← The "What is Money?" Show
The "What is Money?" Show
Money, Violence, and The State with Brent Johnson (WiM 032)
02:03:18
Brent Johnson joins me for a deep conversation about economics, money, debt, the state, violence, Bitcoin, geopolitics, and macroeconomics.
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- [00:00]
Brent Johnson
Foreign.
- [00:06]
Robert Reidlove
Hey guys, this is Robert Reidlove from the what is Money Show. And as you've 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 facilitate financial security for all. They accomplish this by bringing a high level of professionalization and sophistication to the bitcoin marketplace. As a true game changer in the industry, NYDIG is safely unlocking the power of Bitcoin for forward thinking individuals and institutions alike. By using nydig, you will gain access to an end to end institutional grade platform providing bitcoin OTC transactions, bitcoin collateralized borrowing, secure custody, asset management, derivatives financing, market research and more. And all of these services meet the highest regulatory, governance and audit standards. Led by Robbie Gutman, Yin Zhao and Ross Stevens, NYDIG has absolutely exploded onto the bitcoin scene recently and is leading the way for ongoing institutional adoption in this nascent asset class. So please be sure to check out NYDIG as a single source for all your bitcoin needs. Brent Johnson, welcome to the what is Money Show.
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Brent Johnson
Thanks for having me. Good to be here.
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Robert Reidlove
It's great to have you. We got to meet in person in Miami, sitting on George Gammon's panel at the Rebel Capitalist show. We talked about the history and future of money. And I think today what we're going to try to get into, general themes at least are similar. Going to look at the history and nature, possibly the future of money, its relationship with violence and the state. And then you just mentioned to me you read my good friend Nick Batia's book Layered Money, so maybe we can talk a little bit about that for the audience. Brent is the founder of Santiago Capital, which is a wealth management firm. He's a prolific thinker in the sphere of capital, finance, money, macro. I guess I'll let you speak to where you stand on bitcoin. You just mentioned to me before the show that you're free market leaning, but maybe they don't always have the whole picture. There's another part of this conversation today. We're going to go into David Graeber's book Debt a little bit, which I think makes some very interesting counter arguments to the Austrian view. So Brent, welcome to the show. I'm not sure where to dive in here. This is a lot to talk about.
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Brent Johnson
I have a feeling we're going to cover a lot of ground here. I Don't know if it's going to. It may jump around a bit, but I know we have a lot to talk about.
- [03:04]
Robert Reidlove
Yeah, exactly. So maybe it would be helpful if you wanted to start out with a little bit of brief background on yourself. That'd be great. And then we could just jump into Graber's perspective on money. I guess that would be a good place to start where he talks about debt versus barter and how it's evolved over time.
- [03:23]
Brent Johnson
Sure. So maybe the best way to set this up is to, you know, I started my career on Wall street in 99, so a little over 20 years ago and I did about a six month training program and then I came out into quote unquote business in the winter spring of 2000 and shortly after that the market crashed. So I was going through the training program when the technology boom was just full guns blazing and I came out thinking I was going to get rich in just a few months. And then everything kind of went the other way. And so we had a year or so of crisis and then we had the 911 event and had another year or so of crisis. Then we had a couple of decent years and then things started to kind of go south again. Then we had the global financial crisis and then that just started to get better. And then we had the euro crisis, I don't know if you remember the, you know, the Portugal, Italy, Spain, Greece, they were worried that Southern Europe was all going to go bankrupt. So we had another crisis, then we had a couple decent years and then we kind of had started having the repo crisis and some of these other things and then we have Covid. Right. So in the last 20 years I feel like I've had at least half the time my career I've been in crisis and the other half of the time it's been okay. And there's been a few good years along the way as well. And so I kind of. That's a long way of saying that I think potentially if somebody had spent 20 years from like 1980 or the early 80s to 2000s where markets were not more calm but just more, maybe less irrational and less crazy, you know, a 20 year career during that period may be a little different than the 20 career of the last 20 years.
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Robert Reidlove
Right.
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Brent Johnson
And I have, and I'll get into the reason why, but I believe that the last 20 years, the education, the real world education, I guess that I got over the last 20 years in conjunction with all the reading and the self education that I started doing about 12 years ago has kind of prepared me for what I think is going to happen over the next five to 10 years. And the other thing that I'm going to say is that a lot of times people say, oh, Brent thinks he knows this, or, Brent thinks he knows this, and I do not know what's going to happen. Right. Nobody knows what's going to happen. All of us are using the best of our abilities to speculate on what the future is going to bring. I think I have a reasonable idea of how it's going to play out, but none of this is guaranteed. So, you know, anything I say, I, you know, I always tell people to go do their own research. Think for yourself. Don't believe it just because I say it, and certainly don't believe it just because somebody else does it. So I don't know if that answers your question. I just got kind of rambling there, but that's perfect.
- [06:13]
Robert Reidlove
No, I appreciate the context, and it sounds like, you know, you've been raised in the fires of the markets, essentially. And a lot of that, at least the Austrian view, would be that increasing central bank intervention has driven larger and more frequent crises around the world. And we're going through more of it now.
- [06:36]
Brent Johnson
I think maybe to kind of further this, give me just two or three minutes and I'll kind of set it up, because I think this is going to help people understand my point of view a little bit better as well. People have heard me on other presentations or podcasts. I've talked about this kind of. This very important meeting that I had in 2007 that kind of really changed my perspective on a lot of things. But even before that, in college and even in my first, you know, six or seven years in business, I was kind of one of those guys who I was just kind of smart. I always had a lot of people around me that were a lot smarter than I was. But I was smart enough that I could remember, if I took a class, I could remember what the teacher said, and I could memorize things really well. And I could get pretty good grades, you know, not the valedictorian or anything, but I could just kind of get by by remembering stuff. And so when I took classes on finance and economics, you know, I didn't necessarily learn it all as far as inherent knowledge. I just learned it long enough to get a good grade on the test. Right. And so. And then when I went through the training program on Wall street, whatever the people that trained me told me, I pretty much believed them. You know, I just took what they, they said as gospel. And then I had this meeting in 2007 where I was with these young couple who had sold their company. And we were trying to convince them to put their money with us to manage. And I brought in all these experts from my firm, all the people that were kind of my idols and the people that I looked up to and the people that I wanted to become. And I thought, this is going to be a slam dunk. These people are going to just wow this young couple with their expertise and their knowledge. And we get into this meeting and I realize these people don't know anything more than I do. You know, they've just been saying the same thing all their life. And most people believe them because they don't know any better. But this young couple, they actually kind of thought for themselves. And they asked a number of very, what I thought, very smart and intelligent questions, not necessarily even hard questions, just different questions that were typically asked. And these people couldn't answer them. And it made me realize that they really didn't. They couldn't answer them because they really didn't know they were salespeople. They were essentially salespeople.
- [08:42]
Robert Reidlove
Yeah.
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Brent Johnson
And I left that meeting very disillusioned and discouraged. And I went back to my desk and I literally got out a piece of white paper because they had asked a number of questions about inflation and tax rates and the amount of debt and, you know, all these like, and all these number, you know, the entitlements, you know, huge. At the time they were billions. Now it's trillions. At the time it was, you know, hundreds of billions. And so I got out a piece of white paper and I literally did the math longhand just so I could see it. And I did kind of a back in the back of the napkin analysis on the United States economy and government. And it just, it was a very stark reminder that, you know, it was not in good shape.
- [09:25]
Robert Reidlove
Right.
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Brent Johnson
So that, that. And I literally had the light bulb above the head moment. And that kind of started my period of self discovery where I went back and I read a bunch of the stuff that I read in college, but this time to actually, like, understand it.
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Robert Reidlove
Yeah.
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Brent Johnson
And, you know, I went on blog posts and I went to conferences and I read textbooks and economic papers and, you know, I sought out people who kind of thought like I did. And that, that kind of led me to the, the Austrian school, for lack of a better word. And I really liked the Austrian school because I thought it actually made sense. A lot of the times when I would take finance classes, you know, in college, or even learning the stuff in my first years in business. I could figure it out again long enough to memorize what I needed to do, but it didn't really inherently make sense to me. And then when I kind of went to the offspring school, I kind of figured out, well, the reason it didn't make sense is because it doesn't make sense. It's all just this, you know, crazy system that the world has built. And the Austrian School, I guess, gave me a foundation for how things should be or how they would be in a free market. And so that really helped me kind of understand economics from a fundamental standpoint and money and currencies, and that was great. But then, you know, you fast forward several years and I started, to be honest, I started to have some problems with the Austrian school because I thought in many ways they were just as dogmatic about their beliefs as the Keynesians were about their beliefs.
- [10:52]
Robert Reidlove
Right.
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Brent Johnson
And while I appreciated the Austrian school perspective, in my opinion, the Austrian school explains how it would be in a free market. And I'm a free market guy, I'm a capitalist, so that really speaks to me. But then the reality is we don't live in a free market. And very, very. Only for very short periods of time in history has there ever been a free market. There's typically some involvement from the state or local power of the government or local warlord. However you want to define that, that makes it not a free market. And so I think if you have the Austrian viewpoint of the free market, it may sometimes hamper your ability to act in the market as it actually is. Anyway, that all kind of. And then bitcoin is kind of a. And then I lived in Silicon, near Silicon Valley, and had all these friends who were in tech. And so bitcoin kind of enhances all of that stuff and has a technology perspective. So I just kind of feel like all of this stuff is kind of gelled together, and now here we are with the next five years ahead of us, and I think all that stuff's going to be on the table.
- [12:05]
Robert Reidlove
Yeah, no, it's great color to your lens on everything. So let me ask you a couple of questions about that one. I think maybe it'd be useful for us to define. I'll try to define free market and feel free to correct me if you see it differently. I think the Austrians essentially define it as a forum of voluntary exchange where there is no compulsion, no threat of violence, no threat of aggression against property, effectively, as I mentioned, to you offline before the show. In my mind, my understanding of a pure free market gets a little cloudy in relationship to violence because violence is something that is inherently centralizing over time. It's a necessary service. You have to actually have protection from violence to have free trade. But the protector government, the monopolist on violence often becomes the entity that demands tribute charges, monopoly prices in terms of taxation, inflation, et cetera. They almost always monopolize the money throughout history, which is a very big problem for the free market. Maybe you could chime in on that, how you see the free market and know maybe why we have never really had one. And then if you could talk a bit about the. When you became acquainted with Austrian school, were there particular thinkers or books that you gravitated towards?
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Brent Johnson
Yeah, yeah. So maybe I'll ask her that last question first. Is, you know, the first place I went. Well, there's a guy named Bill Bonner who has a. He. I don't know this for sure, but I think that he is probably the biggest owner of a newsletter writing business in the world. So he himself is an author and has written several books. And then he has a number of different, you know, media companies that he owns and puts out newsletters. And some of them are geopolitical related, some of them are finance related, some of them are gold related. And so I initially read one of his books. It was called Empire of Debt. I think I read that in 2007. That was before the financial crisis. And he was kind of warning about a crisis was coming. So that kind of opened my eyes a little bit and then start, you know, you can go down the rabbit hole pretty quickly on this stuff. And I was trying. And I kind of like that stuff anyway, kind of, you know, geopolitical conspiracy theory stuff. And you find out that a lot of the conspiracy theory ends up being conspiracy fact.
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Robert Reidlove
Yeah.
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Brent Johnson
But, you know, early on I was trying not to go too far down that rabbit hole too quickly because I didn't want to get lost down there.
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Robert Reidlove
Yeah.
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Brent Johnson
So I was trying to. And so I was also, you know, I wasn't just going to read the news. I was trying to read other, you know, more mainstream stuff. But even, but it's hard to find anything Austrian school that's mainstream. It's just inherently not mainstream. Absolutely. But I read a couple books by Rothbard. I went to, you know, the mises.org website is fantastic for anybody that's. For anybody that's trying to learn. And here's my point is, even if, even if you don't like Austrian School of Economics, but you don't know anything about it. You should read a lot about it because it's good to know the other side's arguments, if nothing else. But the mises.org website at the time, and I think it still is, was a great resource.
- [15:33]
Robert Reidlove
That's right.
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Brent Johnson
For tons of papers and books. And, you know, there was a book called what Has Government Done to Our Money?
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Robert Reidlove
Yeah.
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Brent Johnson
And I read that. That made a lot of sense. He wrote a book. Was it Brunkard or Hayek? I don't. One of them wrote the Mystery of Banking. And that was. I thought that was fantastic. The Mystery of Banking was a really good one.
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Robert Reidlove
Yeah. I'm not sure who wrote that one. I don't know if I read that one.
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Brent Johnson
And then, you know, so that's the first place I would go is if you're interested in Austrian School of Economics or even just another point of view, you know, should go to the mises.org website because I think they have a lot of good stuff. And then I had, you know, doing that. Then I started meeting other people and kind of that's. And they started sending me books and articles and links to read. And, you know, I read things like, you know, like Jim Rogers, he wasn't necessarily an Austrian, but he was involved in the gold world. And, you know, Jim Rickards was. I mean, he still is, but he was pretty prolific at the time writing books. And, you know, several years ago now, my friends, Ronnie Stoferle wrote a book called Investing for Austrian School Investors. So that. So I read, you know, I tried to read as much as I could, really, just to kind of get that. And I think it's good because I think it does help you understand from a fundamental point of view how economies work.
- [16:53]
Robert Reidlove
Yes.
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Brent Johnson
With the exception that. Now, we'll come back to the other part of your question is that the state, the state's involvement. Right. There's all, you know, for people who aren't familiar with this language, the state is just whoever the local power is. You know, it could be a city government, it could be, you know, country. It could be. If you're. If you're a tribe living out in the woods, whoever. The biggest, strongest guy, that or girl, you know, kind of running the show, that's the state. So there's always some kind of a. There's always been some kind of state intervention on some level, and maybe it's a collective agreement that everybody came to, but I don't think in history there has ever Been a prolonged period of voluntary exchange, total free market. I can't sit here and say that it never existed anywhere. But that's just typically not how history has gone. What's that called? History is the story of the conquered and the conquerors. Right. And for better or worse, you know, people fight over resources and fight over land and fight over money, and that's kind of the history of the world. And so I always kind of. And that's why I. While I. While I'm. I'm very sympathetic to the Austrian school of economics, and I think it's really important to understand that foundation. I think something gets lost if you only focus on that anyway.
- [18:22]
Robert Reidlove
Yeah, yeah, I agree. Agree with you completely. Lots of good points there.
- [18:26]
Brent Johnson
Well, before I forget. Sorry, just thought something like. Cause you asked me about the. And violence. And I think this is something else that's important to talk about because I think if for somebody who's not versed in all of this and they hear us talking, what violence are they talking about? You know, I don't walk out in the street and get beat up every day. Some neighborhoods, you know, might. Right. But it's not the typical experience. But the point is, as long as you play by their rules, you don't. You don't. Right. But you are bound by their rules. And if. If you don't live by their rules, there are various forms and levels of punishment that go along with that. Yes, maybe it starts off pretty benign initially, but it can eventually land you incarcerated or dead as a result of not complying. Right. And so I kind of joke and laugh about it, but it's actually very serious. You know, the state makes the rules, and the state, to your point earlier, the state demands tribute. And whereas I think in the Austrian school, they talk about how money developed out of the free market. And, you know, through years of barter and exchange, gold was the most marketable commodity, and therefore it became the best form of money. And therefore that is the best form of money today. And there's some truth to that. I'm not saying that that's wrong, but that doesn't tell the whole story because typically throughout history, again, whoever was in our demanded tribute of some kind. Payment, taxes, however you want to, you know, define that. And basically, whatever they said they wanted as tribute, to a certain extent, became money. Because then everybody, everybody else knew that they had to pay that tribute. So if they could trade amongst themselves to get that form of money to pay that tribute, that kind of became money. Right.
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Robert Reidlove
Right.
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Brent Johnson
Now, I think sometimes along the way, that tribute was gold, right?
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Robert Reidlove
Yeah.
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Brent Johnson
So there was sometimes along the way, it was paper, sometimes along the way, with seashells. Sometimes along the way it was, you know, iron or copper or whatever it was. And so I think throughout history, there was. Sometimes there was better forms of money than others. And I think despite what the state said was money, gold also operated as money in the black market or in the private market or however you want to. So maybe there was dual forms of money along the way. But the point is, if you got to that end of the year, the end of that season and you had to pay your tribute and you didn't have it, violence was going to come upon you, right?
- [21:02]
Robert Reidlove
Yeah.
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Brent Johnson
Same way as if you don't. If you don't pay your taxes year after year, eventually you're going to get that knock on the door, right? And you know what? Then you have the choice of pain or not. And if you don't, then there will be consequences.
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Robert Reidlove
Yeah, absolutely.
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Brent Johnson
That's just the way it is. You don't like it, but it's the way it is.
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Robert Reidlove
I think it's a great point that we have to expound the definition of violence, that it's not direct, overt violence. You go outside your door and the state's whacking you with a stick. I mean, it's. Your behavior occurs in the shadow of violence. Right. Like if you go and steal from someone or assault someone or don't pay your taxes, the power of the state will be brought against you. Which, to your point, may come as initially as a document in the mail, and then it may come as a knock on the door. And they may. Then it may be a whack on the head. You know, the other difference.
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Brent Johnson
Different in different societies and different countries, Right. There are some countries, when you walk outside, they're hitting you with a stick, making you go to work.
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Robert Reidlove
Yes, yes, yes. We spent a few months in Bali at one point, and there was. They have a different kind of government system. They have like a local regional government, and they have the larger central state government, and the local regional government still goes door to door. They go door to door. A couple of guys roll up on their little bikes, you know, smoking cigarettes, looking standoffish, and they want you to hand them some money. So it's a lot. It's alive and well in the world. And so the other definition the Austrians give of the state is that it is the apparatus of coercion and compulsion, basically. So to have. And this is where it gets murky for me, because to your point, the pure free market has never existed. Because property has always been vulnerable to aggression. I guess you could always go and physically take someone's property. Or just wield violence to demand payment of property. But we that. That emerged that. So that local. The threat of violence basically incites the existence of government. Because what you want then is a someone to hold that power. That prevents anyone else from using the power of violence. Or coercion or compulsion or fraud over you. Such that you can have peaceful and productive trade to create wealth. So I think my current view of how this happened is that history sort of forms these little economic enclaves. Which may be originally in just a small geographic territory. Where one guy is the most violent guy in the room. He's the biggest conqueror. He's got a few square miles of territory. Everyone go on and mind your business. Conduct your business freely, but make sure you always pay this guy. Then as soon as this guy's territory comes into contact with another similar guy's territory. They fight it out. And then whoever wins conquers the whole territory. And then it just rolls forth. So government, in my current view, is this centralizing monopoly on violence. But that's where it's like, I can't get my head around how you could have free market pricing in the market for violence. Because it's a natural monopoly. The guy's always a monopolist. So he's always going to be prone to charge monopoly prices in the form of taxation, currency monopolization and inflation even. Where there's always this temptation, I guess, to siphon wealth off the productive economy. That's inherent to all governments throughout all history. And so I think the point in Graeber's book is that gold did emerge in the free market as money. But the state also influences the shape of money's evolution. Because of what it demands in tax. That creates a demand for money that might not be gold. It's been barley, it's been fish. It's been all these other things. Some governments wised up and actually started to hoard the gold. And then they would make people denominate their transactions in silver or something even softer currency, for instance. Just so they could, you know, kind of control the wealth. So maybe we could jump into one of these examples. I'm looking at just some of the stuff from the book here. And he talks about, I guess, one thing we'd blow out of water initially. Is just that people think, typically it's barter. Then people figure out, hey, barter's a Real pain in the ass. Why don't we use something as money and then you get money. But that's not what Graeber's. The anthropological record says, frankly. It says we instead use debt as the medium of exchange, In a way, IOUs, before we get into barter. So maybe you could just talk a little bit about that.
- [26:10]
Brent Johnson
I have to give credit to a friend of mine, Travis, who pointed this book out to me. It was about a year ago. And the funny thing was, Travis, I don't think he'll care that I say this, but he's actually a client of mine, but he's also a friend of mine. And we got into this long debate on Twitter in front of everybody. And not many people argue with their clients in a public forum. But we were really going back and forth on this, and he was arguing kind of the Keynesian statist viewpoint, and I was arguing the. The Austrian viewpoint. And he basically said, I get what you're saying, and theoretically that could happen, but it never did something to that effect. Right? And I said, well, I said, well, you know, that's your theory. Maybe that didn't. But, you know, you know, maybe it happened the way I'm saying it too. And he said, but, you know, there's no evidence that what you're saying ever actually took place. And he said, read this book. So I said, it was about a year ago. So I went and got the book and, you know, and I was kind of looking to read it and kind of denounce it a little bit, but it was very good. And the problem. The problem, not the problem. It turns out to be knowledge is always good, even if it's painful to receive. Yep. It was really well researched. Right. And he just goes, I mean, if you get the book and you look into the notes section, I mean, the amount of research he did and the historical record that he cites, extremely hard to disagree with. Now, if somebody out there has an equally well cited resource or a book or something they can send me that, you know, says the opposite, I would love to read that as well. Right. But this isn't something the guy just made up. Like he's got the historical record to kind of back him up. And he kind of went through and said, you know, basically, you know, debt and money created at the same time because, you know, at the beginning of, you know, the local power would say, you owe me this at this time period. Right. And maybe they would. Maybe the local king or say maybe he'd give you a piece of land or he would give you some money or give you something to get started, but then you had to pay tribute back to him three months or six months or a year or whatever it was. So the money that you got of the currency there was always, it was always an IOU or there was always kind of a. There was either labor attached to it or money that had to be paid back at the end of it. And so, and that is how money developed because again, the state power would say, we need, you need to pay us tribute for this. But then the other way of explaining it is that's the way the state got things done. So what do I mean by that? Well, let's say the king, you know, the king of the realm or the power of the realm wants to develop. Well, first of all, the first thing he wants to do is remain in power, right? So he has to, he has to get an army. Well, how does he get an army? Well, he says you're now in the army, and if you're not in the army, then you get put to death. Right?
- [29:15]
Robert Reidlove
Yeah.
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Brent Johnson
And if, okay, so now you're in the army. Okay, so now your job in the army is now you're going to go build roads. Okay, so what do you get in exchange for building roads? Well, you get food and you get shelter and you don't get shot in the back. Right. So. And so that's how he got the roads built. Right. But then maybe he also needed, he needed, he needed to eat. King needed to eat. And he wasn't a farmer himself, so he needed somebody to go plant the fields. And so he would, he would give the farmers or the peasants or whoever they were, you know, the capital, either the tools or the money to go do that. But then they, at the end of the year, they had to sell that grain and pay that tribute for that money back to him. So in other words, the money had to. The state had to issue the money before the state could ask for the money. Right. Unless it was. Unless that state, which didn't happen very often, but unless that state used free market money and just accepted payment and free market money, well, then the state had to issue the money in the first place. Right. If seashells were the. Or whatever the denomination of the money was, if it didn't just spring up out of the ground, then they had to make it. Whether it was the paper or whether it was copper rivets or whatever it was, it came from the state. And that's the way the state got things done. It's the way the state got provisions.
- [30:45]
Robert Reidlove
It's the way.
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Brent Johnson
The way the state developed the territory, for lack of a better word. And if you, you know, and then, because everybody knew that at the, you know, at the end of the year, at the end of the month, whatever, they had to pay this back to the, you know, the tax authority to the king, then that kind of became money amongst themselves as well. So as an example, if I'm a farmer and I, you know, I go out and I plant the ground and I harvest it, and then I sell the wheat and I get certain amount of money. But let's say the king says I owe him, I don't know, 50 pieces of silver at the end of the. At the end of the month, and I've only got 40 for selling. I've got to go get 10 somewhere else. So then maybe I go borrow those from Joe next door, who's the. Who makes shoes or who, you know, is a log cutter or whatever it is. But because that guy. And that guy has money or that guy has silver or whatever the currency is, because he's got to pay to the king as well. Right. So trade would develop between private individuals of that form of money because both of those people or all of those people knew that they also had to pay the authority money or tribute or tax or however you want to describe that. And so that Graeber argues that that is typically and actually most often how an economy developed. How debt. Debt was typically part of it, and how money developed into the system, as opposed to just a system of barter. You know, he goes through a pretty exhaustive research of saying, you know, the theory that the Austrian school talks about, and I'm not saying this never happened. It probably did happen at some point on some level. It just wasn't a global phenomenon that happened everywhere where, you know, you know, if you had, I use the example, if you had a shoemaker who wanted a steak, he had to go around and find somebody who was growing cows that wanted a pair of shoes. Right? Right. And everybody knows that that's just extremely inefficient and doesn't really. And when you think about it, when you stop and think about it, there's no way a whole economy runs on that method. Right. It would be extremely slow and complex.
- [32:57]
Robert Reidlove
No trade. Essentially.
- [32:58]
Brent Johnson
There would be basically. Yeah, there'd be essentially no trade.
- [33:01]
Robert Reidlove
Yeah.
- [33:02]
Brent Johnson
And so he. And furthermore, there's just almost zero anthropological evidence that that ever happened on any large scale. So. But this is where I like, this is where the. I guess the Real world comes into conflict with the Austrian school theory. A little bit like I'm again, I'm very sympathetic to the Austrian school idea. If there was no local power and there was no government and there was no state that was saying this is what you are demanded to pay tribute in, then in a free market, I think it would develop exactly the way the Austrian school holds.
- [33:41]
Robert Reidlove
Agreed.
- [33:42]
Brent Johnson
Right. And so I think, and I think the Austrian school is a very hopeful and a very beautiful way of thinking about things. Right. That's a voluntary system is perhaps the most moral, perhaps the most likable, enjoyable. Nobody wants to be forced to do anything. Right.
- [34:08]
Robert Reidlove
The most wealth generating too.
- [34:10]
Brent Johnson
The most wealth generating, right. And I think when you, when you look around the world, when you look at the societies that are the most free, again, there's nowhere is absolutely free. Governments are inherently intrusive, right. But some governments are more intrusive than others. And I think when you look around the world and we would look throughout history, the governments that are least intrusive have the most growth and have the.
- [34:38]
Robert Reidlove
Most.
- [34:40]
Brent Johnson
Not just growth, but most wealth and the most happiness and the most whatever word.
- [34:47]
Robert Reidlove
I'm looking for the standard of living.
- [34:49]
Brent Johnson
Because I think, because I think individuals are more creative when they figure it out. I think the free market is more creative than any government. So, you know, I think there's, there's room for both schools of thought, but I think to get married to either one of them, you're, you're looking for, looking for trouble, right?
- [35:12]
Robert Reidlove
You know what? This calls to mind that even today government is the biggest buyer in the market effectively. And I think throughout most of history, it stands to reason that the government would typically not always to your point, there's been freer societies. When America was initially founded, government was not the biggest buyer in the marketplace. We had a lot of free trade, we generated a lot of wealth. Early Hong Kong, I think was similar, had very low levels of taxation. Government intervention created a lot of wealth. But over time the state becomes more and more entrenched and more and more of an influence in the marketplace, we could say. So I think that maybe would be somewhat of Graeber's argument is that government was and is typically one of the biggest buyers in the market. And government is inherently non free market because they are a monopolist, as we've said. And so I agree that the Austrians, they do a great job of laying the principles, foundational principles of economic understanding. I would argue they even describe really well the consequences of state intervention. But I don't know that they've ever. And I don't know that there is a solution, frankly, to not having this natural monopoly on violence emerge in the marketplace. So long as we conduct ourselves in physical reality and we have to have physical transfer of goods and services, we need physical security. So it's always going to kind of centralize to one guy. And so the way I see this is that, so that road to the monopoly on violence, where the two competing regions intersect and then one guy conquers the other, that's kind of like premised on looting initially, like the guy that's the specialist in violence is just looting people directly. But as these economic enclaves are established and expanded, I think Graeber's argument is they move away from debt based monies to something like coinage. So I guess the state would accept any form. If they're going to loot you for gold, you can pay taxes in gold. Whatever the market has said is money they'll accept as payment. But over time they start to monopolize the money itself and issue coinage. So coinage, in his view, ends up being something to systemize the payment and collection of taxes. Whereas this is one divergence that I'm not sure about. I think the Austrian view is that coinage emerges as a private free market certification function, so that instead of needing to weigh and say the gold in each transaction, you could just trust the issuer, but the state over time monopolizes the issuer.
- [38:05]
Brent Johnson
So then not only do they monopolize it, but then they, they take advantage of it. Right. And they start listening to coins and diluting the money and. And it eventually ends in tears. Right?
- [38:16]
Robert Reidlove
Yes.
- [38:16]
Brent Johnson
And that's why I think, I think the, again, I think comparing and contrasting the two systems, this is why I think it's important to understand both systems. I think the Austrian school does a great job of laying out the hopeful way things could be, and they do a great job of laying out where we're going to end up as a result of not doing it that way. But they don't necessarily do a good job of explaining the interim.
- [38:45]
Robert Reidlove
Yes.
- [38:46]
Brent Johnson
And I think the Keynesians, for lack of a better word, or the MMT'ers or however you want to label them, they don't necessarily do a good job of the fundamentals and they don't necessarily do a good job of explaining where we're going to end up, but they do a very good job of explaining, explain it what's actually happening right now.
- [39:03]
Robert Reidlove
Yeah.
- [39:05]
Brent Johnson
And so I think it's at least for Me, it's important to kind of have one foot in each camp and not be. Not be strictly. I mean, I know which one I like better. I like the Austrian school better, right? But the Austrian school, to me, the Austrian school is paradise, right? And paradise just isn't realistic. Like, the world is often a. It's a beautiful place, and it's a cool place. And, you know, but it's a danger. It could be a dangerous place. And, you know, what's that saying? The power abhors a vacuum.
- [39:48]
Robert Reidlove
Nature abhors a vacuum.
- [39:51]
Brent Johnson
And like, you know, the idea that we're all gonna just be in this voluntary society, I love the idea. I love. And I personally am kind of a anarchist, right. Like, I don't want any. I would like there not to be a government. I'd like there to be free exchange, and we all just figure it out and, you know, wild, wild west kind of thing. But the wild, wild West, a lot of people die, right? A lot of people don't like. People don't want the wild wild west. And they like the stability that goes along with the centralized power and the certainty that goes along with the centralized power. And I think, again, one of the things that I think that the Austrian school does a good job of, or maybe it's not just the Austrians, but maybe call them the libertarian community or however you want to define that, is that I think they've done a good job of explaining that even if the guy next door is not coming in and looting your house, and even though you feel safer, there is actually a big bad thief out there, and he happens to sit in the. In the White House. Right. Or he happens to sit in the government building. So you're never really safe from these aggressors or these. The thieves. It's just a matter of, you know, sometimes they dress a little better and they speak nicer, and they, you know, they come across with an air of honorability, but the actions are actually not that much different. Right.
- [41:12]
Robert Reidlove
A little less obvious, perhaps, for those that don't understand. Um, but that the decrease in obviousness allows it to be perpetrated at a much larger scale.
- [41:24]
Brent Johnson
Right.
- [41:24]
Robert Reidlove
Because people just don't know. I agree.
- [41:28]
Brent Johnson
Do you know who Rick Rule is?
- [41:30]
Robert Reidlove
I do. Yeah.
- [41:31]
Brent Johnson
So I love. I've known Rick for a long time, and he's just a great guy, and he's a great thinker. You know, he's very much in the natural resource, in the gold space. And so he's invested in countries all over the world and has Been in, you know, the halls of congress in the deepest, darkest jungles of Africa. Right. For business. And he loves telling the story about how he's been in countries with warlords that are running things. And he's been in the state of California and he's never been robbed as bad as he was in the state of California. From the state of California. Right. He said they did immensely more damage to me than anything any warlord ever did. So anyway, it's just all a matter.
- [42:19]
Robert Reidlove
They monopolize all that beautiful part of the country down there and they really take advantage of it. Right, right. I would. On the MMT Keynesian piece, I do think they're doing a good job perhaps of describing what the state apparatus has grown into. Like, it's just, it's a mess frankly. But the mmt, when they start to present this solution of just printing inflation and taxation, some type of two levers you can pull to infinity of moving a market, I totally think that's bs. I mean I think they're trying to put a band aid on this unhealable wound that the Austrians have identified. It's like so long as you have state intervention, if we just look at the currency, Mises says that you either have the crack up boom, hyperinflation, you have a deflationary bust. Once you start manipulating the money, you have one of two outcomes. You can defer it and delay it and keep printing money and do all these things, but it's going to happen at some point. Yeah, I think that Stephanie Kelton perhaps where she actually thinks we can just print money forever and that makes the market healthy, fundamentally reject that thesis. I don't think that makes any sense.
- [43:42]
Brent Johnson
So I do too. One thing I would say though is I think there's a lot of people out there and first of all say I have not read her book, but I've read a bunch of stuff by her and some of the other people that agree with her same. And so this isn't a criticism of her book, but I would, and this is gonna sound a little hypocritical so I'm gonna tell somebody to do it. Even though I haven't done it myself. I do think it would be a good exercise to read her book or to read, read the stuff that her and her like minded colleagues say because and this is where I think it's important, I think a lot of people think a lot of people equate MMT with the further MMT policies. So what I mean by that is in mmt, in Modern monetary mechanics really, or is really just describing what actually happens. So from that perspective, she is actually 100% right. And Warren Mosler, who's kind of the father, I mean, they're basically describing how the system works. And they're right. It is how the system works. So to say that they're wrong or that they're, they're off base. I think that they're off base and that this can just be perpetuated forever without consequences. I think they're 100% off base. But if you want to understand how the system actually works, it's kind of imperative that you do read some of that stuff again. It gets to the current what's happening now versus where we're going to end up.
- [45:17]
Robert Reidlove
Yes.
- [45:17]
Brent Johnson
So if you want, if you want to understand where we're at now, you kind of need to understand that. I think the people that, I think there's a lot of people who hear the words MMT or some of this stuff and they automatically just won't read it because they already know the result.
- [45:30]
Robert Reidlove
Yeah.
- [45:31]
Brent Johnson
And I, I think that there's a danger in doing that. I think there's a danger in saying I know where we're going to end up, so I don't want to read about it or I don't want to know about it. I don't need to know about it. I actually think that's wrong. I think you actually do need to know about it.
- [45:43]
Robert Reidlove
Yeah.
- [45:44]
Brent Johnson
Because. Because that, that, that destination that we're going to get to, it might be three months, but it might be 30 years from now.
- [45:52]
Robert Reidlove
Yep. Right, right, right.
- [45:54]
Brent Johnson
You know, anyway, I don't mean to interrupt you, but.
- [45:55]
Robert Reidlove
No, no, no, great point. And it, I agree with you that it's accurately describing the mechanics of the system as it is. So it's descriptive, but in my mind it's based on faulty premise of money. I guess takes this graber view as an absolute almost the state owns the money. The end. There's no free market force. There's no counter to that at all. So it kind of misidentifies the fundamentals. And I also think it mischaracterizes something like an inflation. It takes this view that inflation is necessary for a healthy economy. The typical Keynesian view, instead of it's clearly theft. No one voluntarily holds an inflationary currency. No one. You'll never find a willing counterparty to that trade. Everyone wants a money that doesn't inflate or reliably. If it does have to inflate, like gold, it has low and predictable inflation. So it's more resistance to supply manipulation is lower counterparty risk and money effectively, I don't think we identify that.
- [47:06]
Brent Johnson
So here's where I think it gets really interesting because on the one hand I completely agree with you. But then on the other hand, I think you're wrong. I think I'm wrong and I think I'm wrong. And again, I think Graeber's book, I think this is why everybody should read Graeber's book, because I think it does a good job of kind of pointing this out is because it gets back to the. What's the definition of money? Right. Who defines what money is now? There is what you and I. I think if we were left to our own devices, we could probably agree that we should just let the market figure out what money is. Right. And I think you and I would probably agree that we could probably narrow down to two or three things that would become money that we would agree on. Right. But then the other side, the other side of the argument, and this is Graeber's argument, is what you and I think is a fantasy because it's never actually been that way.
- [48:02]
Robert Reidlove
Right.
- [48:02]
Brent Johnson
And that what's always actually been money is whatever the state said it was. Right. And if the state says it's dollars and dollars and if they say it's copper, then it's copper. And if they say it's tulips, then it's tulips. And you can have these fancy theories and funny stories that you tell yourself, but money is whatever the state says it is. And so from that perspective, I think she's saying, listen, we can issue whatever we, whatever money we want and we can, you know, we can use all our power to enforce its use, including violence. You know, I think it's a very statist view. Right. It's the whole MMT is the description of the status view of money.
- [48:42]
Robert Reidlove
Yes.
- [48:43]
Brent Johnson
And I guess you just have to decide for yourself which one is which one. Which one you then, okay, then this is which one you personally like versus which one actually exists. Right. So. And I think that's. That's kind of one of the things where I kind of get off base with a lot of either people who don't agree with my point of view of fiat currency and gold and Bitcoin and some of these other things. Because whereas I'm a fan, quote unquote fan of individually chosen forms of money, whether it's gold or bitcoin or Erie or whatever it is, I try not to Be a fan of any investments, because if you're a fan of something, your judgment is eternally clouded. Like, I was talking to somebody the other day, and I grew up in Nebraska, and in Nebraska, football's a religion, like, everybody loves the Nebraska Core Huskers. When I was growing up, for the first 30 years of my life, they were one of the greatest football teams of the country. They were in the top 10, won a number of national championships. And the last 20 years, they've just been awful. But every year I'm like, they are going to win. And it's because I'm biased, right? I'm a fan. But if you just. If you. If you look at it objectively, then for the last 10 or 20 years, we've been awful and would never bet on. You would never bet on them, and you certainly wouldn't go all in on them. Right. And I think sometimes, not that we're talking about investing, but when it comes to investing, I think sometimes people confuse a good investment with what they're a fan of just because they like it. Conceptually.
- [50:33]
Robert Reidlove
Yes.
- [50:33]
Brent Johnson
And anyway, another tangent by me, excellent.
- [50:40]
Robert Reidlove
Point, though, because I will admit this in myself, even that my journey into understanding bitcoin is clearly the show. What is money? You ask these fundamental questions that take you deep down the rabbit hole.
- [50:58]
Brent Johnson
Somebody was calling me.
- [50:59]
Robert Reidlove
Yeah, sure, no sweat. You can't help. But if you understand the promise that bitcoin holds, even if we're just talking about the promise, not the practicality, although there is a lot of practicality there, you can't help but be a fan of it. You're like, okay, this is the thing that could separate money and state and create all this additional wealth and freedom that we've talked about. Then you have to evaluate it pragmatically. But by virtue of you even being a fan of it, as you said, you have to check yourself. You have to take yourself into account how much am I looking at this thing through rose colored glasses versus being purely pragmatic? So I agree with you on that. Here's where. All right, so give me a second to unravel this, because this is where I think things get really interesting. Agreed. There's never been a free market or government separate from money. Essentially, we could say it sort of happened, but it hasn't persisted over time. Historically, the book that I mentioned a lot that I don't know if you've read or not, it's called the Sovereign Individual. So what we end up talking about then is the state has always monopolized money because it could effectively. Right. Money is the most important tool for humans. If you can control that tool, you can control people. And that's essentially what government's trying to do.
- [52:31]
Brent Johnson
Totally agree.
- [52:32]
Robert Reidlove
So to argue, I think my counter argument to like a Graber or an MMT perspective that we're the state, we can do whatever we want. My counter argument would be that we've never had money independent of state because the tech has never existed. And this gets into the actual calculus of violence, the logic of violence, which is something the sovereign individual explores in depth. And so an allegory here may have been like in the year 1500, or we'll say late 1400s. You probably wouldn't have bet against the church. The church had been running the show for a long time. They had a stranglehold on knowledge, information, printing of books, wealth. They were running the show. And so to be part of that bureaucracy was the way to. To have power in the world effectively. Then, as we know, something seemingly harmless emerges, like a printing press, just a little piece of tech. Next thing you know, we've increased the rate of book production by thousands of percentage points, many orders of magnitude. Church loses its monopoly on knowledge and therefore starts its descent as the dominant institution in the world. And the book goes in depth. How many technologies like gunpowder has changed the logic of violence? The stirrup on a horse, bicycle. Yes. Little things that you wouldn't even think about. They actually change the way we can project power across space and time. So it changes the way we organize our institutions. And so bitcoin, the theory there at least, is that bitcoin is so much more expensive to confiscate, so much more difficult to confiscate, versus gold, or someone just taxing your bank account, which is very low cost to confiscate, that it's essentially changing this calculus of violence, pushing us away from a status society towards, I guess you could call it an anarcho capitalist society, where the vast, maybe not all exchanges would be purely voluntary. You'd still have violence whatnot, but the cost benefit on violence collapses. So all of a sudden violence is a much less profitable enterprise and we get into a world characterized by much more voluntary exchange. A long winded counter argument there, but I just wanted to lay out the bitcoiner position as I see it.
- [55:11]
Brent Johnson
Well, so I think there's a couple things I would say there. And again, I think this is probably where I've been greatly misunderstood along the way is typically when I do these podcasts or these shows, I do Them as Brent Johnson of Santiago Capital, which is a wealth management firm in which makes investments on behalf of clients. Right. And my job in that role is not to be a moralist. My job is not to be a social justice warrior. My job is to make money. Right. They don't hire me for my politics. God knows, they don't hire me for my politics. They don't hire me for my social media. They don't hire me for my personal beliefs. They hire me because they want me to figure out some way to get through the financial chaos or uncertainty that's to come. You know, they have other sources to get their religion or morals or social beliefs.
- [56:12]
Robert Reidlove
Right, right.
- [56:13]
Brent Johnson
They haven't sought me out for that. So there's a difference between what I would personally like to see and what I would personally do versus what I would do on behalf of clients. And I agree that the technology that has been developed with regard to Bitcoin, I don't know if it's revolutionary, but it has certainly. I guess that's probably the best way to say it. I actually don't think the technology is that advanced. It's a ledger, it's a digital ledger. And to me, that is the simplicity is its beauty. Right? So it's not like it's some super complicated thing that nobody in the world can understand. It's actually fairly simple to understand once you take the time to understand it. Now maybe the cryptography around it and the ability to send that information quickly and effortlessly around the world, immediately, that's. That's kind of the tech, maybe that's the technological evolution, but the. Or, but the system itself is miraculously simple, Right. And that's its beauty. And so I think that it has great potential and great power. And the fact that bitcoin went to $60,000 from being a penny, what, 12 years ago, or a tenth of it. What did it start off as? A tenth of a penny or a.
- [57:39]
Robert Reidlove
Hundred of below a cent? Yeah, I think it was below a penny. Four tenths of a cent, maybe.
- [57:44]
Brent Johnson
Yeah, yeah, right. Okay. So that in and of itself shows that the market, not the state, but the real market. And this goes back to the Austrian school, right? The market is demanding an alternative to the state sponsored form of money. And it's clear that there was great demand for this because it went from a penny to $60,000. Now there you can argue there's different reasons why it went that high. And some people would say it's the pure market at work and other people say it's a Speculative mania. Other people will say it's manipulation, but the fact is that went there. Right. And so from that perspective, I think it shows two things. It shows that the private market can provide a solution. You know, you don't have to have sponsored state sponsored money. It can come from the market. But I think it also showed, I think it is starting to show, is maybe a better way to say it, that states don't like competition. Right. And so I have been, I don't know, pilloried. Is that the word? Pillar?
- [59:02]
Robert Reidlove
Yeah, yeah.
- [59:03]
Brent Johnson
Trying to think of a nice way to say it. For saying that governments would strike back.
- [59:08]
Robert Reidlove
Yeah.
- [59:09]
Brent Johnson
And against bitcoin, against bitcoin, or against crypto, however you want to. Digital assets, however you want to be. Fine space. It's so funny. Sometimes I'll say crypto, sometimes I'll say bitcoin. If I say bitcoin, somebody will come back and they'll say, but that's not crypto. If I say crypto, they'll say, well, that's not bitcoin. Yeah, I kind of use them entertainment. My point is only that this is my opinion and I might be wrong in this, but my opinion is that many in the bitcoin world, especially the bitcoin maximalists, I think you've had some experience with the bitcoin maximalist recently, plenty.
- [59:46]
Robert Reidlove
Of experience with those guys.
- [59:48]
Brent Johnson
I think that they have vastly overstated the ability to take on the state. And I am not saying that it's impossible for bitcoin to win this battle. I will never say anything is impossible. But the idea that the governments are powerless and can't do anything about it and are helpless against the rise of bitcoin, I think is just utterance fantasy because they are very powerful. There is a lot of things they can do. And I think many people who think that this rise of bitcoin is inevitable and fiat currencies are going to fall and they're all going to be at the mercy of bitcoin. I don't think they've studied history. This is just typically not how it goes. And I don't think that they have an appreciation to the lengths of which governments will go to remain in power. I mean, wars are fought over these kinds of things. You know, really, really, really bad things happen when governments try to stay in power. Yeah, I mean, we don't have time to go through all of them. And you know, we could spend the next 20 hours talking about these things. It's absolutely horrible things that have happened as a result. And so the idea that in my opinion the governments are just going to sit by and let this happen without fighting back and without extracting some extreme amount of pain along the way, I think is just silly, for lack of a better word.
- [61:26]
Robert Reidlove
Yeah, I think countermeasures. Agreed. Completely. That I think that's happening right now. Like there would be no talk of CBDCS if there wasn't.
- [61:38]
Brent Johnson
Exactly.
- [61:38]
Robert Reidlove
Clearly.
- [61:39]
Brent Johnson
Totally agree.
- [61:40]
Robert Reidlove
And they're mobilized.
- [61:41]
Brent Johnson
One of the ways they're. This is just one of the ways they're fighting back.
- [61:44]
Robert Reidlove
Yeah. And depending on how much of your, or I guess what size tinfoil hat you want to put on, you could argue that there's a lot of other things going on that are in a direct response to the threat of bitcoin. I guess I see that happening. I agree. That's going to happen. I've long thought that that is going to be probably the most dystopian thing we see is whatever the real state countermeasure to bitcoin is, could be something like an IMF coin or one world currency type thing which is, you know, of biblical proportions. Bad. But I still, I guess the bet for me on Bitcoin is that again, back to simplicity. It's just Gresham's law playing out at a geopolitical level. It's like they have to end up holding some of this thing. The longer it succeeds in the market, you're then playing this geopolitical game where you need to save some of the harder money and spend softer monies. So borrow and spend currencies. And over time that dynamic just spirals out of control. Where you see countries end up fighting over hash rate and bitcoin position and whatnot. But in the process of that, what's happening is the currency monopolies are basically being devitalized. So the more inflation you've created, you've created more demand for inflation resistant money. So individuals are adopting it, corporations are adopting it. Ultimately states are adopting it. Well then they're losing their power to confiscate wealth via inflation. And for the U.S. i mean, that was half the U.S. revenue, at least in 2020, we had 4 trillion direct tax revenues. We printed 4 trillion. So that's a big blow to state power and state revenue. Let me ask you this. It's a two pronged question and we talked about this in Miami. One is, is the state operating in a free market? So if you look at things at a geopolitical level, would you define that as a free market? Because it's just might Makes Right. Effectively the geopolitical level.
- [64:04]
Brent Johnson
That's a very good point.
- [64:05]
Robert Reidlove
And then second part of the question, which I asked you in Miami, but I'd love for you to reiterate a bit, is if the free market was left to its own devices, what money does it choose?
- [64:16]
Brent Johnson
Yeah. So there is both very. I love both questions. And I do think that on the geopolitical level, aren't the geopolitical level, the global level, the country level, it is a free market because the reality is that those levels, there are no rules. And the rules that do exist can be rewritten pretty quickly. You know, I love, I love and hate this quote at the same time. It was Nixon, not Nixon, sorry. Kissinger said, the illegal, we do right away. The unconstitutional. That takes a little bit longer.
- [64:55]
Robert Reidlove
That guy.
- [64:56]
Brent Johnson
Right. And so, and, but that, I mean, he's considered one of the greatest geopolitical political thinkers in history. Right. But so that just tells you how what these people are like, right? The people that play at this level, that, that, that, that gives you a sense of their mindset. And I don't think he was joking. I think he said it kind of off the cuff, just kind of to be funny.
- [65:15]
Robert Reidlove
Right.
- [65:15]
Brent Johnson
But I have no, I have no doubt that he meant it. Right.
- [65:18]
Robert Reidlove
Well, it's happening everywhere right now.
- [65:21]
Brent Johnson
Yeah. And so, so from that perspective, I do think, I do think that is about as close to a free market as you get. I'm sorry, just forgot the second part of the question.
- [65:34]
Robert Reidlove
Yeah. Second one is just if a free market was prevailing in the world, and I guess you could answer this at either level, and this sort of gets into the future of money question. What money is selected on the free market?
- [65:52]
Brent Johnson
Well, so it's my belief that if we had a free market. So it's kind of two questions. If on the global level, if we had a free market not just at the government level, but at an individual level, on a global basis, my guess is that there would be multiple currencies. I think that gold would, I personally think gold would be the highest form of money and then that situation. But I think that there would be multiple forms of money, and I think maybe gold would be like, go out and go into hiding because it was Gresham's Law. Right. Maybe it wouldn't be used as money for that reason. Maybe. Maybe bitcoin or something like bitcoin, some kind of a digital coin would be up there. What I think for the future of money, what I think will happen, I don't think we're Going to go back to gold standard. My guess is that when the monetary system is either crashed and rebuilt or reset, or reset willingly or reset unwillingly, whatever. My guess is that the next iteration will be a state sponsored digital currency and it's possible it's some kind of a multi country coordinated, agreed to type of a thing. Maybe it's a basket of digital currencies and maybe there's partially backed by oil and gold and some other commodities in order to, you know. But I don't think I, number one, I don't think it's going to be a gold standard and number two, I don't think it's going to be a free market money. I think it will still be a state sponsored money. I'd say that in the next iteration now maybe in two or three iterations down the road maybe we do get to some kind of a individually chosen market based solution, but due to the new technology that's available.
- [67:50]
Robert Reidlove
Right? Yeah, the fulcrum in my mind it really comes down to this, it really comes down to tech and the logic of violence. We're all, I don't want to say we're all, what is it the economists call us, Rational economic actors, homo economicus kind of thing. But over longer time horizons societies do sort of shift towards the most economically efficient way of being. And so if, who knows what else the digital age is going to throw off here. But you know, like 3D printing guns I think is a big game, like levels the game, the playing field you might say. These various abilities that digital tech gives us to be anonymous or separate ourselves from our identity or move money without asking anyone's permission. Like all of these things are counterbalancing to the enforcement of state power over individuals. So I guess for me the big question is how far does that go?
- [68:56]
Brent Johnson
Well, I think maybe you just touched on something that's kind of important to think about is to a certain extent I think the rise of technology is making the use of black market money easier, if that's the right way to say it. And so perhaps. Well, this gets very philosophical and it gets a little bit dark.
- [69:22]
Robert Reidlove
Perfect.
- [69:25]
Brent Johnson
I always tell people that I swear to God, I'm not like, I'm not like this dark, unhappy person. Right. I think it's a beautiful world and I love to travel and meet, but I just think that we have some tough times ahead of us. You know, history tells me that we do. And you know, as I mentioned in Miami, like I really do think that we're in this fourth turning and unfortunately, and I don't think we're through it yet. I don't think. I think fourth turnings are, you know, times of great pain. Not little pain and annoyance and frustration, but just like real, real pain. And I think we've had some frustration and angst and annoyance, but I don't think we've had real pain yet. Some people have, but just on the complete country or even global level, I don't think we've had it yet. And I think what often happens before the spring, you know, this reemergence and everything's great, is unfortunately, the state typically gets stronger. Like before it, right before it breaks, it gets stronger and it gets darker and it gets meaner, you know, and so I actually think. And there was another book, you know, I referenced this on my presentation in Miami and, you know, a friend of mine pointed it out to me and I read it and I just think it's great is this. It's called the Storm before the Storm and it's about what was going on in Rome from like, you know, in the years 100 BC to 60 BC. So it was like over a 40 to 60 year period. And it talked about all these problems that they had. And, you know, a lot of the problems that they were going through at that time are the same issues that we're going through now, right? Inequality, the rise of inequality, government corruption, endless wars, you know, on other parts of the empire. And a lot of the local political issues that they were dealing with are similar to what we are having in know, there was these really hard factions that were, you know, one side of the city was voting this faction, the other side of the city was on the other faction. And, you know, it led to violence between the two parties. I mean, the similarities are just uncanny. And the interesting thing about that is that, you know, that was kind of, you know, again, like around the year 100 B.C. but, you know, the Roman Empire didn't fall, quote unquote, for another 500 years. And so the point is, these things just take a really long time to play out. And in that book, they hadn't even got. They hadn't even gotten to the time of the Caesars yet. They call it the time of the Caesars. The time of the Caesars is basically the time of the dictators. Like during this period of, when I'm talking, it was still a republic, all this bad stuff was happening, but they still could vote, they still had choice. But then kind of towards the end of this book is when they were now getting into the time of like Julius Caesar and some of the, some of the other Nero and you know, some of these other great Pompey, some of these other great, you know, dictators, you know, Roman dictators, for lack of a better word. You know, that came after the storm, you know. And so I kind of feel like, I feel like we haven't even reached that stage yet. I feel like before we get through to the spring that. And again, this is, this is not what I want to happen, but this is, I can see this happening is, you know, governments just don't typically just back down and give away power. And what I fear, what I really fear is that, you know, with this proliferation of the digital technology and the crypto and the bitcoin, it has shown in many ways I think the government's going to co opt it and use it to their advantage. Unfortunately not to our advantage, but to their advantage in order to try. And I ultimately think it will fail, but it doesn't. But not initially, right? When I say fail, that might be, it might be 20 or 30 years from now before it fails. But I think that intervening time period could be really tough. And I think, you know, for.
- [73:33]
Robert Reidlove
For.
- [73:34]
Brent Johnson
Many places around the world. And I would say this probably started happening, I'd say after the World War II. We probably had 30 years, 20 to 30 years where we were seen as the good guy in the world wearing the white hat, the force for good altruistic. And I'd probably say probably around Vietnam and then even into the 80s is when that kind of started to. The shine of that kind of started to wear off. And then I'd say over the, the last 20 years, I'd say most, not most, but a lot of the world would say that the US isn't the savior, they're the troublemaker, right? They're the bully on the playground. If it wasn't for them going around causing all these problems, there'd be a lot less problems. And again, I'm very sympathetic to that view. My fear and what I think could really happen is that while I think that that view from outside the US is still, is becoming more prevalent, I think internally to the US And I think that we still try to put ourselves forth as the altruistic force for good, you know, light in the world. And I think when we, when we, you know, when we go into Afghanistan and when we go into, you know, Syria and we go into Libya and you know, and when we take on China or whatever it is, we try to say it, this is for the greater good, we still try to wear the white hat. Right. And my fear is that before this is all said and done is we take off the white hat and we just put on the black hat and say, screw you guys, you know, you don't like us, tough shit. We're the biggest, baddest dude on the block. And if you want to come at us, give it your best shot.
- [75:18]
Robert Reidlove
Yeah.
- [75:18]
Brent Johnson
And I think that is more likely. And again, I don't want that to happen.
- [75:24]
Robert Reidlove
Yeah.
- [75:24]
Brent Johnson
But I think that is more likely than us rolling over and surrendering our hegemony to another power.
- [75:34]
Robert Reidlove
Yeah. If history is any indicator, the black hat always gets put on towards the end. I think your timeline there is interesting going through the decline of Rome because I think it was Nero. They were committed to a hard money standard for many centuries. And then Nero started debasing the coin again and that's what really accelerated the collapse of the Roman Empire. And then to your point, in the US we had this 20, 30 year period where we had the shining light of the world, but 1971, we started aggressively debasing the currency again and here we are. So these two things are intimately intertwined.
- [76:11]
Brent Johnson
Well then to further complicate it and why I. And we don't need to get into my views on the market, but to further complicate this is I feel like in many ways the whole world is going through a fourth turning. And so it's not just the US that's in this situation. Like Europe's in the same situation, you know, Japan's in the same situation. You know, much of Africa is still in the same situation. And the few parts of the world that aren't in the same fiscal situation, negative fiscal situation that we are, they just don't have. Their markets aren't big enough necessarily to, you know, challenge us from an economic perspective or a military perspective. Right. And so, you know, I just, I, because everybody's in this situation, it's really hard for somebody else to come along and knock us off. Right.
- [77:06]
Robert Reidlove
Yeah.
- [77:07]
Brent Johnson
If someone else, if they had been managing their own affairs much better than we had been, I think this would be much more likely that the black hat gets put on and then gets knocked off very quickly.
- [77:22]
Robert Reidlove
Right, right. Yeah.
- [77:23]
Brent Johnson
But I feel like I don't know who's going to knock it off. I just really don't. Again, if I'm not, not necessarily if I'm looking at it as a dispassionate, just analyst, I don't see who does it.
- [77:36]
Robert Reidlove
Yeah, well, yeah, it's interesting to think about jumping back into this. We've talked a lot about the relationship between money and violence, the state, how it's evolved over time. You're very well known for your market commentary and your macro perspectives. So maybe we could just jump into where you see things today. What have you been thinking a lot about? Um, how do you see the macro landscape here in mid-2021?
- [78:05]
Brent Johnson
Yeah, so. Well, I think that's, to me the most. It's funny because on the one hand, I'll tell you a quick story. So in college, growing up in high school and like early parts of college, I was, you know, I grew up, had a very all American, you know, apple pie, baseball that existed. I grew up in a little town in Nebraska and you know, we had the four 4th of July parade and everybody hung, you know, flags out and you know, all that kind of stuff. And so, you know, I grew up with a very, with a very positive view of government. And you know, I, in my, I was going to be a senator someday. I was going to be the great senator from Nebraska, so to speak. You know. So when I was in college, I did an internship in Washington D.C. and I could not have been more excited with a senator. I could not have been more excited to get there. I was just, you know, this was, this was my way, I was gonna, was just gonna jumpstart my career in politics. And I got there and after about two weeks after being there, I just hated it. I was like, yeah, I don't like the people. They're full of, you know, they're hypocrites. And like, I just, I just, it was such an. I'm so glad I did that internship, otherwise I probably would have moved there after college and you know, been stuck or something. Anyway, that's a long way of saying that, like, I've always kind of been fascinated with politics and I'm interested in politics, but I hate politicians. And I just, on the one hand I just, you know, they drive me crazy. But it's, but it's endlessly interesting and it has great effect on my work that I do. Like, you can't ignore politics if you're going to be in. Unless you're a really long term investor, like really long term. And you don't care about any market fluctuations at all. You have to pay attention to what's going on in politics because again, we don't live in a free market and the politics has a direct influence on what the markets are going to do. And so I think it's been pretty interesting to see some of the things that have happened since. Since Biden got elected. Now, I'll tell you that in 2016, I thought Trump was going to win. I told people ahead of time that he was going to win, and he won. I didn't vote for him and I would never vote for the guy, but I thought he and I. And I thought he was going to win it again in 2020. And to be honest, I was surprised he didn't win. And so on the one hand, it's interesting what's happened since then, because I think the one. Whatever you think of Trump, I think the one thing that I think most people will agree on is that he did a good job of pointing out that perhaps all of our trade deals and our relationship with China over the previous eight to 10 or 20 years, however you want to measure that, was perhaps not in our best interest or was perhaps not done in a way that was the best thing for the United States. And he did it. And I think he did it in a brilliant way. And what I mean by that is he did it in a way that wasn't offensive to China. In other words, ultimately they were offended. But he did a very good job. He would say things like, now I don't blame Xi for this. If I was in Z's shoes, I would have done the exact same thing he did. I blame our previous politicians, I blame our business leaders who agreed to these deals. And he did it in a way that it actually made sense. People were like, yeah, you know what, he's kind of got a point there. Even the people that didn't like Trump were kind of like, he's kind of got a point, you know, and so I thought that even if he didn't win, I thought that he had raised that level of awareness to a point that even if the Democrats wanted to go back to how it was before, they wouldn't be able to. And that's largely what's happened. So Biden won and you know, he brought in this team and the team that he brought in is kind of China hawks, for lack of a better word. And they have remained fairly tough on China. And the interesting. And had Trump won, I think Trump would have been tougher on China on a personal level and on a country to country level. But what Trump did not have the ability to do is he did not have any ability to de escalate a situation. He only knew charge forward.
- [82:30]
Robert Reidlove
Right, right.
- [82:31]
Brent Johnson
He had no ability to build it. He had no ability to build A consensus. What Biden has been able to do with Blinken, the Secretary of State, he's been able to build a consensus. And so since in just once he's been in office for six months, seven months, you know, there's been several countries that have kind of signed up, not in an official agreement, but kind of in partnership with the US to kind of start to push back against China. You know, Europe signed up, UK signed up, Australia signed up, Japan signed up. And so, you know, Biden has been able to build a coalition to kind of push back on China a little. Like Europe, Europe backed out on their China Europe trade deal. Australia, you know, has had some trouble with China over some trade, and they've kind of sided with the US So I don't think that would have happened under Trump. Right. And so I think it's pretty interesting to kind of see that start to play out. And the reason that's important is because a, if I think for the global. Sorry for there to be global calm in the market, you kind of need there to be global calm between the U.S. and China. And the U.S. the U.S. dollar and the Chinese yuan exchange rate is one of the most important ratios in all of global finance. For the most part. The Chinese yuan has been strengthening for the last six months, but the US Is kind of. They still rely on dollars a lot for trade and for the growth of their economy. And so that's kind of this mutual symbiotic relationship between the US And China. But I don't think it's gonna go as easy for them as maybe they initially thought when Biden got elected. I think they thought maybe it would go back to the way it was under Obama. And so I think that's pretty interesting. And then the other thing that I think is interesting is that everybody knows I'm pretty outspoken on where I think the dollar is headed. And I think for a number of reasons, that in the years ahead, the dollar is going to get much stronger, much to many people's surprise. Now, that hasn't been the case for the last 12 months. And in fact, the dollar's dropped about 9 or 10% from where it was 15 months ago. But what's interesting in addition to that is that it hasn't really dropped over the last six months or seven months. It's kind of at the same level it was back in November, December. And that's despite, you know, Biden getting in, which I think rightly or wrongly is viewed as a Democrat, is more. Isn't as fiscally conservative now I personally think it's doesn't make any difference, but kind of the common perception is that the Democrats would spend more and then they got.
- [85:26]
Robert Reidlove
Yeah, sorry, sorry. Could you perhaps summarize your dollar view? I know you're oh yeah, sure famous for it, but just the two minute summary for the audience please.
- [85:37]
Brent Johnson
Sure. So my view is that the common wisdom that the money printer go brrrr. And that the US is going to print a lot of money and as a result the dollar is going to lose its value. My opinion is that is wrong. And the reason that I think that is wrong is that fiat currencies trade relative to each other and the rest of the world is in the same situation that we are. And there I believe they are going to have to print their currency as well. They're going to have to do a number of these MMT style policies in order to kind of try to get their economies out of the depths. And so I think on a relative basis, for a number of reasons, I think the US on a relative basis is better off than many other places around the world.
- [86:23]
Robert Reidlove
So the dollar is the best of the worst.
- [86:26]
Brent Johnson
The dollar is the best of the worst. And not only that the world is on a US dollar standard. We used to be on a gold standard and it is now on a US dollar standard. Again, whether you like it or not, it's kind of irrelevant. Again, this is about what is not about what we would like to have. And the reality is to operate on the global stage, dollars are needed and the rest of the world has borrowed. There's as much global debt denominated in dollars outside the United States as there is inside the United States. And so the rest of the world needs dollars just to service their debt. And then at the end of the day, without going into too much detail, but we've talked about the monopoly of violence. I mean the US Military enforces the use of the dollar as the world reserve currency. So for a number of reasons, I don't think the dollar's going to zero. I think it's going to go much higher before it goes lower. Now that's very much out of favor right now. And I've been wrong on that for the last year. But what I find interesting is that all the arguments that are given against the dollar, they actually exist for the other countries as well. And if you look at the last six or seven months, you know, Democrat got into the White House, then we got an all Democrat Congress, we had another massive stimulus plan. We've been told there's going to be an infrastructure plan. There'll probably be another stimulus plan. So the point is that despite all of this negative news for the dollar, it hasn't gone down. It's basically in the same band that it's been in for five years. And so I find that that's pretty interesting. And so I think the fact that it hasn't continued to go down despite all of these very negative, quote unquote, headline things for the dollar. And now we're getting into this stage. Coming back to the politics where I think we're getting into this hopefully not too confrontational, but potentially confrontational thing with China, I think that there's going to be more uncertainty and more chaos. I don't know if chaos is the right. It certainly has the potential to be chaos, but certainly I think we'll have higher volatility over the next 18 months than we've had for the last 18 months or the last 15 months, perhaps, is the right way to say it. I think the politics that are playing our role out right now is really interesting, not just in the US because it's not going to be that long where we're going to have midterm elections. Was that another year, 15, 18 months away? So that's going to start heating up. But then it's not just in the US either. It's like Germany has big elections that are coming up. A lot of Europe has elections that are coming up and things aren't rosy in Europe at all. People talk about how the Fed is buying so many bonds and essentially monetizing the debt. I think the numbers that you quoted earlier, I think are correct. But what a lot of people forget is, so if you look at all the Treasuries that the Fed has bought, I think The Fed owns 25, 26% of all treasuries that have been issued, which is a huge number, except when you look at Europe, they've done 45% last year alone. Last year, the European central bank monetized 85% of all EU sovereign issuance. And this year they're on pace and do over 100%.
- [89:50]
Robert Reidlove
Wow.
- [89:51]
Brent Johnson
So, you know, things aren't. Things aren't great in Europe either.
- [89:54]
Robert Reidlove
Japan is 75 or 80%.
- [89:58]
Brent Johnson
Well, I think they're in the 40s, but I think they're doing like 75% of current issuance or something like that. So it's. So I got to look that up. But the point is the numbers are high, right? Everybody's monetizing the debt. It's Just a matter of how many steps. You know, is it direct? Not necessarily direct. There's one or two steps they go through. But essentially all major countries are having to do that in one form or another. And because it's a relative game, I think what happened. So again, my thesis on the dollar is what I explained earlier. But in conjunction with all of this debt that's been issued, I think debt is going to have consequences. Now it hasn't for 30 years, 40 years. We just borrowed and borrowed and borrowed and we've had. The economies have continued to grow and grow. Then they crash for a year and then they grow again because more is borrowed. I think that this eventually is going to have severe consequences. And when that debt crisis starts, I think it will become a sovereign debt crisis and a currency crisis. And I think that is what will lead to the dollar getting stronger.
- [91:09]
Robert Reidlove
Right.
- [91:10]
Brent Johnson
And so what I think happened with COVID I think because Covid was not a regional thing and not even, not even. It wasn't country specific and it wasn't even regional, but it was global. It was such a global thing that it forced, for lack of a better word, everybody to kind of work together, to kind of get through it. And when I say everybody, I mean all the different countries kind of coordinated efforts. Whereas I think if it was just a regional thing, I'm not sure if that coordinates coordination and that cooperation would have happened. And I think going forward, I'm not sure. I think we've had this 30 year period of globalization where cooperation was the norm. But I think that pendulum has swung and I think we're now swinging back the other way, this fourth turning where that globalization is breaking. And I think it's swinging back the other way. And so I'm not sure we're going to see that same level of corporate cooperation amongst countries going forward. And I'm not sure that, you know, that we will have this peace, love and harmony amongst all actors that we've had for a long time. Again, I hope I'm wrong on all of this stuff, I really do. But I just think that, I think these things take a long time to play out. And I think once the battleship is turned, it's really hard to turn. And I think the globalization paddleship was going that way for a long time, but I think that ship has turned. I think it's headed the other way for a while.
- [92:43]
Robert Reidlove
Yeah, there's kind of a confluence of forces here where you typically see the middle class getting eroded before there's a major structural change at the Society level. But we have a collapsing middle class in the US But a burgeoning middle class in Asia area. So it's interesting to see how that'll play out. I had Jeff Booth on once, and one of his, I forget who told him this was one of his friends, I believe he said that currency wars lead to trade wars lead to real wars. Clearly, we're heavily engaged in a currency war. The trade war started to pick up a bit under in the Trump presidency. Where do you see. Do you see threat of real warfare in 2021 or beyond? Is it. Where do you see the lines being drawn?
- [93:44]
Brent Johnson
So, God, I hope I'm wrong. I really.
- [93:48]
Robert Reidlove
Yeah, yes.
- [93:49]
Brent Johnson
You know, my son is just kind of becoming a teenager, and, God, the last thing I want is five or six years from now for there to be a war. Kills me to even think about it. But I think that that's probably likely at some point, you know, and hopefully it will be short and fast and regionally based and not some global calamity. But, you know, the lines have a little bit been drawn. I do tend to agree with that. You know, you know, economic war, the trade war, military war, you know, and again, I think that it's. I think that the US as the hegemon, will do everything in its power to keep it. And I think China views their, quote, unquote, manifest destiny, for lack of a better word, is to become the next global power and to eventually secede the United States. Perhaps they won't admit that, and perhaps they don't think that happens for 50 or 60 years. But I think it would be, if some, If I were to speak to a group of Chinese and they were to tell me that that is not their goal, I would find that rather surprising.
- [95:02]
Robert Reidlove
Right.
- [95:03]
Brent Johnson
Perhaps in polite company they would say that's not their goal, but behind the scenes, I would be really surprised if that wasn't their goal. And so I think that inherently you're going to have a conflict, you know, eventually the number two guy wants to be the guy. Right. That's just. That's just kind of the way things go.
- [95:22]
Robert Reidlove
Darwinian reality.
- [95:23]
Brent Johnson
The Darwinian reality. Right. And so I hope there's a way that we can figure out to avoid it. But my guess is that there will be some of that involved. Yeah, I think. And this is kind of why I don't think that there's this big, I don't know theme is the right way to say it, but I find that there's this big belief that China and Russia are in partnership against the United States. And I actually don't think that that's correct. I think, or I don't think it will be correct. I'm not saying that they don't partner on some deals, and I'm not saying that they don't use each other to help each other, because, again, I think they would each like to get out from underneath the thumb of the dollar, or the US Is the global bully. But I don't think that they're going to have this grand partnership. From an economic, and certainly not from a military perspective, I just don't see that happening. The reality is that Russia has never gone to war with the United States. In every major war, Russia and the United States have been allies, and it actually makes more sense for the United States and Russia to be allies than for Russia and China to be allies. I think that Putin and Xi are probably the two biggest strong men of the last 80 years and maybe two of the top five in the last hundred years. I mean, Putin has enormous power and Z as well. Right. And their neighbors. And, you know, I don't. The last thing I think that Putin wants is for China to become the next hegemon and for them to still be, you know, not.
- [97:07]
Robert Reidlove
Yeah. Is that why you think the US Is more likely to align itself with Russia than with China? Just because of that they share a continent, essentially?
- [97:16]
Brent Johnson
Partly. Yeah. Yeah. And then, you know, and so I. But I think it's very possible that Putin is whispering in Z's ears, telling him, you know, this is your time. You should really make a move. I think you could really take on the US and then let that happen, and then Putin can sit back and pick up the pieces. That wouldn't surprise me at all if something like that was going on. So I think that the. I think, again, the common wisdom, I think, is that the ascendancy of China is the expected reality and that they will be the next global power. And I'm not sure that's the case.
- [98:00]
Robert Reidlove
Right.
- [98:00]
Brent Johnson
I don't think that China is as strong internally as they project to the rest of the world.
- [98:05]
Robert Reidlove
Right.
- [98:06]
Brent Johnson
I think they have a lot more problems internally than they would. They would like to admit.
- [98:09]
Robert Reidlove
Yeah.
- [98:10]
Brent Johnson
I think it's the progress that they've made militarily and economically is over the last 40 years. It's incredible.
- [98:18]
Robert Reidlove
Yeah.
- [98:18]
Brent Johnson
And I am in no way dismissing it.
- [98:21]
Robert Reidlove
Yeah.
- [98:21]
Brent Johnson
But the idea that they could take on the US In a war right now, I think is. Is a little bit wrong. And people say, well, you know, Brent, you're overconfident. And it's not that I'm over. First of all, I don't want the. I'm not suggesting that the US should be the global hegemon and should take over the world. I'm just saying you should never be overconfident. But what I find funny is when people say that, Brent, you're overconfident in what the US Can. Can achieve militarily. And I guess my point back to them is, hold on a second. The US Is far and away the biggest and greatest military power in the history of the world. I mean, and it's really not even close. Again, I don't necessarily like it, but it just is. But you're telling me that the U.S. but then people tell me the U.S. can't even win a war. We can't even win in Iraq, we can't win in Afghanistan, we can't win in Syria. And I'm sitting there saying, what makes you think we wanted to win in those places?
- [99:23]
Robert Reidlove
Right.
- [99:23]
Brent Johnson
When you win, you have to come home. We don't want to come home. You know, and so the idea that. The idea that I'm the one that's overconfident rather than the upstarts are going to knock off again, the black hat.
- [99:36]
Robert Reidlove
Yeah.
- [99:37]
Brent Johnson
To me, that's. Who's overconfident now. Again, I'm not. I'm not trying to be. I'm not. You know, another thing I get labeled is like an. An American exceptionalist. I think that we're so much better than everywhere else and we're so much smarter and nothing could. And that's not the case at all. I actually think that we've made a number of mistakes along the way, and I think that those mistakes are going to lead to our eventual demise, for lack of a better word. But I think there's stages that we have to go through to get there.
- [100:07]
Robert Reidlove
Yeah.
- [100:07]
Brent Johnson
And I think. I just don't think we're at that end stage yet.
- [100:10]
Robert Reidlove
Yeah, it's a great point. Maybe Japan had a similar perception about it in the 80s as China does today. Roughly, they're just up and coming, going to take over the world really quick. Like, I do want to throw in this topic, though. So how do you see gold playing into all of this? I also had Dominic Frisbeon, who's a monetary historian, and he was making the case that he thinks China's not only the largest producer of gold, but also the largest buyer of gold over the past several years. And these are not public figures. But when he was doing some back of the envelope calculation, he thought China had more like 14,000 tons of gold. Whereas here in the US I think our official number's around 9,000. But we haven't had an audit of Fort Knox in 50 years and there's a lot of concern around that. So do you think that is a major factor here, that if China, I guess first of all, do you agree with that at all, that maybe they've accumulated more gold than they've let on? And if so, would they use that as a lever effectively to try and insert their digital yuan or whatever currency as the new global reserve currency?
- [101:37]
Brent Johnson
So this is a great topic. I mean, I could talk about this topic for hours. So I've thought a lot about this and I've done a lot of research on this and I don't claim to have the answers. But I'll tell you what I think. So first of all, I think.
- [101:53]
Robert Reidlove
With.
- [101:54]
Brent Johnson
Regard to gold, just gold itself, I think gold is going to go much higher in the years ahead. Now that doesn't necessarily mean it's going to happen tomorrow. I actually think it's possible we've just seen the high for gold for the year in the last month. Now again, if I'm wrong on that, that's totally fine. I'm not telling you that so that everybody goes out and sells their gold, keep your gold. I'm just saying it might not pay off this year. So if I'm wrong on that and gold was higher, that's fine. But with regard to the US and gold and China and gold, I think all governments hold gold or the ones that do hold gold as an insurance policy, I think they know that despite their state sponsored money, that the market free market has over the centuries chosen gold as money. So that is one form of insurance that they hold should the belief in their fiat currencies fail. Right. And for someone like China, I think having gold gives them a seat at the table, for lack of a better word, if and when this whole thing gets reset. Having gold, I think Jim Rickard said it this way and somebody but whoever said that I agree with this, is that it gives them a seat at the table when the next system is set up. Because if they don't like whatever system is being set up, they'll say, fine, I'll just use my gold. And gold is in many ways still the ultimate form of payment. Now maybe other things will be developed over time as well, but as of right now, I think that's why they hold it so I'm a big fan of gold and I think everybody should own gold in their portfolio for those reasons. Now, with regard to how much does the US have and what does China have, it would not surprise me to learn that China has these 14,000 tons of gold. I think they have it on their three initially or something like that. Right. And I think the US officially is like nine, you know, and I've said this several times, so this isn't the first time I've said this, but I've said several times that I think the US has a lot more gold than we say we do as well. I don't know if it's in Fort Knox, I don't know if it's somewhere else, but my guess is that we have a lot more gold than we've ever said we have. And part of the reason.
- [104:03]
Robert Reidlove
Sorry to interrupt, but what's the deal there? Governments are just incentivized to hide their holdings?
- [104:11]
Brent Johnson
Well, I think. No, I think it's exactly. I think it's actually the opposite. I think, you know, if you hold something, it's like, what? Why do they have Julian Assange in prison? Because he's dangerous. So they're holding him in a cell. Right?
- [104:26]
Robert Reidlove
Right.
- [104:27]
Brent Johnson
The reason they hold gold is because gold is dangerous. Gold is dangerous to their existence. Right. They don't. If gold is in the hands of the free market and the citizens, they can use that against their fiat money laws. Right. Their legal tender laws. And so they want to control it. And I think the central banks and the US in particular has done a great job of demonetizing gold over the last 50 years. Right. They've worked tirelessly to get it out of the system. And I think one of the ways they do that is they get a hold of it and it kind of serves two purposes. One, it gives them the insurance policy and two, it gives them control of it. So, you know, and again, this is pure speculation on my point. I have no research that says we have more than that, but I actually think we probably do have more than that.
- [105:16]
Robert Reidlove
Yeah, it's interesting.
- [105:19]
Brent Johnson
I have actually, I've actually got a question for you.
- [105:21]
Robert Reidlove
Okay.
- [105:23]
Brent Johnson
So if you don't mind, because I've listened now, I'm not expert on all your views. I've heard you speak a number of times and interviews and presentations and I know that you are, I guess, is it fair to say you're a libertarian leaning.
- [105:41]
Robert Reidlove
Yeah, I've adopted this.
- [105:44]
Brent Johnson
I don't want to, I don't want to put a label on you but.
- [105:46]
Robert Reidlove
No, no, I appreciate you asking. And you know, labels, it's funny, I'm kind of in general don't believe in labels that much. I mean, I know we use them, but I'm trying to be more of a, a thinker and an inquirer. Always was Socrates. The only thing I know is I know nothing at all. As you said at the beginning of the show, the label I put on it is freedom maximalist. I think it would be a blend of anarcho capitalist and libertarian. The one thing I don't see eye to eye with the libertarians on yet, and I'm reading Rothbard right now, a lot of his work and trying to get my head around it is this whole axiom of non aggression. I mean, I just don't think to your point earlier, it's not what we see in the real world. It's like if property can be aggressed on, it is aggressed on. You're never going to get people to adopt this universal morality that they won't do it. The best thing you can do is make property as unaggressable as possible. That's why I have such great hope for bitcoin. I think it's a property right that's independent of the monopoly on violence. And it's really hard to take from someone. If you custody it properly, it's really hard to steal. So yes, sorry, long winded answer.
- [106:59]
Brent Johnson
Well, I say freedom maximalist. Well, that kind of goes. You kind of started to touch on the question I had because I guess my question to you is, I know you have positive feelings for bitcoin. I'm going to try not to put a label on this. But I know that you see great potential in bitcoin.
- [107:20]
Robert Reidlove
Yes.
- [107:21]
Brent Johnson
So I guess my question to you is do you think that that potential is actually going to be realized or do you think that it's not going to be realized but because you think it is such a willing project, you're willing to. In other words, it's something worth failing for or fighting for. Is that the right way to say it?
- [107:41]
Robert Reidlove
Well, definitely. As with all great revolutions in human history, you need a big why. And bitcoin definitely has a very big why. It's like to end this tyranny of central banking or monopolization of money. But I wouldn't just. I hold basically all of my savings in bitcoin and it's not because I'm hopeful that it will succeed. I mean, I think it has a very, from a very pragmatic standpoint it's designed to do one thing. It's money wrapped in military grade encryption designed to survive. So it's create a new block every 10 minutes. Hard cap of 21 million. Survive, as you said earlier. That's the beauty of it almost is this elegant simplicity it has that it's stripped down, there's no real attack surface on it. It's already peaked above a trillion dollar market cap. It's the most secure computing network in human history. I think that very practically it's the best risk adjusted return opportunity in the world. The $100 trillion question, if you will, is how do you stop it? How do you take it out? I've been looking for this, the answer to that question for five years, almost exclusively. Like always trying to, you know, where am I wrong? Where am I wrong? I haven't heard a good counter argument formulated. I mean the best the known unknown is the state response, which we've explored thoroughly today. They can do lots of things to slow it down, you know, but there's no way to turn it off, like to stop the network completely. So that leaves unknown unknowns. The only thing that anyone has conceived of, if you want to use that word, is a black swan event of some kind. So there's a global EMP or some technological black swan we can't foresee that takes it out. So in my mind I'm like, okay, Bitcoin's optimized to survive. So long as it continues to survive just doing what it's been doing flawlessly for 12 years, it continues to eat monetary premium. Especially against this macro backdrop of more inflation, more taxation, you're creating more demand for inflation resistance and tax avoidance, not evasion, avoidance. I see that similar dynamic playing out with the Church. When the printing press was invented, first the Church wrote it off just like they wrote off bitcoin. It was a joke, don't need to worry about it. Whoop dee doo. Then they see it threatening their monopoly and knowledge, they start to crack down on it. But when they cracked down on it, it actually drove the proliferation of the printing press. Like people were printing books on how to create printing presses. And it just proliferated throughout the world. The Church collapsed. So I see that a similar dynamic playing out as government tries to tighten its grip on people, more coercion, more compulsion, it's going to push people into, it's like a hydraulic press pushing people into inflation resistant money just as a means of survival. And so I just see it eating market cap in that way. Now I understand this is radical. I understand. We've never had anything like it. And I guess below all of this is my bigger thesis on the digital age. I just think the digital age is radically transformative. Is going to everything we think we know today is probably going to be out the window in 50 to 100 years. And I think bitcoin is just kind of the tip of the spear on that. I would love to ask you one more question. I know we're right up against time.
- [111:33]
Brent Johnson
Absolutely no worries.
- [111:35]
Robert Reidlove
So you make the great point. The governments need to lock up that which is dangerous, whether you're Julian Assange or you're gold. So by extension, I guess you could probably argue that bitcoin's already a little bit dangerous. But should it continue to grow and become, call it an existential threat to central bank monopolies, do you think then governments will strive to, quote, unquote, lock up Bitcoin? And if so, what does that look like?
- [112:10]
Brent Johnson
Yes, the short answer is yes. And you know, I think largely, you know, I don't. Again, this is pure speculation. I don't have any evidence of this and I am not completely convinced it wasn't a government sponsored project to begin with. I know there's been a lot of people that said there, no, no, no, it's not the case. And maybe, maybe it's not, but I'm not, I would never say that's impossible. Perhaps it's the biggest beta test in history, I don't know. Or maybe the most successful beta test in history. Anyway, I think that. So initially it was going to be a currency or a way of an improvement upon fiat currency. Right. And it had both a store value component and a currency component. Payment component. I think it's fair to say over the last couple years it's gone from being a payment component to a store of value. The store value has been the greater argument for its existence and its ownership. Now, I think, and I think while that's. And so as a result, then people said it's not a threat to the dollar and to other currencies because it's just going to be a form of collateral. I think there's some truth to that. That's actually not a bad argument. If everybody decides something is of value, it doesn't matter what it is. If everybody decides napkins are a store of value, they become a store. All value is described. Right. So if the whole world says napkins have value, they have value. So if the whole world, you know, if everybody continues to believe in Bitcoin, then It will have value. And it could be this, you know, digital form of collateral that, you know, can sit on a balance sheet and provide liquidity, et cetera, et cetera. However, I think that by design, and I think if you read Satoshi's first paper and you read his thinking on the subject, it is by design political. It is designed to take away some of the power from government issued money. Right. So if it continues to survive and it continues to thrive, like any government, it gets bigger and bigger. It's like a ratchet. It gets bigger and bigger and bigger. Very few people in history ever give away power. There's been a few, but it's extremely rare. And governments typically don't do it. And I would be surprised if the bitcoin community, or however you want to describe that, would want to give away powers that got bigger and bigger and bigger. And I think the longer it's around, well, I think the longer it stays around, the more legitimate it becomes. The reason it's sticking around is because it has legitimacy. And I think the longer it sticks around, then I think the bigger threat it becomes. And Maybe it takes four months, maybe it takes 40 years, I don't know. But if bitcoin sticks around and continues to grow, it will eventually come into conflict with the state. Now, I don't know if that happens at a price of 40,000 or a price of 400,000 or a price of 4 million, but somewhere along that scale, it becomes inherently in conflict with the state monopoly. And I just believe that people underestimate the lengths to which governments will go to keep their power. Yeah, I'm not saying that they will win, but I'm saying there will be a battle. And I am not willing to go all in on the bet that bitcoin wins.
- [115:53]
Robert Reidlove
Right.
- [115:53]
Brent Johnson
I'm fine owning some. I have nothing against people that own some. I think it's. I have a little bit of trouble with the maximalists who encourage other people to sell everything they have and go borrow money and buy bitcoin. I think it's wholly irresponsible for a number of reasons. But, you know, everybody gets to make their own decisions. As an independent, you know, Austrian thinking libertarian, it's your money. You can do whatever you want. If you're asking my opinion, I don't think it's wise.
- [116:27]
Robert Reidlove
Yeah, I agree and would like to go on record. I always try to just tell people to invest in knowledge, like go and study. That's where you get all of the benefits. And then as you've put in the work to structure a worldview, then make your portfolio construction consistent with that. I'm not here to tell people to go put all their money in bitcoin. I mean, I have chosen to hold all of my savings in bitcoin. That's what's a rational decision for me that may not be for you. So please, all the legalese. So what? Just to press that last question a little bit further, what does it look like if they try to lock up bitcoin? Does this mean. What does that even mean? First of all.
- [117:16]
Brent Johnson
Maybe it's as simple as they lock up you and me and other people who speak positively of it or whoever does. Now, I know a lot of people will say, you know, oh, we'll just fight it. Well, I mean, again, history shows that most people don't fight it. Most people don't rise up against the government. Right. Occasionally things get bad enough that they revolt, and even a lot of times the revolts get put down. But occasionally a revolution succeeds. Think of all the revolutions that you can name. You know, the reason you can name them is because they're the ones that succeeded.
- [117:53]
Robert Reidlove
Yeah, right.
- [117:55]
Brent Johnson
But there's not that many of them. Right?
- [117:57]
Robert Reidlove
There's a few, but otherwise it was an uprising. Right. A revolution. If it succeeds, an uprising of a fails.
- [118:04]
Brent Johnson
Exactly. And so the reality is, if you tell most people that if they do something, they're going to go to jail. They're not. Most people aren't going to do it. Now, there's some that are, but most of them are. And so, and that's just. If you tell them they're going to go to jail, you know, if you. You start putting more threats on top of it, you know, you know, the beatings are beating a few people, and you do it on television. I mean, I'm being silly, but I'm also being serious. Like, actually, you know, you know, again, today, if the whole. If enough people in the United States right now decided that we didn't like the form of government that we have, the power lies with the people because the people always outnumber the government, but the government has the bigger guns. Right? And so if everybody, if you get big enough numbers to push back against the guns, you can overrun the guns. But the reality is most people back away. Most people don't run towards the guns. Most people run away from guns.
- [119:04]
Robert Reidlove
Right, right.
- [119:04]
Brent Johnson
And I mean, I'm using a very kind of a silly analogy, but that's. That's what history tells you. I think a lot of people like to envision themselves as William Wallace, but there's only a few William Wallace's that actually exist. Right. Very few people are willing to go to the mat under those circumstances.
- [119:21]
Robert Reidlove
Right.
- [119:22]
Brent Johnson
And you know, if, if everybody was willing, if everybody was William Wallace's, there wouldn't be countries. I mean. That's right.
- [119:29]
Robert Reidlove
Yeah, yeah.
- [119:31]
Brent Johnson
We would have our, we would have our libertarian utopian society. Right. But the fact is, as most people, you know, most people don't do that.
- [119:40]
Robert Reidlove
Yeah, excellent points. I love the way you describe that, that if it's dangerous, governments want to lock it up. And I agree with you completely. And I guess in my mind I think they're going to try to lock it up on their balance sheet. It becomes a game of accumulation and then that's what it's almost like.
- [120:03]
Brent Johnson
States take our power, why couldn't they just buy all the bitcoin, put it on the balance sheet and then never use it, just like they did with gold?
- [120:10]
Robert Reidlove
Well, they can, but what is the market cap of bitcoin at that point?
- [120:16]
Brent Johnson
But if they just, if they're going to print the dollars for it, what do they care?
- [120:20]
Robert Reidlove
I mean, if they're trying to buy from certain hand. No, I agree with you, but it's like that sort of self that's destroying the monopoly in the market.
- [120:31]
Brent Johnson
Yeah, I mean, I'm being kind of facetious here, but I guess my point is, you know, I don't know what they will do or how they will do it. There's probably a lot more people, a lot more knowledgeable than me that can give you a number of reasons what they could do. And there's probably just as many people tell you why it would fail. I just don't think there's not there. If bitcoin is going to be as successful as many people think it is, it is going to involve a battle. And I believe that when that battle comes, the state will be able to inflict a lot of pain. Perhaps the state will lose. I don't think the state will lose, but perhaps they will. And so that's kind of my intention of always when I talk about bitcoin is just to say, hey, this is not a guaranteed outcome. I know the bitcoin maximalist will tell you that this is a guaranteed inevitable outcome.
- [121:25]
Robert Reidlove
Right.
- [121:26]
Brent Johnson
I don't think that that is the case.
- [121:27]
Robert Reidlove
Yeah, I agree with you on that. Uh, nothing is inevitable. And the, the exciting thing about it is it's turned this Keynesian debate between Austrian and Keynesian economics into a market test. So I guess we'll see. You know, which is interesting. Um, Brent, this has been an awesome discussion. I'm really glad you got to come on. I'd love to have you back on, actually, because I feel like we should probably just talk about this stuff forever.
- [121:53]
Brent Johnson
Yeah, I'm always happy to. I'm always happy to talk. If I got time, I'm happy to talk.
- [121:58]
Robert Reidlove
I mean, macro just keeps getting more interesting with tech. Like tech and macro colliding is just. I can't not get my mind around at all. So it's super exciting to talk to someone like yourself. Do you want to just maybe let people know where they can find you?
- [122:13]
Brent Johnson
Sure, sure. So I have a website. All that's on there is my address and my phone number and my email. So try not to blow it up too much. But if people have questions, just go to santiagocapital.com I'm happy to try to answer any emails. I try to get to them all. I don't always succeed. So please don't be offended if I don't get back to you right away. And you can send me a second email if I don't respond to the first one. I'm pretty active on Twitter. You can search for me under Santiago Capital. My handle is Santiago au Fund. And then if you go to YouTube and type in my name in Santiago Capita, you'll get number of links. And so. And like I said, I'm happy to come back and talk with you anytime.
- [122:52]
Robert Reidlove
Awesome. Thank you, Brent. We'll throw that in the show notes. And honestly, man, great discussion. Just all the gears are turning. Like, I've got this look at the world through Graeber a little bit. So I've got more homework to do.
- [123:06]
Brent Johnson
All right, good stuff, man.
- [123:07]
Robert Reidlove
All right.
- [123:08]
Brent Johnson
All right.
- [123:08]
Robert Reidlove
Have a good one.
- [123:09]
Brent Johnson
See you. Bye.