards, under the Truman doctrine in particular, um essentially Saudi Arabia would not have existed without uh a deal, a quid pro quo between uh the CIA, between the the State Department, and the Saudi royal family. Uh you do as you're told, and you we will let you keep a substantial part of the oil rents, but of course it will all be part of the dollar system, which was of course absolutely straightforward back then because even the French franc, even the Deutschmark was part of the dollar system, was part of the Bretton Woods system.

11:42 Um soon after that, um the problem the problem the interesting thing however was that remember Bretton Woods was predicated on capital controls because Washington wanted to control the um movement of uh dollar funds across the the the borders of the Bretton Woods system. Uh but because so much money was accumulating um as petrodollars in the pockets of the monarchs of the Gulf states uh a lot of that money didn't go back to the United States. A lot of it went to London. And that's where the petrodollar market and the eurodollar market, which was a result of the fact that once America became a deficit country, dollars were accumulating in Europe.

12:30 With every Mercedes-Benz that was being sold in the United States without a reciprocal purchase of a Cadillac by a Frenchman or woman a bunch of dollars went to Europe and that accumulated as so it was eurodollars and petrodollars and that was the in the armor of the Bretton Woods system which which was supposed to prevent the free flow of dollars to the rest of the system. Uh and this is the reason why the city of London became significant and it was not a backwater.

12:55 To to this day it remains somewhat significant. So Okay, so to cut a long story short, let me answer my own puzzle, the one that I I began with. Why is Got Basin freaking out? Well, he's freaking out because Trump uh had succeeded during 2025 to extract from Saudi Arabia, from Qatar I remember his visits in Qatar, the the plane, the gifts and all that. There was something far more important happening behind the scenes and that was uh the Gulf states had um um together, Saudi Arabia, United Arab Emirates, Qatar, Bahrain, and Kuwait, together, they had pledged, and they meant it. They had pledged to invest 1.8 trillion dollars uh in the next 18 months.

13:47 Uh that is before the end of 2027. Um in AI and other businesses in the United States. That's 1,800 billion dollars. Plus, Saudi Arabia, together with uh the UAE, had pledged to buy weaponry from the American military-industrial complex uh of about 1 trillion. Remember the uh the US military budget used to be about 1 trillion, now it's going to go up to 1.5 trillion. Another trillion would come from the Gulf states.

14:22 And that would have That That would have been spent within 2026, early 2027. Together, we're talking about nearly 3 trillion that was about to flow to Wall Street from the Gulf states. That's gone. And it's gone because the Gulf states have lost their liquidity. They're not selling enough oil, but it's not just oil. You know, um Dubai has uh um diversified from oil to a very large extent. They're into the business of trading gold. Most of Indian gold is being traded through Dubai.

14:53 Hotels, I mean, it's a huge tourist business. They are running at 10% um you know, of their capacity. 80% of the rooms are empty. They They They are running I mean, it's They've got, as I said before, they've got six se- something like almost 6 trillion dollars worth of of American dollars, but that's a stock. It's a stock of dollars, right? It's not a flow. Money the 2.7, to trillions that they had pledged to Bessant or to Trump for the for this year, that was a flow and that flow dried up.

15:33 Uh and Scott Bessant does his mathematics and he can see that if you deny Wall Street 1 1.5 1.6 trillion in a period of 18 months during a period when they are going haywire with um expenditure. I mean, you know, there's a huge bubble. Everybody knows it's a bubble. Everybody knows it's going to burst. But if as always with bubbles, uh you never know when the bursting is going to take place. It is impossible It's mathematic You can prove mathematically that it's impossible to to predict when it will burst. Uh and he's really worried that with this bubble in Wall Street, you take out one one one 1.5 trillion dollars of a flow into Wall Street and people will go excuse the Australianism ape And um and you know, this swap line was essentially his little message to finances, um here I'm willing and ready to print as much as, you know, dollars as is necessary in order to prop you guys up while at the very same time uh the companies in which most people work in the United States, the blue collar workers, uh are being bled dry. Uh if you look at consumer good companies, corporations, even pharmaceuticals, um you will find transport companies. You will find that they are tanking in the United States. AI is being propped up uh through the bubble, the self-perpetuating bubble through Scott Bessant's symbolic messages.

17:09 Uh and thus the point I made at the beginning that this is a very definitive, very vicious class war that is raging within the MAGA movement, within American corporate capitalism, within American society. It is spilling over to the to to to Europe. Uh it's um uh Now, does this mean that uh American hegemony is on the way out? Well, look Rick, I hope it does because of, you know, I've been looking forward to the waning of American hegemony since I was 10, or maybe eight. Um but again, it's exactly it's the same as as as with a bubble. You know it's going to burst. You know American hegemony is is is a goner, but you don't know when it's going to happen. And as Keynes very uh pithily said once, "The markets can stay irrational longer than I can stay solvent."