← The "What is Money?" Show
The "What is Money?" Show
WiM012 - The Booth Series | Episode 2 | Innovation is Unstoppable
00:59:38
Jeff Booth joins me for a multi-episode conversation covering the concepts laid out in his book "The Price of Tomorrow: Why Deflation is Key to an Abundant Future"
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Foreign.
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Hey guys, this is Robert Breedlove 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
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this nascent asset class.
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So please be sure to check out NYDIG as a single source for all your Bitcoin needs.
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But it's a great point that quantitative easing, inflation, they're just harvesting the economic surplus of the economy. It's just pulling, it's just a tax, it's all it is. But they, I say they, I'm not trying to sound conspiratorial. It has been window dressed as this necessary element for a healthy productive growth. We need a little inflation. Even the term itself I think is a bit of a. I say it's monetary dilution is inflation. Monetary enrichment is deflation, which is what is actually happening. So to try to pull this back to what I thought was a really brilliant point in your book, and you're looking at disruption, digital disruption, and you say that when innovation collapses the cost of distribution, it's the incumbent business models that are dependent on control over those distribution networks, those are the ones at risk. So the classic example would be Blockbuster, right? Their greatest asset was their distribution network. They had stores all over the country. They had, you know, good mailing system, logistics style. Then as soon as something like Netflix came on the scene, something that fundamentally at a first principles level for delivering media content, if you will, disrupted the need for Blockbuster's extensive distribution network. It immediately became their largest liability. Because now all of a sudden we dematerialize the ability to deliver content worldwide. Not immediately, but relatively quickly, say within a decade. And that crushed Blockbuster. They had again operating in this fiat currency complex, they had borrowed against their real estate and their buildings, et cetera, et cetera. So all of a sudden it became this dead weight on them. And that same dynamic I think is super interesting. When we collapse the cost of distribution, that tends to be what crushes old institutions. I think that's even what happened we should get into later in your book. But that's what happened with the Church. When the Gutenberg printing press was invented, it collapsed the cost of information distribution. It broke the church's monopoly on knowledge, and it fell from grace as the dominant institution in the world. And now we've done it. We're going through something similar in the digital age where we once again collapsed the cost of information access for everyone worldwide. We all have supercomputers in our pockets now. We have the Internet. And I wonder just how you think to me that's so powerful. So it's something we can look at. We can look at the cost of distribution and look at it as like a canary in the coal mine for changes that are coming. And the digital age has just collapsed these things across the board. So I wonder how you look at that and then how you see maybe Bitcoin is collapsing its own cost of I guess monetary distribution or banking distribution that anyone can access the system. It obviates the need for banks. Like how do you look at that? Am I wrong to think.
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No, you're exactly right. And how early we are in what we're talking about. So people are looking at. So let's. The Blockbuster example that I used often I use it because the same thing is happening in our monetary level by stopping creative destruction in the free market. All that's happened is creative destruction is moved up to the monetary system. So that's what's out. You can't stop it. So okay, if you're going to stop it here and centrally control the free market, then the currency is going to break. And Bitcoin's allowing that to happen. But if you that that blockbuster example, what I say is what did management and management wasn't bad management and Netflix business, when they had a chance to buy it was $50 million was not a really good business. The business was a mail DVD business. And so you had costs back and forth in the mail of renting DVDs in the mail. Yeah, it was okay. But what changed the business is download speeds. And same reason Paul Krugman said the Internet's going to make no difference. More of an impact than the fax machine on the economy. People Miss how fast it's moving. And so when downloads. Exactly. Linear thinking. And so if you're thinking that download speeds and at that time you couldn't download a video, remember, you remember opening up a webpage and if it had lots of photos and you'd go like it take for. And I got to go to a different webpage without photos because it takes too long to your modem and how slow everything was. So in that environment, if you, if you misinterpret how fast technology is moving, it's really easy to be fooled by what seems like which is an exponential pattern. But to you it seems like where did this come from? It came out overnight. But once that happened, there was nothing that Blockbuster could do. So what they did is added candy aisles to their stores. And it's crazy. We laugh. But now if you're them, what do you do? It's too late. Your entire advantage in distribution and 9,000 stores and all the attendant costs of it is now a liability. Overnight the entire thing becomes a liability. As someone without that liability is growing like crazy and people are moving and it feeds back onto itself. But it is a good reference point to what's actually happening at the economy level, at the monetary level too because. Because that's what is the same thing is happening in the currency level. So what is the government going to do? But now carry this Blockbuster example further so you can see the same thing. Amazon did the same thing to Walmart information. In aggregating information of products and having 600 million products competing for demand versus products 130,000 into local Walmart store. So what's the cost of putting those products in the Walmart store? Somebody, a merchandising team goes and says I think this is better than this, than this other one. You get to come on the shelf. You don't so a choice. So Walmart pays people to do that job. And then those people, because they're. Because it was the biggest store around then whatever is on the shelf sells like crazy. And those people have bias that they're really good pickers. When anything would sell on the shelf and because they picked it and lots of people come into Walmart. Whereas Amazon removes that type of choice with data and everybody builds to it. So all of the people that are blocked from going on to Walmart go onto Amazon and 600 million SKUs against 130,000 SKUs. The data becomes better. People find things that they never would have found before and the distribution model completely changes out of that data. Doing that more efficiently they give us more choice and the stuff rises to the top that we want.
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And then everyone customized shelves or everyone's looking at their own suggestion engine and based on past that data.
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Exactly. And you build an AI engine around that and some of the stuff that they're showing you, oh, I didn't know I would like this. And it becomes really, we use it because it's valuable to us. It saves us time.
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Do you think we'll ever learn about exponential change? There's that old quote that the greatest inability of mankind is this inability to understand exponential change. We've now seen it. I mean just in my lifetime I've seen it happen. A dozen large examples I can think of of digital disruption. Is this something we're going to learn eventually that people are just going to come to expect exponential change?
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I doubt it. It's such a hard concept. And I see a couple things on this. So I use that Amazon example. Think about I'm carrying it further to kind of what is a product in the first place. So Amazon now has aggregated all those products or information and forecasting demand for suppliers, but still built on a supply chain that's just way more efficient than Walmart's supply chain because of the scale of information. But take that to the next logical conclusion or where technology is moving today. Let's use this example because IMF talks about chairs and deflation and why chairs, you wouldn't buy a chair if prices were going down. So let's use a chair as an example and we'll poke fun at that ridiculousness of that statement. But in the same time. But a chair is information. It's just organized information.
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Right?
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And it's somebody's idea. Information that they organized in their mind, put on to drawing, prototype computer program, everything else. And then test marketed to say do you like my chair? My idea? Do you like my information? Could you use my information? Now they do that test marketing and everything else and they build a business around that chair and then they send that chair to China and they scale up production and they ship that chair. So they pay jobs to do that and they ship that chair to distribution. And that distribution, they ship it to a retail store which we go after all of that lag time from that information. We go to that retail store, oh, that's a neat chair. And we buy that chair or we don't just the whole thing is information, the whole thing and it has a whole bunch of cost of that production, supply chain distribution, cost of oil to be able to jobs across that Entire thing. And it was all information in the beginning. And that information in the next 10 years is going to move from somebody's mind into digital printing, 3D printing. And it'll be printed in your home or down the street and you go pick up the chair and all of the cost will go away of that chair. The next step of that, maybe even before that happens, is AI on top of that will aggregate a whole bunch of those ideas and give you way better designs than people came up with for their chairs and be able to print all of that for almost nothing too. That's where this is going. So if you think about trying to stop that innovation, which is going to hit the market anyways, and yes, they're going to be able to create great companies around it, but those things are all going to bring prices lower and lower and lower. If you think about how much is moving into our digital world and how it's really just all information in the first place, now the bones underneath are allowing us to exploit that information and do more with it and give more abundance, give more value. That's what's happening. And there's nothing that. And that's why most of the deflation is way in front of us and people aren't what I just said, that whole thing that's going to happen within 10 years, it might happen a lot faster. And 10 years isn't that far away. And what I'm talking about sounds like, sounds like it's out of Star Trek or science fiction. But there doesn't need to be one breakthrough to be able to bring bring that. It's just the trend continuing.
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Right?
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I'm not talking, I'm not talking even in my book. I stayed away from what is bound to happen. Some, some breakthroughs that, that, that I'm aware of that too early doesn't work, but it might not go anywhere. I stayed away from all those breakfast. All I took is the trend on existing tech against the trend of exponential patterns and you can see what's happening.
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Well, I hope, Jeff, that you do reconsider and write that second book, because that's exactly what I'm looking for. It's like where does this lead?
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So that part of it now let's go to that part of it that's a crazy exciting future, right? And a lot of what I get to do and working with entrepreneurs and where I spend most of my time is being able to be at the cusp and how do you create business value out of where timing of this technology. This technology, how do you change a design of what people think, how they do something today and how will that look in the future? And it's a wildly exciting thing to be able to do and sit at the front seat of so many different companies and different technologies that are moving at this rate. I can't believe I get to do it. It's unbelievable. But even myself, when I said on exponential, to your original question on exponential patterns, that paper folding example should, I'll do it here. Probably a lot of your listeners have already heard it, but it's, it's so if you fold a piece of paper on itself 50 times, that piece of paper will reach from here to the sun. And why I use that example. And by the way, I didn't know the answer either. I had to look up Google and I could have calculated it, but I didn't intuitively know it. But why use that example and why I've asked, I've literally asked tens of thousands of people that question. And predominant answer is about 2 inches.
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Yeah,
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few people say, say, say the roof. Very few. And only if you've heard the thing before do you say, a lot of times you say the moon, which is order of magnitude different than the sun
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as well, but biologically not equipped to handle that level change.
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So that's the, and, and, and, and that's the point. So, so the point is, isn't I'm smarter, you're smarter because it's a parlor trick and everything else. And now we, now I know the answer. So the point is we never get it. And the point is I don't either. And so you have to constantly train your brain to think like this. And it's hard. It's really, really hard. If 50% of the people got the answer, then, okay, enough people think like that to be able to avoid these traps. When nobody gets the answer unless they know they, unless they know it, then it tells us we all have this cognitive deficiency around, around exponential patterns. But, but our world is moving exponentially and so, so people are bound to make tons of mistakes, right?
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No, I think, yeah, it's a great point. And I just. To tie that into Bitcoin, we have the first money in history characterized by an exponentially decaying money supply function. It's cutting in half every four years. And the other way to think about that is that it's increasing its inflation resistance, doubling its inflation resistance every four years in the most inflationary macroeconomic backdrop there has ever been, which I think that's where you see bitcoiners that are really deep down the rabbit hole. That's why they're so bullish. They're like, you have exponential decay of the monetary system meeting exponential increase in inflation resistance in this money, and it's a black hole.
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This is a common analogy, but then again, people are bound to be confused by what you just said because they're measuring a system. Even when you measure it in dollar terms, you're measuring in the system, in existing system terms. And you know this. And a lot of people in thinking in Bitcoin is once you've kind of gone down that rabbit hole, you don't actually measure in dollar terms anymore. You measure in Bitcoin terms and you measure. That's your unit of account. And if that's your unit of account, you see the deflation that we're talking about everywhere.
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Everything. Yeah.
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You see prices of everything falling at that rate. And today in the early cycle of Bitcoin, because we're still very early, hyper deflation. You'll see hyper deflation, exactly. On Bitcoin because the price will rise so fast at the top of Bitcoin it stops being as. I don't think it stops being as volatile. And you see the rate of the economy underneath it, which is still deflationary, which if you assume technology is going to continue, which there's no way it won't, because technology is really an information game. So it just keeps on moving faster and faster. Then that rate, whatever rate that market would move is the rate that you'd measure disinflation or deflation in your life.
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That's your new risk free rate. That's then. Right. You're holding Bitcoin. It's at, it's consumed all the money in the world. Global GDP or whatever, the measure is growing at 3%. Your Bitcoin is growing roughly 3%. That's the new risk free rate. Just like what.
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But now, just when you just said GDP growing at roughly 3% or anything else, remember what we're talking about moving the information systems, it's going the other way.
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Right. It's a different measure.
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Right. Different measurements. And there's no way that that grows at 3% productivity gains. Yes, but it's actually declining growth and increased time. The growth comes because things move to free or nearly free.
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So does the product.
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When I say growth, I mean growth in productivity or, or what we should measure against.
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Yeah, what is there a measure for just pure productivity then? Is that like marginal?
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I don't think right now it would be. Right now it would be Impossible to. In current measures because you don't. So the most simple crazy example that I. And I used it in the book. But why don't you pay for the air you breathe, Robert?
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Right.
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So really valuable. Super valuable. Why not? You should pay the most for the air you breathe.
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Right, Right, right. But this is to the point of scarcity, right? Scarcity exists. Demand outstrips supply.
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There's ways. Exactly. You'll pay a lot for the air you breathe underwater.
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Yes.
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Right. Where it's scarce. You'll pay for a lot for air if you're caught in a fire and. And you. And you need oxygen. But. But why don't you pay for air? Because it's abundant and it's free technology. Look at your iPhone. Just look around you at the things. Look at the content you're creating. Look at what is available on Bitcoin, Twitter today. Some of the sharpest minds around. Free.
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Yeah, yeah. I love. I think this gets to one of the deeper points, another one of the really deep points, and something I think was explicated wonderfully in your book is this idea of these digital platforms. They're basically what you referred to as supply. So they're aggregating and curating supply, whether that supply is books on Amazon. I guess you're the supply on Facebook. Right. You're being aggregated and curated to advertisers. But it gives it. Because the digital platform is very low capex and it's everywhere and nowhere. It can aggregate and curate supplies faster and at a larger scale than any brick and mortar anything, any store like that. And by doing that, those platforms are actually participating in error correction.
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Yes.
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So we are. That's what economic activity is, is we're trying to make ourselves and our systems and our actions better fit to reality, such that we can accomplish greater results with less efforts. And so you could say in that sense that, as Mises would say, we are trying to attain higher and better want satisfactions, to satisfy more human wants, more urgent human wants. That's the whole game. Economic and value then is very simply. Which is somewhat of an obscure term at times, was very simply what people want. If you want something, it is valuable. Right. It doesn't mean that it has a price, to your point, with oxygen, necessarily. But if you want to walk to the other side of the road, that means you find the other side of the road more valuable than where you're currently standing. And AI are these. Which I don't know, the lines get blurry here for me because. Do you call Amazon an AI. I mean it does, it has an AI engine. It's accelerating this error correction where I'm looking for this type of book or chair or household item and instead of having to drive to three different stores and look and talk, look across a number of shelves, talk to a number of attendants, I can actually just interact directly with this AI engine via search or whatever it may be, search or suggestion and solve my own error more quickly.
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Yeah, so let's talk about how that's designed because it's actually the last point
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there was just that, that, that what you said, the deep point was that intelligence is error correction.
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Yeah. So that's a, yeah, that's a really big deal. And, and, and so we could go there right now if you wanted. But intelligence is in humans is error correction. And then, and that whole support and AI is just a, it's going to do that better than humans. But we could explore that intelligence as error correction here. One of the things that you kind of led before is how do these platforms accrete value or how do they grab value? And in a book I explained how it's all about supply. It's not about the buy side. When you have all supply, everybody comes to you and think about, so the design of something, kind of a monopoly type of power is having supply compete for demand against essentially an artificial intelligence recommendation engine. That's what's happening. And both sides of that, through their competition and through their choice, what they're doing on the site, train the AI engine. So the AI engine is predicting to supply, what they need to do to stand out more and what they'll get, what bounty they'll get for standing up more, whether it's price, delivery lower, this different color, it's predicting this out. And by predicting it's because it knows on the buying side all of these different interactions why people aren't converting on it. So take that, take that concept to every single platform Google for information. So how did Google do this? They, they aggregated all supply of all websites and then they, and remember Google is free. Why Amazon, why Microsoft missed how big a business that was going to be was the Internet was early go. Google is repair. There was no money in it at all to be able to free information. But then as more and more people compete, the algorithm gets better and better to show you, specifically you and every other person a different set of results all competing for the top spot. And then over time the predictions, hey, if your webpage doesn't load this fast, we penalize you. You go down because we know that the user, if they hit a website that doesn't load fast enough, their conversion is. They drop off. And so it creates this game that constantly gets better and better. And we trust that system because we don't go to page two. And even though they have 130 trillion different websites listed, all competing to get to the number one spot, we could go that illusion of choice. We could go to page 467 on any of these, but we never do. We go to page one because we trust that. So as that happens, it consolidates more and more power in this because the choice is actually done. That AI is the derivative of the AI is actually us and the supplier in these interactions trying to solve our problem, trying to make it convert better for us. So that's what they all look like. And so how do you get that? So if you're thinking, if you're creating a company around that type of magnitude, what you're trying to do is get the flywheel. It's almost. It doesn't matter what the buyer does, it matters what the seller. If you get all the sellers there, then the buyers show up because all the sellers are there. And it's the same thing for how Amazon went from books to everything else. They had more choice and the more choice gave them more feedback loops and things that the buyers never saw anywhere else that started the whole thing. Use the example of Airbnb and imagine Airbnb with five rooms in New York. And remember when Airbnb came out and people said, I'm not going to stay in someone's house.
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Yeah, right.
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Because the choice that you had versus the choice in Airbnb was, I trust a hotel. Yes, but what number of rooms competing for you starts to see, wow, I could stay there for a different price than the hotel. And at some sort of number. It tips.
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Yes. Right.
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And. And not only does it tip for more and more people coming to use it, it also tips for to be able to be seen by those people. You start competing with other supply.
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Yeah, yeah, yeah, yeah.
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For views. So that's what creates all of these, that these platforms. And that notion is actually still relatively early. There's a whole bunch of other industries that it's going to move to.
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There's. That's calls to mind. I think it's say's law that supply creates its own demand. So you're actually, once you get enough supply there, as you said, the sellers, that the demand coalesces to the supply in a way. I read this piece one time Too. About why Bezos chose books initially is because he was leveraging the capacity of an Internet bookstore to have unlimited selection. To your point, as you've made several times to go narrow first with a startup before you expand everything else, you need this I guess penetration point before you expand the strategy land and expand classic thing. And you know, he very intelligently chose to go books first because you've got whatever, a hundred thousand books in a bookstore, there are literally millions upon millions of books possible. He could put all those in an Internet bookstore.
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Because you said the point. But just to illustrate the point, why can't Walmart do that? Why can't bookstore do that? Because they have shelf space and their mind is constrained by. They have to make their shelf space profitable.
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Right.
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So all their metrics are not to support a digital world that can make unlimited shelf space. They have to make this. They can't have a book on their shelf that doesn't. Doesn't sell for two years because it takes. So they have to try to pick the top sellers all the time. And by picking the top sellers all the time, there's a whole bunch of error and human error not knowing what they're predicting, what the top seller is going to be. It's just all human. So number one, they bad at predicting. Number two, the market doesn't see all of the choice until somebody offers all those choice.
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And we're back to the collapsing the cost of distribution. Amazon just collapsed the cost of distribution. Right. And then it learned from customer behavior how to solve their problems more quickly, which in turn solves its own problems more quickly, which is revenues. And you have it really. We have actually it seems we're always talking about when AI, when general artificial intelligence. But we have created artificial intelligence essentially.
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Yeah, there is, yeah. If, if people know, knew how fast this space is moving artificial intelligence like it's not. And, and why did should we be scared of it? If it aggregates into one person's power or one company's power, we should be scared of it in that case. Or a government. If we should be scared of what China's doing. And this is related to currency by the way too. It's very related to currency because if somebody has this type of power and their currency power, they can also shut you off from the network. There's nothing you could do from it. It returns into turns very dystopian very quickly. So. But, but artificial. We do have artificial intelligence already. We have narrow based artificial intelligence already. And over time one of the things that some number of people, not a lot. But took question on the book is they're talking about things that I'm talking about in a trend. And because they're highlighting on something like artificial and general intelligence, they come at well we won't have that within the next 15 years or 20 years. Okay, okay, okay, maybe you're right. That's a belief system. I believe differently. But let's assume you're right. Doesn't matter because for what we're talking about deflation driving more and more abundance if you let it, it's on a trend. So it's on a trend that keeps on going exponentially and it's not a light switch moment that one day we have artificial intelligence and the day before we didn't, then the day before we didn't and now the world changes. Doesn't look like that. It looks like things get better and better and cheaper and cheaper and to the point that and the job of the artificial intelligence is doing our job. Yeah. Why would. And why wouldn't we want it to?
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Right. Makes life easier.
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So if we. And these are big, big concepts to be able to. So I get it, I get the fear response and say what happened? What do I do? But that doesn't change the facts. It doesn't change. So I understand the fear, but it doesn't change the facts of what's happening.
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Hence the importance of it being open sourced or the dystopian future is when it's centrally controlled. I think you quote Putin somewhere else in the book where he said whoever figures this out first is going to be the dominant nation in the world. He's thinking of this closed sourced tech loop where as we've seen open source networks are eating the world. Frankly that's what Internet is. That's what bitcoin is. Just one other question on say's Law. I think about this a lot. I would just like to hear your opinion in looking at Bitcoin as a digital platform through that lens of being able to deliver supply differently. I just think about is people often talk about say the stock to flow model that it doesn't consider demand. So therefore it's not an accurate model. But then I wonder if here's kind of the way I think about it is that mankind needs money. Or let's say this, mankind needs to trade to be more energy efficient. When we trade, money emerges. Everyone prefers a money of a more fixed supply or less subject to dilution. So is Bitcoin by being the first money supply that cannot be diluted, cannot be Changed, Is it creating its own demand in kind of a say's law sense? Like clearly everyone would want a money characterized by pure supply, fixity or absolute scarcity, which I know we were talking earlier about how scarcity, there's a relationship between supply and demand, but there's always, I think the demand for money always outstrips its supply. But if you abuse the supply too much, if we inflate the currency too high, the people just shift to another thing as money. It's not like the money breaks. Money as a concept never breaks. So long as we're trading, we just switch from Zimbabwe dollars to US Dollars or US dollars to Bitcoin. So I'm kind of just out on a branch here, but I wonder what you think about that.
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So number one, when you said the stock to flow model, people say it can't work if they look at the numbers. It has worked. It keeps on proving everybody wrong. So can it continue? What does it look like in the future? Who knows? It's a model. But it's been remarkable as a model. The apart from the other thing. So I totally agree. Money is a concept and it's a concept for our time. That's all it is. It's just a concept. It's an agreed upon concept for our time. And we trade our time for money. So it's worth what we think it is worth in that. So money itself has no value like it really like today it's a piece of paper. The only value is when it's moved into something you want. But money on itself, it's a medium of exchange or it's something that you trade your time with. And you store your time. You store your time.
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Yeah.
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In something that you don't want to lose your time. Yes.
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Right.
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So, so, so when you destroy, when you, when you destroy money, you're destroying our time. And so it's really simple to see why is everybody on a mouse wheel working more and more in an abstract where they don't know what's going on. They can't put their finger on what's going on. They just know is getting harder and harder for me to keep up on one side of that equation.
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Right.
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If you're on the bottom side of that middle class and below, harder and harder for me to keep up. Well, I'm equally scared about my job being outsourced away or automated away. It's hard so that it breeds a whole bunch of fear and more fear because it's true, technology is going to do that. And on the Other side of that coin, the people that are getting enriched by it are going, wow, love, life's good. This is really great. And so their time is expanding by that same nature of hurting the value of money or destroying the value of money. And you can see as a consequence everything else. But to me it's just a trait of. It's just money in itself is worthless. It's what money buys us, whether it's the experiences or perceived experiences or for some people, it buys status and power over other people for some people. But it's the things that it buys you or the things that you want to be known for your experiences or anything else. That's what all money, to me, all money is.
- [40:22]
A
Yeah, so you have. I never thought of it that way. The middle and lower class, you'd say, is getting attacked from both sides. Quantitative easing was, was widening the disparity between rich and poor. So they're getting pushed lower down. But then they're also facing job loss by technological disruption, so they're getting squeezed out. But all of these, at least on a fiat currency standard, most of this gain or productivity surplus, economic surplus is accruing to the top, to asset.
- [40:52]
C
Yeah, yeah. So in that world, your time is
- [40:55]
A
expanding and so this leads, that's why it's such a dystopian outcome. Right. It leads to where one group of people hold all the time.
- [41:04]
C
Yep, exactly. And so, and you can see, you looked back through history to see, is it if, if the wealthy believe that they're immune from this when the game boards ripped up, who gets attacked and if you. And, and that, that becomes a lightning rod and everything else. So, so I don't care who you are in the system, you should, you should want fair rules for how a system is designed. Because. Because rules that reinforce what is happening now. And pretty, pretty ugly one way.
- [41:45]
A
Yeah, yeah, yeah. It seems like it's just a virtual certainty. Nothing's a certainty. But as close as you can be to a certainty that it collapses, it's not sustainable. So then the question is, what's next? What comes?
- [41:58]
C
Yeah,
- [42:01]
A
that's super interesting. So one thing you might want to,
- [42:04]
C
we might want to chat about a little bit just as we're going in. So because we're so far past the point of rescue of the existing system, what could some outlier events look like for the existing system? And so if people are making a bet on Bitcoin, you and I are both. We believe in the asset class, we believe long term in the asset class, we're maximalists everything else. But I will say this too. If it went to zero, it would be a bad day but I would actually care way more about what it means if it went to zero. And I don't think that that's going to happen what it means for the existing system, because I don't think there's another way out. I think it is the best path for a transition to where we're going. The most peaceful path is bitcoin.
- [42:55]
A
Well, I think if we didn't have it right now, 20, 21 post Covid scenario we're in, it'd be pretty bleak situation.
- [43:05]
C
Yeah. Because what you're doing is you're looking to move to safety. You're trying to find where are you going to get out of this system and protect your money for safety because you know what's going to happen. But now let's say the existing system and kind of we know that you're building in more fragility into the system with each step and the consequences of that fragility, not just for the system itself, but this second order consequences for populations and everything else are building more. It's like a powder keg wanting to go off and you can feel it everywhere. And at some point it goes off, you know that this is happening. So if you're in the Fed and you know that this is happening, do you bluff and let interest rates go up and collapse and blow off the steam and let stuff collapse and then go back in and save the banks and restart the whole thing over again? Now I don't think that that is possible today. And when I say possible, anything's possible. I don't think it's a probability today. But when I would look at that type of game, because that's what happened in 2008 and a whole bunch of people were wiped out in 2008 and then you went in and restarted the system again and it got ever more fragile and everything else. But that's what happened in 2008. So could that happen today and what would it happen in that event today? You know, if that happened, a lot of people would be scared but the US dollar would get really strong. Other currencies would get. We could be race to safety and that. And in that environment bitcoin would fall as well. Everything, asset prices would fall as people went for safety and tried to get cash. And that would be to me an incredible buying opportunity. Bitcoin, if that were to happen, because you know the system hasn't changed but you know you're blowing off Steam. And the worry I think they would have from doing it today is the collapse could be so severe so fast, you might not be able to stop it and reset because the whole thing is being kept afloat by more and more printing. But so even though governments would want to do that, let that happen, I don't think like the bond market pricing moving up in the bond market every other prices would fall so fast and people would see what was there all the way long.
- [46:13]
A
Right. No, I think it's a great point. Would perhaps be the ultimate bitcoin buying or not the ultimate, but the last great bitcoin buying opportunity. Opportunity there would ever be.
- [46:26]
C
And it might not happen, but it's. If that was the case, hypothetically, if
- [46:30]
A
there was this massive liquidity shock and I guess maybe you'd say the Fed drags their feet to respond to let things whatever to vindicate their existence and their response. Right. What is it? The dictator's playbook? Never let a good crisis go to waste.
- [46:51]
C
Right, exactly. Because everybody would be saying you have to do something, you have to do something.
- [46:56]
A
Exactly,
- [46:58]
C
exactly. And because you couldn't let the economy collapse completely and every financial institution collapse and run on banks, you wouldn't be able. So the population would race to the Fed.
- [47:12]
A
Yes.
- [47:13]
C
To help us. And the same thing that created the whole problem in the beginning gets kind of we save the day again.
- [47:23]
A
And the Fed would take that opportunity, very likely to amend the Federal Reserve act, probably making their balance sheet legal tender. Or they just start paying government bills directly. Helicopter money. Like we've never seen it. So yeah, buying bitcoin in that short term liquidity deflationary shock would then be over the next few years. All of that central bank balance sheet expansion, I mean that would be the hyperinflation event. Without a doubt. Once a central bank, specifically the Fed turns its balance sheet into legal tender, starts paying government expenses directly, we get into pure helicopter money injections. The dollar will inflate. There's just no stop. That's when bitcoin. So if you could buy it in the deflationary shock and own it for the inflationary aftermath, that's the ultimate.
- [48:14]
C
And last February, March, that's what actually happened.
- [48:17]
A
Right.
- [48:20]
C
And that's every asset fell short term and then you had this massive easing with pushing everything up. So could there be something like that? I do see it as probably a low probability event because I don't know if they would risk what could happen. But in this type of market, who knows?
- [48:44]
A
Yeah, it's hard to say. And it's interesting too because you made this point in your book that every incremental dollar of debt engenders less marginal GDP growth. Stimulus is less effective over time they've spent. All of the central bank levers are pushed to the absolute maximum. Right now we're at the zero boundaries, you know, zero reserve requirements, etc. Etc. So it's like what, there's nothing left to do at that point except just quite literally open the floodgates?
- [49:16]
C
Well, that was one of the things what I said. So people talk a lot about the debt, but they don't connect the dots to what was driving it.
- [49:23]
A
Right.
- [49:23]
C
And so when, and we talked a little bit about this already, but that was one of the. For me in writing the book and researching the book, I knew something or I felt that because this is something the technology, I couldn't square the circle and say why is everything I'm doing into all the technology companies providing more abundance at lower prices? And I can see it all around me. Why aren't prices falling everywhere? Because technology is moving into every industry, so prices should be falling everywhere. And so that is something I talked about a long time. But when I actually did the research for the book and I found out that the world had $250 trillion of debt before COVID against an $80 trillion economy, that is take your breath away, enough. That's a big number and that's what everybody talked about. A lot of people talked about the debt, but it wasn't that that took my breath away. It was 185 trillion of the 250 came in the last 20 years. As you would expect, if technology is moving faster and faster the other way, you would expect something to be able to offset that. And why the Fed doesn't see it and why you could argue that the way they measure inflation is all wrong and everything else, but. But they're pouring money into a hole that's moving into technology faster and overall inflation isn't moving higher because technology is moving faster the other way.
- [51:05]
A
Yeah, yeah. I think once you get maybe even the threshold amount is that $1 of new debt creation not adding $1 of GDP over time horizon self defeating.
- [51:21]
C
You can't get out of it with more debt. Let's solve the debt problem with more debt.
- [51:27]
A
Yeah, the bare bones analysis, like the only reason you would go out and borrow money at 4% is because whatever you're gonna invest that capital into, you expect to yield 5% or 6%. Once that calculus flips, the debt's pointless. You would just nothing you. Exactly. And we're very deep into that game,
- [51:49]
C
very, very deep in the negative. So how long can that, how long can it go on? How long can you pretend that's it, there is a reset coming?
- [51:58]
A
And that would be the headline to which I don't think you would ever see this headline. At least the mainstream media just the we're in double digit, double digit negative real yields today. Right. We have at least, I don't know, 10 to 15% asset inflation. Now we all know CPI is just a bogus metric which we could talk about later. But in the general, using US M2 as kind of our proxy, I mean that was increased what, 25% last year?
- [52:29]
C
26, I think.
- [52:30]
A
Yeah, we could be nice and say it's 10 or 15%. And real yields are, I'm sorry, nominal yields are sub 1% the U.S. so we're talking about a negative real yield of 10 to 15%. I mean that was a headline. Markets would come apart.
- [52:48]
C
Yeah, but why is a bunch of the smart money going, the institutions moving into Bitcoin? Because they're starting to understand this. They're starting to understand that the negative yield they think they're getting is way worse than the negative yield. That's what changes this. The risk is not in Bitcoin, the risk is in the existing system, but that belief system. Because the existence system, it's never been the risk. They always bail out everything else. And so you've always been able to. So that belief system doesn't change overnight.
- [53:31]
A
Right, right, right.
- [53:32]
C
But it's, but it's starting. It's just the longer bitcoins in existence, the longer network, more network effect. The longer without any hacks or anything else, the more stable, upwardly stable this is, the more people are starting to realize and ask questions and you realize the existing system holds all the risk. Bitcoin holds virtually none.
- [53:59]
A
Yeah, Bitcoin today being a risk on asset, but it's because it's competing to be risk off essentially. And I think that we know Covid accelerated this in terms of central bank response. I think it also accelerated it in people's perceptions just being forced to sit at home, sit on your computer all day, read what's going on. The conspiracy theory, let's say or backlash against governments was like at an all time high. Trust in governments fell as a result of this. So I think that drew people intellectually into the Bitcoin rabbit hole. And I have a friend that he's been, he's an options trader on Wall street for 20 years. He's really good at what he does. And he, over the past few years became extremely frustrated. He said, we just. Nothing makes sense anymore. The Fed bids everything. So you just buy whatever they're buying. And that's the whole name of the game. There's no supply and demand mechanics at all. And he never understood Bitcoin. He never. Just always thought it was a joke, Thought it was a joke. And then six months after Covid, he's like, okay, now I see what's going on here. This thing is the insurance policy. How do I buy, how do you think about it, et cetera. So I've thought this for a long time too, that the, the value proposition of bitcoin, although it is complicated when you're from a distance, once you overcome that distance, it's relatively simple. It's just hard money in a world flooded with soft money, I guess is one way to say.
- [55:35]
C
And if you come back, that's actually why you do a really good job here too, as do others do. But simplifying these concepts because people are scared when you talk to the average person on the street about the economy or macroeconomics, their eyes gloss over because they're scared. Because it's designed specifically the concepts why don't we just call quantitative easing? We're going to make up new money and destroy your currency. We're going to pick your pocket. Because the concepts, the way they're designed, build more and more behind the curtain. I don't know what's going on. So it's so confusing that I can't, I can't understand it. So it's really. These concepts are actually pretty simple.
- [56:29]
A
Yeah,
- [56:32]
C
exactly. And the whole thing, and I get it, and I get why you have to tell a population this and everything else and that taxes in the 60s in the US were upwards of 90% and you couldn't tax them over 100%, tax populations over 100%. So you had to go off the gold reserve to pay for a Vietnam war and move that into inflation, which is just a hidden tax. And that exported that problem around the world. And it was a tiny little bit all around the world. And then you go through this inflation in the 70s to make the. In your early 80s, Volcker jacks up interest rates and collapses economy to get inflation under control. And people think that that could happen again. Now that can't happen again because today government owns the debt. In the early 80s, they didn't. So jacking up interest rates collapses everything. Once you have inflation if people really want inflation, worry about inflation, because it's never going back in the box. There's no way to put it back in the box. All of these roads, again, lead to what we're talking about, but in concepts. The concept is pretty simple. Technology, the rate of growth today. Generally. Generally. But innovation, Technology today require a currency. Require a currency that allows for deflation. It's a requirement. Every other path concentrates power and maybe slowly at first. And why we didn't see it before is because technology wasn't moving as fast. And so you could get a population to believe inflation is an important aspect and they didn't see the counter effect and what you had to do to promote inflation as fast because technology wasn't moving as fast. So it could happen slowly and people could be. And again, if you look back in our lives, my house went up, this happened. I got pay raises. I took on some debt for this. And it was largely a great exercise for me, for my family. And I didn't realize that that was until somewhat recently and kind of those, but kind of 10 years ago or so that wait, this economic exercise has a loser on the other side. And in the world where we're going, that won't work.