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The "What is Money?" Show
WiM022 - The Frisby Series | Episode 3 | Civilization and Taxation
00:57:48
Dominic Frisby joins me for a multi-episode conversation covering the concepts laid out in his book "Daylight Robbery: How Tax Shaped Our Past and Will Change Our Future"
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- [00:00]
Dominic Frisbie
Foreign.
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Robert Breedlove
Hey guys, this is Robert Reedlove 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. Welcome back to the what is Money Show. I'm your host Robert Breedlove and I'm sitting here again with Mr. Dominic Frisbie, author of the book Daylight Robbery and other books as well, about the history of money and its relationship specifically with taxation and civilization. Dominic, so last time we talked about money as a communications tool, as you said, not only for prices but also for communicating. It's been used to communicate other forms of value as well. And one of those being, I guess you could say propaganda is kind of a distortion of value or the attempted distortion of perception or values and others. And I wonder if we could talk a bit about that when and how money has been used as propaganda throughout history.
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Dominic Frisbie
Well, I think one way or the other, probably ever since there's been money, it's been exploited for propaganda purposes and some, you know, propagandizing good governments and other times propagandizing not such good governments. But you're right, money is a form of communication. And we talked about the first.
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Robert Breedlove
The.
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Dominic Frisbie
Cable, the first cable under the Atlantic and the price being communicated across the, across the cable by telegraph, I suppose it was. And then they knew that the two bodies on either side of the cable were reputable and therefore they were able to agree the first exchange rate between US dollars and the pound. And, and as communication technology has evolved, so has money. And I think even if you look at something like Bitcoin today. One of the reasons it's been able to go is the digital, the Internet, instantaneous communication, copying and sending links and so on. So there's that side of communication to money. There's also the side that it communicates. And by the way, we talked about propaganda money like Bitcoin, it's completely voluntary, but it's one of the most effective propaganda campaigns ever invented in the history of technology. As soon as somebody invests in bitcoin, suddenly they're a bitcoiner. You've got your little bitcoin tattoo on your arm, everyone's got their laser eyes. I've spent the last couple of weeks, as you probably know, projecting these messages on the outside of the bank of England, much to the amusement of everybody. And these are all different forms of propaganda. So, you know, Bitcoin's as guilty, if that's the right word of propaganda, as any other money system has been.
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Robert Breedlove
Yeah, it's a meme machine, right?
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Dominic Frisbie
Yeah, but memes are propaganda. But another form of communication that money is essential for is the communication of value. And you know, if something costs this and something costs that, human beings understand all sorts of things by that. And of course, you know, we. We talk about stuff, but often what we do says more about what we think than we actually say. And what we. What is communicated in prices informs what we do. And you know, it's a sent. It's really is essential to an economy that its money is sound. And because if the money isn't sound, then the value of stuff is going to be. There's going to be all sorts false information in there. And, you know, we all know how fiat money pumps up asset prices and pumps up housing prices and it's just distorted messages. So, you know, we again, we talked about truth, but if you want truth to be communicated, then the money must be sound. There's this relationship between soundness and truth and beauty. But then coming back to the issue of propaganda with the very first coins that were stamped, you would have. They were usually stamped with the heads of gods. And then I suppose the sort of crossover point was around about the time of Alexander the Great, one of the first, you know, empires of early times, if you like. And I think he. He reached as far as India on one side and Carthage, which is, you know, East Africa on the other side. So it's pretty extensive from east to west, his conquest. And everywhere he went, he would take the existing money, melt it down. You know, wherever he conquered, he'd raid the gold and silver voids, he'd melt the particular. Persia, he did this. He'd melt the money down and then remint it with a stamp of. On one side it would be Hercules, and on the other side there would be varying bits of information. But the image of Hercules that was portrayed on his coins was remarkably similar to Alexander himself. And so he would portray himself in the likeness of, you know, the Greek God of strength. And so that was the first. And then I think a couple of generations after Alexander, by that point, they would then start stamping coins with Alexander's head. But by this point, you know, when it. When he's been dead for two generations, you know, what was a. You know, he's gradually achieving godlike status. You know, if you think of your sporting heroes, you know, the best part, I don't know who the best basketball player is today, but, you know, or the best, you know, Joe DiMaggio, for example, the great baseball player of maybe the 1950s, is it?
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Robert Breedlove
Yeah, yeah, I think, yeah.
- [07:17]
Dominic Frisbie
So he already has this sort of godlike status, doesn't. He's no longer just a guy who balls. He's. And so, you know, the sport. And, you know, Pele was just a football player, a very good football player, but by the time two or three generations gone and suddenly he's a God.
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Robert Breedlove
Yeah.
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Dominic Frisbie
So I think the same applies. You know, you might just be a man and by the time, myth and legend and history, and they all get confused. That's how. That's how gods are born.
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Robert Breedlove
Yeah.
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Dominic Frisbie
And then, you know, eventually you would see, like the Romans, for example, and I love this story, the Romans would stamp their coins eventually with the heads of emperors. And often when a new emperor.
- [07:59]
Robert Breedlove
Had.
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Dominic Frisbie
Come to power, they would stamp a coin with one emperor holding a globe and passing that globe to the new emperor, the old emperor passing the globe to the new emperor. So I think, for example, the coins of Trajan did that. Now, there's two interesting things to notice there. Firstly, it shows that the Romans knew the world was round because, you know, the globe symbolized the empire way before Columbus. Way before Columbus. And I think that flat earth theory, that everyone thought the earth was flat, I think that's been debunked, actually. But it certainly seems that in the Dark Ages, certain. Certain people stopped believing that the earth was rounded. Definitely, I think there's some truth to that. And. And. But anyway, the. Yes. So you see, so the Romans would, you know, communicate the fact that there was a new emperor on their coins and, you know, so, and the. The coins stamp is always. Even today, you know, the US Dollar is stamped with the heads of great rulers. Do you know, George Washington is no longer just a bloke, he's a God in the eyes of many American legends.
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Robert Breedlove
Yeah.
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Dominic Frisbie
And so you would have George Washington or. I don't even know who's on your coins anymore, but certainly George Washington and maybe Benjamin Franklin and.
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Robert Breedlove
Yeah. Abe Lincoln, Thomas Jefferson, that's all that comes to mind. Benjamin Franklin. Ben Franklin's the $100 bill. Yeah, yeah.
- [09:36]
Dominic Frisbie
So it's a means of. So money is used as propaganda in that respect. And coming back to Greece and Rome and then Byzantium after Rome, and the Islamic empire and pretty much every empire in history, if you plotted the greatness of that empire on a graph and you plotted the soundness of the money of that empire on a graph, the two would coincide. And I've been trying to figure out in my head, is it failing to keep the money sound that leads to the decline of the empire, or is it the decline of the empire that leads to failing to keep the money sound? The two seem to dance together. I don't know which cause is which, or is it causation or correlation? I don't really know. But, you know, you see it time and time again, and obviously, you know, us coming off the gold standard in 1971, Britain coming off the gold standard in 1914. But the money was sound before the empire was great. And, you know, the decline of Roman money, it was Nero. So the Republic was no more, it was now an empire, and it was Nero in the late first century. He was the first person to debase the coinage, the denarius. But that process of going from 100% silver to 0% silver took about 300 years. And the biggest, most fastest debasement happened in the last 20 or 30 years. So the process was gradual, but Nero was the first. And maybe 20 or 30 years after Nero was the point at which the Roman Empire reached its greatest extent. And at that point, it started coming back. Now, the standard argument that's used as to why Rome declined or why Rome debased its money is that the cost of its government couldn't be met by the cost of its. By its tax revenue. But what we often forget in that is that Rome's greatest source of tax revenue, and pretty much every empire's greatest source of tax revenue comes from conquering other countries.
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Robert Breedlove
Yeah.
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Dominic Frisbie
You know, you conquer the other countries and you take control not only of the tax base, but you take Control of the land, the labor, the produce, the profits, the tax base, basically. But so you conquer the other country, you take its gold and silver, you melt it down, you melt its own coinage, you loot and so on. And we can start talking about tax in a moment. But the. So this the point at which Rome stopped expanding, so it no longer had the revenue of newly conquered territories. The loot, the taxes, however, whatever form that revenue took was when Rome started having to pay for itself and it couldn't without that extra new money supply. And that's when it started debasing its currency. And then gradually it started shrinking, shrinking, shrinking. And so, yeah, super interesting.
- [12:42]
Robert Breedlove
There's. I think I may have mentioned this last time, but there's a piece written by Frederick C. Lane called the Economic Consequences of Organized Violence. And he describes something similar where basically we start out in a state of anarchy. Then a couple of local. The guys carrying the biggest sticks, the best specialist in violence, sort of establish an enclave, they put up walls, and they say, we are the government. Effectively, they run the show in that area and they start taxing the tax base. And then the territory itself expands over time. But when it runs out of room to expand, for whatever reason, it hits the water. It runs up against some other topography maybe that it can't conquer. That's when they. They start, like, inflating the currency because they can't expand the revenues anymore. To your point, the increase in tax revenues is typically coming from newly conquered lands. So when you run out of newly conquered lands, you start taxing your tax base harder. The easiest way to tax your tax base is to inflate, essentially, your coin clip, which is what they used to do. And there was a great line in your book I'd read earlier, like it was describing the Laffer curve, where your tax revenues are actually optimized at kind of a midpoint. The more you increase your tax rates, you don't increase tax revenues. There's diminishing returns and then negative returns at some point because people start to skirt the taxes or they move or whatever. And that's something that's been known for a really long time.
- [14:33]
Dominic Frisbie
Lesson that seems continually to need relearning. Yes, higher tax rates do not lead to greater tax revenue.
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Robert Breedlove
Yeah. But again, governments, they never want to relinquish. Right. They never want to actually lower taxes because that's giving up revenue. Even though they could increase their total revenues by lowering the tax rate. Yeah, it's amazing.
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Dominic Frisbie
I think it's partly about revenue, but it's partly about control. I think there's just some people that feel this innate need to control other people, what drives it, but they don't like it when you're doing this or doing that, this, that and the other. Even if it makes no difference to them, they get outraged by it and they feel the need to control it. And it's often somebody who's making good. It's often sort of politics of envy. And it is quite a sort of lefty, authoritarian thing. And it's quite a sort of. Religions used to do it as well. You mustn't do this, you mustn't be that. And, you know, a lot of the traditions of religion have a very, you know, religion existed before media and a lot of religions, you know, not eating pork, for example. There's quite a sensible practical reason why that law was there, because people were getting ill from making pork. And the easiest way to stop people eating pork is to make it a sin. So a lot of stuff. But a lot of the time it is. It is just politics of envy. Oh, I don't like it that that guy's doing this. And with social media and the right that this sort of controlling instinct everybody has. And it's just amazing how pissed off some people get other people doing stuff, even though what the other person is doing, it harms nobody else.
- [16:19]
Robert Breedlove
Yeah. I wonder if. I don't know. Yeah. Where does that instinct come from? I guess it is just people trying to do something that profits them. Right. If you realize you have a physical coercive advantage over someone else or a group of other people, you just seek to exploit that control. Is it about the profit or is it about just the power?
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Dominic Frisbie
I'm not even sure it is the profit. I think maybe it's limiting the profits of others increases your own profit, I suppose. But it's, it's, it's envy. It's, it's, it's, you know, jealousy, I suppose jealousy and envy are sort of quite close together. It's. But there's just this instinct to control other people getting on. And it's worse in Europe than it is in America, but it's getting bad in America.
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Robert Breedlove
Yeah, yeah. It's just something that disturbs me at a very deep level, like I don't want to control anyone, nor do I want to be controlled in any way. And that just intuitive, intuitively to me, makes the most sense. It's like, of course we would figure out the best way to organize ourselves if we just honored kind of those basic principles. Right. Of preserving life. Liberty and property. But clearly we veered far away from that. And the other point I think you make is that you make, which is great, is that actions speak louder than words. Prices communicate action. Right. Our words. You know, talk is cheap, but what you buy and sell, what you actually put your skin in the game to modify in the world, that's what really matters.
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Dominic Frisbie
If I tell you to buy this, you're not going to buy that. Or if I say this is really cheap, you might look at it. But if you look at it, you go, oh, that's only $10. You'll buy it.
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Robert Breedlove
Right. It's like that quote, don't tell me what you think. Just show me what's in your portfolio. And this particular topic is so poorly understood today. We have reverence for free speech, I'd say, in the United States and most of Western civilization, but we don't acknowledge that prices are speech too. Right. Like, at a very fundamental level, both are expressions of the logos, and the logos means word or ratio, roughly. And a price is just an exchange ratio. And words are ratios of meaning, if you will. And prices are ratios of action and economic value. And to disturb either via propaganda or central banking, it breaks down the coordination of. Of economic activity and social cohesion.
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Dominic Frisbie
I listened to Nassim Taleb's, and I know he's sort of Persona non grata in bitcoin circles since he sold his bitcoins, but I listened to his audiobook of Skin in the Game the other day, and I thought it was great. And it would be great if somebody could invent, like, he tells you what to look out for, and he tells you the signals and you can smell them. And often it's. He articulates what a lot of people knew, but they weren't quite able to articulate. But it would be great if somebody could invent some kind of Skin in the Game barometer.
- [19:41]
Robert Breedlove
Skin in the Game what?
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Dominic Frisbie
A Skin in the Game barometer.
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Robert Breedlove
Oh, yeah, yeah.
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Dominic Frisbie
So you could tell exactly how much you know by what they say and by what they do and so on, how much skin in the game they've actually got.
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Robert Breedlove
Yeah.
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Dominic Frisbie
And then if we could see that, you know, in this. They had that attached to their social media profile.
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Robert Breedlove
It'd be great to have one of those. A whole country. Right. It's like, yeah, the US has an average of 40% skin in the game. Because that would be directly related to the cohesion of the civilization as well.
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Dominic Frisbie
Yeah. I mean, this. There's an argument here, you know, the argument is One person, one vote. And they keep trying to bring down the voting age here in the UK to 16. But you know, my 16 year old kids are clueless about politics. They either will echo what I say or they'll just echo what their teacher says at school. And I actually think there's a strong case to be made for the voting age to be made older, not younger. And the left tend to argue for a younger voting age because they get more votes that way. Younger people tend to be more left wing. And by the way, I don't even necessarily subscribe to that whole left right thing. I'm much more of a left right, authoritarian, libertarian, political compass person. But for the sake of that particular argument, I'm using that. But there's a strong argument that one, you should only be allowed to vote once you've paid taxes for a certain amount of time because then you do have skin in the game. And then you could take that argument one stage further and say the more you pay in tax, the more you contribute to the system. In other words, the more your vote counts.
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Robert Breedlove
Right.
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Dominic Frisbie
And people would say, well, that's outrageous because, you know that favors rich people. Well, yes it does, but they pay more tax, they contribute more. You might not like the fact that they do, but their money goes to doing more than no money does. And you could then go one stage further than that and go like the ancient Greeks did, where tax was voluntary. I think we talked, did we talk about that on the last show?
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Robert Breedlove
We did. The liturgy, voluntary tax.
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Dominic Frisbie
Yeah, liturgy, exactly. If you could reintroduce such a system here and with hypothecated taxes. So I'm going to spend an extra $5 in my tax this month. But I want to know that that $5 is not just going on everything. I want to know that that $5 is specifically going to help the homeless. Well, that $5 is specifically going to, you know, education or whatever area of government spending you wanted to go to. And the person who pays that extra $5 feels all great. You know, that's quite a nice incentive for them. And, but the, the, if you have that sort of hypothecated system, you know, the more you pay in taxes, so you can pay a little bit extra and your vote counts for that little bit more. It's a bit like, I don't know if you follow the coin decred, but they've got this whole staking and you can buy tickets and then once you've got tickets, you can then vote on how Decred operates and spends its money and makes its decisions. It's quite a very nice governance system. And if you could do that at the society level, it'd be rather nice.
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Robert Breedlove
Yeah, no, yeah, it's. I'm very skeptical of the whole voting process entirely. Like, I think, oh, it's a joke. I often say that money is the only vote that counts ultimately. Yeah. I don't know. I think we're going to get past this somehow. In a bitcoin world where you would be able to more freely negotiate your.
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Dominic Frisbie
Tax, who do you want? The orcs or the goblins? Which force do you want?
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Robert Breedlove
But that's right, it'd be kind of choosing the lesser of a lot of evils. But the flip side to that is governments are going, in theory at least, or will be forced to deal with you more honestly because you as a citizen will have so much optionality, like your capital can just move anywhere. So if you don't like the way you're being treated, you can very easily move to another country. They can't impose capital controls, they can't hit you with an exit tax, they can't inflate you. Assuming we're on a bitcoin standard. Right. The citizen gains a lot more leverage in their negotiations with the nation state. So the nation state starts to look much more like a private enterprise with better offerings, better pricing, et cetera. But who knows? It calls into question a lot of things for me, because unrealistic.
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Dominic Frisbie
I was just going to say, you go.
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Robert Breedlove
The last thing on that is the thing that I can't get my head around is in that world, monetary property is the only thing you want to own. You only want to own bitcoin. You want to rent everything else. Because if you own land in this alternate future, that's something they can confiscate from you very easily. But bitcoin is a thing you can move with pretty much absolute impunity. So it's like we move to this world where bitcoin is a superior property. Right. In a way, you want to own as much bitcoin as you can, but rent everything else.
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Dominic Frisbie
Yeah. And that's. That's very interesting. And I do think, like Klaus Schwab of the World Economic Forum, one of the things he said was that by 2030 you won't own anything.
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Robert Breedlove
That's fucking scary.
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Dominic Frisbie
And this is scary. And the intention behind that phrase, I think, has been slightly distorted because everyone is now saying all the World Economic Forum wants to impoverish everyone and governments own everything. And it's been misconstrued that statement, I think the point even was making is that, you know, owning a Rolls Royce is too much hassle. You'll just rent it when you need it, or, you know, rather than owning a huge mansion in the country, you'll just rent it when you want to use it. I think that was, you know, it was the rise of Airbnb and Uber and all these sharing platforms. I think that was the point he was making. But in any case, that trend of renting rather than owning very much ties in with this other trend of the sovereign individual, you know, not spending too long in any given jurisdiction, not clear who he pays taxes to, and, you know, this new digital economy that exists beyond national borders. It's such a fascinating dynamic that's going on. And, you know, as soon as that sovereign individual feels in any kind of way threatened or jeopardized in one jurisdiction, he simply moves to another and, you know, and takes his bitcoins with him. Yeah, it's rather a nice. It's rather a nice model and I'm sort of. It's quite difficult with kids.
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Robert Breedlove
Yeah, yeah.
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Dominic Frisbie
But it's certainly doable if I think you start out, but if, like, for example, it's a lifestyle I want for myself, but I've got kids who are 20, 18, 16 and 15 and it's just. It's hard. So I'm sort of taking steps to engineer that existence for myself a few years down the line, but. But I'm away from it yet.
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Robert Breedlove
Yeah. Someone told me having kids is like casting out anger in a way. And so in that world though, where we're, we're all renting, that's my question is who's. Who owns it? Everyone's looking to rent the property. Who is the rentor?
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Dominic Frisbie
Well, the Queen.
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Robert Breedlove
Yeah, I guess the local monarch.
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Dominic Frisbie
Yeah, I mean, existing landowners. I mean, I've got a little bit of real estate in the uk. I've got. It's one of the best ways to hedge against a basement of currency is to own real estate. And I'm not going to sell it because I inter capital gains to sell. It's just easier just to sit there and I rent it out. And the rent sort of covers my outgoings, but barely. I sometimes sit there and go, with all the hassle of renting out, may as well just leave it vacant. But you kind of need somebody in a property, otherwise it. Stuff starts going wrong. But yeah, I mean, I guess not everyone's going to be a bitcoiner and there'll be some People who make businesses renting stuff to bitcoiners. It'd be probably be good money.
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Robert Breedlove
Yeah, yeah. Interesting to think.
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Dominic Frisbie
But how something I fascinate, you know, it's the dream of every bitcoiner and even before bitcoin was, is, you know, creating a new society, creating a new country where we don't make any of the mistakes that are embedded in existing countries and where, you know, we can set our own rules and. And maybe the rule is that there are no rules, you know, but this new land, this. Hang on a minute, sorry, my mother's calling on the other line. And so that's the dream. And then there's a lot of talk about bitcoin citadels and maybe little enclaves form up around remote mining jurisdictions where they're exploiting cheap energy and nobody particularly wants to land anyway. But I mean, how realistic do you think is it really, these citadels, are they only really going to exist digitally? Because do you think they'll ever actually going to exist physically?
- [29:29]
Robert Breedlove
I would again, following just the sovereign individual thesis. Yeah, I think they would ultimately be physical jurisdictions. And yeah, again, in that world where you want to own bitcoin and rent everything else, it seems like all the other property rights would revert back to either locally enforced or somehow enforced via a smart contract schema. There's things happening. There's a higher order protocol on bitcoin called RGB and it enables people to execute private smart contracts between two consenting parties. So maybe property as government revenues, government nation state revenues are basically starved to death. They're going to fragment and fail a la USSR, late 20th century thing. I think a lot of the functions they provide today. So when you have to go and register your title with the local UK land registry, whoever, maybe you're just going to register that land ownership with a different governing body and probably a smaller governing body. I would, I do anticipate the fragmentation of the nation state. I just don't think that giant industrial age model holds up in the 21st century. But I don't know how much, how small they will fragment. But I do see governance again. I just see governance becoming a more localized affair once again. How it started, we started with this local monopolies on violence that preserved your property. And then the industrial age blew it up to these giant nation states we have today. I think the 21st century just takes it back the other direction maybe.
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Dominic Frisbie
I mean, I can't see how long can these deficits go on for. How long can a government carry on spending so much More than it has.
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Robert Breedlove
So long as they can inflate.
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Dominic Frisbie
Yeah. And like I mentioned this before, I started getting into Gold in 2005 and this narrative was so strong then and I used to look at it and go, this cannot go on, this cannot go on. But that was 16 years ago. And it goes on and on and on. The deficits get worse and worse and worse. The numbers get more and more ridiculous. And I guess it just a bit like Rome, you know, I mean Rome did it for 300 years, but they did it to the extreme extent that we're doing it now. But I guess it just suddenly, at a certain point the light. I don't believe the lights go off because there's too much vested interest in keeping things going because nobody wants there to be no electricity. And you know, which is almost too sophisticated for there to be no electricity. And you know, even when Covid came, you know, and the supply chain, there was a big run on the supermarkets and the shelves really were bare for a couple of days. It was quite scary. But the supply chain sorted it out. It was amazing how quickly all the supply chain sorted it out and within a few. But these are private enterprises, remember, these are supermarkets, not government bodies. But they had food on the shelves within a few days and it was. It's pretty impressive on behalf of them. So I guess very quickly the market would just shift to using some other kind of money that works. I guess that will be what happens. I think about it all the time. How is this going to end? Is it going to end or is it just going to sort of. Just sort of do a great long flur. Like one of those sort of air balloons that gradually sort of physicals out. I don't know.
- [33:20]
Robert Breedlove
It's like your point earlier about Nero, you know, the 300 year debasement of the. Of silver, I guess is what the denarius. They were the basic.
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Dominic Frisbie
Yeah. The gold state.
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Robert Breedlove
Gradual then secure.
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Dominic Frisbie
Bizarre. Yeah. Yeah. But even sudden. Like it looks sudden to us, but sudden then was like 15 years. 10 in 10. 15 years.
- [33:41]
Robert Breedlove
Do you think we're there today? Because I. When I look at the US M1, M2 charts, we've been doing gradual for a long time basically since the end of World War II. It really ramped up after 1971. It really ramped up after 2008 and now it's just full on. The money supply is parabolic.
- [34:00]
Dominic Frisbie
Yeah. I mean it's going so parabolic. It's almost going up backwards and over the top.
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Robert Breedlove
It's broken. Yeah. They discontinued the charts in the U.S.
- [34:08]
Dominic Frisbie
Yeah, but the insane thing is, Robert, it like if you took that chart and you stopped it in 2008 when you were looking at the chart then, or 2009 or 2011, whatever, it's always looked that parabolic. It just gets more and more parabolic. It's just so, I mean, they've stopped putting up the charts. I've stopped looking at them because I just, it's just ridiculous. So. And Europe's worse than the U.S. it really is. I mean, you look at spending and all this slice of hand that goes on with the numbers and I don't know.
- [34:52]
Robert Breedlove
Yeah, the distribution this time is different. Clearly we've gone to full helicopter money. 2008 was kind of the recapitalization of the banks. Now they're just doling it out. And I think that that's the last straw because no one will ever repeal that. So now we're just going to accelerate monetary issuance until inflation rips society apart.
- [35:16]
Dominic Frisbie
Well, the thing is though, there is still extraordinary deflationary pressure. And the deflationary pressure is the incredible progress that technology is making and the incredible improvements in productivity that we're seeing. And that is an enormous deflationary pressure. And the other deflationary pressure is the enormous difference in costs in the developing world, in China and Asia compared to costs in Western Europe and America. And as long as China can go on exporting its deflation, exporting its cheap costs, and the west benefits from those cheap prices, we're not going to get inflate. And again, food productivity, it's just, you know, forget like, you know, really hipster steak and, and, and, and you know, hipster beers and homebrew, you know, the clever little beers and gone. But just general is really easy to produce extraordinary amounts of food at a very low cost. You can pay more if you want to, but if you want to spend nothing on food, you can. And so that means aside from housing, the actual cost of living, the cost of living, according to CPI measures they use for inflation, can stay at 2 or 3%. And they can go, look, inflation's only 2 or 3%. Of course, as we all know, that 2 or 3% in CPI is only responsible for about 10% of money supply growth. Most of new money supply goes into financial assets and goes into housing. And that's where we see extraordinary inflation. But as long as they can keep. I talked about a sleight of hand. As long as they can keep fudging the numbers and lie about it in cpi, they don't need to put up rates and the longer the process can go on for. So again we talked about truth. There's no truth to the inflation numbers. They measure the cost of a certain basket of goods, not money supply and inflation. The original definition of inflation meant the inflating, the blowing up of the money supply with the consequence of highest prices. I'm sounding like Peter Schiff, but you know, he's very right when he talks about this kind of thing and you know, he's on the money with it. And so as I say, for 15 years I've been thinking, when does this end? And they can manage to keep it going. I'm not even sure they're aware of what they're keeping going. You know, the way economics is taught, money doesn't even matter.
- [37:52]
Robert Breedlove
That's right.
- [37:53]
Dominic Frisbie
You know, money shouldn't have a cost of production to it according to, you know, orthodox economics.
- [38:00]
Robert Breedlove
Yeah, it's treated, government's treated as God effectively. It suffers, no trade offs, it just puts money in, takes money out to manage, quote unquote, manage the economy. Like it's just some simple lever, like little simple machine. They're walking around the world. But the reality, Yeah, I had this.
- [38:21]
Dominic Frisbie
Debate with this mainstream economist, nice lady and we were talking about Bitcoin, of course she was saying Bitcoin isn't backed by anything. And I was going, what's fiat money backed by? And she was going, it's backed by the state. And I'm like, hello? She just didn't get it.
- [38:40]
Robert Breedlove
It's funny. So I guess just taking it back to the conversation arc here, we're deep. It started with the printing press, effectively, which I've always thought this was interesting, that the printing press was the technology that disrupted the church's monopoly on knowledge. But today it's the same technology, more or less. I mean it's not really a printing press anymore, but was used to expand and manipulate money supplies and reinforce the state's monopoly on people's time, effectively giving them the ability to steal at scale. You asked how long it can go on. I just have a really hard time envisioning a world where this model of outright extortion, we're just extorting people basically. It's like pay the taxes or use this dollar or suffer consequences while they're back door siphoning wealth out of it via inflation. I have a very hard time seeing that model persisting in a world where ideas move so quickly and something gets memed again, maybe we talked about this last Time. But if they can just print money, why do I pay taxes? You just put that into a meme. That thing spreads like wildfire. And all of a sudden people are asking these questions, and next thing you know, it's like, okay, the question about inflation is now being asked. And when you look behind that question, you see the illusion. It's like the whole thing is a scam. Every fiat currency in the world is a pyramid scheme. So I don't know if people are going to wake up to that in a month, 20 years, but I don't think it's sustainable in the long run.
- [40:31]
Dominic Frisbie
Well, more and more people. I mean, then we have bitcoin to thank for this because it is proof. We talk about money as communication, but bitcoin has been the most wonderful educational tool. And I think I mentioned this before when I was starting out writing about all this, before bitcoin was invented, I'd have to take three sentences in every article I wrote explaining what fiat money is. Now you just go on a bitcoin exchange, and there's one column that says fiat, and there's another says crypto. It's just everybody knows. And so bitcoin has been wonderful in that respect, a wonderful educative tool. And coming back to the. And I was about to say, listening to you talk, well, there are people in North Korea, there were people in Soviet Russia who lived their whole lives and never knew any different. And so this sort of strong, overbearing government can go on for a lot longer than you think. But then you added that phrase in a society in which ideas can spread. Now, ideas couldn't spread in North Korea or Soviet Russia, and they can. So that is the essential difference, and that makes me very optimistic. And the. Just talk a bit more about the printing press because, you know, we come to this thing of money as communication. And, you know, the printing press was used to print words and then disseminate words over time and distance. And in fact, one of the reasons, I think, why we have this podcast boom going on at the moment is that human brain actually absorbs words better through the air. We're. We're wired to. And. And so information goes in more easily and stays there longer through the ear. And we only invented words as a means to, you know, transmit information beyond the. The distance that the human voice could spread it for. Now we have podcasts and, and all the associated technology. It's. I mean, that's why the. The boom is going on, because the brain likes information spread like this. But the printing press was there to disseminate information. But one of the first uses it found was, of course, to print money. And we in Western Europe, we think we invented the printing press, but China had its own version of the printing press maybe a thousand years before we did. And Marco Polo was a Venetian merchant. He's seen as a great, they call him an explorer now and a writer, but really he was a merchant. He was going out from Venice to Asia in order to buy and sell goods and try and make money. And he kept a chronicle of it in his famous diaries. And when he went to Kublai Khan's china, he marveled at the fact that they used paper as money, because that hadn't happened in Europe yet, because they'd already invented the printing press in China. And there's a great. There's a great quote, but it's a sort of. It's. It's slightly sinister at the same time, but I'll read it to you. With these pieces of paper made as I have described, he Kubla Khan causes all payments on his own account to be made, and he makes them to pass, current, universal, universally over all his kingdoms and provinces and territories, and with whithersoever his power and sovereignty extends. And nobody, however important he may think himself dares to refuse them on pain of death. And indeed, everybody takes them readily. For wherever so a person, a person may go, throughout the Great Khan's communions, he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them, just as well as if they were coins of pure gold. And all the while, they are so light that 10 bezents worth doesn't weigh one golden bezent.
- [44:50]
Robert Breedlove
Wow.
- [44:50]
Dominic Frisbie
And it's a great quote. So the paper money was being used and the technology, we talked about money as technology and whatever is used as money develops, as technology develops and all the cryptographic breakthroughs and the blockchain is why we have bitcoin now. But the printing press was a technological breakthrough, and on the one hand, and people used it because it's more convenient carrying paper than it is bits of gold, and the paper was interchangeable for gold. It's not clear from Marco Polo's quote whether you could exchange your paper there for gold, or I think Kublai Khan took the gold, and merchants entering the dominions would have to change their gold for paper as they came in, and thereby De Kuba can't control it. So it's pretty clear that that was a fiat money system in China. And it's also probably China went into a massive dark age starting probably. I think its peak was probably before Marco Polo went there. And again, we're back to this thing. They started using paper money. It wasn't backed by anything. And China went into its dark age. And time and again, an empire's money is sound when it's on the rise, I guess. And we can talk about China now because there's some very interesting things going on with China now. When you look at human rights and a lot of the other things that China does, it isn't necessarily the most admirable administration that you've ever seen in your life. And you know, it's a very authoritarian form of capitalism that they go by there, but they have over the course of the last 25 years, been accumulating extraordinary amounts of gold. And I've done an audit on this. I've spent some time working it out in an article. We didn't talk about this last.
- [46:47]
Robert Breedlove
I think we did.
- [46:48]
Dominic Frisbie
Yeah.
- [46:48]
Robert Breedlove
Yeah.
- [46:49]
Dominic Frisbie
Oh, okay.
- [46:49]
Robert Breedlove
Well, I open my eyes. You open my eyes to this that they have. I think it was 14,000 tons of gold.
- [46:55]
Dominic Frisbie
Yeah.
- [46:56]
Robert Breedlove
Was the final amount. Yeah.
- [46:58]
Dominic Frisbie
I beg your pardon, and I beg your pardon, dear listener, for repeating myself, but they have as much gold as America does. And I believe that 75% of Bitcoin mining takes place in China as well. Perhaps not by the design of the government, but it nevertheless, it takes place there. And I suppose the Chinese government could seize those mining operations if it wanted to. But so now you tend to associate sound money, whether it's bitcoin or gold, with sound administrations. And you might say, well, China's not that admirable. But it's a not very well kept secret that China has designs on global reserve currency status. And the fact that it's accumulating all that gold and there's all that bitcoin mining there makes that look like a real possibility. And maybe China becomes the dominant nation. I mean, I have to say, if America took on China in a world war, I would probably bet on China. I might be wrong, but the. I don't know. Heaven knows who'd win that one. But I think America's probably got the stronger weapons at this point. But China's got probably the more loyal citizenry than America does.
- [48:12]
Robert Breedlove
A larger army too. I think they're, well, the. It's like three times the soldiers as.
- [48:20]
Dominic Frisbie
The U.S. i've read that as well. But then there's another statistic that does the rounds. The American military is the Largest employer in the world, but made the actual soldiers. China's higher.
- [48:32]
Robert Breedlove
Yeah.
- [48:33]
Dominic Frisbie
But anyway, let's not speculate between China and America. But the point is that China, America and Western Europe are the empires in decline and their money's going up the spout. And China's pegged its money to the US dollar for now and then at some point it abandons that and it will have a sound backing to its money to fall back on, if that makes sense. And so even China today is following the sound money route that rising empires follow.
- [49:06]
Robert Breedlove
Right? Yeah. And I, it seems logical that it would wait for the opportune time when, you know, there should, there should be some shock to the dollar at some point given the rate of production. And then China would try to step in and insert its digital yuan or whatever gold yuan, I assume.
- [49:26]
Dominic Frisbie
As, I mean, does China, does China pull the plug or does America pull the plug on itself? At which point China bails? You know, we don't know which order that's going to happen.
- [49:34]
Robert Breedlove
And they hold.
- [49:35]
Dominic Frisbie
You know, America had sound money before America was great. I mean, America doesn't call itself an empire, but it sort of is. And you know, England went on the gold stand, the great recoilage of Isaac Newton in 1716 and England was not an empire or Britain was not an Empire in 1716. You know, so we had sound money and then the, the imperial expansion followed.
- [49:58]
Robert Breedlove
Yeah, the story you bring up with China, I think they were the first civilization to implement fiat currency at scale. So the story you were telling, and it ended like all fiat currency experiments ended in hyperinflation and kind of a dark age in China they're just infamously always the furthest out on the technology curve. For some reason they just figured things out.
- [50:22]
Dominic Frisbie
Islamic empire, by the way, followed the same trajectory. Money was sound at first and Islam was a great empire. The Islamic contribution to science and mathematics and the sort of in the 8th, 9th, 10th, 11th and 12th century was astonishing. And then it went into its own dark age.
- [50:40]
Robert Breedlove
Yeah. To the modern component there of China. They also hold about a trillion dollars in US treasuries, I think.
- [50:49]
Dominic Frisbie
Yeah, that's the other thing.
- [50:52]
Robert Breedlove
China one, two punch here.
- [50:53]
Dominic Frisbie
America's gold is about 77% of its foreign exchange holdings. China's gold, well the nominal amount that it holds is like 3%. It's incredible. They're the ones carrying the can of all those stupid bonds.
- [51:09]
Robert Breedlove
So there's the possibility of dollar shock. China introduces digital gold backed yuan. China dumps US Treasuries on the open market that would sow the seeds for something. For a lot of contention between the.
- [51:27]
Dominic Frisbie
U.S. yeah, I mean that's how the racket's being perpetrated now is that western central banks are buying their own bonds, they're buying their own debt, so they're monetizing debt. And I think I'm going to get wrong, but I think we're somewhere between 30 and 50% of government debt is now central bank owned. The point at which, you know, it used to be until quantitative easing came along, money was created by banks lending. That was how money, you know, very little of money was actually printed by governments. There was the notes and the dollars, but that's like 3 or 4% of actual money supply. But now with quantitative easing, central bank and buying government debt with it, central banks are printing money and they're printing more and more of it.
- [52:18]
Robert Breedlove
Yeah, absolutely.
- [52:19]
Dominic Frisbie
And there's nothing to hold them back. And I don't know what the tipping point. Is it 50% of government debt, is it 60% of government debt? And that is what. It's their printing money that keeps the cost of servicing that debt so low.
- [52:33]
Robert Breedlove
That's right.
- [52:33]
Dominic Frisbie
But at a certain point it's going to be. And UK pension funds are obliged to own UK government debt because it's low risk. Is it the same limit? Okay, yeah. I mean it's state sponsored, so it can go on for longer than you think. But it's unsustainable.
- [52:50]
Robert Breedlove
Yeah. Which just gives them away. Those are some of the largest capital pools too. And that just gives the government a way to pillage the wealth of those capital pools through inflation.
- [53:02]
Dominic Frisbie
I think the bond market's three or four times the size of the equities market. I think it's something like that.
- [53:07]
Robert Breedlove
It's much bigger. Globally or.
- [53:10]
Dominic Frisbie
Yeah, well, either globally or at home.
- [53:14]
Robert Breedlove
Yeah, I think I want to say globally it's at least 2x. I'm not sure. It might be 3x. The other thing in terms of tipping points you just mentioned, another one I'm watching for here in the US is the debt servicing cost. So just the interest on the national debt will exceed total US tax revenues. I think this year it might be next year probably already has happened. This was before COVID that I looked at this analysis. So what that introduces is the need to print money just to cover the interest expense on the national debt. So you have to moneyball the interest. And historically no nation has ever recovered from that. That's just like stage one to hyperinflation.
- [53:59]
Dominic Frisbie
How can you recover from that, you can't.
- [54:01]
Robert Breedlove
It's impossible.
- [54:02]
Dominic Frisbie
I think in the UK in 2016, I can tell you that the cost of the servicing the debt was half the education budget, so it was about 7 or 8% of national expenditure. And I imagine that's gone up to 15 to 20% now. Yeah, but are you sure it's a 50%? 50% is extraordinary, but it will. Whether we're there now or not, we will get there. And again, that's when you get to tipping point. And it will all look so obvious after. After the events, of course.
- [54:33]
Robert Breedlove
Yeah. It's funny you brought up earlier the fiat currency thing. I've been using that term because I fell down the central banking rabbit hole in early 2000s. So I used to tell people about fiat currency and all the problems and no one knew what it meant. But it's amazing how much our perceptions have changed on the world, as you said, as a result of Bitcoin. I think it's been this great educational tool. And that's where my optimism lies too. I think we're just going to get smarter. I think just lowering the cost of information distribution is just going to make people wise up to this scam. And I can't see it persisting in its current form. But who knows?
- [55:18]
Dominic Frisbie
More and more people are using crypto, and particularly young people. And without any prompting from me, my eldest son is at university. Him and all his mates are all using it to buy weed or whatever, but they're using it. And his mate, who didn't get into university, is now a cryptocurrency trader and he's making more money than any of them. Well, fair play to him. It'll go tits up when the market goes tits up, as it will. But he's fine for now, are. And, but the. So the other day I. How old are you, Robert?
- [55:53]
Robert Breedlove
35.
- [55:54]
Dominic Frisbie
Okay. So I'm. I'm 51. And as I think you know, I've been involved in projecting these unacceptable messages on the exteriors of various buildings.
- [56:06]
Robert Breedlove
I find them quite acceptable.
- [56:10]
Dominic Frisbie
And I've been having a great time and. But I hired this projectionist who's a. His job is he's a guerrilla projectionist and he gets hired by corporations and stuff to project, you know, whatever message on the building. But he does his guerrilla projections as a sort of nighttime bit of moonlighting. And I was able to beat him down on price by promising to playing him in bitcoin. And he said that it was from buying some bitcoin and then selling it that he was able to get his first projector. It was the profits he made on bitcoin that bought him his first projector. And then the sort of irony of that is he's now using that projector to promote bitcoin messages. And he said, I've given him. So I paid him in some more bitcoin now, and he loves it. And his girlfriend. And I was saying, I know you're a maximalist, so I'm uttering heritage, but I said, I've got some other coins. You want me to pay him one of those? And you can get interested in one of those. And his girlfriend's going, no, no, no, it's just got to be bitcoin. It's just got to be bitcoin. And he's going, no, no, I want to try the other one.
- [57:14]
Robert Breedlove
She's.
- [57:15]
Dominic Frisbie
His girlfriend got a. Yeah, yeah, his girlfriend got the way she won that particular argument. But the point is, is that, you know, he's. There's loads of people who are doing little bits of job. More and more people are wanting to be paid in crypto, and the more people that want to be paid in crypto, the quicker this game ends and the quicker the ascendancy of crypto it.