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The "What is Money?" Show
Demystifying the Petrodollar Scheme with Alex Gladstein (WiM082)
02:10:54
Alex Gladstein joins me for a deep-dive into the petrodollar system and its many hidden costs.
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- [00:00]
Alex Gladstein
Foreign.
- [00:08]
Robert Breedlove
Hey everyone. Welcome to the what Is Money Show. I am sitting down today with Alex Gladstein. Alex, welcome to the show.
- [00:19]
Alex Gladstein
Thanks for having me.
- [00:21]
Robert Breedlove
So today, I love where we're taking this conversation. You have written this excellent piece titled Uncovering the Hidden Cost of the Petrodollar. This was published in September 2021 in Bitcoin magazine.
- [00:38]
Alex Gladstein
In April.
- [00:39]
Robert Breedlove
Oh, sorry.
- [00:42]
Alex Gladstein
I guess it got updated.
- [00:44]
Robert Breedlove
Updated September, published in April. My mistake. We've been talking offline about the various things you've been reading about this, the resources that have shaped your thinking. And really, I think this is an excellent geopolitical overlay describing some of the deeper problems with money that got us to this point. So I think this conversation we're going to have in particular is going to be a great way to explicate some of the details over the past 100 to 125 years of problems we've had with the money. But the problems themselves, as I think we'll get into, relate to the technological limitations of money and our systems that we've built up around them. So we'll start here and then maybe we'll dive into some of the source works themselves later on in the conversation. And I'd like to open, just to set the stage here with an excerpt from your piece. You wrote, quote, nearly 90% of international currency transactions are in dollars, 60% of foreign exchange reserves are held in dollars, and almost 40% of the world's debt is issued in dollars, Even though the US only accounts for around 20% of global GDP. The special status that the dollar enjoys was born in the 1970s through a military pact between America and Saudi Arabia, leading the world to price oil in dollars and stockpile U.S. debt. As we emerge from the 2020 pandemic and the financial crisis, American elites continue to enjoy the exorbitant privilege of issuing the ultimate monetary good and numeraire for energy and finance. This does a great job, I think, to set the stage for where we're going to take this conversation initially. And I'm particularly interested in this last sentence, issuing the ultimate monetary good for and numeraire for energy and finance. I mean, this is the basis of the infamous exorbitant privilege. So where do we start here? It seems like there's this deep connection between money and energy, and it's something that's related to gold and it's also related to oil. Where should we start this journey?
- [03:15]
Alex Gladstein
Well, I think it would be helpful to start with the overall arc and fact that the world's reserve currency Enumer used to be gold, used to be asset money, and today it's debt money. It's a liability of the US Government. It is perhaps the treasury bill standard. Governments around the world save in US securities in a much greater way than gold. And debt money has taken the place of asset money as of today. That's a journey that I want to unpack with you. And the petrodollar is a very important moment in that journey. And in short, it marks a transition from the dollar system which had essentially been pegged to, let's call it promises to pay gold. So there was a loose link, Post Bretton Woods, Post1944 between the dollar and gold that had been coming undone all throughout the 60s, which we can get into. And in 1971, August 15th, we just had the 50 year anniversary a couple months ago, Nixon goes on TV and closes the gold window and basically defaults on all of the U.S. debt. You had about $50 billion of short term dollar liabilities around the world which all of a sudden could not be exchanged for gold. So we basically rug pulled the whole world. It's crazy. And then this plunged the US into an economic crisis. As one might expect. The dollar was devalued tremendously. As much as 50%, 55,0% against the Deutsche Mark, 20,30% against other major currencies. And we were searching for something to peg the dollar to. I mean again, it used to be pegged gold, something that requires proof of work, right? Well, what if we could peg the dollar to oil? Wouldn't that be interesting? So that's kind of where the petrodollar comes in, in this search for stability, for something to peg the dollar to that was real, that had some sort of physical manifestation and it wasn't just a promise to pay. Through a series of fascinating and somewhat secretive events, the US government managed to basically peg the dollar in a certain way to oil. They did that through a series of conversations and treaties and pacts with the Kingdom of Saudi Arabia, which was at the time the head of opec, the oil producing nations.
- [06:15]
Robert Breedlove
Yes, excellent intro and big takeaway here initially is that it's the flow of gold itself which is a free market. Selected money pegs to energy. To your point, gold, the proof of work necessary to procure and extract gold, is what gave it scarcity in the marketplace. So gold in many ways was a proxy for energy in the way money's intended to be. But when the gold standard was abandoned, the dollar needed to peg to something. It needed a source of reservation demand to preserve its position as the global reserve currency. So I'll shift into another excerpt here that I think is interesting. It's not like this was lost on policymakers at the time. So you quote, but the US preferred. This was after Keynes had recommended the Bancorp at Bretton woods Post World War II. He wrote, quote, but the U.S. preferred the idea of the dollar at the center pegged to gold at $35 per ounce. Since international trade deficits still had to be settled in gold, America's substantial control of the world's gold supply and favorable balance of payments position provided the leverage to get its way. So Post World War II, the government was sitting on, I think you said something like 71%.
- [07:42]
Alex Gladstein
Yeah, 71% of all non Soviet held gold. So all the gold in the kind of, let's say, free world, as we called it. All of a sudden the US found itself sitting on top of about 700 million ounces of gold, which was about 70% of extant government gold, which is.
- [07:59]
Robert Breedlove
Exactly why it was sitting at the head of the table at Bretton Woods. It wasn't much of a negotiation. It was pretty much a unilateral event.
- [08:12]
Alex Gladstein
Particularly because the only real competitor to us at the time, the British Empire, had just been bailed out by us through the Lend lease policy in 46. And we had basically bailed out the British throughout the entire Second World War and they owed us a lot. So when they actually set up the Bretton woods institutions, which would be like the World bank, the imf, things like that, the United States had more than, I think, 30% votes and you needed 80% to agree on something. So we had a veto. We refused to join these institutions or kind of be part of them without having that veto. And the British had still had about 20%. So they could cause issues. But basically the point was that they weren't going to challenge the US at the time. They were very subordinate and almost like they were turning into almost a satellite dependency of the US at that time.
- [09:14]
Robert Breedlove
Again due to the geographic distribution of gold. The point that I really hope the audience can take home here is that gold acted as the base layer for human action. It's whoever held the gold made the rules type.
- [09:31]
Alex Gladstein
At the international level. Yes, at the global level.
- [09:33]
Robert Breedlove
At the international level. And I think there's a Rothschild quote to that effect. Give me the ability to issue a nation's currency. I care not who makes its rules. If you can issue the currency presumes you're holding the gold. So it Puts you in a position of rulemaking. And this shapes the. So you have the actual distribution of gold influencing the configuration of geopolitical institutions, countries, power dynamics, all the above. And this also helps explain a lot of the military activity in the 20th century. So the US moves initially dollars pegged to gold. All the other currencies are pegged to the US dollar. This gives the United States the exorbitant privilege to basically print currency and procure whatever they want. Goods, services, energy in the market, oil. Nations start to call their bluff. 60s 70s, finally, Nixon closes the gold window. And we needed to repeg the dollar to something to keep it substantial. And that something was black gold, oil. And this set up a really perverse funding dynamic for the U.S. government. And I'll read a quote about this also from your piece. He said, quote, dollars became the dominant medium of exchange for international settlement, backed by a promise to pay in gold. America became the largest creditor nation and an economic powerhouse. However, after the assassination of President Kennedy, the US government chose a path of huge social and military spending. With President Johnson's Great Society social programs and the invasion of Vietnam, U.S. debt skyrocketed. Unlike World War II or the Korean War, Vietnam was the first American war waged almost entirely on credit. This gets into how the US Was able to leverage this post Bretton woods system to effectively have other nations pay for their war efforts.
- [11:48]
Alex Gladstein
Yeah, I think just to. We'll paint the scene. So to go back a little bit to bring us to the mid-60s, the European powers at the outset of World War I, some of them were not in great shape financially to begin with. Obviously you had economic crises which even in America forced the hinder the government to create the Fed, things like that. There was a lot of economic unrest. They go to war, they almost immediately start printing money. And I have some interesting facts here for the audience about the quantity of money that was printed, which I found really interesting. So between 1913 and 1918, the German money supply increased from 17 billion marks to 66 billion. In Britain, the money supply increased from 1 billion pounds to 2.4 billion pounds. The German monetary base increased by six fold and the British monetary base increased by fourfold. So those were inflationary phenomena in the First World War that allowed those two nations and the others in the theater, the French, the Ottomans, etc. It allowed the fighting to keep going and going and going. Like, you know, they left the gold standard to do that. And it resulted in utter devastation. In 22, the Europeans got back together after the war and they went to Genoa and they had a conference and they said, well, how can we like put things back together? And they loosely agreed that there would be this like gold exchange standard. Not a gold standard, but they sort of laid the groundwork for Bretton woods by saying, look, we'll save at the national level in each other's currencies that could be exchanged for gold. So you started to get that credit risk, you started to get that second layer above the gold. We were into paper gold basically at the same time. What was happening in the US was that our agricultural industries and manufacturing operations were not ravaged. In fact, quite the opposite. We were doing very well and we were selling a lot of things and loaning a lot of money out to Europe which had been destroyed. And what ended up happening is we started to get a lot of inflows of gold and became the world's largest creditor nation after World War I. And essentially there was some interesting stuff that happened even in the 20s. We kept getting into this more favorable position even as others struggled. But there were some interesting policy choices that I'll just touch on briefly that I found really interesting that we actually suppressed the interest rates in the United States so that the British could pay us back. Because if we were kind of too appealing, no one would want to invest in America. They just want to invest in Britain. But this backfired. So because we suppressed the rates, it helped cause this boom in equities, obviously ended real estate and stuff. And this was partly behind the massive stock market bubbling crash of the late twenties. Was America's trying to wrestling with what do we do here Post World War I, where for the first time in history we demanded that our allies pay the reparations. Traditionally speaking in history it was considered a cost of war. You would forgive the debt of your allies. We did not. We did not. We had a congress that was extremely protectionist. And they said, no, not only are the Brits and the French going to pay us back, not only are we going to hold that over them, but also we are going to raise tariffs so that our exports are going to be more favorable and, and that's going to actually prevent them from selling the goods to get the dollars they need to pay us back. And it was, it was most exaggerated in Germany, of course. So Germany was like wrecked. They, as the, as the loser had to obviously pay the reparations. Whatever reparations they ended up paying back went to Britain, France, then got paid back to us. So you had this whole circle of like funding coming back into the United States. For a variety of reasons, the world retreated into a little bit of a kind of autarkic, isolationist, nationalist phase. Obviously, we have this Great Depression. Fdr, during the Great Depression, decided to devalue the dollar by actually taking it off gold technically, and devalued the dollar by 40%, actually, and also made it a felony to own gold in the United States and ended domestic redeemability for gold in our country. So we had a dark moment, but relatively speaking, especially because we devalued our currency in this way, we ended up doing pretty well in the coming decade compared to other countries. And despite the Depression, we ended up increasing, relatively speaking, our gold position. So again, Germany stops under Hitler, they stopped paying the reparations. So all of a sudden, Britain and France have, like, no money at all. In the mid-30s, Hitler starts mobilizing for another war. Then you have capital flight. So all these rich people who live in Britain and France, they're like, screw it. We're going to move our gold and our value to the US So the United States kind of gets lifted out of the Depression in a way by some of this stuff. And then Europe goes back into war, and we're kind of sitting on the sidelines for a while. We start loaning money to our allies. And again, yeah, the reality is, by the time the war ends, by the end of the 40s, we have 70% of the gold. So that's kind of the backstory to how we got to such a favorable position and how we got to set up kind of the chessboard for the rest of the century. But where it starts to decline, where it starts to unravel, is actually the Korean War and the beginning of the Cold War. We had this massive creditor position. We had $25 billion of gold. We had absurd amount of gold. We start drawing down on it to do military adventurism. So Korea was the first one. Now, Korea we actually paid for with gold and other real money, essentially. But as of the late 50s, early 60s, that started to change. After Korea, we no longer were a creditor nation. And then I think it was, as of 64, we no longer had enough gold stock to pay the outstanding dollar balances that existed around the world. So between the 50s and 60s, you already saw a weakening of the system. So we worked with the European powers, who were our subordinates, to try and prop up this Bretton woods thing. We're like, we got to keep it at 35 an ounce. Got to have gold 35 an ounce. So we Created this thing called the London Gold Pool in 61, which was basically a price fixing scheme. And it was like the US and the European powers who had most of the gold. Basically, anytime gold price in the market went up, we would just dump gold. So this was the idea. And it was only made possible by the fact that the two biggest gold producers, Soviet Union and South Africa, who were our enemies, obviously at the time, they had to sell gold to finance stuff they couldn't really borrow amongst the Allies. So the gold pool was getting influx from these two countries. So it actually, it actually survived for like six, seven years. But eventually the ability to hold gold at that rate became impossible. Like, people were just like, nah, France left in 67, the pool collapsed in 68. And what ended up happening is the Allies agreed to have two prices for gold, like an intergovernmental price, $35 an ounce, which then they increased a little bit. They kept increasing that price. And then there was the market price, right? So their market price, by a couple years later, shoots past $100 an ounce, goes to $200 an ounce. As you watch, gold was finding its real market price, which was obviously way higher than it had been. So the Allies, led by the US had been suppressing the price of gold to try and make it less appealing as they tried to promote their paper gold system. And one of the last ditch efforts was in 69, the creation of the SDR. So the IMF again created at the direction of the U.S. essentially, once we got our guarantee, we had that veto. We went all in on these institutions, created Bretton woods and used them to our advantage. The SDR was like, basically, if you read newspaper clippings from the time it was announced as paper gold, like, this was going to be awesome. People really excited about SGRs, right? And what was interesting is that the whole scheme that I hinted at before that you start to see here is that the nations of the world had dollars and SDRs later in their reserves. And then all of a sudden they started to realize they probably couldn't redeem them for gold. The French were one of the only countries in the 60s that would literally, they were like, hey, America, we want that gold. So they would actually withdraw the gold all the time. And the Americans found this really annoying. But the other countries, like the Germans, the others were like, you know, we're not going to do that. But basically, like, there was a sinking realization and it was very public, like a lot of French diplomats knew this, that it wouldn't be able to last forever. And this is where we bring in the Triffin Dilemma, right? So Robert Triffin, an academic, basically had this theory that said that if you had a key currency, if you're a nation and everybody uses your currency, right, Then it's actually impossible for you to have a surplus, a current account surplus. You have to be in deficit because everybody else wants your currency and therefore it's impossible to have a reserve. So the Triffin Dilemma, which came out in the 60s, postulated that it would be impossible for America to have this reserve backing of a global reserve currency. And indeed it proved true. So again, what ended up happening is that everybody started, as you say, calling the America's bluff. As we got closer to 71 and we decided we could have repriced the dollar, we could have priced gold differently, but that would have been a public admission that our currency was weak. And politicians don't like to do that. They don't like to admit to the public that they've been debasing the currency. Very embarrassing. They don't like to do that. So, so the alternative was to default on everybody else. So again, you had this kind of global monetary system where all these other nations were saving in dollars primarily because they thought they could redeem them for gold. And overnight, on 8-15-71, they went, as some people say, they went from IOUs to IOU nothings like they literally were no longer completely disconnected from a scale, a scarce asset. I think that's the important backstory that I wanted to get at there.
- [23:27]
Robert Breedlove
Yeah, and a great lesson in counterparty risk. The nature of these currencies is that they are at the leisure of the issuer and they can immediately and totally be severed from anything of actual value. So big points there. I think one is inflation itself, largely used as a wartime tax. It's a little bit more difficult to pass explicit taxes or sell wartime bonds if you have the ability to just print more currency to wage war. This gives an issuer the capacity to wage war beyond the confines of their own balance sheet. They can now tap into the savings of the whole society versus trying to use just their own proverbial war chest. I think that's important.
- [24:19]
Alex Gladstein
And on that point, if you look at history, every single war was very inflationary. World War I, World War II, Vietnam, Iraq. When you look at it, it's like you can see these things throughout history.
- [24:30]
Robert Breedlove
And central banking largely set up to fund war. Initially this again institution to scale gold. But ultimately, when push comes to shove, the central bank is there to serve the government's war Effort through inflationary policy. The other point I think is really important there is that gold was functioning as this regulator or governor on government. There was a free market mechanism holding governments in check. And this explains the impetus for all of these things. You're describing the London Gold Pool. We talked about the book offline Gold wars by Ferdinand Lips. It goes through this entire coordinated geopolitical history to basically abolish the gold standard. To your point, governments don't want to admit they've been debasing the currency to the public because that would admit they've done something wrong, right?
- [25:36]
Alex Gladstein
Yeah. And I'll read an explanation of a short one of how in the classic gold standard, how international trade would work if trade and payments among countries were fairly evenly balanced, no gold actually changed hands. But when trade and payments were not exactly in balance, countries that bought or paid more than they sold or received found themselves with a balance of payment deficit, while nations that sold more than they bought enjoyed a surplus, which they settled in gold. If a country lost gold, its monetary base would be contracted, interest rates would rise, and foreign short term funds would be attracted to balance international payments. If gold outflows persisted, the higher interest rates would deter new domestic investment and incomes would fall, thereby reducing the demand for imports until balance was restored in the country's international payments. So you kind of had this kind of, I don't want to say beautiful, but almost a beautiful way that gold kind of helped countries settle with each other in a relatively fair way. But basically my analysis of this is that much like the European powers didn't like this restraint During World War I, America also realized that it was holding it back and they worked to demonetize the metal, driving it out of the world financial system ultimately in what is called the geopolitical version of Gresham's Law. Like basically bad money driving out the good. Right. So this is the big picture of our conversation, is that we moved from a world where we went from gold to American debt. And that really allowed American authorities to kind of hack the system. Right. And that's, that's kind of where we are as of like the 71. Like, we had, we had been cheating. We had been cheating. We had been cheating. Okay. People caught us cheating. And then it was. We couldn't hide it anymore and we had to just default on all of our debt, basically. Like, literally. I can't underline this enough. $50 billion of short term, which was a lot back then, like massive $50 billion of short term dollar liabilities held by governments all over the world were just one day no longer redeemable for gold. And these SDRs, these paper gold, which had been distributed in some cases in exchange for dollar liabilities. Some countries are worried about the dollars give us the SDRs, those weren't exchangeable for gold either. So you had all this literal, what they called paper gold. And yeah, man, counterparty risk, people got rugged and it was ugly.
- [28:13]
Robert Breedlove
Yeah, absolutely. So gold was effectively enforcing this balance of payments among nations. This was a free market mechanism that mapped just like if a country is rendering valuable goods and services to the global economy, it's drawing gold inflows, so it's creating an income for itself and vice versa. If it's importing more than it's, or it's consuming more than it's providing, then it would have gold outflows. This is what maintained equilibrium, a dynamic equilibrium among nation states effectively. And you could say that was a global implementation of skin in the game. Governments were accountable to their actions effectively through the gold standard.
- [29:01]
Alex Gladstein
Yeah, and it's important to point out that there's a difference between the person, the academic who wrote the description of how gold flows that I just read. His name is Michael Hudson and he's basically someone who's, I don't know if he's Marxist, but he's quite far left. I think there's an appreciation among people who believe, let's say domestically, they believe all money's credit. Okay, domestically. But even these people saw the value in gold at the international level. And the removal of gold as the international way to balance payments just made a lot of people upset across the ideological spectrum. I think that's worth keeping in mind.
- [29:43]
Robert Breedlove
Yeah, absolutely. Good point. Again, I would say debt based money itself is an oxymoron. Sure. You could say that within a particular nation all the money could be debt based or credit based. But there has to be some reconciliation to reality, to an asset. That's what money is intended to represent.
- [30:06]
Alex Gladstein
Yeah, no, and I'm a believer in, okay, so you had banks creating money based on reserves in some way or another. And maybe in the future we have fiat packed by bitcoin in the same way it's possible. So I think that in our daily lives the, that fiat is like a thing that was created because originally gold sucked as like something for us to use on a day to day basis. And it was way easier for us to exchange promises to pay gold. Now domestically that may have worked in terms of the counterparty risk not being too disastrous. There's obviously a lot a Huge debate around that. But what's very clear is that at the international level, the lack of counterparty risk and the end of gold as a restraint led to astronomical changes in the world which included the global military industrial complex, which would have been inconceivable at the time of America's founders. I mean, to know what we've become on that level, as well as this insane financialization of the world. Once you now have paper gold and paper dollars and all these things that are not rooted in anything. The number of derivatives that were created to hedge risk on freely floating currencies spawned this incredible financialization of the world where people in basically finance, investment, real estate, defense prospered and people in manufacturing didn't. And I think it's quite obvious when you look at the inflation you're mentioning that it is not neutral. Inflation is not neutral. There's a couple other really interesting left wing academics whose work I admire. Bichler and Nitson, two political economists out of Israel. And they chart historically how basically inflation and especially stagflation redistribute wealth from wage earners to capitalists and from small businesses to large businesses. So even they are saying that like, oh yeah, inflation is non neutral. It's absolutely a redistributionary phenomenon from the have nots to the haves. And you can just see that in our nation, right, in the last 18 months. Look, look who, look who did best, you know, in the time of great suffering, the freaking, you know, multibillionaires. Right, of course, so, so that's something that's important to talk about. That's an outcome of this system of moving from a world that's based in gold to based in debt.
- [32:46]
Robert Breedlove
Right, yes. It's almost silly to me that that is even a debate whether or not inflation is redistributive. It's like, of course it is. Unless you did it. It's not possible unless you split it perfectly based on who holds the dollars. If everyone held $1, had an effective stock split to $10, then it's necessarily redistributive. You can't avoid that. And to the first.
- [33:12]
Alex Gladstein
Yeah, go ahead.
- [33:13]
Robert Breedlove
Sorry, just the asset money, we're saying that it's absolutely essential at the geopolitical level because it is essential to sovereignty itself. And that's what these nations are intended to be. Right, Sovereign nations. I'm reminded of this quote, that sovereign is he who can decide the exception. And that's what gold was historically. It's like the one monetary layer that no one could really create an Exception to we couldn't counterfeit was the most scarce commodity, the most liquid commodity. And in that way, I think you can almost conceive of the introduction of fiat currency itself as a form of Gresham's law. Right. The nation state is hoarding the real money and effectively imposing like restricting access of citizens to that money and then ultimately the United States restricting access to other countries to that money. So it's a very important way to understand how we have organized ourselves across history. That is like it's been a fight over the gold almost the whole time.
- [34:20]
Alex Gladstein
Yeah. And look, no one denies that the US government demonetized gold in the last hundred years. The debate of course, is over whether that was good or bad. Right. So you have this huge rift in economic thinking over people who believe that it was bad and people who believed that it was good and that gold was some sort of primitive thing. Right. Look, I'm not going to go to bat entirely for gold and we can get into this, but I want to talk. We'll go back to the petrodollar in a second. But just as a brief glimpse of what we may get to. There were serious problems with gold. Gold failed. Gold was captured, was looted, was centralized, didn't work super well for day to day commerce was. Therefore the market participants decided to lock it up. They decided to get rid of their custody. They'd rather be exposed through paper gold. There were things about gold, as amazing as gold is, where it just couldn't cut it as the international monetary base, it just couldn't get it done. And I believe in the thesis that the US government kind of designed the world we live in in many ways. But there was also this organic demand for something that was not gold. Right. So anyway, I'll just leave it at that. I think that's just interesting to kind of sit on.
- [35:46]
Robert Breedlove
No, I think you're pointing to something really important here, is that gold, as great as it was, and it was selected as money for a set of very important reasons. It rendered certain services to market actors. It still suffered from technological limitations as being a global base money. The ones that come to mind obviously scalability and velocity.
- [36:10]
Alex Gladstein
You just can't teleport it.
- [36:12]
Robert Breedlove
You can't teleport it. Right. That's a big one. That's a really, really big one. Especially for a world that's benefiting from a global division of labor. You need money to be able to move really fast, to be able to settle with finality at high speed, basically. And then because of that, because of that technological limitation, you get this complex of promises to gold, and that's what all these institutions are trading on, Right? These paper derivatives of gold.
- [36:39]
Alex Gladstein
Yeah. So maybe I'll rephrase. I don't want to say gold failed. I want to say it was defeated. Maybe gold did what it was supposed to do and it was a restraint on government spending, on excess government spending, but governments were able to get rid of it. So that's what we'll revisit later with potentially the Bitcoin future.
- [37:04]
Robert Breedlove
Can bitcoin the information systems outstripped gold? Almost. We were moving information so much more faster than we could move money.
- [37:12]
Alex Gladstein
Yeah. And look, I mean, what's clear is that the US government still saw value in it. Of course, they got to make the rules at Bretton Woods. Guess what? They still wanted to peg the dollar to gold or at least to promise to pay gold. Now maybe you're sitting there and you're like, this was some CIA psyop where they knew they were going to go off the gold eventually anyway. And this is.
- [37:34]
Robert Breedlove
Well, they had the option to.
- [37:36]
Alex Gladstein
Right? This was just a ploy to get everybody to have dollars. Who knows? It's unclear. But what is certain is that it still held a lot of value, especially to the eyes of other central banks. So again, in the 50s and 60s, you saw a fear among other nations, especially in the 60s, that the US government wasn't going to be able to redeem its gold. And countries were really upset about that. And that's where you get this exorbitant privilege critique from the French was in that the US was able to do things that other countries weren't. And in the lead up to 71 and to the petrodollar, you already started to see the system start to emerge whereby basically America could buy with paper promises to pay anything it wanted to and that the other nations. Look, what happens if you're Germany or Japan in, let's say the 60s, and you refuse the dollar or you're like trying to sell off all of your dollar denominated liabilities or securities or whatever. Well, what happens is the dollar then crashes in the market, right? And it becomes devalued, Right. And then all of a sudden you're giving America a huge manufacturing and export advantage, so you end up damaging your own industries and harming your country. So it is definitely a rock and a hard place situation where all these other countries, as we got to the end of the 60s, realized, like, we're kind of screwed, like we can't. We can't go off the dollar, because if we try to flee the dollar, our own industries will get undercut by American exporters. Right. So it's really interesting the way that what we call maybe the treasury bill standard, how it kind of came together, certainly partly planned, but it was also certainly partly coincidence the way that everything kind of clicked into place. But what's certainly true is that American policymakers were searching for an anchor after 71, and again, $ devalued a lot. We had a huge economic crisis at home. We entered a very inflationary decade. There were already protests, massive protests against Vietnam. Of course, it was very unpopular. Nixon didn't want to raise taxes on top of it. I mean, obviously he ended up facing impeachment. Um, so there was a lot of tension at home. And what was really interesting is that Nixon ends up hiring this bond salesman off Wall Street, Simon, to be the treasury secretary. And they basically sat in 73 and they said, well, how are we going to. How are we going to kind of fix this? Like, how are we going to get people to buy our debt in the future? Like, how are we going to finance what we need to finance? Right. We've already kind of sucked the existing system dry. Like, we already have hung out. The Germans and the Japanese and the Brits, they're already suckered in. How do we get others? So all of a sudden, and you could argue how much we're at fault for it because we raised prices on grain and stuff like that in 72, which caused this crisis. But the Arab nations were like, wait a second. Our dollar denominated oil sales are plummeting in value because the dollar's depreciating. We're going to raise the price of oil. So oil, which had been about $2 a barrel for a long time, skyrocketed to like 10, 11, $12 a barrel in late 73, right around the Yom Kippur War. So all of a sudden they had this just tremendous inflow of value. And I'll just read a stat because I think it's quite important that, that we just grasp the actual amount of this. So basically this resulted in a situation where the Economist's cover story in January of 74 said, what are the Arabs going to do with it all? Like, no one knew what they were going to do with all this money. So basically it resulted in a peacetime redistribution of global wealth on a scale that hadn't been seen in living memory. So in 74, the oil exporters had an account surplus of 70 billion up from 7 billion the year before. That's almost 5% of US GDP. So essentially the Saudi current account surplus was 50% of GDP. They had so much money they couldn't spend at all. So the Americans were like, wait a second, we can get them to buy our debt. And that's essentially the birth of the petrodollar was this pact between, military, economic pact between Saudi, which again was head of an allegiance of nations which controlled about 80% of the world's oil at the time. And, and it was a deal where they would price oil in dollars and take those earnings and recycle them back into US securities at a kind of like non market rate. Had they just been sitting there with their wealth advisor being like, tell us what to do, they might have said, oh, have like 5% U.S. treasuries. No, no, they bought like way more than that. Right. And in exchange they got protection from the US Right, which had this obviously military apparatus that had been financed by the treasury bill standard. And they got tons of weapons. So, you know, we were able to sell them weapons. And this, this relationship persists today. I mean, it still persists today. I mean, you have both Trump and Biden basically refused to investigate the Saudis for the murder of Jamal Khashoggi, the Washington Post columnist. And both of them publicly said it would be too costly. Was there? Too costly was what they said. So you had us move from again, the gold standard to a pseudo gold standard that couldn't really hold it together, that collapsed entirely. We completely defaulted. And we were like, all right, well let's actually attach value to oil and to the energy markets. So what you saw in the 70s and 80s, which was very important for the U.S. by the way, we're in the middle of the Cold War, and all of a sudden not only does anybody who needs oil need to get dollars, thus increasing global demand for dollars, right? But America, most importantly, can just print oil into existence. We can literally print oil. The Soviets couldn't do that. Soviets had to dig it out of the ground, proof of work or they had to go buy it on the market. This was a huge, huge advantage. And of course, their invasion of Afghanistan and many other things, including just the general ineffectiveness of the communist system, played into this. But certainly the currency and monetary disadvantage they had was massive. So of all the things negative that I've obviously been implying about the treasury bill standard, we do need to admit or acknowledge at least that it led to the US defeating the communists in the Cold War. And I think that that's important to reflect on.
- [44:28]
Robert Breedlove
Yeah, agreed. Yeah. If you look at models of statism, clearly liberal democracy is preferable to outright communism. But I think there's a big case to be made against statism more broadly. But so this point that we sever the dollar peg to gold, it quickly starts to depreciate in value rapidly and then we scramble to repeg it to something. But again, we're going from one proxy for energy to really maybe a higher resolution proxy for energy from gold to oil. And the purpose is to establish reservation demand for the dollar to stop its diminution in purchasing power.
- [45:17]
Alex Gladstein
Right. In the Bretton woods system, you wanted dollars because you could redeem them for gold at $35 an ounce. That's otherwise why I don't want your dollars if they're worthless. In the petrodollar system, those dollars could be redeemed for oil at a rate that was relatively stable over the years. Your own currencies. Yeah, go ahead.
- [45:38]
Robert Breedlove
Sorry to interrupt. Even if you wanted nothing to do with dollars, you still had to transact in dollars at the tip of a gun to deal with oil.
- [45:47]
Alex Gladstein
Yeah. If you're in Malawi or Cuba or wherever, you couldn't use your own, you couldn't print your own national currency to buy oil. This was only a privilege of the United States. And that's again, the exorbitant privilege. And it's just incredible. I would say that at this juncture, it's probably wise to also just highlight this crazy fact that through the special privilege, through the treasury bill standard, which was then sort of hitched to oil in the 70s, the US government was able to get other central banks and other governments to finance our wars, even if they didn't agree with them, which no empire had ever done in history. So really, when we talk about the difference between, let's say classical imperialism and what some call super imperialism, or maybe monetary imperialism, of what the US has had over the last six, seven decades, whether you think it's been good or bad, how I would define it, the biggest difference is that the old school imperialism was, was, was based on being a creditor nation, a creditor entity, and by kind of owning people through them, owing you. Right, and loaning out to them, whereas the US system, which, which ends up ironically being way more powerful than any other empire ever, is based on being a debt, a debt based empire, which is just fascinating. Like never before had a nation, a bankrupt nation, imposed its bankruptcy on the world as the standard that we live in. And what's fascinating is the trickle down implications of this, and I'll just read a quote on this, because it goes into our daily lives, which I think is so interesting, is that when you think about the last 15 years, let's say Europe and United States, even for the first time in history, people were persuaded that the way to get rich was by running into debt, not by staying out of it. New borrowing against one's home became almost the only way to maintain living standards in the face of this new economic squeeze. And to me, this so neatly mirrors the global transformation of the world reserve currency going from a mechanism of saving and capital accumulation to a mechanism of funding through debt, debt financing. So it was almost like, yes, it was a geopolitical meta shift, but it trickled down into our lives. It's incredible to behold, to be honest.
- [48:12]
Robert Breedlove
Yeah, well, this transition from an asset based incentive structure to a debt based incentive structure where all of a sudden you have to outpace inflation at all cost at the bottom of that hierarchy. So you're taking on more debt in a world where dollars are depreciating, you're incentivized to take on debt and borrow. So it makes all the sense in the world that debt explodes. And I just wanted to circle back to one point here. The recycling of the US Treasuries is very interesting too, because this effectively puts other nations to work on behalf of the U.S. they send us goods and services, we send them dollars we can print ad infinitum effectively that are no.
- [48:54]
Alex Gladstein
Longer redeemable for gold.
- [48:55]
Robert Breedlove
Yeah, so that's the exorbitant privilege. But it's a double edged sword. Right, because it also, and maybe this is the way to think of it before we talk about the double edged sword, sorry, the super imperialism piece, the US was able to hold the most gold, but simultaneously be the biggest debtor. So they were still holding versus the old form of imperialism where you just hold all the gold and people owe you. They were able to accomplish both.
- [49:24]
Alex Gladstein
Yeah. To color that though, right. I would say that the true form of what is called super imperialism comes at that sort of in the 70s, let's say, because again, we started with the most gold in the world among all the other allied nations, 700 million ounces. I'll just give you the numbers on how that went. So by 49, we had 700 million ounces. By 60, 68, we only had 300 million ounces. So we had drawn down our gold reserve so dramatically through our efforts to do guns and butter, warfare abroad, welfare at home, and we started to finance our operations not through a creditor position, not through sale of gold, but actually through debt. And I think that's the really important mechanism here, even before we get to the petrodollar, is that other nations were kind of forced into this because again, if they rejected the dollar, which again had been designed at Bretton woods as spoils of war, we just had that privilege. We used it to design this ingenious system whereby if other nations protested, they got hurt, because if they tried to attack the dollar or start their own thing, the dollar would get weak. And then therefore, American exports would get really powerful and we would undercut everybody else and their own industries would get hurt. In fact, this is what would later happen in 1985 at the Louvre Cords. So basically, after we cemented our power in the 70s through the help of the oil nations, like, and this really, again gave us this big advantage against the Soviets, you know, we were still in the thick of the Cold War, but I think at that point it was quite kind of clear that America was like, at least the more slightly more dominant actor at that time. We were also worried about Japan, one of our allies. Japan was like their economy was going crazy. So we got together at the Louvre chords, and we, like, forced Japan to not only buy a bunch of our debt, but also to adjust their currency upward. So we got them to agree to make their currency stronger, which basically made all their exports, their cars and electronics, too expensive, wrecked their economy. This ended up causing the bubble of the Japanese stock market in different equities, real estate, whatever, that took what it took 25, 30 years to recover from. Like, in real terms. Right. We just saw that they finally got back to where they were in 89. That. That some people theorize, was actually done intentionally by the United States to keep. To kind of keep Japan kind of down. So what's kind of brutal is we used these tactics not only against our enemies, but also against our allies over time.
- [52:32]
Robert Breedlove
Incredible. And then, so, I mean, imperialism is expensive, right? So we started to draw down that gold. Gold stash we had. And then the exorbitant privilege does have this dark side, though, and that it effectively eviscerated our domestic industrial economy over the intervening years. And so did that. Does that today sort of rectify the rock in a hard place faced by other nations? Because now they. They don't have to be as concerned about competition from US Exports in the case of a weakened dollar.
- [53:10]
Alex Gladstein
Well, the Triffin dilemma essentially framework shows you that if your currency is artificially strong, your exports Won't do very well. So as we sank deeper and deeper into deficit and our currency was artificially strengthened by demand that we created because everybody needed our debt as the reserve currency, post gold. Right. Our exports just became extremely, I mean, even though wages have been stagnant since the 70s, in the manufacturing world, we just can't compete. And you saw this time and time again. You saw this in the 90s when we had NAFTA and you had all those companies open up on the Mexican side of the border. You had this, of course, after China entered the wto. So the whole Rust Belt phenomena of jobs going elsewhere was absolutely an outcome of the treasury bill standard. And at the end of the day, those people, I'm sure that when Washington analysts who designed the whole thing, the Washington consensus and all this stuff we're talking about, I mean, they were probably seen as a permissible cost. Were those people really going to put two and two together to figure out that that's what was happening to them? That seems like a stretch. I mean, most people, even smart academic people, don't even try to plumb the depths of what we're doing here. You know what I mean? So for the average person, stuff was just getting more expensive and their wages weren't going up. And guess what? It forces them to support populists. So you have like a class war thing coming out, right? You've got inequalities now today higher than they'd been since, at any point since the 20s. Right. So again, the outcomes of the treasury bill standard aren't just this ability to get other nations to pay for war abroad, but we do. You're right that there is a harm that we, that we undertake internally that causes crisis inside our country which causes people not in the fire, you know, finance, investment, real estate, kind of defense information. Not in that industry. Well, if you were in that industry, you crushed it over the last, you know, since 1980, destroyed. If you didn't, you, you. It's been really tough. Really, really tough. And that's the cost. And that's the cost is like the numerical majority of Americans have had a really hard time. And you know, that is the devil's gamble, right? That's the pact that, that we made. And not only is it a harm for us internally, you know, it's, again, it's been great for like a handful of elites, but it's also been harmful abroad. I mean, you know, you have support for the Saudis. Well, guess what? The Saudis did. Let's think about this, okay? So the Saudis built Islamist radical madrasas all over the Islamic world, radicalized these Islamic world, which wasn't by the way radical in the 50s and 60s. If you go back and look at photos of Sudan, Afghanistan, I mean women were looking very, you know, Westernish like this. This was created radicalism in the 70s and 80s by, by the oil revenues of the Saudis they were able to export their like super religious doctrines, right? Their Wahhabism abroad. And that of course led to a lot of people thinking that the Saudis themselves were corrupt because they were dealing with the, the Americans, right? So guess what? Bin Laden. Bin Laden, Saudi Bin Laden comes from a rich family in Saudi Arabia. He plots numerous attacks against the United States, ends up doing 9, 11, and guess what? 15 of the hijackers were Saudi, right? So this is blowback, right? So you have that as a cost of this system, our relentless support for the Saudi government and for the, you know, essentially from their view, the, you know, the like, you know, whatever they call it, like the Kufal or whatever that like, you know, the non religious, like the non Muslims basically are on our lands. You know, that's like a big deal. And then you have the question of war. So again, the cost, who actually pays the cost of the treasury bill standard, right? So going back to Vietnam, the Vietnamese people, I mean the Cambodians, all these people who got bombed to smithereens, they paid the cost, right? In the same way that all those people who, all those like working class and poor people who died in the trenches in World War I, they were paying the cost of moving off the gold standard, right. That the elites never paid, right. So who paid the cost of us moving into this new system? Well, at first a lot of people in Southeast Asia and then there were like trickle down effects whereby this system ended up. And this is kind of important also that like the Bretton woods system, which if you think about it like Bretton woods system, World bank, imf, they were designed to support this kind of framework where the dollar was supposed to be backing the world. They're extensions of the U.S. so when we got rid of the system in 71, why did the World bank and IMF still exist? Right? Well, in reality they existed to continue to push our doctrines and what we wanted out through the world. And the developing nations suffered a great cost at the hands of the treasury bill standard or great cost because essentially the way we rigged it up was that we needed them in this system to export the raw materials to us and then we would sell them back Manufactured goods at a higher price, this happened all over. And if they ever tried to get a sweet deal or take more of the profits from their savings, their natural resources, maybe we come in, we do a coup, we do these things, these happened. This economic hitman stuff was real. It really was. You look at the Banana Republic stuff, like all that stuff was real. I mean, we went in there and we would use whatever tools we could to make sure that these countries weren't sovereign. So that was another cost which led to massive debt crises in the emerging markets in the 80s, 90s, 2000s. And then of course you have the Iraq war, which is certainly debatable. I personally feel that the war, one of the major. No one knows why we went to war. Like, if you ask any mainstream, orthodox economist or politician, they don't know. Like they cannot tell you why. No one knows, obviously what we know. It was not the stated reasons. It was not for democracy in Iraq. It was not for WMDs, they didn't exist. And it wasn't for Al Qaeda because there was no connection. So, okay, so what was it? Okay, well, was it for the oil itself? That doesn't make any sense. America got all of its oil from itself from Mexico, Venezuela and from Canada. We didn't need the oil. No, I mean, I think it's quite reasonable to say that it was to protect the system. Right. And Iraq was, I mean, you had to think about it. We had this dollar system that we had created, the treasury bill standard. Well, we didn't want competition. We defeated the Soviets, we crushed the Japanese. So the new challenger was the euro. The idea of a euro currency was kind of scary for people operating this treasury bill standard finally comes into fruition at the end of 99, 99, 2000, 2001, you start seeing it happen, the euro and Saddam Hussein decides to sell oil in euros. And it was on the one hand, relatively small percentage of the world's oil, but on the other hand, a lot. Actually one of the major oil producing countries was selling all of its oil in euros. A lot, a lot of money, a lot of value. So I think kind of knocking that down, knocking the petro euro down is very much in line with US foreign policy of diffusing other threats to the system that we've had in the past. And makes sense to me. I mean, none of the other explanations make sense. So then of course it's like whatever the million people who died there. So all this is to say that there is, as you say, another side to it and costs have Been enormous. They just haven't been paid by the people in Washington and Wall Street.
- [61:25]
Robert Breedlove
Right. Distributed disproportionately. And then the US Dollar clearly has been weaponized. Right. We're going around the world. I guess there's two sides to it that clearly the military and military force is being used to create demand for dollars and treasuries internationally. But then the dollar and its associated complex itself is a very potent weapon, as we said, with this economic hitman type activity. But there's these externalities that are unavoidable. They're clearly very negative. From the US Looking outward, we're projecting a lot of negative externality. But there's also negative externality internally to the US that its industrial economy is being very impacted. With that comes wealth disparity. With wealth disparity comes political polarization. And that's where we're at today. The widest wealth gap we've had in 100 years and commensurate political polarization.
- [62:29]
Alex Gladstein
On that disparity. Can I just give a number?
- [62:31]
Robert Breedlove
Yeah, please.
- [62:31]
Alex Gladstein
I think this is insane. So just to highlight the transformation again from the system of more or less where we were coming out of the system of asset based money to debt based money in the early 1950s. Okay, so we were still kind of on the pseudo gold standard in a way. A typical dominant capital firm commanded a profit stream 5,000x the income of an average worker. In the late 1990s, it was 25,000x. Okay, next. In the early 1950s, the net profit of a Fortune 500 firm was 500x the average, meaning the average Fortune 500 company was making 500x the average company. In the late 1990s, it was 7,000x the average. So again, when we talk about these inequalities and the Cantillon effect and the way that the new system, the treasury bill standard, as opposed to the gold standard, the way that it kind of like money itself becomes political and manipulated at the very base, has really strong statistical outcomes that we can measure and track. And it's really disturbing. I mean, it really creates winners and losers at a scale that's just not there when the base money is not manipulatable by charge.
- [63:58]
Robert Breedlove
This is why we talk about the incorruptible money of Bitcoin being so important. It prohibits these types of effects where you can centralize, monopolize the money in such a way that it actually dispossesses the economically vulnerable. And this further widens wealth disparities. All really good points there. I wanted to so I'm going to read another excerpt here. I want to see if this is taking us forwards or backwards. Okay, let's go here. So reasons for the war, as you said, debatable. Seems pretty evident to me that we were defending something. If we didn't need the oil, then the natural next target would be to defend the currency. And so I'll read this excerpt. The flimsy nature of the official reasons for war led many to believe that oil was the root cause. This would not be unusual. Over the past 150 years, natural resources have been at the root of many wars, invasions and occupations that have shaped our world, including the scramble for Africa, the Great Game in Asia, the Skies Pequot Treaty, the overthrows of Mossadegh and Lumumbra in the first Gulf War. So I think the point here is that people are talking about why did we go to war? What's the purpose of war? The first thing to note is that war is the most expensive endeavor human beings can engage in. Very tremendously capital and energy intensive. And you would only engage from a rational economic standpoint. You'd only engage in such an activity like that consistently if there were some reward at the end of it, something to be gained. I think again framing our discussion here in terms of energy. We're fighting war with energy and we're doing it to obtain something that can give us greater energy or utility in the future. Although in this case it may not have been the oil itself. It does seem that the value of reservation demand for the petrodollar was that source of energy we're going to war for. And this. And I'll read another excerpt here, but former Federal Reserve Chairman Alan Greenspan wrote in his memoir that I am saddened that it is politically inconvenient to acknowledge what everyone knows. The Iraq war is largely about oil and told the media that removing Saddam was essential to secure world oil supplies. Former head of US Operations, Iraq General John Abiz said that of course it's not about oil. We can't really deny that. And former Defense Secretary Chuck Hagel admitted in 2007 that people say we're not fighting for oil, but of course we are. How can you think otherwise? People that think we go to war to spread democracy or some other silly principled reason don't understand economics.
- [67:22]
Alex Gladstein
I mean we literally 12 years earlier gone to war in the same exact place to defend the oil structure as it be, whether that be the Saudis in control or the particular companies involved. But again the capitalist, the sort of what we'll say anti capitalist perspective on Iraq I think doesn't work as much because going just for the oil doesn't make a lot of sense. First of all, the oil fields got wrecked and everybody knew that A lot of the oil companies were actually like, no, we don't want to go to war because we know what's going to happen next. It took years to get back up to the production levels from before. Right. And at the end of the day the American firms, it wasn't clear that they were going to get all the contracts. In fact, a lot of them haven't. They're about to sell a bunch to China right now. So like really what I think you could make an argument for again is that it deterred to the petro Euro, regardless of who's buying and selling oil, whether it's the Chinese from Iraq or whatever. At least until 20, 19, 99% of it was all done in dollars. And that is a victory. So that was a big victory. Especially again at a time where people were, especially a few years later during the great financial crisis and afterwards the Chinese and the others were like not so sure about this US debt being at the center of the world financial system. At least you could argue it bought us time. You could argue it did succeed in fending off any sort of other kind of currency oil scheme. So yeah, I mean to me it's interesting and one thing to just comment on what you said before of the cost of these wars. It's important to note that in the 60s, Vietnam was single handedly responsible for pushing the American balance of payments negative. So if you took all the other expenditures we had as a nation that were not related to Vietnam, we would have been balanced budget. It was just the war that bankrupt us very specifically. They should know that that's important. And you could say similar things. Most likely if you dive into the numbers, you know, about the last 21, you know, 20 years or so right. Of fighting in Afghanistan, Iraq, things like that. Like these are, these are excessive things that are not necessary, that are like power projections to do a certain thing. And again, they have a real cost.
- [69:58]
Robert Breedlove
Yeah, it really does. And that's a great way to put it, power projection. Because that is the paradigm that the current financial system is based on. It's like whoever can project the most power effectively gets to determine property, the distributions of property. So let me read this. I think this is really important just to connect the concept of currency to energy itself. And I think it dovetails nicely with the reasoning behind the war Said, quote, in post invasion May 2003, weeks before Iraq switched back to selling oil and dollars, Howard Feynman wrote in Newsweek that the Europeans were debating the UN over whether or not to continue searching for WMDs that they could not find. He reported that the. That the real dispute was not about WMDs at all. It's about something else entirely. Who gets to sell and buy Iraqi oil, and what form of currency will be used to denominate the value of the sales. I mean, this is hidden in plain sight. To me. It's that if we consider currency as the most common instrument of channeling this monetary energy, as Saylor would call it, it's like, of course we're fighting over that mechanism. It is the highest form of energy that we can deal with. So it's not just about the oil. It's just about who holds future claims to handling exchanges of that oil. How could it be anything else?
- [71:42]
Alex Gladstein
And literally. So we invaded in March, by June, the new Iraqi government under our occupation, guess what? They weren't selling oil in Euros anymore. They were selling in dollars. So it's like, again, like, we can debate. And clearly it was like a bizarre. The Iraq war was such a bizarre thing. It was really the thing that colored my political birth in terms of, like, thinking about the world. Like, I was 17 when we invaded. And I remember in high school having to be up on stage and having to debate both sides. I mean, that's how crazy this was. We had kids like me arguing to invade this country. I mean, it was like. Like every media outlet was saying we should invade. Like, 70% of Congress was into it. Like, Biden, Clinton, all the Democrats were totally into it. A lot of, like, humanitarians really, like Samantha Power and a lot of lefty kind of humanitarians said we had to do it to save the people. Like, it was this coalition of, like, so many people that. That, like, it was almost unstoppable. And it's like, why? Like. And everybody had their own reasons. So, like, it almost. The root reason almost doesn't really matter. It's kind of like the root reason is just hidden by all this other crap. And, like, we'll never know. We will literally never know. But if you look at currency theory of what we've been discussing during this conversation, it is very. Makes perfect sense that the US Would use its force to enforce the dollar standard.
- [73:21]
Robert Breedlove
That's what it's already doing. That's what it's already doing.
- [73:24]
Alex Gladstein
And look, now we're coming to the denouement right so we have again, these countries are finally like, nah. So these other countries have been dishoarding. They're net negative on treasury since 2013. The US government is now the majority purchaser of our own debt, which is so just a bizarre thing. And obviously that leads again to currency debasement. And we're seeing that now. Obviously we have what, 6% CPI now, but really massive inflation and all kinds of other things. And it's starting to become quite clear. And now we're seeing. It's so funny because we went in the span, even you and I have been watching this. It's been the last two years, it's been like, there's no inflation. And again, forget, like Americans are so focused on America, they forget that, like I've been in all these arguments recently, like 1.6 billion people live under straight up double or triple digit cpi. Forget asset inflation, okay? So we could be a little like empathetic with the wider world around us, but like, let's put that aside for a second. They said there wasn't going to be inflation, okay? Then they said, oh, it's temporary. And then they said it's good for us, right? So there's like all these different narratives coming in and it's really amazing. It's almost like watching. Did you end up reading the Mandibles that.
- [74:47]
Robert Breedlove
I have not read it yet, no.
- [74:48]
Alex Gladstein
It's a good one. You should put it on your holiday book list. But anyway, there's a character, it's very funny. It's a dark comedy about. Well, it's a dark comedy because it's about hyperinflation in the United States. But it takes place in like 2028 or something like that. And one of the characters is economist. And the opening scenes of the book are basically, you know, life seems fine. And then all of a sudden in like two days, it all collapses. It just shows you how sudden it could be. Everybody's assets get locked up in the financial system. No one can withdraw anything. And like all the power goes out. It's just like, boom. So you got this economist and he's, he's saying there's no, it's fine, it's going to be okay. And he's, he's at one point in the book, you know, and I won't spoil anything else because it's a great book, but he's literally living as a refugee in Prospect park in Brooklyn in a refugee camp. And he's saying, it's going to be fine, don't worry, there's no, inflation, it's like a comic version of what we're dealing with. But yeah, I mean look again, these things have costs. Guess what? Vietnam had a cost. We had to default on our debt and prices went through the roof for everything. For Americans we had like 10% inflation in the 70s. So Vietnam had a cost. Well, guess what? Iraq and these forever wars are having a cost too. If you look at the cost like, you know, you start to look at the price of these wars, it's insane. We're talking many, many trillions. Because an interesting thing is not just the outlay of what we actually have just done already, but what we owe and what we owe to the soldiers. There's 4 million veterans and that the, apparently that's going to be 2 or 3 trillion dollars in entitlements to pay them for their services between now and 2050. That's crazy. I mean like so, so you start adding it all up and these forever wars are $10 trillion. $10 trillion, right. We forget the billions back in the 70s. I mean so we, there are, there's absolutely cost to everything here.
- [76:54]
Robert Breedlove
And accumulating these costs at the same time we're eviscerating our productive industrial economy just further inhibits our ability to ever service them, which pushes us into further warfare. It's a vicious cycle. It's a self destructive vicious cycle. And this quote keeps ringing in my head from Nietzsche. He says everything the state has is stolen. Everything it says is a lie. So it's like we can't trust any of the things that, the reasons that have been put forth for warfare. And in fact there's this tool used in clinical psychology, I think they call it the psychological scalpel. And they say if you just look at the outcome of a behavior, you can infer the intent. If you can't actually know the intent, you can just look at the outcome. And again to your point, what was Iraq doing 30 days after we invaded is like they were selling oil and dollars again.
- [77:50]
Alex Gladstein
So it, yeah, they weren't really like they weren't stable. They turned into a hotbed for terrorists. They turned into a proxy for Iran, our enemy, to exert its power. I mean, I don't know, like you could say we screwed up whatever we were trying to do, you know, but the reality is that the one thing we got out of it that's clear is we knocked off the Petro euro.
- [78:18]
Robert Breedlove
So I'm getting here is I feel like we just have to rip the mask off. All this BS we've been fed, it's just a ton of propaganda and it's like follow the money, follow the energy, follow the economics. That's what tells you the true intent. Hey everybody. As you've no doubt learned by watching this show, Bitcoin is the single most important asset you can own in the 21st century. And one of the most important companies in Bitcoin today is NYDIG. NYDIG's mission is to get Bitcoin into the hands of as many people as possible. One of the ways they are accomplishing this mission is by empowering banks and financial technology companies to offer their own Bitcoin products and services. As a true game changer in the industry, NYDIG is safely unlocking the power of Bitcoin for forward thinking individuals and institutions alike. Led by Robbie Gutman, Yin Zhao and Ross Stevens, NYDIG has absolutely exploded onto the Bitcoin scene recently and has quickly become a leader in this space. So whether you are a professional investor looking for asset management services or a company looking to white label your own Bitcoin product or service, consider nydig your single source solution for everything Bitcoin. So one of the things I have often referred to in my work is this idea that fiat actually shifts the predominant wealth strategy within a constituency of market actors away from work and towards theft. Which is to say that fiat effectively incentivizes rent seeking. There's a great excerpt in your paper here, I think, that explicates as well as was recently written in Foreign affairs, the benefits of dollar primacy accrue mainly to financial institutions and big businesses, but the costs are generally borne by the workers. For this reason, continued dollar hegemony threatens to deepen inequality as well as political polarization. In the United States, corporations and asset owners have benefited most in the system's low interest rate environment. As Fagan and Luzder argue in the Class Politics of the Dollar System, dollar primacy feeds a growing American trade deficit that shifts the country's economy toward the accumulation of rents rather than the growth of productivity. This has contributed to a falling labor and capital share of income and to the ballooning cost of services such as education, medical care, and rental housing. I mean, this is the monkey on all of our back. We have a flawed incentive structure. It is creating wealth disparity. It incentivizes bad behavior effectively theft and rent seeking. It's amazing. It's almost like this thing is hidden in plain sight. There's evidence all around us. There's economic axiom that supports it, yet it is still a blind Spot in the worldview of most people.
- [81:35]
Alex Gladstein
Yeah. And then that is then also in the same way that we saw the meta geopolitical level mirrored into the individual level, we can kind of feel the individual effects, as you just mentioned, of the sort of dollar hegemony system. At the individual level we can kind of see what's happening. But at the geopolitical level there's also these rent seeking opportunities. So what's really interesting is that some argue that we talk about moving from again, like a old school imperialist power chooses military worker exploitation, raw minerals focused strategy. Then we move to this kind of, let's say whatever America is, super imperialism, et cetera, which is more of a financial and agricultural way of doing things instead of military. I think the agricultural thing's worth mentioning for a second. You could argue that the driving force of American foreign policy really in many ways over the last hundred years has been to protect our agricultural exports, to protect our, you know, whether it be beef or grain or et cetera, et cetera, sugar. And a lot of that has shaped our consumer preferences and what we buy and we eat, like the kind of like what we say. The agribusiness lobby, right, is like really, really a big one right up there with the oil lobby, but really like the protectionist policies that, that are kind of weirdly our democratic system has enforced right through like the fact that such a vast swath of our country may not have that many people, but has quite a few senators. Right. The whole system that we designed at the beginning to try and make things even and equal kind of over time made things so that the agricultural folks, even though they were like a smaller and smaller percent of the gdp, they retained a lot of power over time. And in this century we saw protectionism to protect the workers be a really key part of actually the Bretton woods conversations at the time. So at the time Congress was worried that Bretton woods would somehow hurt kind of the American agricultural base, right? So we had to make, we had to have assurances that it wouldn't, Right? So the way that they ended up designing it to ease the fears of these people who are elected by farmers in many ways or constituencies that have agricultural interests, was, you think about how important. Again, I live in California. Whenever I drive from the Bay Area to San Diego area, I see it. You drive through the valley, massive industrial farms, the breadbasket of our country, and there's so many other agricultural products that we produce. And over time, what ended up happening was that the US was like unwilling to lower its Tariffs on commodities that foreigners could produce less expensively than American farmers and manufacturers. Right. So we basically structured the international system so that other countries had to become dependent on our foodstuffs, on our grain, things like that. And anyone who tried to, like, mess with that system, we would go in and, like, and, you know, adjust, let's say. And you know, what's really interesting is if you start to zoom out, you see that there's like kind of this strategy to get the often, let's say dictatorial leaders of these countries, of these developing emerging economies to spend their earnings on food imports and weapons imports. And basically this prevents internal development and internal revolution. So it ensures that America has, like this, you know, whatever, our son of a bitch, Right? But also that, like, the country never gets off its feet to actually become its own kind of agricultural and manufacturer producer, and that it remains dependent on us. And what's. What's really crazy is that the. It's not just that you have this kind of system where you had.
- [86:07]
Robert Breedlove
Fruit.
- [86:08]
Alex Gladstein
Minerals, oil, sugar, raw goods. These are all the things that these countries were focusing on throughout the, you know, 50s, 60s, 70s, 80s, instead of investing in domestic infrastructure and education, which is what we did, right, you know, and forcing them to buy our foodstuffs. What kind of ends up happening is, what's really crazy is we ended up making money off of all the aid stuff. So all this aid that we did around the world. Listen to this. From 1948 to 1969, we got our receipts from foreign aid, meaning the money that was paid back to us was 2.1 XR investments. So not exactly an instrument of altruism, we would say. From 66 to 70, the World bank took in more funds from 20 of its less developed countries than it dispersed. Okay, so this whole world, oh, we're out there to help the little guy. Just not true. The whole thing was to kind of exploit. And what's really crazy is we talk about CPI and you have Weinstein going on about the. It's all fake and everything. Okay, fine. In 1971, the US government stopped publishing data showing that foreign aid generates a transfer of dollars from foreign countries to the U.S. so again, this guy, Michael Hudson, who wrote this book, Super Imperialism, he apparently at the time called the government and figured out who was in charge and talked to them. And they said, the quote was, we used to publish that data, but some joker published a report showing that the US actually made money off the countries we were aiding. So we stopped publishing the data. So, you know, again, we have These grain exporting regions, Latin America, Southeast Asia. If you, if you think about the banana republic thing, like, yeah, they were forced to do like plantation style farming that was meant for export, that was not meant to feed and sustain the local environment, right. And the local populations. And these countries actually through the period of the 40s, 50s, 60s, 70s, you know, they turned it from, arguably some of them were for exporters, food exporters. They all turned into food deficit countries. It's really sad. So they were like retrogressing and you know, if you think about this is kind of the pattern that some describe, right? That like you start with a rural exodus of workers into cities, that's that happens as you modernize, right? But then you have like the food deficit issue where the country isn't making enough food, so you are draining international reserves to pay for that food to come in and the inflation starts to go up. And it basically, this is like a way of destabilizing countries. So I think a lot of people look at that confessions from an economic hitman thing and they're like, well, it's kind of Hollywood and overblown. And I mean there's a lot of truth to that stuff. Like it 100% happened in a certain way. And I would say that what I'm about to describe, because I think it's such a perfect capstone for what we've discussed is not capitalism, as Alan Farrington would say. This is not capitalism what I'm about to describe, but it's true of what happened. And this is the summary from Hudson. So under super imperialism, world commerce has been directed not by the free market, but by an unprecedented intrusion of government planning coordinated by the World Bank, IMF and what has come to be called the Washington Consensus. Its objective is to supply the US with enough oil, copper and other raw materials to produce a chronic oversupply sufficient to hold down their world price. The exception of this rule is for grain and other agricultural products exported by the US in which case relatively high world prices are desired. If foreign countries are still able to run payment surpluses under these conditions, as have the oil exporting countries, their governments are to use the process to buy US arms or invest in long term, illiquid, preferably non marketable, U.S. treasury obligations. Mic drop. I mean, but that's crazy. I mean that's the system. And it's just kind of sad. Doing this reading and preparing for this conversation wasn't very. I mean it's energizing because it's like you're learning about what actually is happening at the base, but it's tremendously depressing.
- [90:31]
Robert Breedlove
Yeah, well, I agreed. And I'm reminded here this quote by Kissinger, he said, who controls the food supply, controls the people, who controls the energy, can control whole continents. Who controls money, can control the world. And it seems to me like that is the US geopolitical strategy in a nutshell, is that they were just trying to control.
- [90:55]
Alex Gladstein
Well, we haven't even gotten to the craziest part. So the really nuts part that people seem to forget is that there was this Malthusianism in the 70s, right? And there was this conflict between the Catholic Church and basically Kissinger and Robert McNamara who was head of the World Bank. And it was really public that the US foreign policy was that you want our aid, you need to reduce your population, you need to like, like do birth control. Basically. Like, it's just really, really crazy. And it came to a head because a lot of these countries were Catholic countries. But basically, like the, the summary which I'll just read, which I think is so powerful that like the World bank focused the developing world on service requirements rather than on the domestic needs and aspirations of the people. The result was a series of warped patterns of growth in country after country. Economic expansion was encouraged only in areas that generated the means of foreign debt service so as to be in a position to borrow enough to finance more growth in areas that might generate yet further means of foreign debt service, and so on ad infinitum on an international scale. Joe Hill's song We go to work to get the cash to buy the food, to get the strength to go to work, to get the cash to buy the food, to get the strength to go to work, to get the cash to buy the food became reality. The World bank was pauperizing the countries that it had been designed, in theory, to assist. It's crazy. And I'm not going to sit here and say that's how it works right now. I think there are big, big changes that have happened since the 70s. I would say that part of the world still works like that, though. And we talk about how absolutely vital the petrodollar was right in the 70s and how absolutely appalling this World bank activity was in the 70s. It's been muted since then. It's fading. The petrodollar is not what it used to be. You're starting to see China and Russia trade oil in their own currencies and they're starting to do gold and dude, you're going to see bitcoin certainly soon. Enough there's been more light shed onto the workings of these international institutions. Like they're not as we have the Internet now. Like there's more people in the know. So the, the really kind of the most extreme versions of what we're describing really happened kind of in that formative era, right, of like 60s, 70s, 80s. But it's still, still happening today in terms of how the US pursues financial and agricultural domination. I mean, it still still fuels us for sure.
- [93:37]
Robert Breedlove
And the deindustrialization in the interior US that has accompanied the US dollar standard, it actually has reduced the, I guess, incentive for other nations to care so much about a depreciated dollar, which may help explain the reduced international demand for treasuries and whatnot. Again, the balance of power is changing. But I do think that this whole, you know, in the Hebrew Bible, I think it's the word for debt and slavery are very closely related. The exact term escapes me, but they're etymologically very closely related. And it seems like that's what we've been dealing with here, right? It's just this debt based system that was being leveraged to enslave other nations, people, populations to the point of singing that song, which is.
- [94:30]
Alex Gladstein
Yeah, I think that. So there's this quote from Hudson, to borrow from foreign central banks rather than from its own citizens is one of the economic miracles of modern times, right? Like that's in a nutshell, the hack that we've been describing. But like miracle is totally in the eye of the beholder, right? Was it a miracle for the Vietnamese or the Iraqis or Afghans? Like definitely not, right? So you get to this point of peace theory, which I hope we can just sit on for a second. Immanuel Kant, in 1795, he had this essay called Toward Perpetual Peace. And his work is largely credited for the underpinnings of this theory or framework called democratic peace theory, which states that no two fully democratic nations will fight each other, which has largely been borne out like in history. There are some exceptions and stuff, but generally speaking, two countries that have, which have elections and property rights and free speech and stuff like that, they usually don't fight each other. And what's interesting is he says that in this essay, which was written 120 years before the gold standard started to, to break down, right? He started talking about how like a credit system used by a global power would show the power of money in its most dangerous form. And he says essentially that because these debts could go on growing indefinitely, this kind of system would basically potentially create a military fund which would grow larger than resources of all the other states put together. And this is something, again, he's predicting in 1795. And he says the only limit will be the tax deficit that you'll have, but that can be pushed off through the credit system itself. And he talks about how this ease in making war that would be made possible through a global credit money system is thus a great obstacle in the way of perpetual peace. So, you know, in his article or his essay that like, has obviously inspired a huge amount of thinking over the last several hundred years, maybe an often overlooked part of it was that he was basically saying, like, we can't have the world's global monetary power run a credit money system system. Like, otherwise we're going to get a lot of war. This is basically what he's saying here. And so then we then. So then we start to think about, like, some of the critics of this or the criticisms of this, of this idea. Right? So, okay, well, would a true gold standard have, like, deterred the Vietnam war? Well, I don't know, but it certainly would have shortened it, that's for sure. Definitely not have been that long. Would a true gold standard would have shortened the first world war? Definitely. There's no way they could have paid for all those guns and troops had they not gone off the gold standard. And then you get into the idea of like, well, fine, but what about all the wars that happened during the gold standard? Right. Okay, okay. So here's where we get to the idea of, again, maybe gold failed or was defeated or wasn't good enough, but what if there's a bitcoin peace theory, kind of like democratic peace theory, and what if it builds its power based on the fact that bitcoin is such an improvement over gold in many different areas, including the fact that it's really hard to demonetize. I mean, if you think about Satoshi, Satoshi chose April 15 as their birthday. Right? April 15 was the day that the FDR administration passed Executive Order 6102, beginning the seizure of gold of citizens United States. Right? So clearly Satoshi was designing bitcoin to be resistant to a 6102 attack. Right. They obviously spent a lot of time looking at how gold had failed. There were some things. And if you look at satoshi's writings, they're thinking about that. They know gold's important. If you look at the writings there, you know that they were thinking about how they had to be a decentralized Mint humans couldn't be in charge of monetary policy. Big appreciation for gold, but also knowledge about 6102, knowledge about how gold failed. So can Bitcoin actually put forward a peace theory, a framework whereby it would prevent war? And I think that we can see that gold was clearly a restraint, but that it could be like the shackles could be thrown off, right? So what if bitcoin, once it fully monetizes the shackles, can't be thrown off. And I guess my point is that if it remains possible to relatively easily self custody and if most of the bitcoin is held by people and not by governments and confiscation becomes really hard and people practice self custody, we can will this into existence. Like we can have a society or a global society where war is prohibitive and where it happens much less. I mean, I don't think it's going to end all war, but where things like the needless carnage of World War I and the absurd extravagance of bombing Cambodia and Vietnam for so many years for arguably something that didn't work at all. Like, guess what happened when we left Vietnam, right? Or even just Afghanistan, even if you're going to take the most charitable viewpoint and say, look what we did for the women of Afghanistan, okay, I agree. But guess what? Who's in charge now? And it's like the hubris, right? The limits of what we can do. I think Bitcoin would just kind of be guardrails against that. Some of these forever war things just aren't possible. Like, again, the fact that like this fiat system has disenfranchised citizens from making decisions about war. In America, which is supposed to be a democracy, the average American might vote, but they have no idea how many wars we're in. I mean, it's not even. You and I could debate this. Are we in six wars or seven wars? Well, I don't know. Does Somalia count or not? Like, it's like, and I'm like a relative expert in this area and I don't even know. Like, so it's like we're fighting so many wars that we don't even know how many that we're fighting. Like, that's how disenfranchised we've been. That was not going to be the case under the gold standard when governments had to like tax to get the money to go fight. And like during all these long wars, this is true, they fought, but when they ran out of money, they ran out of money and they had to go get more gold. Right. It was like they had to stop the war to go get more gold. Right. So not the case in the past century. And what's fascinating is that war does seem to be the engine. It does seem to be the thing that drives us into the fiat world. Like, if you look at, Again, World War I, you look at Vietnam like the big, big Korea. Like, honestly, over all the history we've covered in this, in this conversation, we initially went off the gold standard to fight World War I. America became a debtor nation, lost its creditor status during the Korean War, and we broke off the gold standard as a result of Vietnam. So war has this really deep relationship with gold, and they're clearly at odds in the lens of at least international monetary theory.
- [102:20]
Robert Breedlove
Yeah. This is the core point of Bitcoin. And I know this is why I'm so passionate about my work. I think you share that passion with me and the thought experiment because clearly, bitcoin is something so radically new, we struggle to describe it through historical analogy, one of the most prevalent of which being gold. But we do hit this point of, oh, well, there were still wars on the gold standard, so what's the difference? The thought experiment I've been working with lately is the idea of the cost of violating property. The more expensive we can make it to violate property, I think, the more civilization we can create. Because then your strategy is just, if you want to acquire wealth in a world where property is very expensive to violate, you are channeled into this action of trade and cooperation. That's the ideal strategy to create wealth. So I view Bitcoin as one of, if not the most expensive form of property ever to violate in human history. And this is very important. There's a quote by Ayn Rand. She says, the right to life is the source of all rights, and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product is a slave. And all of this. That is all. So human rights themselves are derivatives of property. And so what we need is civilization, is property that's really hard to violate. And I think that's what that point is.
- [104:14]
Alex Gladstein
Yeah, and what's interesting, again, is I think it's rare that, let's say the bitcoin community, probably your audience, even let's say people who are libertarian, it's rare that they would be able to find value in historical analysis of someone who's probably, let's say a Marxist or at least socialist. Unlikely. However, I think again what I'm basically saying here is some of these socialist kind of thinkers were really, really good at describing how like to be, to be, to be concise about it, how fiat money kind of screwed up foreign policy and the global state of affairs. Like if you look at Graeber, if you look at Hudson, like they're amazing, like it's amazing to read their work. It just resonates with me as someone who's been thinking a lot about let's say all the things you just mentioned, right. And you know, it's like we're in this eternal struggle of like free market people thinking business was peaceful unless governments corrupted them and socialists thinking governments were peaceful unless businesses corrupted them. Right. So we kind of have this age old struggle that will always exist. But what's interesting about bitcoin is it's like, I think a lot of bitcoiners are kind of in the middle. Like we're like, we don't trust government or corporations. Like it's, I'm not like, like I'm all about entrepreneurship and private property and freedom. But like once the corporation grows to a particular size and power, I mean it becomes the enemy. I mean you think about like meta or whatever Facebook, is that. Is that a cypherpunk? No, screw that. You know, so it's like, you know, corporations or like what some of these again like more socialist kind of lens people would say like dominant capital. Like really the people who run our societies, in some of our countries it's government bureaucrats and others it's like a king and his family. In others it's literally corporations. Like all of them, you have the absolute power corrupts absolutely thing. They're all problems in my eyes and they all contribute to human suffering. And you know, we're trying to think of a different model here which would prevent them from exceeding their reasonable power. I do think that bitcoin helps there and we just have to think about what that future is going to look like. And I thought that again we have to think about how does bitcoin succeed where gold failed? Well, clearly the fact that it could be used as a medium of exchange. And it's actually like I went down to El Zante, I used bitcoin as a current, so it was elegant. It's way better than the existing system in many ways. So I think we can imagine a world where we're not just using promises to pay Bitcoin with each other, that we're actually using the asset itself. That's exciting. That was not possible with gold, especially in the digital world. That was never going to happen. So that's interesting. And then the other one, which I'll just read something from Arthur Hayes, which I think is really interesting, is that he says that it's essentially going to be very difficult for governments to do what they did with gold in terms of manipulate the price, because a lot of gold bugs say, well, the real market value of gold should be $10,000. Okay, so why is it not? Well, manipulation. Okay, so this is what Arthur says. So Arthur says Bitcoin is not owned or stored by central commercial or bullion banks. It exists purely as electronic data. And as such, naked shorts in the spot market will do nothing but ensure a messy destruction of the shorts capital as the price rises. The vast majority of people who own commodity forms of money are central banks who it is believed would rather not have a public scorecard of their profligacy. I can't speak, Sorry. They can distort these markets because they control the supply. Because bitcoin grew from the grassroots, those who believe in Lord Satoshi are the largest holders outside of centralized exchanges. The path of bitcoin distribution is completely different to how all the other monetary assets grew. Derivatives like ETFs and futures do not alter the ownership structure of the market to such a degree that it suppresses the price. You cannot create more Bitcoin by digging deeper in the ground by the stroke of a central banker's keyboard or by disingenuous accounting tricks. Therefore, even if the only ETF issued was a short Bitcoin futures etf, it would not be able to assert any real downward pressure for a long period of time, because the institutions guaranteeing the soundness of the ETF would not be able to procure or obscure the supply at any price, thanks to the diamond hands of the faithful. So again, you have the difference between gold and bitcoin. So I agree with people that like, let's actually be real about gold, like, clearly is not going to work. Like, we're not going back to the gold standard. It either failed or got defeated, depending on your perspective. And while I don't think it was a barbarous relic at all, I think it was quite elegant in the way that it was used by humans for thousands of years and especially in the later stages of the gold standard where it acted as this kind of remarkable kind of way to balance international trade and power. Really Fascinating, but it's not going to make it in an electronic world, obviously. So the question is, do we get some of those key benefits in a bitcoin world, but also do we get more? Do we actually get reduction of state violence and do we actually get reduction of corporate power over our lives? And to me it's quite clear we do. But that's my opinion.
- [110:08]
Robert Breedlove
Well, and I share the opinion, and it's based again on that perspective that economics is upstream of all of the rest of this. So if we just change the economics of theft by making property more expensive to violate in the form of Bitcoin, then it has downstream repercussions on all organizational models, governments, institutions, et cetera. And something you said earlier, I think is important. It's like we don't need to trust business or trust government, or trust any third party. This is Szabo's point. They're all security holes. Bitcoin lets us trust individual self interest. And that's the beauty of the system, that we can trust individual self interest and we end up with an exception proof database. And as we said earlier, if sovereign is he who can make the exception, we're all operating on a database that no one can make an exception, then we've maximized individual sovereignty.
- [111:06]
Alex Gladstein
Yeah. And to go back to where we started again, the story of this conversation is how we moved from asset money to liability money or to debt money. Now if we go back to asset money with Bitcoin, what does that actually look like? So do you think that's going to be as. I think what Saylor's pushing this idea of there's still going to be fiat for a long time at least, and maybe it's backed by Bitcoin at that international level. Are we going to see Bitcoin slide into that role that gold had as a way of balancing society's transactions with each other, or is it going to be deeper than that? Could it actually be also the dominant medium of exchange in society? There's something interesting that I always think about where it's like you have the Gresham's law, we're all familiar, okay? The bad money drives out the good. And that would be at play at first with Bitcoin. Who wants to spend their Bitcoin if they, they can spend fiat, right? So maybe you have again these two tiered societies like we had in the gold standard, where we have promises to pay Bitcoin that are fractionally reserved and all kinds of stuff, but you in the free market assess this with risk and we have bitcoin banks and people make trade offs with custody and there's all kinds of traditional financial activity that happens. Okay, very possible, right? But I think you also have this scenario of thier's law which is the opposite of Gresham's law which I believe is going to happen. And this is different because this is where the good money drives out the bad. And this is what you see in dollarizing countries. So in a country like Venezuela or Cuba in the early 90s, Venezuela today the existing currency is so bad that not only do you want to like save what you can in other currencies in a harder currency, but you, but none of the merchants want the bad currency. So you're like at the grocery store and they don't want your bolivars or they don't want your pesos, they want your dollars. So this is where thier's law comes into effect. And that's what I think actually may save bitcoin in this way. Once people selling homes, selling coffees, selling services, once they actually are like no, we want pay me in bitcoin. You just saw the New York mayor of New York today, all these athletes, Tom Brady and Aaron Rodgers. And once pay me in bitcoin becomes not a publicity stunt. But actually. No, no, no, I'm serious, pay me in bitcoin. In fact, I'll offer a discount. I'd rather have your bitcoin than your dollars and I'll put a price on that. 10%, 20%. Once we start seeing this, then people have to spend their bitcoin. So it's almost like this free market thing that's not controlled by anybody in particular. May end up making bitcoin able to avoid the fate of gold where it got centralized and demonetized out of the economy. Maybe bitcoin forces its way into the economy because of human rational interest. What do you think about that?
- [114:24]
Robert Breedlove
I think that's exactly what's going to happen because again bitcoin is just more transactable. I already transact in bitcoin. I like to work with bitcoiners. So a lot of my service providers want to be paid in bitcoin so I pay them on the lightning network. It's simple. It's 24 by 7. They like it, I like it, it's great. Now I don't like to part with my bitcoin so I'm always buying more bitcoin than I'm selling. But that's just me.
- [114:55]
Alex Gladstein
That's only because you're short bitcoin Right. That's only because you're still living like me. We're both still living partially in a fiat world, or maybe mostly in a fiat world. But increasingly you're starting to see pockets of the world or communities that don't live any at all in the fiat world. They're just in bitcoin. And therefore, if you're not short bitcoin, you have to spend your bitcoin. So it's like that becomes your bank account.
- [115:19]
Robert Breedlove
It's progressed a lot over the past five years. Five years ago, I was mostly transacting in fiat. Five years later, I'm mostly transacting in bitcoin today.
- [115:30]
Alex Gladstein
Yeah. And we get this. First of all, you have the collateral stuff like Coinbase came out with, that's going to, I think, be quite popular among most banking services in the future, where you can give them some of your bitcoin and get to spend some fiat. That's kind of happening. And then at the same time, I think technologically within bitcoin, I think within 24 to 36 months, there will be an ability to download a basic bitcoin lightning wallet, let's say a blue wallet or a moon wallet, and there'll be a little slider in the app. Let's say you've received $100 worth of Bitcoin, a certain number of satoshis, you'll actually be able to choose whether or not to denominate it in dollars or bitcoin. And the way that'll work is on a contract for difference, using a DLC on the Lightning network. So there'll be people inside that app ecosystem who are short bitcoin and some who are long. And I think that's going to be very interesting because then all of a sudden all these people around the world who want those dollars until they're comfortable with bitcoin. Because again, in my work, I'm out there talking to folks in broken economies. They love bitcoin, but they also need dollars. They don't. They don't fully trust. Bitcoin's too volatile right now for them. Right. So maybe they want to go half and half or whatever. So there's just massive demand for dollars. And this will allow anybody with a phone to get dollars, which is really interesting. And today you can kind of do that with tether. There's like hoops you have to jump through and then it's counterparty risk and the whole tether thing. So it's not ideal, but tether's certainly important out there in These in Lebanon, Palestine, like people use tether because they can't get access to dollars. So in the future, once we replace that with the ability to have basically stabilized lightning or whatever you want to call it, that's going to have some really interesting effects on fiat currency. Why would you want a bank deposit? If I could have self custody Bitcoin dollars.
- [117:34]
Robert Breedlove
Wow.
- [117:35]
Alex Gladstein
But then some weird stuff happens with the exchange rate eventually. So at the end of the day, just be prepared for this. There's going to be people who blame the collapse of the dollar on bitcoin and we could debate that till the cows come home, but at the end of the day, and when I say collapse the dollar, I don't mean livelihood of Americans. We'll be fine. We're going to shift to a different money like we've done in the past. It's happened numerous times over the last couple hundred years. But I mean the system itself, like let's say the super imperial dollar hegemonic system is eventually going to run out of steam collapse. And I think my response to that accusation, because it's always very levied at you as you're being anti patriotic or something, is that no, I think the system is going to do it to itself. If we didn't have bitcoin, forget bitcoin. This system is toast eventually it's in its terminal stage. If at the end of the day we're the only ones buying our own debt, like we're going to have massive inflation and it's going to cause a crisis in our country. We're not quite there yet. Maybe we stave it off for a while, but at the end of the day, the system that we've been, that you and I have lived under our entire lives is a system where other countries pay for our stuff, okay? Instead of us paying for our stuff, other countries pay for our stuff. And we've had that dollar exceptionalism. And that's ending like the Japanese people are not going to be paying for your college education anymore. You know what I mean? That's not going to happen. The Chinese are not going to be paying for awards in Iraq anymore. Not going to happen. I mean they're still in that hard place, rock hard place thing because they have all these treasuries and they can't dump them all. Because China's goal today is to be a currency manipulator and to basically keep its currency artificially weak so it can export a ton. That's how it grows, right? So it's not going to Want to kill the dollar because then it won't be able to do what it does. But it's gradually dishoarding and it's not buying any new treasuries. Right. They're buying a lot of gold. Gold. They're looking at gold. Right. So, you know, it's interesting to see this start to happen. But I mean we, we just live in such a fascinating time. I mean living in the 70s must have been crazy because you read these and people were like, what's going to happen next? There's actually this quote that I'll read which I think is amazing. In 1977, Hudson wrote this. He said, will OPEC supplant Europe and Japan as America's major creditors using oil earnings to buy U.S. treasury securities and thereby fund U.S. federal budget deficits? Or will Eastern hemisphere countries subject the US to a gold based system of international finance in which renewed US payment deficits will connote a loss of its international financial leverage? Well, obviously we know the answer. Option one, they failed to subject us to a goal based system in which a deficit marked a loss of leverage. And in fact the Japanese and Chinese kept buying our debt. So we already sat at one of these moments 50 years ago and stared at it. And man, the system is just so geniusly designed with its incentive structure that it survived, but it can't, it just can't keep going forever. And I really want to make it clear that I'm very bullish on America. I love America. I'm profoundly sad about the way it has externalized its costs on the world in the last century. And I think most Americans are totally sheltered from that. Totally sheltered from that. We have no idea what we've wrought. You know what I mean? But I still believe in the founding principles are amazing and do love my country. I just don't really love the people who run it. And I do think that the bitcoin standard will be great for the United States in many ways. So I'm looking forward to dispensing with this super imperialist nonsense. And it's going to be awesome watching bitcoin defeat it. I'm excited. Yeah.
- [121:39]
Robert Breedlove
And I hope this work and others work can help shift the conversation back towards bitcoin being the ultimate American money. Right? It has its own inbuilt rule of law. It's the ultimate private property. Right. And it's the most honest money that's ever existed.
- [121:57]
Alex Gladstein
Check this out. One of our most grievous crimes of course is the suffering we've inflicted on The Native Americans. Okay. One of our original sins, along with slavery. Right. Okay. So today a mining company that I'm aware of puts out a video and they've been helping the Navajo, who by the way, like, have been totally screwed in our country. Like the Native American populations, they have incredible solar resources and also some, I believe, coal, like resources plants that were shut down because they weren't profitable, etc. Anyway, they have a variety of different energy resources on their native lands and they are now mining bitcoin. And that's just so inspiring and that's so cool because now they can be the masters of their own financial destiny. And they were not able to do that before. Right. So if we can get out there, educate them. I mean, it's sort of like the Salvador thing. Like, and by the way, El Salvador means the savior in Spanish. That's like a crazy, crazy thing. But like, like it's a very complicated situation down there. But, but, but like, if this plays out the way it's currently playing out, whether or not the average Salvadoran likes bitcoin or whatever, they're going to be forced to learn about it in a way that's more rapid than the average person in LA or in Tokyo or in any other country. And they're going to be more advantaged because they're probably going to have some bitcoin and they're probably going to maybe even enter into a job in that industry or whatever. I met a bunch of young people down there who are now in the bitcoin industry and they're going to freaking kill it in the next decade. You know, and when the next developing country decides to go to the bitcoin standard, who are they going to call? They're going to call the Salvadorans. Like, so there's such great hope for this nation, which honestly led the country, led the world in nothing but murder rate. Until recently, that was it. They'd never been in Forbes ever. So I mean, they'd been basically like a, a discarded story from the banana republic age. And the United States and its corporate proxies had sucked it dry over the decades and left very little except for a circle of elites inside the capitol. That's how we treated this country. But the fact that they're going to be leading the world, and this is really cool, and it's similar to the story of the Navajo. Hey, they can front run people. And it's interesting because we talk a lot about colonialism in this conversation, or at least about imperialism. And how do you, I mean, talk And I'm thinking about Nigeria. You know, I saw a story in the news the other day of a British museum. So the Brits returned a statue to Nigeria. It's like, oh, great, like, how considerate of you. But the trillions of dollars in today's terms of labor and raw materials that were stolen by the British Empire in Nigeria and in the surrounding areas aren't coming back. They are forever encrusted in the success and achievements of the British people. Okay, those were stolen forever. So how do you make this right? I mean, I don't believe in this sort of redistributionism. I don't think it makes any sense necessarily. What I do believe in is front running your former colonial masters getting into bitcoin first, which is what they're doing. So the average Nigerian knows way more about bitcoin than the average British person, which is so cool. So love seeing it. Love seeing it.
- [125:28]
Robert Breedlove
I love seeing that too. And I love your perspective on it. And ultimately every individual and group that wants sovereignty will find bitcoin. I mean, it is the only way to really, truly establish self sovereignty. So I want to be respectful of your time. Alex, I really appreciate you doing this. I think the work you're doing for the world is just tremendous.
- [125:52]
Alex Gladstein
Thank you, Robert.
- [125:53]
Robert Breedlove
I appreciate being alongside you in this fight to educate. Because people just don't get it. They don't understand what's wrong in the world today and they don't understand how bitcoin fixes it. But hopefully we're helping to shed some light on that.
- [126:05]
Alex Gladstein
Yeah. Last thing I'll say is that I was in Washington recently and I got to speak to staffers from all kinds of congressional Senate committees to talk about bitcoin and financial inclusion. And I also got the opportunity to sit on a panel a few weeks ago with Congressman Davidson from Ohio. It's not my main interest, but I'm starting to think about what does it mean to educate the US government about bitcoin. It's full of paradoxes. I'm sitting there in this building in Washington that's a seat of power of this super imperialist structure. It's crazy to be inside of it, spreading the knowledge of this thing that's going to help basically disintegrate a lot of it, a lot of the bad parts, at least I think. And it's like I'm just going to keep speaking what I believe in and I don't really know how it's all going to shake out. I do believe that our government could really use bitcoin in its external affairs, like our education about Bitcoin. Using bitcoin as a payment rail, it could really improve foreign aid. We could spread the seeds for a lot of growth. Unfortunately, the reality is that the history of our country shows that we're not interested really in helping all these countries. We're interested in pushing them into servitude essentially. So we'll see. But I am inspired by some of the leaders in our country now who get the bitcoin thing. It was really crazy. There's going to be a video of it soon. But I was sitting next to Congressman Davidson and he literally says, because we were on a panel with some spook who worked at Boeing or whatever and he's like, oh, we're still on the gold standard. He, we're all like, what? Like not in this audience, dude. Not at this audience. So, so Warren Davidson says like to sort of subtweet the other guy at the other end of the stage, he says, oh, you should all, you should all go to what the fuck happened in1971.com? And I was like, I couldn't believe what I heard. I'm like, wait, a sitting US Congressman just told the public to go to what the fuck happened in 71 dot com. That's amazing. So I, and he's patriot, you know, I don't, I may not agree with him on everything, but he believes in this country and he thinks that it's good and proper for us to reflect on what happened in 1971. And whether you're on the left or a libertarian or whatever, I think we can agree that the things we did in Vietnam were bad and they were wrong. And why did we change our monetary system to allow us to do that? Let's please reflect on that. I mean my father, you know, rest in peace, he, he served in Vietnam. He was as a 22 year old kid drafted into, 23 year old kid drafted into Vietnam the weekend JFK was shot. And he served there for two years for what? Like he, he, he thought the whole thing was a sham. He never even wanted to talk about it ever because it was so shameful. And his, his eternal gratitude was just like, I didn't have to go do that, you know, but it's like you think about the toll it had on our country and really like, if anything, hopefully this conversation just gets people to reflect, to think deeply, to go read. I mean check out Super Imperialism. It also has a sequel called Global Fracture which is really interesting. I think these books are, they will open your mind. I don't think you will agree with everything written in them. I would hope not. The whole point is to be provocative, right? But I think they helped me frame this conversation today and I'd also just want to shout out a couple other people who helped me get to this point of understanding. Certainly Lyn Alden's article on the petrodollar system was really great. I think Luke Groman's stuff is really good. So keep reading and keep learning and let's keep reflecting and we'll keep building. And thank you for having me.
- [129:51]
Robert Breedlove
Absolutely beautifully said. I do hope that these ideas spread because really the best thing the US could do is just give back to its roots, constitutional roots, and lead by example. I think that's the best thing we could do in the world. Alex, if you could just tell my audience where they could find you to learn more.
- [130:11]
Alex Gladstein
Sure. I'm on Twitter. My DMs are open. Ladstein G L A D S T I N you can check out the work of the Human rights foundation@hrf.org and if you want to come experience what we do, which is really just merge the field of liberty and human rights with bitcoin in many ways, you can come to one of our events and those are called the Oslo Freedom Forum, and you can check those out@oslofreedomforum.com awesome. We'll be doing our next event in Norway in May. We'll have a full Bitcoin academy, so hope to see some of you there. And yeah, thanks again.