Travis Kling (3:32)

Well, sir, how are you doing?

Peter McCormack (3:33)

I'm doing very good, thank you. So this Beginner's guide to Bitcoin has been doing very well. People have really appreciated it. I'm good 10 episodes in now. I've covered a bunch of topics from why we need bitcoin, how money works, you know, what it is, how it technically works, and you know, also helping people understand how they buy and how they protect your private keys. So I've covered a lot of topics and I think during this show that I'm going to make with you, we're going to overlap in some of those, we're going to repeat some of them, but that's absolutely fine. But I didn't think there was a better person to get on and talk about macro and bitcoin with. We've done it a couple of times, so I'm happy to do this with you again now.

Travis Kling (4:10)

I appreciate it. Happy to do it.

Peter McCormack (4:12)

Okay, so you've done a lot of prep to help me in advance, so thank you very much for that, Travis. I really appreciate it. The thing that kind of really stood out for me when reading through all your notes is that a real standout thing here for people that they won't realize is that money itself is just one big experiment. You know, I've never known anything else. You've never known anything else. We've always had this money, dollars, pounds, whatever. But it is a giant experiment and people don't realize that, right?

Travis Kling (4:39)

Yeah, for sure. And the thing, one of the things we're going to, we're going to touch on here a bit that I like to remind folks is that there's a history to all of this. I think it's easy in sort of where we are in our lives, that it's 2020, I'm 34 years old. The US dollar is a world reserve currency. My entire career has been in the backdrop of the global financial crisis. And it's easy to lose perspective that there's a history to money, there's a history to central banking, there's a history to world reserve currencies, to gold, to all these different things. And it's extremely helpful in understanding the value proposition for Bitcoin, a non sovereign form of money, to have a sense of what the history of some of this stuff going all the way back is. That's definitely some of the stuff that I want to touch on today. This monetary and fiscal policy stuff that we're going to get into from central banks and governments globally and just the overall kind of global macro environment is intersecting with social movements and technology in this really historic manner right now. I think this very interesting, potentially kind of scary, but captivating way it's apparent that the concept and definition and role of money globally is on the brink of undergoing fundamental changes to the degree that we see it once every couple hundred years. And you don't have to look any further than that just to see that like, you know, the digital dollar, the digital renminbi libra Venmo wechat, Alipay. Like all of these, like the. The concept of money is changing. And then another thing that we're going to dive into here in a second, again going back to the kind of historical perspective, we are in the midst of the largest monetary experiment in human history. And that's not hyperbole, that's unequivocal fact. And there is no plan to end that. That monetary experiment is, in a really straightforward way, led to drastic wealth inequality that started a couple decades before the financial crisis, but on the back of quantitative easing is massively accelerated. That wealth inequality is giving a rise to populism. And that populism is going to push for large scale changes that we're going to see across many facets of our lives over the Next, call it 10 years or more. And in my opinion, I think those changes, which are of a scale that are difficult to implement and are not often or easily implemented, they're going to be implemented on the back of what I think is going to be a pretty vicious global recession and asset price collapse at some point, likely in the next decade. And that's going to occur right around the time that boomers are retiring and dying and wealth and power are being transferred to Gen X and to millennials. And that's a really important sort of backdrop for bitcoin as well too, because of the generational differences and how bitcoin is approached from younger generations to older generations. And Bitcoin's intimately involved in all of this. I think it's actually right squarely in the middle of it. So I want to start with a bit of a history lesson and I think we're going to talk for a while before we talk about bitcoin. But don't worry, it's coming.

Peter McCormack (8:38)

Yeah, no, that's absolutely fine. And that's one of the interesting things, is that I've often struggled to get some of my friends, my close friends, to really understand why bitcoin is so important. And I think this could be a show that I could end up passing them saying, you know, I've got this beginner's guide, but you know what, if you're not going to listen to it all, start with this one, because you really need to understand that you know, what money is, what this experiment is, how it can go wrong. And you know that bitcoin isn't just this magic Internet money. There is something behind it that actually can make money better.

Travis Kling (9:08)

Yeah, yep, no doubt. And like, so I think starting with the just sort of the history of money, which we've been using since before sort of recorded history. People in crypto talk about this a lot. Money is a method of exchange, a unit of account, a store of value, and it's just generally accepted by a group of people in exchange for goods and services. And from a sort of textbook perspective, you talk about commodity money, representative money, and fiat money. And commodity money is Money that you can use for something, money that has intrinsic value. Like in theory, you could say that maybe like a barrel of oil would be like a commodity money. And a representative money is something that you can exchange for something that has intrinsic value. So the US dollar up until 1971, when we got off the gold standard, you could exchange US currency for gold. So that was representative money. And then you have fiat money, which is the sworn enemy of all bitcoiners, which is money that has no intrinsic value and is backed by what is thought of as the full faith and credit of the government that's issuing it. And there's history to all those different types of money. And we've been using gold to store value for a long time. There's been other things. Before gold seashells were being used for money 3,000 years ago. And up until the mid 19th century, seashells were still commonly accepted legal tender. In West Africa, salt was used as money again as a commodity money, a method of exchange in the slave trade in sort of a couple thousand years ago in Timbuktu also, you know, going up to just sort of 500 or 1,000 years ago. And that's where this phrase worth his salt comes from, that people like, you know, use pretty often. Then you have these rye stones, which are these really big heavy rocks that were used as money starting in about 1000 AD in Asia Pacific. And they were given as dowries and his inheritances and to pay for ransom and to pay for food in some cases. In 1760 BC there was this Code of Hammurabi in ancient Asia, which is like the oldest preserved code of law. And there's a lot in the Code of Hammurabi that sort of formalized the role of money in the society at the time. It set interest rates, it set fees and penalties and things like that. And so when you look back over this 5,000 plus year history that we have for money, there's a commonly accepted framework when evaluating how good something is at being a money. And it's the six characteristics of money. Durable, divisible, portable, uniform, accepted, and scarce. And when you look at all the different types of money going back through history, the stronger those characteristics are, the better the money accepted in scarce being two really important ones there. There was a quote when I was doing research that I came across from Aristotle in 350 BC where he said, quote, when the inhabitants of one country became more dependent on those of another and they imported what they needed and exported what they had, too much of money necessarily came into use. So that was 350 years before Christ that he said that. And if people are looking for books on this type of topic, debt, the first 5,000 years and the ascent of money are two really good ones. Like if you kind of want to go further down the rabbit hole on this stuff.

Peter McCormack (13:06)

But some people might be looking at this, Travis, and thinking, well, why do I need to know about the history of money? Why do I need to care about these rice stones and salt? But really what you're talking about here is the evolution of money as a better money comes along and old money. D. Yeah, that's right.

Travis Kling (13:21)

Yeah. There's a reason why gold is a better money than salt. And it's within that framework of the six characteristics of money. And when we get to bitcoin, we're going to start talking about bitcoin fulfilling those six characteristics of money relative to gold or government fiat currencies along those lines, with gold, we've got gold artifacts and jewelry and stone walled paintings that were depicting gold. Those started showing up in 4000 BC. So like a really long time ago, gold is all over. The Bible shows up in Genesis 2:11, right at the very beginning. The first known gold coins were started showing up in 600 BC. And then you fast forward all the way to the back of World War II and you had the Bretton Woods Agreement, which set global currencies around the world. They set the exchange rates of those currencies so that they can be converted into a certain amount of gold. And up until 1971, the United States was on this gold standard and Nixon took us off the gold standard in 1971. And people talk a lot about the volatility of bitcoin. And I get it when it gets moving, it's quite volatile, but like a friendly reminder that the price of gold went up 275% in the first three years that the US got off the gold standard relative to the dollar. And in 1971 it did a three and a half bagger. So it's not that sleepy old gold that we're talking about here that was doing that. So just a reminder again going back.

Peter McCormack (15:05)

To history, why is it though that gold has, you know, maintain such a long, incredible history as a form of money and probably, you know, however successful, however much we, you know, like bitcoin, this, it's still going to have a role to play for, for a long time still, you know, it's, it's more of an obvious safe bet for governments to be buying gold rather than Bitcoin right now, why is it that gold has always maintained such value?

Travis Kling (15:28)

Yeah, it's. I feel like it's kind of a cheap answer for me to say Lindy effect. But like, that was the first thing that came to mind. It's just like when you had people drawing pictures of it on cave walls 6,000 years ago. Like, it just, you know, it goes back to that acceptability. And, you know, there's an argument, I think there's an argument to be made that it was pretty, that it was shiny. So that way, way back in the day, the fact that you could make jewelry out of it and people wanted to wear that jewelry, gave it this, this kind of staying power, but the scarcity factor of it. Understanding the supply. So I think going back to, I think we've got a couple thousand years of history of gold supply, and when you look back on it, the supply of gold has increased like half a percent to 2 1/2% over the life of gold. And it's average 1.5% or something like that. And understanding that supply, even though nowadays with the technology that we have to dig more gold out of the ground and find gold and dig it out of the ground, you could create a whole bunch more gold than 2% in a year if you wanted to. But there's economic reasons that companies wouldn't do that because it would collapse the price of gold. There's also a bit of just a cartel thing that's built around gold producers right now. But.

Peter McCormack (16:59)

Yeah, well, so next, let's look at the history of fiat. And this is a really interesting point, and I did actually cover this a little bit with Parker Lewis. But one of the interesting things about fiat is that apart from the fact that it's very easy to transfer and very easy to use, it's actually a much worse form of money than gold, but has overtaken from gold. And I think the history of this is a really important one to tell.

Travis Kling (17:21)

Yeah, yeah, for sure. The first thing that I like to remind people about fiat currencies is that civilizations have done this many, many, many times before. Governments have tried to print money with no intrinsic value to fund their activities for over a thousand years. And fiat currencies are established by governments, government regulation. They just decide this is money and make the people use it and make the people pay their taxes in it. The song Dynasty in 1023, China. That government established a monopoly on money printing. And that's sort of the first fiat currency. When I was researching this, one of the hilarious things about this was. They had that running for like 100 years, and then they got into war with the Mongols, and then they started printing a bunch more fiat currency to fund this war. And the way that their fiat currency worked in the Song dynasty was every three years, you were supposed to retire the old currencies. People brought in their old currencies and exchanged them for the new currencies with the government. But people started realizing that just a bunch more currencies started magically showing up. And so there was inflation less than 100 years later, and it collapsed the currency. And that started this undefeated history of fiat currencies eventually collapsing. And when you look at this Is just since 1985, fiat currency collapses in Bosnia, Romania, Chile, Belarus, Nicaragua, Argentina, Brazil, Georgia, Turkey, Ukraine, Angola, Bolivia, Yugoslavia, Venezuela, Zimbabwe, Zaire, Russia, Peru. The longest running fiat currency in history that's still going is the British pound sterling, which came into existence in 1694. And it's still around, but it's lost 99.5% of its value versus silver over that period of time. So it's done a tremendously poor job of actually storing value.

Peter McCormack (19:36)

But, Travis, just throw something in here for people to understand, because there will be people listening. They've never thought about money in that much kind of detail. And they might have just lived with this expectation that's like, well, yeah, over time, we have this thing called inflation, and your money can buy you less stuff. But they don't actually realize that inflation is an attack on their own wealth, on their actual savings. So explain to them just very quickly what is going on here. What is it they need to be concerned about?

Travis Kling (20:05)

Yeah, I mean, if you're going to sum it up in a sentence, I would say it's losing the purchasing power of the currency that you're storing your value in. So the prices of the goods and services that you buy increasing relative to the static amount of money that you're holding. And that's happening because there's an increase in the supply of the money. And so sort of like the. The price is the price of a good or a service priced in a specific currency increases the more the supply of that money is increased.

Peter McCormack (20:43)

Right. So what you're really identifying here is the governments that you have listed, they've essentially put a firework under the money printing. We saw. It's very obvious with Zimbabwe and Venezuela. That's been in the news a lot recently. But most of these governments, they've essentially trying to print their way out of financial trouble.

Travis Kling (21:03)

Yeah. And if you go back and look at history. It's incredible how often hyperinflation, which is synonymous with the currency collapse, is associated with war. Those two things over history have gone hand in hand. A country gets in a war. Wars are expensive. They print more of their own money to finance the war. They print too much. There's runaway inflation, the currency collapses. And the vast majority of the time that specific government loses power and there's a sort of reset in that place. There's one more quote that I again, just sort of thinking through how long we've been doing this. So this is from Marco polo in the 13th century, quote. And this is when he was going through Asia, looking at, you know, discovering these different Asian dynasties and civilizations. All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver. And indeed everybody takes them readily. For whatsoever a person may go throughout the great Khan, so he's referring to Genghis Khan's dominions, he shall find these pieces of paper current and shall be able to transact all sales and purchases of goods by means of them, just as well as if they were coins of pure gold. And he was just amazed at this because he hadn't seen anything like it, because they weren't doing that type of thing in his part of the world at that time.

Peter McCormack (22:35)

So, interestingly, and we're going to come onto this, I had a really great discussion with Dan Held about Bitcoin's monetary policy and how simple and how beautiful it is, actually. So I guess one of the fingers you're going to point the blame here is out at central banking. Right. And again, central bank is nothing I've been educated on, nothing I've been really aware of. I didn't really care about it. So I heard about Bitcoin. But whenever I talk to people like you or other bitcoiners, people have got a good understanding economics, they always point the finger back at central banking.

Travis Kling (23:07)

Yeah. And that plays a key role in all this. And when you look at the history of money, governments controlling money supply is something that dates back to the ancient Egyptians going back 2500 BC. But the Dutch actually pioneered a lot of really cool things from a finance and banking perspective back in the 15, 1600s, they pioneered the central bank concept as we think of it today, with the whistlebank in 1609 and then in 1694, the bank of England is generally considered the first modern central bank. And then over the next hundred years, over the 1700s, there's a bunch of different countries around the world that started following suit. The bank of France was another big one at the time. And then when you look at the United States and the Fed, the history behind the Fed is super fascinating to look into as well too. So there was these series of banking panics in 1907 and it's easy to lose perspective because even though we obviously had an enormous banking crisis in 08, we think of the financial industry in the United States as being this behemoth, well oiled machine. Whether or not that's true at the moment is probably a separate topic of discussion. But, but back in the early 1900s, just 100 years ago, that was in no way the case. And they didn't have a good handle on banking. It was super fragmented. In 1907, politicians tried to undertake this large scale financial reform and this guy, Nelson Aldrich was the guy that was leading the charge and trying to implement these really big sweeping financial reforms about how banking and money were going to work in the United States. And again, talk about repeating history. So this guy, this guy Aldrich was really good friends with J.P. morgan and his daughter was married to John D. Rockefeller Jr. And he was like the, the epitome of the, of the kind of New York elite. And from, from kind of the late 1900s into the 1910s there was all, you know, all kinds of, of, of back and forth pushback trying to get, get a large scale financial reform put in place. Tons of scrutiny and it's, it's like the exact same type of scrutiny that, that we face today in terms of this view. That Wall street seems to kind of run the government and when you look at how many JP Morgan and Goldman Sachs executives are inside the inner workings of the government, like there's, there's pretty incredible overlap there. Exact same problem 100 years ago. And even, even going back to the founding fathers of the United States, you know, you go back and read their stuff and they were warning that some of the, this is like at the key of one of the biggest risks to democracy in the United States was the way that banking and money were going to work and the potential for that to be co opted. And Thomas Jefferson in 1816 said, I sincerely believe that banking establishments are more dangerous than standing armies and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale. But for better or for likely worse, in 1913 the Federal Reserve act was passed under Woodrow Wilson and the Fed was put in place as we kind of currently understand it.

Peter McCormack (27:04)

Wow. Okay. So if you had to crystallize what are the main problems in the inner workings of the central banking, where does this all go wrong?

Travis Kling (27:14)

If I was going to pinpoint it down to one thing, I would say it's, it's a misalignment of incentives and it's, and it's the potential for a group of individuals, fallible, you know, influenceable individuals that have their, you know, they have the, the monetary policy under their complete control and there's not an efficient set of checks and balances on that power. And the incentive for business which you should always assume the business is going to act in its sort of best interest, profitable manners. There's too much incentive for business to come and try and corrupt those individuals for the sake of those businesses profits. And that was what the founding fathers were warning us of at the beginning of this country's history. It's what the politicians that were against the Federal Reserve act in 1913 were warning against. And it's the exact same problem that we're facing right now.

Peter McCormack (28:19)

And how intertwined are the central banks with government now? Because one of the things I always worry about, I think I brought this up with you when we made a show before. But government terms, they tend to work on short cycles, four to five year cycles. And most people in power want to stay in power. So my assumption is always that they make short term decisions for the benefit of trying to keep their economy afloat, trying to keep themselves in power to give themselves the headline as we move into an election. But in reality these short term solutions usually lead to longer term problems.

Travis Kling (28:54)

Yeah, I mean that's a huge problem. Is that the overlap of all of more or less all of the governments monetary and financial operations are operated by or have former Wall street executives at the helm. And it's just the potential for decisions to be made that aren't in the best interest of the people of this country. It's obviously a conflict of interest.

Peter McCormack (29:26)

Right, okay, so you've been talking about the Fed a lot. And I'm aware that the world reserve currency is the dollar right now, but that's not always been the case, right?

Travis Kling (29:35)

No, that's exactly right. There's a history to that as well too, which is, it's easy to lose perspective on that as well too. But Portugal had the world reserve currency from 1450 to 1550. Spain had it for about 110 years after that. The Netherlands had it for about 80 years after that, through the mid-1600s, through the early 1700s. France had it for about 100 years through the 1700s into the early 1800s. Britain had it for a little over 100 years from the early 1800s to the early 1900s. And then. And as you look at, from a historical perspective, as you transition from one world reserve currency to the next, there's always sort of one or a couple events that you can point to that lead to that transition. More often than not, it's war. And there's always a period of time in between one reserve currency and the next where there's a sort of transition or an overlap period where there's kind of two world reserve currencies. And the most recent example of that is in between World War I and World War II. The British pound and the US dollar were kind of co world reserve currencies. And then World War II was so devastating on a global landscape, and Britain had taken such a lump of the destruction of that World war, and the United States came out relatively so kind of unscathed that the US Dollar sort of stepped into that world reserve currency status on the back of World War II, and it's had it ever since.

Peter McCormack (31:24)

So is the lesson you're trying to teach here really is that there shouldn't be any complacency around thinking that the US Dollar will always be the world reserve currency. And interestingly, you presented me with a chart. If you take Portugal out of the equation, most of these world reserve currencies tend to have a very similar period of time where they're actually holding that position.

Travis Kling (31:45)

That's exactly right. So you look at the five prior world reserve currencies before the US dollar, and their lifespans were 80 years, 110 years, 80 years, 95 years, 105 years. And if you put 110 years on the US dollar, starting in 1920, which is kind of on the back of World War I, then that takes us.

Peter McCormack (32:10)

To 2030, just in time for Bitcoin to become the world reserve currency.

Travis Kling (32:15)

Yeah, so that was a lot of history, but it's really important to have that backdrop. I say this all the time. Knowing a little bit about monetary history really, really helps you understand the value proposition of Bitcoin, because we've just done a lot of this type of stuff for.

Peter McCormack (32:36)

Yeah, so one of the interesting things is that you've presented information about a bunch of different countries which have suffered from hyperinflations and currency collapses. And for me, again, someone living in the uk, I've never really lived under a currency collapse, but I did live through the 2007 financial crisis 2008, 2009 I actually bought my first house then and that was during a housing boom and my house actually dropped in value over the next five years. I also witnessed the UK government having to step in and save Lloyds Bank. They had to step in and save the Royal bank of Scotland. Those banks were going to collapse without their help. But also then witness of what happened across Europe, especially in countries like Greece and Cyprus, where the government actually went and seized money from bank accounts. So I kind of, I have a soft awareness, not as maybe a harsh awareness as people living in countries like we've remained mentioned. I was also in Latvia recently and you know, somebody I met there, they've lived under four different currencies of which two collapse. You know, so we should probably talk about the global financial crisis because that was, that's a really important moment in time and it's also something a lot of people listen to this can probably relate to. You know, some of this older history is going to be difficult to relate to, but a lot of people will probably be able to relate to the global financial crisis. What happened there? Why was that such an important period in time and why is that so relevant to now?

Travis Kling (33:55)

Yeah, for sure. I mean Bitcoin was birthed in the kind of ashes of the financial crisis in 08, which began in 2007 with the subprime mortgage crisis, which was sort of grew out of this environment in the United States of low interest rates and lax regulations and easy lending standards and massive securitization for the first time these sort of mortgage backed securities. And there was also just sort of broadly unchecked incentive structures across the financial industry at that time that led to this subprime mortgage crisis that then metastasized into this kind of global banking liquidity crisis in the fall of 2008, punctuated by the Lehman Brothers bankruptcy, all markets collapsed in the fall of 2008. And in Q4, the Fed and the ECB and the bank of England, along with a few other central banks purchased in aggregate $2.5 trillion of government debt and other troubled assets, which was again not hyperbole, the largest monetary policy action in human history. And over that period of time in the back part of 2008, the Fed and the treasury, which didn't know what to do. And if you go back and read through the transcripts of them talking about that period of time, it's clear that they didn't know what to do. They just kept trying new things. And the stock market kept going down. So they just kept doing more things until the stock market stopped going down. And they introduced this term auction facility. And then they nationalized Fannie and Freddie, the mortgage companies. And then they bought aig, the insurance company. And then they started insuring money market accounts. And then they introduced a $540 billion bailout of those money market accounts as they started failing. And then they introduced the $700 billion Troubled Asset Relief Plan. And then they introduced a $1.7 trillion commercial loan program. And then they bailed out the auto companies. And like all of that was made up on the fly. And that's, that's all fascinating sort of history as well too. There's great books that have been written about that. The Big Short, which is made into a movie, probably the most popular one, on the Brink and Too Big to Fail are also really good books about that period of time. And, and we're 11 years on now into that, and I think we're going to jump into this here in a second. Everything that's going on in global macro, financial markets, monetary and fiscal policies are all just the knock on effects of the response to the financial crisis in 2008. And it started with those things that I just listed. And then came QE quantitative easing, the first round of it in early 2009, and Ben Bernanke, the chairman of the Fed at the time. So the Fed just starts buying assets, printing money to buy assets, increase liquidity in the system. They're mostly buying U.S. treasuries and mortgage backed securities. They did one round of it in 2009 and 10, and then they stopped doing it and the market started collapsing again. The stock market started collapsing again. So then they cranked up QE2 in the kind of 2010, 2011 timeframe. And they did that for a while and then they stopped doing that and the stock market started collapsing again. So then in 2012 they did this thing, Operation Twist, which is where they bought sort of some longer dated maturity Treasuries and sold some earlier dated maturities. And they called it Operation Twist because it changed the shape of the treasury yield curve. They did that through 2012 and into the beginning of 13. And when they tried to stop doing that, the stock market started collapsing again. So then they started QE3, which lasted through the end of Q3, 2014. And all these other central banks around the world were doing sort of some variation of this. Some of them were doing more, some of them were doing less, some of them were doing kind of different things. But all, all central banks around the world basically were expanding their balance sheet massively over that, over that period of time. And specifically for the Fed, the Fed's balance sheet went from. Again, Fed was created in 1913. The Fed's balance sheet was under $100 billion for the first, call it 80 years of existence. And then through the 80s and the 90s crept up to call it a little under a trillion dollars. And then from the beginning of the financial crisis when the Fed's balance sheet was like $800 billion and then it went from $800 billion to $4.5 trillion through QE1, 2 and 3, and that's where we find ourselves today. And the ECB, the Bank of Japan and People's bank of China in aggregate, before the financial crisis, those four balance sheets were about $5 trillion. And then as we sit here today, they're a little over 20 trillion. So that's what we've done to sort of central bank balance sheets over the last, call it 11 years.

Peter McCormack (39:53)

Surely this just can't carry on forever.

Travis Kling (39:56)

Yeah, that's kind of where we find ourselves. And it's again, not hyperbole, it's why I wanted to go through the history part of this because this is the biggest one of these that we've ever done in human history. And importantly, in the back part of 2016 and accelerating through 2017, the Fed tried to end this experiment. They started raising rates, rates were at zero, they started hiking rates, the rate hikes accelerated in the back half of 2017. They also started rolling off their balance sheet, which means that they had bought all of these Treasuries and mortgage backed securities. And as those came due, they didn't buy more. And so they started shrinking their balance sheet. And so that created what people called shadow tightening or double tightening, where not only were you raising interest rates, but you were also shrinking the Fed's balance sheet, which had this sort of double whammy effect or an accelerating tightening of financial conditions and interest rates over that kind of back half 17 and 18 time frame. So people call this quantitative tightening, so the opposite of quantitative easing. And the market risk assets in general started hating quantitative tightening in early 2018, and that accelerated throughout 18 and was kind of punctuated by this, I refer to it as a dumpster fire for all risk assets in Q4 of 18. And markets were just hating this tightening and hating this increase in interest rates, which at that point the Fed's interest rate had gone back up to 2.5%, which in no means is High by historical standards. It's actually really low by historical standards. But the market couldn't take that, especially in conjunction with the roll off of the balance sheet. And so the Fed did in January 2019, right at a year ago they did their dovish capitulation. So they went from this stance of tightening. And Jerome Powell, the chairman of the Fed in December of 2018 used this term autopilot and describing how the Fed was just gonna keep raising interest rates and keep rolling off the balance sheet. And then a month later he completely reversed course. He said all further interest rate hikes are on hold and we're going to be accommodating by any means necessary. All the other major central banks around the world started following suit. And by May of last year, the market started pricing in rate cuts, which in the summer of 2018, rate cuts were unthinkable. And fast forward, less than a year later, the market starts pricing in rate cuts. The Fed cuts for the first time in over 10 years in July of last year, cuts three times last year and they're projected to cut again this year. When I say that the central bankers around the world have no plan to end the largest monetary experiment in human history, that's a total accurate characterization of what's going on right now.

Peter McCormack (43:28)

How much if this is interlinked, how much of this comes down to the fact that we are one global economy essentially. Now I know we have separate local economies, but essentially due to globalization, all markets are global. If something happens in one country, for example in China, it can have knock on effects across the world. How much of this is interlinked? And therefore it's very difficult for a government to reverse, you know, change the path they're taking because you know, it makes them anti competitive compared to other countries.

Travis Kling (43:58)

Yeah, it's a huge part of it right now. And it's something that we're facing, it's something that the global economy is facing to a degree that we have never faced before. And you know, we talked a lot about history at the first part of this, but things do change and technology has flattened the global economy and made it interconnected in a way that we have not ever seen before. And it's even materially different today than it was when we were going into the financial crisis 11 years ago. And you can't have monetary policies of central banks that get major central banks. So the ECB, the BoJ, the PBoC, bank of England that get too far away from one another because it starts to create these kind of trade imbalances and shifts in FX that have some very clear and swift negative knock on effects. And that's what, when Trump is on Twitter all the time chastising the Fed, demanding that we get some of that quote unquote, negative interest rate money, that's what he's talking about. Because, and you know, it's wild to hear the President saying these types of things, but he has a point about monetary policy, you know, of the United States, you know, relative to other countries having, you know, you know, real tangible effects on the economy and trade surpluses and capital flows and currency rates and things like that.

Peter McCormack (45:36)

Okay, right. It all sounds pretty scary, Travis.

Travis Kling (45:41)

It all sounds, I don't mean to fear Monger, but.

Peter McCormack (45:44)

Well, no, but even somebody like myself who doesn't understand economics to a level that you do, I see something like a negative interest rate. And I think to myself, how can this be good? How can a negative interest rate be good? It surely is a poor indication of the state of the global economy.

Travis Kling (46:04)

Yeah, it's a weird, it is a weird knock on effect from the actions of central banks. And we're 11 years into this thing now. Quantitative easing is driving everything. All asset prices around the world move in conjunction with one another based on these central bank actions. And quantitative easing is driven what's called the cotillion effect. It is like an Austrian economics term, but it just refers to the, the change in the relative prices resulting from the change in money supply and where the specific injection points of that new money are in the economy. When we look at the differences between modern monetary theory, MMT and that versus just juicing QE while running trillion dollar annual budget deficits, like the only difference between those two things is like where, where does the money show up? And QE while running trillion dollar budget deficits. That money really shows up in the hands of the wealthy. And, and by definition. And so we've had a decade of that and that's what's given rise to the populism that we see today. It's actually a really natural response to the kind of wealth inequality that is fundamental to the way that quantitative easing puts money into the economy.

Peter McCormack (47:43)

Well, look, I'm going to throw in a quote of yours from last year because I still think it was the quote of the year. And I'm glad you said it on my podcast because you sent Twitter wild with this. But it was true when you said quantitative easing is universal basic income for rich people.

Travis Kling (47:58)

Yeah, yeah, that's it. And now you have Andrew Yang running for president on a Platform of mmt. I mean, he tweeted out a couple months ago, like, I'm literally trying to give people free money.

Peter McCormack (48:12)

Well, there was a great response to that. And he said, no, you're trying to give away people's money.

Travis Kling (48:17)

Yeah, yeah, that's right. And so you've got all these weird knock on effects at this point. And this sort of highly fragile global economic system that's fully and entirely addicted to cheap money. And it shows up in these weird places. There's a venture capital bubble, there's a private equity bubble, there's a stock market bubble, there's a luxury real estate bubble. Fine art, The S&P 500 just put in tremendous returns for the last decade. But fine art has outperformed the S&P 500. High end wine has outperformed the S&P 500. Vintage Ferraris as an asset class have outperformed the S&P 500. NBA courtside tickets as an asset class have outperformed the S&P 500. I was talking to a buddy of mine that's in the film financing industry and he just came back from Sundance Film Festival and I was asking him how it was and, and apparently Sundance isn't like, it's apparently like waning in popularity and exclusivity because it's not a good place to buy films anymore, to buy content like it was for years and years because Netflix and Amazon are so aggressively and so early on bidding up the price for new content that there's no point in going to Sundance anymore. And the only reason that Netflix and Amazon can do that is because their stock prices are so incredibly high that they can just issue equity to overpay for content. And it was just like this. I was just talking to him and it was just like this weird sort of like you see all, you see the knock on effects of quantitative easing. Eleven years on in this, it shows up in all these places. And people talk about how inflation hasn't showed up. And the headline inflation number when you look at CPI has been okay and nothing like the Fed's mandate is to have 2% inflation. The CPI has run under 2% consistently over the last 10 plus years. But medical care in the United States is exploding higher. The cost of college is exploding higher. Child care is exploding higher. You have what's called shrinkflation in the price of food where they don't raise the price but they give you 30% less of whatever food it is that you're buying. And there's this really interesting chart from Deutsche bank out at the end of last year. And when you look at the cumulative net purchases of US equities since the financial crisis over the last 10 years, households and the foreign sector have been net sellers of equities. Over the last decade, the foreign sector has basically been flat. But you've had something like $4 trillion of corporate buybacks. So the Fed, keeping interest rates incredibly low and liquidity highly available, has allowed publicly traded companies to just lever up and buy back their stock. And according to this analysis, that has driven all of the gains in stock prices, basically the net gains in stock prices over the last decade. So it's just like these weird, these weird things where it pops up.

Peter McCormack (51:58)

Let me ask you something. You talk about the knock on effects, you talk about fine art, high end wines, vintage Ferraris outperforming the smp. But is this because of the fact that the rich are getting richer, they've got more money to spend and these are scarce resources, so there's more competition for buying the scarce resources or are these people trying to dump fit into things which will hold value maybe longer term? Because I can see both arguments.

Travis Kling (52:26)

Yeah, it's a great question. In my opinion. I think it's the combination of both. I didn't look this up, but I would guess that professional sports franchises as an asset class have outperformed the S&P 500 over the last decade. It's places that you can park a lot of money, you know, tens of millions, hundreds of millions, billions of dollars that only the most sort of wealthy financial elite have access to. It's those areas of those pockets of assets that have seen the most growth.

Peter McCormack (53:07)

So what's going to happen then? Because as you said, central banks can't really tighten. So what's going to happen with monetary policy? Is it just going to continue until explodes? What's going to happen here?

Travis Kling (53:19)

Yeah, so 2018 showed us that central banks can't tighten. Assets across the board are just, they're too dependent on this cheap money. And the US government can't pay higher interest rates. They have way too much debt to service. It's pretty simple arithmetic to run out if the United States has to. We've got a trillion dollar deficit, almost a trillion last year or in 2018. A trillion in 19. It'll be a trillion in 2020. And the congressional Budget Office is predicting that it'll be a trillion dollar deficit every year for the next 10 years, which means it's going to be every year for the rest of history. And when you're Having to pay interest rates on all that money you're borrowing. Like the math just doesn't work. Paying 5%, 6%, which used to be normal interest rates back in the 70s and 80s. And back to the point we were just talking about earlier, the U.S. monetary and Fiscal policies also can't be a lot more conservative than the ECB and the boj, which are doing wackier things than we are with their monetary policy in our central bank. The Fed has become politicized to a degree that we've never seen before. You've never had. I mean, don't get me wrong, there's a long history of presidential intervention with central bank policy actions. Andrew Jackson, I think, like punched the chairman of the Fed in the face 100 years ago, which is awesome. But you've got Trump tweeting things like, on August 23rd, Trump tweeted, My only question is, who is our bigger enemy, Jay Powell or Chairman Xi? Like, it's just like, it's crazy. And so, you know, one of the things that I want to impress on people here today is, and the comparison I like to make is the chicken is involved in breakfast, the pig is committed, which is a quote I heard the other day, which I love. And I think people don't realize how committed the Fed is in terms of being incredibly supportive with its monetary policy because it has no choice. And that started to rear its head recently in terms of increasing the money supply through this repo market dollar shortage situation, which.

Peter McCormack (55:45)

Yeah, because that keeps coming up and that was something I'd never even heard of before. I think a lot of people had never heard of before. And it was suddenly a new crisis.

Travis Kling (55:52)

Yeah. So this is when you start to talk about cracks in the system. This is a great example of cracks starting to show up in the system. And the repo market that blew out at the end of September and continues to not function as normal currently is a symptom of this broader situation that's been dubbed the dollar shortage, which is just a knock on effect of the US Dollar being the world reserve currency. And this dollar shortage is, it's from two main things. One, it's foreign entities borrowing in dollars and you need to pay back in dollars. And if your currency has fallen versus the US Dollar over the last, whatever, five, ten years, which the vast majority of currencies have, then your borrowing costs have increased, so you need to find more dollars. But the bigger situation around the dollar shortage is the Euro dollar, which is something that the vast majority of everyday folks have barely heard of or never heard of and probably don't have any good understanding of. The Eurodollar market is the largest market of anything, period. In finance. It's like a quadrillion dollar market on a nominal basis and these are just unregulated offshore dollar deposits or dollar based loans that don't have any base money to pay it back. And the explosion of the eurodollar market over the last decade has tied the global economy and all these different pockets of global finance to the dollar. But the Fed has no control over what the monetary supply is of dollars outside of its purview. And its purview is the US banking system. The repo market was this knock on effect of just weirdness and tightness in the Eurodollar market. And it's probably outside of the scope of this conversation to go too far down that rabbit hole. But I always just point folks to the Macro Voices podcast with Eric Townsend. And he's had a number of guests on over the last nine months or over a year now that have been loudly banging the drum around dollar shortage and this euro dollar situation. But what's been apparent starting at the end of September is that in response to this dollar shortage repo market situation, that the Fed has no choice and that they realize that and so they've expanded their balance sheet $400 billion since September and they're just going to keep expanding as long as these dollar shortage symptoms continue to show up. Because if they don't, it really does risk global financial collapse because of the size of of the eurodollar market.

Peter McCormack (59:04)

So how does the rest of the world react? And how does everyone react to the us? Is everyone just acting independently? Is the US leading? How does this all kind of interlink?

Travis Kling (59:16)

Generally speaking, they all have to line up not too far away from one another. But what you do know is that the whole world is cutting interest rates and juicing quantitative easing to the extent they can do qe. There's smaller countries can't really do it because if they did it, their currency would collapse. So you have to have some amount of, I don't know, you need to be a reputable country or a country in quote unquote good standing. But just in 2019, Denmark cut interest rates, the Eurozone cut interest rates. Sweden cut interest rates. Australia cut, New Zealand cut, Thailand cut, South Korea cut. We cut. Chile cut, Hong Kong cut, Peru cut. Saudi Arabia cut. Malaysia cut. The Philippines cut, China cut, Indonesia cut. Brazil cut, India cut, Mexico cut. Turkey cut, South Africa cut. And they cut for good reason. Because when There's a slowdown like you saw starting in the back part of 2018, a kind of global growth slowdown that you saw in 2018 that accelerated in 2019. And when we were in the summer of just six months ago, there was people were really people's view on the likelihood of a recession coming in the next 12 months had increased significantly. But you've had so much policy stimulus that the risk of a near term recession has pulled back considerably. There was also the kind of the peak China tariff war scare situation, which that's kind of backed off for the time being. But central banks cut because there's a very clear correlation between central banks cutting and the global manufacturing PMI picking back up. Global manufacturing PMI is a really good proxy for global GDP growth. And so these things work. But the part that is important to realize is that you're starting this easing cycle from such a further down point than we ever have before in the history of central banking. Again, not hyperbole. We've never been in a spot before where you're starting an easing cycle with $13 trillion of negative yielding sovereign debt. When we started easing in 2007, there was no dollars of negative yielding sovereign debt in the world and interest rates were 5%, 6%, 8%, depending on where you looked in the world. There's just way less ammo left from a monetary policy side to be able to go and do things to support global growth, which is why you're seeing this pickup in fiscal policy type of stuff.

Peter McCormack (62:33)

Okay. Right. I'm trying to keep up with you, Travis. Next up, I talk to Travis more about the macro economy and where Bitcoin fits into all of this. But before that, I've got a message from my amazing sponsors. So first up, let's welcome my new sponsor Cybersafe to the podcast. If you want a cool way to back up your private keys, then their newly released Cipher wheel is something you got to check out. It has a unique way to store your private key keys. It's machined from solid stainless steel. And not just any stainless steel. Nope, 303 stainless. And that was following one of Jameson Lopp's notorious tests. Now this is one of the coolest Bitcoin C devices I've ever seen. I am now using it. The Cipher Wheel is designed to be physically locked with a padlock and comes with a tamper proof evidence seal so you can be aware if anyone has made an attempt to try and steal your seed words. So you've got yourself a hardware wallet, right? So I know you are taking your bitcoin security seriously. Now you need to go the extra step and secure it from physical disaster with a cipher wheel seed storage device. If you want to go check it out, head over to Cipher Safe IO which is C Y P H E R S A F E IO and you can purchase yourself a cipher wheel and keep your bitcoin safe. And lastly, this week, but not least, is my other new sponsor, Cointracker. So a massive thanks to John Chandon and EJ for supporting the show for the next three months. And with tax season upon us, it is time to get your shit together. And this year I've been using Cointracker to calculate my taxes. And you know what? They could not have made it easier to link your wallets and exchanges and have your tax calculated and done just in a few minutes. Honestly, it was that easy. They have filings that work in the US, UK, Canada and Australia. So why don't you join the 100,000 other users who have used Cointracker and file your crypto taxes and get it done in seconds. It's integrated with TurboTax, Coinbase, Binance, Kraken and over 300 other exchange wallets. That's more than anyone else. And if you've got less than 200 transactions in a year, it's free. It's free for you to use. If not, well, those lovely guys at Cointracker have given me a 10% discount. For the listeners of this show, just head over to Cointracker IO awbd. It's available for the web and they do have Apple and Android apps in the App Store. But if you want to find out more, head over to Cointracker IO, which is C O I N T R A C K E R IO okay, talk to me about fiscal policy.

Travis Kling (65:09)

Yeah, so this is. So monetary policy is just the sort of like set of rules about how money is created. Fiscal policy is how it's spent. Simplistic. Central banks control monetary policy. Governments legislature control fiscal policy. And you've gotten to the point because on the monetary policy side, you're out of bullets, or you're close to being out of bullets that fiscal policy is going to have to pick up. So you got to start spending more. And that's really easy for politicians to do from a political perspective because headline inflation, the CPI numbers have stayed low for 10 plus years and that's given politicians and the central bankers which have become politicized, the COVID that they need to run massive deficits and just print the difference and Imagine how great that is if you're like a politician. It's like you're telling me that I can spend all the money in the world and I don't have to go tax anybody else to go do that. What a great deal for politicians. Right. And so it puts us to a point now where in the same way that there's no choice from a monetary policy perspective, there's now no choice from a fiscal policy perspective. We got to spend more, and in the United States, it's going to look like infrastructure spending. Christine Lagarde just became head of the ecb. Lagarde's not a monetary policy person. She's a fiscal policy person. They've got her in there to figure out how to spend all this money that they're printing. And they're doing this sort of. She just got in in October and has addressed the market a few times over the last handful of months and is basically taking the first part of this year to do a full review. But there's every expectation that she's going to come out sort of like both barrels firing from a fiscal policy perspective because the ECB needs it worse than the United States from a growth stimulus perspective. And eventually sort of all this is going to come to a head from an unsustainability perspective. We're going to go into a recession. And it's my opinion that once you go into the recession, that's when you get the really far out there fiscal policy ideas in terms of free health care in the United States, student loan forgiveness, and flat out monetary money theory. Mmt. Just printing money and more or less giving it to people. But, but, but I'm of the opinion that all of that is coming down the pipe. You know, we can argue about the timing of that over the next 10 years, but I think it's all coming.

Peter McCormack (68:03)

Yeah. You're not the only person talking about this. I mean, I had Caitlin Long on my show quite a while back, I mean, a good year ago, and she was ringing similar alarm bells. But you're not the only ones, right?

Travis Kling (68:13)

No, not at all. And like, you know, people, it's like I do come from an institutional investing background, but, you know, I'm just a guy running a crypto fund that trades a lot of BTC right now. But like, the smartest investors in the world are sounding like the exact type of alarm bells that I'm talking about right now. I mean, Ray Dalio and, you know, the crypto ecosystem has gotten, you know, I like to say that over, over 2019. Ray wrote a series of incredibly bullish bitcoin posts without ever saying the world the word bitcoin. And Howard Marks has been sounding similar type of alarm bells, and Jeff Gundlock has been sounding these alarm bells and Druckenmiller and Warren Buffett is sitting on more cash than he's ever sat on before. And it's apparent that everybody's kind of getting geared up for what the next leg of this thing is going to look like. And again, you can argue about the specifics around the way this unraveling is going to happen in the timeframe, but directionally, people realize that we're heading into really uncharted territory.

Peter McCormack (69:32)

Right? But depending on who you are, which generation you're from, you're likely going to react to this in different ways. Because whatever's happened with the economy over the last 10, 20, 30 years that you, you've talked about, there has been winners and losers. Right. Some people have done very well out of this. Even if we have some kind of impending disaster, it's going to affect people in different ways.

Travis Kling (69:51)

Yeah. So I say generational shifts show up in this conversation in a few different but really important ways. One way from one aspect of demographics that is is key to all of this monetary and fiscal policy stuff is just the world's getting older. And in 1970 you had 3.7 billion people on planet Earth. In 2017, 47 years later, you had 7 1/2 billion people. So that's a doubling of the total population growth. But the amount of people that are age 65 to 80 went from 171 million to over half a billion over that period of time. And the age of people 80 and older went from 25 million to 137 million. So people are just are living a lot longer. And the sort of ratio of new births, so just population growth growth is shifting in some really noticeable long term trends. And when you look at trends like this, I like to say the demographics like these are like gravity because you just, they move really slowly, but they're totally inevitable. And interest rates, again, because you have many, many decades of analysis of this, interest rates move in inevitable ways as they relate to the age of a population. And there's something called the yuppie to nerd ratio, which is actually like a, like a common metric which is just the ratio of people age 20 to 34 to the number of people age 40 to 54. So yuppies are spenders, nerds or savers. So just a ratio of spenders to Savers. And when that increases, interest rates increase. And when that decreases, interest rates decrease. And you cannot get around that like, it's inevitable. It's like gravity. And so as the, as the, as the world population ages, then interest rates have to go lower and monetary and fiscal policies have to respond accordingly. So that's sort of like, I would say that's like one aspect of the way that demographics and generational shifts show up. The other one that's critically important to bitcoin. And I think this is the part of the conversation that we actually start talking about Bitcoin 45 minutes in or whatever. The older you are, the less sense you think bitcoin makes. But then the important part of the flip side of that coin is that the younger you are, the more sense you think bitcoin makes. You couple that with the fact that 10,000 baby boomers are turning 65 every day in the United States and Globally, an estimated $59 trillion, like trillion with a T of wealth will be transferred from boomers to millennials by 2061. People call this the great wealth transfer. It's the largest transfer of wealth again, in human history. And so, okay, if you're over the age of 65, you're not familiar with bitcoin, you don't think it makes sense, you're not interested in it, you don't think it's going to last. But you look at surveys of younger generations, and it's the polar opposite of that. And so 20% of millennials own. This is in the United States, 20% of millennials own some Bitcoin. 2% of people 65 and older claim they own any Bitcoin. Three times as many people aged 18 to 34 are at least somewhat familiar with bitcoin relative to those age 65 and older. In terms of adoption, 48% of people aged 18 to 34 think that most people will use Bitcoin in 10 years. It's almost half of people from 18 to 34 think Bitcoin. Most people will use Bitcoin in 10 years, while only 16% of people 65 and older think that that's going to be the case. So it's like you couple the great wealth transfer with the understanding and bullishness that millennials have on bitcoin, and it just paints this super bullish picture from this is a multi decade type of thing that's going to play out. And one other thing that popped up that got a bunch of kind of airtime in December in the ecosystem is Charles Schwab put out there report of top equity holdings of self directed 401ks by generation. And so it's like, and so it's like if you want to do a self directed 401k, which you have to like jump through some hoops to direct investmently into specific names. And it's like, by generation, what are the most popular holdings? And the Grayscale Bitcoin Trust, GBTC was the fifth most popular holding amongst millennials in self directed 401ks behind Amazon, Apple, Tesla and Facebook. And that obviously ignores bitcoin held in Coinbase and Robinhood and the Cash app and all these different things. And so it just gives you a sense of directionally, how do you think this is going to play out over the next 10 plus years?

Peter McCormack (75:59)

We should probably do the bridge now though, Travis, the bridge to bitcoin, why it's so important here. And also we should probably have a look at why millennials care or the younger people care and the older people don't. I mean, I will make a broad assumption that it's about protection of personal interests as well. Right. I don't think it's within the interest of the boomers for bitcoin to be a success and for them to think about this whole new form of money. You know, they just want to move into their retirement, you know, spend their retirement funds and not worry about it too much. Whereas, you know, the millennials are in a position where perhaps they can't afford to buy a house, they have got all this college debt, they have got this distrust of the financial system. And, you know, perhaps they, you know, they've got a more of a reason to take a look at Bitcoin. And when they start taking a look at it, it starts to make sense. And, you know, does that all play into this?

Travis Kling (76:49)

Yeah, it's. The answer from a generational perspective is multifaceted. You know, part of it is just a familiarity with technology in general and a comfort around just the digital world, things existing digitally, how much time you spend playing video games, how much time you spend online, how old were you when you got your first smartphone? How often do you communicate with people, you know, face to face rather than, you know, as opposed to sort of, you know, digitally or online? And I think also part of it is the beginnings of Bitcoin. And it's like, you know, it's a pretty classic sort of boomer mentality to look at the beginnings of bitcoin. Okay, this is, this is money for drug dealers to buy drugs on the Internet and to file Bitcoin away as that and just never sort of reassess that stance. No, that's what bitcoin is. Bitcoin is money for drug dealers. That's all it is. And not spend the time. And don't get me wrong, to really understand the value proposition of Bitcoin, it's not a short putt, it's not a blog post, it's not a slide deck. I mean it's, it's a, it is a multidisciplinary approach. You got to understand, you know, some amount of computer science and cryptography and game theory and governance and mechanism design and sociology and I would argue religion and a lot of different things. And so it's, you know, it's just, it's not a, I get that it's not a super short putt, but I think, you know, back to your point also part of it is just like there's not this insane incentive. People just don't like change that much and things are working great and The S&P 500 can't stop hitting new all time highs. Never mind the fact that it's because of these egregiously distorted monetary and fiscal policies. But a boomer wakes up and looks at his 401k every day and life's really good. So I get it.

Peter McCormack (78:58)

But what is the bridge here for bitcoin? We've talked about this history of money. We've talked about, you know, what's happening on a macro scale. You know, we've talked about all the problems this could, this could bring in. Let's talk about why bitcoin now matters. Why Bitcoin might be an answer to this. It might be, you know, a hedge against what's going on.

Travis Kling (79:16)

Yeah, I like to, I like to bang this drum a lot. But bitcoin is a non sovereign, hard cap supply, global, immutable, decentralized digital store of value. That's a bunch of adjectives, but they're all important.

Peter McCormack (79:28)

But let's go through them one at a time. You know, it's a lot for someone to take in. Let's go through it one at a time slowly and just help people understand why each one of those itself is important. You know, when we compare it to what's going on globally right now.

Travis Kling (79:42)

Yeah, so it's non sovereign, it's not controlled by government. I think we've done it, done enough of a history lesson to know, you know, sort of how important that is. And it's an important distinction. It's got a Hard cap supply. There's only going to be 21 million ever created. The manner in which they're created is, you know, controlled by open source software. So that anybody in the world can sort of verify that that is the new creation of Bitcoin. From an Austrian economics perspective, that is the hardest money in human history in terms of having gold's gold. Because we know that you're going to make about 1 1/2% more new gold every year. Well, we have even more provable scarcity around, around Bitcoin even relative to gold. It's global in the sense that it works all over the world and it's borderless. It's immutable in the sense that, that the record of transactions cannot be changed, cannot be tampered with. It's decentralized. It exists on, you know, 10,000 computers all over the world. There is no company that controls it. There is no single entity that governs it or acts as an intermediary to make it work. And it's digital. There is no such thing as a physical Bitcoin. It exists solely digitally and it is a store of value because it addresses that function of money more, I would say more fully than as a method of exchange. It is a method of exchange, but because the price volatility relative to say, the US dollar or relative to a basket of goods and services that you might purchase is volatile, it's more of a store of value today than it is a method of exchange right now. And I think that's a, that's, that's a good thing.

Peter McCormack (81:33)

Okay, okay. So a lot of people I know who, I've tried to get them interested in bitcoin, they don't see all this stuff we're talking about. They don't see that this best form of money we've ever had, they don't see about, about central banks. All they think is this crazy magic Internet money that a bunch of people got in early off and got rich off. Right? They just don't understand it. But actually what you're really talking about here is, and also, actually let me add into that, you talked about fiat bin experiment. But bitcoin also is an experiment, right? It's a new experiment. It's an alternative experiment to this fiat system. But what we're really trying to say to people is, look, Bitcoin isn't definitely the solution. We're not saying throw all your money in there, but it is worth considering. It's worth considering a hedge. It's like an insurance against all this crazy Monetary and fiscal policy.

Travis Kling (82:21)

Yeah, that's right. And that's how I like to frame it all the time. And you certainly. I would never advise anybody to put half of their net worth into bitcoin. You need to choose an amount that is appropriate, but it is an insurance policy against monetary and fiscal policy or responsibility from central banks and governments globally. And it's like the comparison that I always like to make is how much does hurricane insurance cost in Kansas? It doesn't cost very much. There's not any hurricanes in Kansas. And how much does hurricane insurance cost in Miami? I'm not even sure you can get hurricane insurance in Miami because of how many hurricanes they have. So the more irresponsible the monetary and fiscal policies are, the more valuable the insurance against that is. I say this a bunch too. If there was no such thing as quantitative easing, if we were still on the gold standard, I think bitcoin would still be a science experiment in the closets of a bunch of computer science nerds. Because the need for a non sovereign form of money would be diminished if the sovereign money that we were using was being well tended to. But that's not the world that we're living in right now.

Peter McCormack (83:33)

Well, that's funny you should say that. It was safe. Dean, who said to me, he said the biggest threat to bitcoin is governments having good monetary and fiscal policy.

Travis Kling (83:41)

Yeah, that's important, but that's just not where we are right now. And I understand that the underlying price is volatile. There's good reason why it should be volatile. The world's never seen anything like this before. It's also still tiny relative to, from a global capital flows perspective, it's whatever, it's $170 billion market cap. But only less than 10% of Bitcoin has moved in the last 30 days. So the 30 day circulating supply of Bitcoin, it's like $15 billion or something like that. So it's the blockchain that underpins. Bitcoin has been creating new blocks every 10 minutes for 11 years now. And it was doing the exact same thing when the price of Bitcoin was $0.01 and $1 and $100 and $1,000 and $10,000 and $20,000 and all the way back to $3,000 in December of 18. And when the price is, you know, 9,000 right now, and the underlying bitcoin blockchain has been doing the exact same thing the entire time. And that price movement, which by the way has been certainly up more than down, is the world trying to get their head around this new thing, this non sovereign form money based on blockchain technology that we haven't seen before. I think there's a lot of beauty to that actually.

Peter McCormack (85:21)

Yeah. And I also look from your notes, Bitcoin might be volatile now and you say there's good reasons for it to be, but it's what it could morph into as well.

Travis Kling (85:32)

Yeah. The bet on bitcoin, it's a good bet this year, it's a good three year bet, it's a good five year bet. But if you're investing in bitcoin today, if you're betting on a non sovereign form of money gaining mass adoption, I mean, that's a highly contrarian bet today. And you're making this bet on the broad direction that the world's going to move in over the next 10 years, 20 years, 30 years. And I'm of the view that eventually it's going to be a foregone conclusion that we're going to trust open source computer software more than we're going to trust humans. And it goes back to what Thomas Jefferson was talking about. It goes back to the pushback that politicians had against the Federal Reserve act in 1913. And I think that with some hindsight it's going to be viewed as silly to have ever thought otherwise. And sort of like it's silly to look at the naysayers of the Internet from the early 90s. And Bitcoiners like to talk a lot about the separation of money and state, just like the separation of church and state. And I think that, and I hope that in the context of this conversation, that's a really natural response to what central banks and governments have done with monetary and fiscal policy over the last 11 years. That we've got a technology that allows us to separate money and state. And it makes good sense to do that. This analogy that I like to use a lot is that to sort of have high conviction around a non sovereign form of money gaining mass adoption, you need to be burning the candle at both ends. One end of the candle is this monetary and fiscal policy responsibility which we have today. And it's almost assuredly going to get worse into the future directionally. And then the other end of the candle is society recoiling from corruption and abuses of power with increasing vigor. And I believe we're starting to see that as well too.

Peter McCormack (87:56)

Yes, because it isn't just about money and it isn't just about poor fiscal and monetary policy. There is this general distrust of governments, you Know, over the last year, especially with the work I've been doing, you know, I'm out here in Chile right now, and I'm seeing the protests and this, the protests here aren't just about money. Some of it is just general discontent with the, you know, the, the political elite, the government, the establishment, you know, but we're seeing that. We're seeing that all around the world. We're seeing it in France, we're seeing it in Hong Kong. You know, we're seeing it in Iraq, in Iran. You know, it's been happening in Bolivia. There is just this growing discontent with the establishment completely.

Travis Kling (88:36)

We. I use the term the trust revolution, which I think is a really good summation for what you're seeing. And you're seeing it pop up in a bunch of different places, because in 2020, you know, this, this globally interconnected society that we have now is, Is embroiled in these, you know, it's security breaches and fraud and corruption and monopolistic abuses of power. And it's happening from not just governments, but, but. But centralized corporations. And those two seem to go hand in hand. And, and, you know, society is recoiling from that. Like you said, you've been going all over the world seeing the manner in which society is recoiling from these things. And here in the States, it's like you've got Elizabeth Warren that's running on a platform to break up big tech companies. You got Bernie running on a platform to dismantle Wall Street's power. You've got Andrew Yang running on a platform to literally give everyone free money. And millennials, back to this generational shift, Millennials feel that more acutely than older generations. And this feeling can be summed up as power tends to corrupt, and absolute power corrupts absolutely. And these terms, truth and trust, the definitions of them, are being contorted right now. It's like we live in this world of deep fakes and a president that egregiously lies in public, that people sort of just have come to accept that, like, that's just what he does. But, you know, the world's recoiling from this, and you're seeing commonalities across different things that are rising up from a societal perspective. And it's Brexit and Donald Trump. And how did those two things happen at the same time? And have basically the same underlying reasons, but they happen on opposite sides of the world from each other. In Russian Facebook election ads and Samsung bribery and NSA spying and the Equifax hack and the Facebook hack and The JP Morgan Precious Metals desk and the Libor rigging scandal and Black Lives Matter and Harvey Weinstein and Fake News and Cambridge Analytica. And the most recent and probably the ultimate one of all that is the Jeffrey Epstein suicide, which is like, in my view, and I think with a little bit of hindsight, maybe end up sort of being a crescendo of some of this in terms of society's willingness to. To tolerate unchecked power failing at every level and in every conceivable way. Because I think the world's ready for a change. And just in the last year, you've had political uprisings in Hong Kong, Chile, Lebanon, Indonesia, Netherlands, France, Russia, Peru, Haiti, Egypt, Syria, Algeria, Ecuador, Barcelona. And the commonalities across those things are what, you know, make this a sort of captivating movement as we go Forward into the 2000 and twenties and the way that that's going to intertwine with monetary and fiscal policies with Bitcoin. I like to say that it looks like bitcoin is created for such a time as this. It's a really incredible time that we're in right now.

Peter McCormack (92:00)

Well, it takes out human decision really, doesn't it? That's the great thing. And I'd advise anyone who's listened to this, who's not listened to the show with Dan Held where we talk about Bitcoin's monetary policy. But the beauty is in its simplicity. There's no ability for anyone to abuse it for personal agendas or political relationships. It just exists as this very, very simple monetary policy.

Travis Kling (92:24)

Yeah, and it's not. And look, the status quo, it's not like there's any reason to think that the status quo is going to give this up to Bitcoin and just roll over to Bitcoin. Again. You look back through history and money and political power is the things that humans have been killing each other over for thousands of years. It's real straightforward, forward when it comes to money and it comes to power. You know, unfortunately, civilization or we're real willing to kill each other over that. And I'm. I'm much more of a. Of a realist than an optimist by nature. I just have a tendency to kind of call things like I see it. But I'm. I am optimistic that there is at least a chance that as we move through from generation to generation and wealth and power transfer from boomers to Gen X and millennials and Gen Z after us, that there is a chance that there could be. The analogy that I use is humans could act Differently around the breadbasket. Historically, there's a breadbasket in front of me and you, there's one piece of bread in it. You and I will kill each other over who gets the bread. So why would I think that right now would be any different? And I think one of the reasons that you could have hope that it could be different this time around and that we could be willing as a society to democratize power over money, decentralize that which at its core, that is what, what Bitcoin is taking the control of money out of the hands of individuals and decentralizing it and putting it into open source software code that's not controlled by anybody, is that we're entering into this period of abundance based on technological advancement and the quality of life, which you can measure a few different ways. Life expectancy is a good one. GDP per capita on an inflation adjusted basis is another really good one. And there's this really long term chart looking at GDP per capita in $2010 that's super interesting. And it's like GDP per capita on an inflation adjusted basis was really, really flat from 1000 AD through 1400 AD and then in 1400 AD we got the printing press and life started getting better. And then everything changed when we got the steam engine. Because when we got the steam engine, you started being able to create things not off the power of humans and horses, but off of mechanical industrial power. And GDP per capita went parabolic, starting with the steam engine and the World Wide Web in the information industry even added to that, because now you're talking about progress that's governed sort of directionally by Moore's Law rather than linear progression. And so we're at this place where GDP per capita, like the world's just getting a lot better. And sometimes it feels bad because we're in the information age and we can see everything that's going on across the world instantaneously but objectively, statistically. There's never been a safer time to live in the world right now. We've never been killing each other. Less babies are dying, less people are dying from disease, less things are getting better. And that's happening because of technological innovation. And I think that there's a chance that that technological innovation will lead to a willingness to act differently around a breadbasket at this period of time when at every other shift from one generation to another, people just fight and scratch and claw over the sort of transition of power and wealth from one generation to the next.

Peter McCormack (96:42)

All right then, Travis, I got a big question for you. Then I won't hold you to this. Well, maybe a little bit. But how's this shit all going to go down?

Travis Kling (96:52)

It's really hard to the timing and the specific manner around it. Really hard to make a call. It's easier to make these kind of broad directional calls about the direction that this stuff is going to go. You can look for cracks in the system. Dollar shortage, repo market example of a crack in the system. Looks like the US government's just going to print money until it's okay. I think it's important to look at the areas of the world from a developed economy perspective that have the most unsustainable monetary and fiscal policies. That's the ECB and the bank of Japan. I like to say the US monetary policy is the best monetary policy house on a really crappy monetary policy block. So I think most of the way that this stuff is going to go down is going to be strong dollar at least at the beginning of this unraveling, I think that developing nations that have the least sustainable monetary policies are at most risk of being disrupted by BTC in the near term. And again, the US dollar has the world reserve currency status. But also to remember from the earlier part of this episode, there's always been this multi decade transition period from one world reserve currency to the next. And given the setup that we have in front of us and given the technology that's now available for the first time ever with Bitcoin, it's like what are the chances that the next world reserve currency is going to be a non sovereign. So those are the things that I think I'm focused on. There's a real risk that the world could just not care enough in terms of potential attack vectors to Bitcoin as this kind of plays out over the next decade plus or where I could just be wrong in sort of assessing some of this, there's a chance the world could just not care enough. And when the next recession comes, governments just pull out all the fiscal stops and that placates the masses into not demanding a large scale change and we should expect governments to fight back, there's good reason to think that they are going to fight back against this. From a game theoretical perspective, if two major developed nations are competing against Bitcoin, it's my view that the game theory around attempting to destroy Bitcoin starts to fall apart. Because if you're, let's say you're the United States and you see Bitcoin and you don't like it and it's a risk to the US dollar as a world reserve currency. So you want to destroy bitcoin? Well, if you try to destroy it, and China's got a whole lot going on in bitcoin, they got a lot of hash power, unclear how much BTC is in the hands of Chinese, but it is a lot. And it's like if you try to destroy it but you fail and bitcoin succeeds anyway, well, now you don't have any. And your main enemy on a global scale has all of it. And so I think that you do have potentially some sort of game theoretical perspective that if you have two major developed nations fighting over it, that that could put you in a good spot. Governments could just suppress the price of bitcoin. That's a big risk. There's some risk that my view on this monetary policy, monetary history stuff is just wrong, that Keynesian economics end up winning the day, that the whole world can just keep printing inflation. One thing that I think about sometimes is that technology is largely deflationary. It's just like technology allows something that it costs a lot of man hours to do to be done quickly and cheaply by a computer or, or AI or robotics or whatever. And that like, there is some chance that technology drives so much deflation that you can print tremendous amounts of money and have that hold up in a way that like, would never have been expected when you look at sort of prior measurements of like, you know, debt to GDP and things like that. So I think, you know, I think that's some of the things to keep an eye out for.

Peter McCormack (101:31)

But listen, look, going with your analogy, you could have all the climate models in the world and you can have all the predictions of when hurricane season will come and where hurricanes will strike land, but the reality is you just don't know until it happens. And it might not happen. And that's why you talked about having hurricane insurance. If there are certain areas of risk, what you're really saying here is this is a very similar scenario, that there's signs out there, there are risky things happening, there's things that are concerning you, but you don't know when things might fall apart. You don't know guaranteed if they fall apart. But based on what you've seen, bitcoin is a worthy hedge of a certain percentage of your wealth.

Travis Kling (102:14)

Yeah, that's exactly right. And it's a risk asset. Right now, bitcoin is a risk asset and it acts like a risk asset, but it is a risk asset with a specific set of investment characteristics and become increasingly more attractive as insurance against monetary and fiscal policy irresponsibility, the more irresponsible those policies are. So you kind of take it level by level and event by event. And so when you have things like January 2019, when the Fed stops trying to end the largest monetary experiment in human history, that gives you increased conviction that this insurance policy is something that's going to be valuable. And over time, again, gold's been gold for 5,000 years. BTC was created 11 years ago and it popped out of obscurity three years ago. And so the world getting their head around this and that taking time makes total sense. And in my view over the coming, it's already doing that. Bitcoin is already shifting from a risk asset to a safe haven, risk off, app store of value type of asset that in my view eventually will rival gold. And that shift is something that we have not seen before in an asset. Shifting from something that's super risk on to safe haven risk off. One of the things that I thought about as a comparison was potentially maybe Google stock, which when it first started out was this super risky high tech. It's the Internet, we don't understand what the Internet is. And it grew to such a dominant market position that throws off so much free cash flow that has such a massive cash balance on its balance sheet that now Google stock is actually like a pretty decent store of value. And I'm sure there's many, many people around the world that if they could store their value in Google stock, they would choose to do that. And so that shift from risk on to safe haven is my expectation of what we're going to see Bitcoin act like over the coming years and decades.

Peter McCormack (104:30)

All right, cool. So kind of a tough question to end out before. I have another little closing question, but somebody's listened to this. They don't have an economics background. They're hard working. They do want to protect their wealth. They're finding a lot of this overwhelming. Is there any kind of clear messages you would give to somebody in that position?

Travis Kling (104:50)

The main takeaways from this is that we're 11 years into the largest monetary and fiscal policy experiment in human history. Humans and civilizations have been doing this type of stuff, just wacky stuff with money for a long time. With no exception, when you do something wacky like this, it ends poorly. Bitcoin is a new technology that presents a non sovereign form of money that is something that we've never had before. And it operates as an insurance policy against that monetary experiment and the direction that that monetary and fiscal policy situation is going to go over the coming years is going to make that insurance policy more valuable.

Peter McCormack (105:43)

Right. Okay, well, listen, final question to close out. This stuff's really interesting, Travis. I've had these conversations with you over microphones, but also over a beer, and we've talked about it a bunch of times. I always love listening to you, talk to you about it. You've got so much depth of knowledge here, you know, but you're looking ahead as well. Have you ever thought of doing, like, your own podcast about this? Doing, like, you know, because I would. If you were doing a show like this every week or so, I would be checking in. I would be listening to see, like, what's going on, what's the update, what's happening, what are you looking at? Have you thought of doing that?

Travis Kling (106:13)

No, I appreciate it. It's. You're not the first person that's asked me that. It's. It's something that I've thought about before. I mean, there's. There's no shortage of podcasts out there. But this, the way that. The way that global macro and just social movements and technology are intersecting right now, it's a really important kind of historic intersection, and it's something that I'm deeply interested in. Bitcoin's right at the middle of it. And, you know, I think it's something that people want to hear more of. So it's, you know, I don't know, maybe I'll show up with a podcast here sometime this year. I'll have you on.

Peter McCormack (106:59)

Well, I mean, I'm useless at answering questions. I much prefer asking them, but. No, I definitely. I would definitely listen in. I hope you do do it. If you don't, you know, you're always welcome back on my show to do an update every few months. But I really hope you do it because. Because it's definitely something I'll check into. I want to hear more about this. I want to understand about more what's going on with the global economy. So, look, I say do it, but if you don't, then you're always welcome back on my show.

Travis Kling (107:23)

Travis, I appreciate it.

Peter McCormack (107:25)

All right, well, listen, look, to close out, let everyone know how to find you, tell them a little bit about the work you do, how they can keep an eye on everything you're doing.

Travis Kling (107:31)

Yep. I run a crypto hedge fund. It's called Ikiguy Asset Management. Ikigai I K I G A I dot fund is the website. We've got a content depot with a bunch of I write these monthly update letters that go out the first every month that people like. They're pretty in depth and Twitter is always good. Travis cling. So really appreciate it, man. It was a good conversation.

Peter McCormack (107:53)

Yeah, well, appreciate you coming on. We nearly did two hours here. It's. I think people are going to enjoy this one. And look, I appreciate all the work you did up front to help prepare for this. And you know, good luck. Luck with everything, everything you do. I'm sure I'll see you in the next coming months.

Travis Kling (108:05)

Sounds good. Thanks, man.

Peter McCormack (108:10)

Okay, so what did you make of that one? A bit of a beast, right? Yep. Love making this. Always love talking to Travis, you know, always love talking about the global macro economy. He's always got his finger on the pulse with this. You know, he's understanding the history. But what's going on right now is always really useful for me. And you know what, I can appreciate, appreciate some of the concerns he has. I can appreciate the picture he's painting. And you know what? Bitcoin is an insurance policy for me for all of this. Now, I know some of the concepts and language can get a bit complicated. You know, we might be talking about stuff you've never really heard of up here, but if you do want to learn more about these topics, I have done a couple of previous shows that you might want to check out. There's the other one I did with Travis and there's the shows I did with Rao Pal and Dantapiero. Also do check out the show notes. There is so much more stuff in there for you. Anyway, thanks for listening. If you got any feedback, do hit me up. My email address is. Hello, what Bitcoin did. Com. If you want to support the show, head over to my website. It's what bitcoin did dot com. Click on the support section. Everything's there. And yeah, have a great weekend.

Travis Kling (109:19)

It.