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UGO11: Fiscal Dominance, Dollar Power, and the Politics Driving Markets ft. Lyn Alden
01:11:04
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- [00:04]
Jem Carson
You got, you got, you got your trade. You bet, you bet, you bet, you bet your money just got made convex.
- [00:12]
Podcast Host/Announcer
Welcome to you Got Options, an exciting series right here on Top Traders Unplugged, hosted by none other than Jen Carson, one of the sharpest minds when it comes to understanding what's really driving market moves beneath the surface. In this series, Jim brings his deep expertise and unique perspective, honed from years of experience on the trading floor to candid conversations with some of the brightest minds in the industry. Together, they unpack the shifting tides and underlying forces that move markets and the opportunities they create. A quick reminder before we divegotoptions is for informational and educational purposes only. None of the discussions you're about to hear should be considered investment advice. As always, please do your own research and consult with a professional advisor before making making any investment decisions. Now, what makes this series truly special is that it's recorded right from the heart of the action on the trading floor of the cbo. That means you might catch a little background buzz. Phones ringing, traders shouting as Jem and his guests unpack real world insights in real time. We wouldn't have it any other way because this is as authentic as it gets. And with that, it's time to hear from those who live and breathe this complex corner of the markets. Here is your host, Jem Carson.
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Jem Carson
Welcome back to another episode of you Got Options from the CBO Floor, brought to you by CHI Media and Top Traders Unplugged. Today we talk to Lynn Alden. She is known obviously for this train does not stop and that fiscal dominance absolutely agree with. But we test it a little bit with talking about authoritarianism, how it will play a role versus democracy, AI, will that make a difference? And of course, crypto. Where does crypto stand in this? Where are we going in the broad scope of things? I think you're really going to enjoy this one, yo. Live it up, don't settle for less. You got options. Put your skills to the test. It's your call, time to strike, make your move. Grab the mic, mic, mic. You got, you got, you got. Execute your trade. You got, you bet the game, game, game. You got, you got, you got options. Got options. Execute your trade. Hey, guys, welcome to another you got options. I'm here with Lynn Alden. Not only a fan favorite, one of my favorites. Her work has been kind of something that's led me through the last four years. Really been reading a lot of her stuff. Agree with a lot of it, you know, from a different angle sometimes, sometimes different path. But one Thing you can't argue with is the depth at which she kind of looks through these things and the numbers analysis. It's always a pleasure. So thanks for joining me today, Lynn. Excited to have a conversation today.
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Lynn Alden
Happy to be here. Looking forward to it.
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Jem Carson
So let's dive right in. I mean, what an amazing kind of time. The things we, I feel like we've been talking about in terms of fiscal dominance and how you can't stop this train and the broad macro, it just seems to accelerate every week and every month. For those that aren't as familiar with your work, and even for those that are, you might give it a little bit of a kind of background of how you see us at this stage, maybe what's continuing to happen on path, as you'd expect. And also what are some things that might be changing in the broad macro path.
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Lynn Alden
Sure, it sounds good. Yeah. A lot of my work over the past several years, I mean, really going back to 2019, has focused heavily on the fiscal aspect, especially in the US but also globally. And so a big part of my investment approach was kind of based on the observation that I think a large part of the market was kind of underestimating the power of fiscal and the amount of fiscal we were likely going to get and both kind of covering current topics in fiscal, but also learning a lot from history because we're going through what I you know, I'm not the first one to use this term, but fiscal dominance, where we've shifted a lot of the leverage from the private sector up to the public sector. This has implications for nominal gdp, wealth concentration, inflation levels, market performance. It's got a number of kind of economic, social and trading investing. And we have to really go back a long time, at least in the developed world, to see similar market conditions. So a lot of the investing approaches of the past 40 years or so were not really geared toward fiscal dominance. And so a lot of my work is kind of focused on that importance. You know, my initial background is in engineering, so I kind of have a systems engineering approach to capital flows as well as focusing on the reality of some physical aspects where there's energy, whether it's supply chains as well, that kind of round out my view. And so kind of my general view is that because we're in fiscal dominance, we have struck and a number of other things that kind of went into this situation. We have structurally high fiscal deficits in the US that tends to keep nominal things elevated more than at least many bears would think, but just generally more than the market Participants would think so you generally have pretty kind of a run it hot GDP environment, nominal asset prices doing well. You know, they might not do well versus another hard asset like gold per se, but they're doing well in currency terms at least, at least over a multi year period. And, and then you kind of get into that sort of persistent situation and so I'm happy to kind of go where you want. Another big thing I focus on is kind of that we're shifting toward a more multipolar world over time. I mean some of the current headlines might be kind of along that path, but even just before the current kind of headlines, it's been kind of a structural approach that I focus on alongside the fiscal side. It's that kind of shift toward a more multipolar world, a gradual change in reserve currency practices. What does that mean? Good and bad.
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Jem Carson
And I know my views and I've read a bit of yours, but I'd love to talk about why you think it's fairly inevitable, why this train doesn't stop stop. Why is the fiscal dominance happening and why is it likely to persist in your view?
- [06:20]
Lynn Alden
Sure. So basically when we look at how debt cycles work in history, we're all familiar with the credit cycle, the 5 to 10 year typical kind of business cycle, credit cycle, when you string a lot of those together, especially in modern history, every time we have a contraction, you'll lower interest rates generally to a new lower low. You'll often have fiscal stabilizers kick in either automatically or due to intentional stimulus to restart that, that next credit cycle. And when you string a bunch of Those together over 40, 50 years, you get higher and higher debt levels relative to GDP and you get lower and lower interest rates. And historically when you kind of run that all the way to the end point, you run into zero interest rates, you get very high private debt levels. The highest two kind of private debt levels in the US were basically 1929 or early 1930s, and then again in 2007, 2008. Those were kind of the two all time private sector debt bubbles in the US. The problem there is that there's really kind of nowhere to go. If you look at most metrics in terms of say, how much debt exists in the country relative to the monetary base, how much debt there is relative to gdp, there's multiple ways to measure it, it's just extremely leveraged. Or for example, how much cash banks have on hand relative to all their other assets and just how much risk they're taking on. And generally speaking, when you get to that point, instead of kind of letting it all collapse, a country that controls its own unit of account, its own money will generally print. And so you start to see a shift from the private sector. You kind of de leverage that through very large fiscal injections, backstops, monetization of debt when needed. And you kind of, over a period of years, rotate some of that onto the public sector. And so we shift from out of kind of that private sector debt bubble, we moderate that, we shift that more to the public sector. And that has implications, because when you get very high public debts, if you run into inflation for whatever reason, whether it's because you printed a ton of extra money for a lockdown stimulus, or because you have war or energy shortages, whatever the case may be, if you try to raise interest rates in response to that, you get a generally different outcome than, say, the 1970s. We're generally trained to think that the antidote to inflation is higher rates, which is sometimes true, and it has some hardening effects on the currency. But the challenge is what makes this very different than the 70s, and more like in some ways, like the 40s, kind of the last time we were in kind of a public sector debt bubble is in the 70s. Most of the inflation, the money creation we were seeing was, was from private sector bank lending. And of course, we had deficits on top of that. But quantitatively, the private sector was the biggest component. So when you raise interest rates to slow down bank lending, that has a bigger downward push on money creation than blowing out the fiscal interest expense, the government interest expense. Whereas when you have over 100% or 120% debt to GP, and you have a lot of money creation coming from fiscal deficits, monetized fiscal deficits, and less so from very quick bank lending. If you raise rates in the face of inflation, you do slow down bank lending to a certain degree, but then you blow out fiscal federal interest expense by an even greater absolute number. And so you kind of get into this loop that's pretty hard to slow down fully. And then on top of that, I mean, we have demographics issues. That's not new to everyone. But when you kind of lock that in, I mean, that's who votes. That's kind of where a lot of things are. A lot of people are trained to kind of think that aging demographics are disinflationary, which can be true if the older demographic is impoverished, if they're not consuming a lot. But if they're also backstopped by very high medical cost per capita, Social Security, all this other Thing that can actually be kind of inflationary, at least for the things that that demographic consumes. And so a combination of basically just decades of debt accumulation and where that debt ended up, demographics and entitlements to support them. And then add on to that it's kind of more unique to the US than say Europe and elsewhere is that we're heavily financialized. Meaning that can mean a number of things, but in this context it means that our tax receipts are more correlated with like asset prices than many other developed countries. So, you know, if you're not kind of pumping the stock market with a 12 month lag or so, you're going to start to get, you know, materially weaker tax receipts. You actually kind of add fuel to the deficit fire. So we have a bunch of kind of flywheels that are all very, very, very hard to slow down and never quite say impossible, but nearly so.
- [11:11]
Jem Carson
So we definitely agree on fiscal dominance. You can't stop this train. I think this conversation about why it's inevitable. I think we slightly disagree, love to kind of dive in a little bit and think about it. And there's no right answer. Right. We're trying to tease this out. But I do think the why is important given how things are changing and how those whys might change. And by the way, I also agree this is different than the 70s, even though I've highlighted the 60s and 70s as the most closely parallel recent time frame. And I'll get to why. But I really, I have a question that is kind of a leading question for you, which is what do you say to people who again, five years ago you heard all about modern monetary theory, right? You heard about debts. Don't you know, debts don't matter if you're an exorbitant privilege of the US dollar, which is a big asterix, by the way, which we'll get to a little bit later. But there is a theory out there and I actually tend to think that's true as long as you have the exorbitant privilege of the US dollar, that the debt itself doesn't necessarily matter. What is your view on that? And tell me why you feel that you don't agree with that? Because it sounds like you don't agree with that.
- [12:20]
Lynn Alden
Well, I think that it does matter. I wouldn't disagree that it matters. It's just that it's not a complete immunization of the issue. So if you take two extremes, if you take a developing country that does not have, you know, almost any external structural demand for its Currency, if they run very large deficits, especially monetized deficits or partially, they're very likely to rapidly devalue their currency. Whereas the U.S. i mean, you have trillions, or realistically tens of trillions of dollars denominated liabilities outside of the US Mostly not even owed to the US Mostly owed to other countries, but it's still just inflexible demand for dollars. And all of that kind of represents a really big absorption for dollars, let alone just the demand for US assets, kind of a demand to come and live here.
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Jem Carson
This is the exorbitant privilege of the US Dollar to a great extent. Right.
- [13:12]
Lynn Alden
Yeah. And so basically you can. That's also why I'm not in the, like, the two sides of the nothing stops the train view is that one, there's very little method to slow down the deficits, but also that it's not going to completely go off the rails and just spiral out of control anytime soon because it's actually also quite resilient to upside shocks because there is all this entrenched demand for dollars now. But I think maybe where we disagree is that the effects still happen. There still are effects of running those fiscal deficits. I mean, I think they have effects on asset prices, I think they have effects on the economy, winners and losers in the economy. They have effects on a matter of things, but they don't have the same effects as they would if, say, you know, the UK ran a similar playbook and then especially if, you know, Egypt ran a similar playbook. There's a spectrum there for sure.
- [14:11]
Jem Carson
Yeah. I think obviously there's a dramatic difference. Right. In a normal system, we obviously agree that, you know, prices of currency will, will adjust to take into account. Right. Deficits and the issues at hand. But obviously, as we've seen, this is not news. Right. If the Fed could at any point, you know, print all, all the money at once, fix, you know, the cyclical problems as we go, and then at some point just hit a button on a keyboard and make it, you know, monetize that debt. Is it really debt? Right. And I'm actually generally of the view is as long as, again, big asterisks as the US has the exorbitant privilege of the dollar. Right. We, we really can. Debt doesn't matter. Okay. Now that is a big asterisk and we'll have to kind of get to that in a second. But what it does mean is that the net result is even more, I actually would argue, even more inflationary. I would argue that ironically the more that you can print to avoid cyclical downturns. Right. It supports to a baseline non deflationary path as we've seen. Right. You always have that tool that you can deploy at scale. The big component I really think matters is populism is like who the money is going to right in our system right now. And the reason that the 60s and 70s played out the way they did, in my opinion is not just because of debts. I actually think debts are secondary in our system as it stands with exorbitant privilege of the US Dollar. It's about who's getting the money if we keep doing. And you've talked about this in your papers like you know, it's a very blunt instrument monetary policy. And the Federal Reserve has a very limited ability to stop inflation when it gets going. Because usually what's causing inflation is actually government sending money. Right. Or global conflict and tariffs and protectionism, things that are driven by governmental decisions that aren't free market. Right. That, that are really driving kind of money money to people who spend. Right. And in my view the incentives there are really about like political incentives. We were just talking to Neil Howe actually last month, which was I think apropos. I don't know how much of Neil Howe. So the reality in my view is that the bigger driver is this populist impulse, these bigger cycles. And we just had Neil Howe on here talking about the fourth turning and kind of generational political realities. But inflation I actually agree with what's some monetary theory, modern monetary theory principles in the sense that I don't think as long as big asterisks you have things are privileged the US Dollar that debts really matter. Right. Debts matter when, when you're forced by, you know, by the world to pay the price. But if we can print as much money as we want and drive outcomes, right. Especially we're driving it to capital, right. That creates a structurally deflationary force of technological development. Globalization. Right. All those things that we've experienced for the last 40 years. But my view is that really that this populism, the political pressures that demand now money fiscal goes to people which has a velocity of one really can drive those structural inflationary pressures. And that makes to your point this train unstoppable because if people want it politically, you better give it to them. How are you going to stop otherwise the whole you get knocked out of office. I don't know what are your thoughts about that and do you agree with that? Or, or, or, or by all means, pick some bones with, with with that
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Lynn Alden
view, I, I agree with that view. I just don't view, I don't view it as mutually exclusive. I think these things tend to feed on each other. One of the things I pointed out in a, in a newsletter before is that the long term debt cycles correlate with the fourth turnings. And you know, there's buildup in ahead of time in the kind of the second and third turning leading into that. And I view that as kind of like the quantitative backdrop to what's happening socially. So for example, I've read the fourth turning because I find it instructive to know what's happening socially in addition to what's happening from that more kind of financial engineering perspective. And part of, I mean, I think a specific catalyst for how this kind of came together was as you get those lower and lower interest rates, as you get that kind of rising private debt bubble. When they ran into the end of that, leading into the global financial crisis, they had cut interest rates all the way to zero. They had banks about as leveraged as you can get them. Generally speaking, if you look at total debt in the system, there was something like $60 of debt for every $1 of base money. And bank cash, like cat like banks had 3% of their assets as cash and then the rest was, was mostly loans. So they were taking on basically a greater proportion of risk and yet kind of maximum fractional reserve in the system measured in various different ways. And so when that started to crumble, that's when interest rates are no longer cutting it. Minor stimulus no longer cutting it. That's when they shift more toward bank recapitalization. You know, the last time they done something of that scale was the early 1930s. And so when they did that here in 2008 and 2009, there was a big populist wave that came quickly after that. You had the T. PR on the right, you had Occupy Wall street more on the left. And a lot of that was a reaction to once you bail out one group significantly, there's this obviously a big spreading of unfairness. It's like, well, why did that group get bailed out? Let's bail out other groups as well. And you kind of more people say, okay, the system's rigged. It all kind of blew up. And then we had selective bailouts. And then I think, you know, populism started to build very quickly, especially from that point, because we kind of ran into financial bedrock. We ran into that peak of the private sector debt bubble, shifted it more to the public sector and at that point, it's kind of everyone's problem because now we're shifting it more toward the public ledger that we all care about. And so I do think that ever since then we've had rapidly rising populism, both, you know, fiscally, socially, across the board and then, you know, so it's not an accident that when we had Covid, we had a very different type of stimulus. Instead of just recapitalizing the banks, it was way more widespread because I think of where we are. So I do take that populism into account. And another way of looking at it is, I mean, in the 2010s, kind of like the Paul Ryan era of the Republican Party, it was more about, you know, trimming entitlement spending. There was attempts for quote, unquote, grand bargain between the Obama administration and the Republican opposition to say, okay, how can we kind of right size entitlement to some degree, how can we do some cost controls? But when we were in kind of the current, you know, the Trump era of the Republican Party, for example, in the, in the latest election, I think point 14 in the Republican platform was no cuts to Social Security or Medicare. Right. And so that, I mean, that used to be a Democrat position just because that's, I mean, that's a type of populism. We've kind of exited the era of fiscal austerity in the US because we have that more structural populism. And I think also that the trade, structural trade balances and things like that also contributed to it. I think the long term debt cycle, the structural trade deficit. And then, yeah, the populism component is absolutely an element of that.
- [21:36]
Jem Carson
But I actually would argue that it's all of it. And let me tell you why I think all those things, the trade deficit as well is driven by, if you're sending money to corporations, what happens? Right? You get faster and faster technological development, right? It's a profit maximizing the machine. Clearly that's going to lead to globalization. We don't care. Corporations don't care about the people of the US versus other countries. They don't, they're not profit or they're not incentivized to. Right? And so the massive globalization wave, the building of China over the last 40 years is not, you know, it's not a coincidence that that happened over the same time period, say at the same time you have global peace. Because if you're trading with other countries, you're helping them grow. You know, that is a pass. This is the Pax Americana, right? That's what drives peace. It's what the lack of populism, sending capital to the top, right, is what drives peace, globalization and technological development, right? Because a profit. It's the free market system on steroids. And you could pump a bunch of oxygen into that system and honestly, you could do it forever. What happened during the Mesozoic era? We got really big dinosaurs. You could pump as much cash as you want into that system. And honestly, if we were cogs, if you and I weren't human beings, we would do that. That system creates. And the words of Socrates, do you give the best violin players the best violins, or do you give the worst violin players the best violins? You know, his answer was, you give them to the best violin players because you get infinitely beautiful music. The natural system is a system that creates more advancement, evolution, right? Survival of the fittest if we pump more into it. The problem with that is nature is raw in tooth and claw and it doesn't care about you or I. And populism, at the end of the day is when that system gets so shape. As human beings, we have a, you know, life isn't fair, but we have a sense of fairness. We all agree there should be some type of fairness and that which is the left and right dynamic. This is why since Roman and Greek times, they've talked about left and right. This is why the political spectrum is populism, equality versus this free market, winner take all kind of evolutionary system. So I think that's everything. It drives global. The lack of peace, it drives expansion and trade. It's also when commodities aren't scarce, if we all trade and work with each other in a free world, right, there's enough for everybody to go around. But when we break up that system and go talk about our people, protectionism has to happen. So we get global conflict, we get commodity scarcity, right? Anyway, this is my view, that this is the connective tissue, right, to why this train doesn't stop. And it's really political. And so I really think it drives the whole thing. I don't know. I would love to hear your thoughts.
- [24:24]
Lynn Alden
Well, I agree. And I think, I mean, the way I would put it is there are certain technological milestones that really matter. So for example, as global telecom systems gradually kept improving throughout the 20th century, when we finally got to kind of the early stages of the Internet and just in general, fairly high bandwidth communications, that obviously made globalization a lot easier. It's much easier to coordinate around the world when you have very efficient ways to communicate with your off site operations. And then when you add to it, I mean you had the opening of China from obviously very, very anti market approaches in the early 80s, they were kind of opening that up to the rest of the world. Late 70s, early 80s, of course the fall of the Soviet Union. You had all of this eastern labor, eastern kind of resources connecting with western capital. And so this was this kind of disinflationary globalization boom. Because you had all these kind of things that were segment to come together and like anything else is winners and losers from that. I mean prices, you know, go down significantly. You have all these efficiencies build up. But then you also have, you know that we're a protected labor now has a lot more global competition. And that is perceived as quite unfair. And it kind of widens the gap between those with capital and those relying on labor. And I think that builds over time. And then behind that I do think there are also these structural things that build up. These higher, higher debt levels, these lower and lower interest rates. The trade balance itself is fascinating because in order to run the global reserve currency, it means the whole world has to have access to that currency. There's currency round that's being used. And the way the US gets the currency out to the world is we run these structural trade deficits. And you know, the demand for the currency kind of fuels those deficits because basically most currencies they trade on things like industry differentials, current accounts, you know, things like that the dollar has this extra component where there's like this, just this inflexible extra demand for it. On top of all the normal things, we still have dollar cycles and things like that. But on top of all the normal things that matter for currency pairs, there's just the fact that just you know, there's this constant kind of bid for it as a sovereign reserve asset, as the place to store longer term capital. And so compared to all these other dynamics, the dollar ends up kind of being overvalued. So it boosts our input power, it hurts our export competitives, especially on lower margin stuff. So it doesn't necessarily, you know, we become experts in exporting dollars, securities, high margin tech and healthcare. But we, it kind of eats away at our say manufacturing exports. And so these dynamics kind of reinforce themselves for a while. So you get the, you get, you know, we've seen a gravitation and wealth away from the Rust Belt and toward, you know, New York and Silicon Valley and all that because these imbalances build up over time and that, I mean as that happens. There also is that political element that grows as people are disenfranchised and it fuels on itself.
- [27:31]
Jem Carson
Yeah. And this momentum effect, right. To everything like you mentioned, you just mentioned three or four. But it goes across the board. It's the financialization as you mentioned before too. It's the leverage in the system. It's everything is assumed to just. It will keep going as it goes. I think, I guess my point is it could if. Right. People weren't in the system and didn't demand fairness. And I think we started to see that to your point in 2009, 2010, Occupy Wall Street Tea Party. The difference is those people that were behind that movement were in their 20s. And why were they in the 20s? Because these are the people that were born in 1982 or so because that was the peak in interest rates. That was before this monetary policy supply side Reagan Federal Reserve monetary policy system. And so that generation who has only now seen one thing, they didn't see the 60s and 70s into early 80s, all they've experienced is this one sided free market economic model which isn't fair. And they're at 45% of the wealth creation, household formation of baby boomers living at home. At 30% of them are living at home and you know, mom and dad's basement.
- [28:51]
Lynn Alden
Right.
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Jem Carson
And that creates a lot of anger and populism. Eventually those people learn through what's coming, the cycle that's coming, that the opposite is also a problem. That even a more fair system then creates much worse economic outcomes, much slower growth, much slower technological development, global conflict, all the problems we're seeing is kind of my view. So now the big asterisks, now that we've kind of talked through this, I think this is a great kind of back and forth conversation is. I did say there's a big asterisk. I think it's more important than ever. I think maybe a year ago, maybe even or at least two years ago, before Trump came in the picture, I think we would have all said sorbet privilege of the US dollar is not going anywhere anytime soon. I think it's hard standing here today with what's going on in Iran, for example, to not at least in the Strait of Hormuz. And we know about the petrodollar and the critical importance of that, of not least questioning that that timeline might be shorter. Again, hard to say.
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Lynn Alden
Right.
- [29:53]
Jem Carson
But how. Now let's do a little thought experiment. I'd love to hear your thoughts about what does removing the exorbitant privilege of the US Dollar due to this fiscal dominance to the picture. What does this do to macro outcomes? And I think we know some of the scary big answers to that. But I'd love to kind of walk through maybe how that changes everything.
- [30:16]
Lynn Alden
Sure. I think, I mean on the negative side, basically, if there's less external demand for the dollar and you're running big deficits and issuing a lot of debt to fund those deficits, it means a higher ratio of that debt has to be bought domestically, which either, which generally gives you the crowding out effect. It means more so you have to buy debt instead of buying equity or making loans and things like that, or you have the central bank buy it, in which case that can contribute to inflation. And so it does kind of, it takes away that extra structural, or at least it reduces that extra structural bid for the dollar and kind of makes it so that the US starts to resemble many other developed countries in that regard. The upside of it is that having the global reserve status is an exorbitant privilege. But it does come with costs. As I mentioned before. It means you have to supply the world with dollars and the world has this extra bid for dollars. And so if you're in the business of selling dollars, like the government is dollar securities or you're in the business of selling private securities, New York and Silicon Valley and all that, that's great. Basically, you know, we're in the massive kind of dollar export business. But if you're in, if you're in the business of making things, especially lower margin things, doing that in the reserve currency country is extraordinarily challenging. And because you're kind of competing with this artificially valuable currency against countries that are running more mercantilist type of playbooks. And it's just the math is against you because you can still, if you're like a top tier performer, you can still make it work, you can still make the math work. But structurally, one way or another, we are sending dollars to the rest of the world and it's primarily through trade deficits, which means that on a trade basis we have more losers than winners. Again, if you're outside of that kind of dollar export business. And so if you another way of kind of looking at it is the dollar status as currently structured is really good for like America, the empire. I mean, when you can sanction any country, when we have the advantage that we can kind of surveil things so we can have this kind of global network of kind of financial surveillance that, you know, if Japan wants to do that, or the UK wants to do that, or especially if a country like Brazil or wants to do that, they don't really have that capability. Whereas the US says, well, you're all using dollars. As long as you want to play good with our system, you have to say, do these reporting requirements, for example. So it gives us a lot of kind of power and insight into the kind of, the whole kind of global financial system. But then the cost for kind of America the country or America the Republic, like our domestic economy, does have a cost to support that. It's kind of one way of thinking of is that in order to maintain that system, we're kind of shipping off a little piece of our industrial base every year, which is not infinite. And so again, there's winners and losers of that system. And I think what happens when it kind of reaches its kind of stretching point, I think one thing that's happened, and this is part of the populism dynamic, is we kind of started openingly questioning is running these structural trade deficits every year good, good, good for all of us, or is it good for a few? I think that it's not an accident that's become more elevated in political rhetoric that's been a big component of both Trump administrations to kind of highlight that more than, more than other administrations have. And so I think that there's, there's upsides and downsides to having the global reserve currency status and. But the messier part is when it's kind of taken away from you unwillingly,
- [34:09]
Jem Carson
I would push back a little bit just kind of for the sake of being polemical here too. I would say losing the exorbitant privilege of the US Dollar would be a massive problem for the US And I actually think the benefits, the mild costs there are, to your point, which is like trade deficits, etc. Could in theory, you know, if we print enough money, we could send it to rebuild that manufacturing base or to do any number of things. Right. It's like that's the core input. It's the more dominant force, which is that we have pure power to create unlimited resources. It's the golden goose. Right? But I hear you that there are definitely general things that happen as a function of being the reserve currency that can be, can undermine and have a momentum effect like we talk about, that can undermine long term kind of structural issues in the reserve currency status. But to our earlier point, I think if we, you know, you mentioned that this might be. Actually want to go back to this point you made earlier that this might be much more like the 40s than the 60s or 70s. I actually have a thought bubble here that I'd like to kind of explore with you, which is I think, sure. So really interesting fact. I think you probably know this, but in real terms, a 6040 portfolio, so broadly assets, think about it that way, perform the same from 1929 to 1949 as they did from 1962 to 1982. In real terms, most people will be like, that's crazy. I got to go see a chart. It's true. One was a massively deflationary period. One was a massive inflationary period. And my view on, on why is because we did not yet live in a fiat world. The Federal Reserve was still very nascent, not dominant. Right. Monetary policy dominance did not exist yet. Right. And the introduction and the ability and the flexibility maneuverability of the exorbitant privilege of the US dollar which really comes from that fiat world. Right. Was introduced in 1971. And so I would argue, and you could argue it started a little bit before that because even though things were officially kind of broken at that point in 71, it would had already started prior. But, but I think that's a huge difference. And just like if you take from the beginning of time, if people can, you know, if kings could shave coins, they will. This idea of nominal illusion is important, politically important. Right. Just like people feel like, oh, the 70s and 80s weren't nearly as painful as the Great Depression. I saw the 60s and 70s.
- [36:50]
Lynn Alden
Right.
- [36:52]
Jem Carson
The reality is, in some terms they were actually a lot of terms asset wise, they were the same. So I don't know, I'd love to hear your thoughts about that. And because of that I actually agree. If we go to. If the exorbitant privilege of the US dollar is broken, I think this looks much more like the 30s and 40s. Personally, I think that's what I think the pressures were dissimilar in both, put it that way and that things become much more deflationary. Structurally, things break without the stabilizing power of fiat and the exorbitant province US dollar in the dominant power in the world, which is obviously the US So I think these two different scenarios are actually much more. I mean there's other differences. I'm playing with the toy model here, but I think they're much more defined by fiat exorbitant privilege versus not necessarily that case then, then anything. And I think that feeds into some of the analysis that you're seeing on the back end, like how Things played out. I'd love to hear your thoughts on that thought bubble.
- [37:52]
Lynn Alden
I do think a lot of things are different in the post 1970s environment. People will often say, they say before the dollar was the global reserve currency, that the UK pound was the global reserve currency, and they'll go back from there. But I generally disagree with that view because before the dollar, really, precious metals were the reserve currency and all these other things were just like a layer on top of it. So the UK system never looked like the US system does today. And you know, going back, you know, from there, you know, to others, into Spain and to all that, none of that really looked the same as looks today, where the government bond is itself the reserve asset rather than gold and proxies. So that does put in this in kind of a different environment than before. And I think one thing I would highlight that kind of goes along because we. We might disagree a little bit about that trade deficit situation. One of the challenges is that these things are cumulative. And so, for example, as we run these structural trade deficits, when people kind of look at that on the surface, they say, well, it's a good thing because we're giving them devaluing dollars and we're getting goods and services. Seems like we're winning from that. The challenge is that there's a second step to that, which is those foreign entities that get the dollars or those that they trade those dollars to, then reinvest those into U.S. assets. So they buy our equity, they buy our debt, some cases they buy our real estate, they buy our private equity, wherever the case may be. And so they actually buy, for the most part, our appreciating assets from selling us depreciating assets. And so the cumulative effect over time is that the foreign sector owns a greater and greater percentage of total US Assets, which also means their voting influence is material. They're basically their ability to influence things grows. And if that just goes on indefinitely, that obviously has very, well, that breaks the exorbitant privilege. And that's kind of why I would.
- [39:46]
Jem Carson
Anyway, sorry to interrupt you.
- [39:47]
Lynn Alden
Yeah, at some point. Yeah. So I think that's a challenge that the exorbitant privilege, it exists for a time and a place, and there's certainly actions that can be done to prolong it or shorten it, but that it's kind of on this, like, gradually ticking clock. It's. I mean, kind of like how, you know, aging. Right. Or like telomeres at the end of our DNA. I'm not an expert on that, but basically there's like a ticking clock that happens either way. And there's certain things we can do to like prematurely age or we can. There's certain things we can do, natural systems to like, delay our aging. And I think that's, I think that the, the current system we have in places like that where you can. Yeah, that's how I view it at least. So I do think that while we can learn from history, we are in many ways in a different environment. And one of the closest comparisons, I think, is the US looks more like the UK in the 40s than the US in the 40s. Because in the 40s in the US we were a rising manufacturing power, whereas in the UK they had already kind of hollowed ourselves theirselves out industrially in a similar way that we've kind of gradually hollowed ourselves out here. And it's just one of the challenges that kind of comes with these.
- [40:54]
Jem Carson
I love that aging metaphor. And let me just kind of put in my own words wide, you know, entropy is the way of the world, right? And things will decay or break at some point without reinforcement or stabilization. Things that go faster and longer without a burning of the underbrush naturally create bigger and bigger structural unthought about problems.
- [41:17]
Lynn Alden
Right.
- [41:17]
Jem Carson
And these are all. We just listed four or five of them, right, that eventually undo, you know, power going to foreign sources because the assets running to them, right. Like we went through the trade deficits and the hollowing out of the, you know, the infrastructure, we could go through all of them again. But I think to your point, the more that you accelerate and avoid the business cycle and kind of push to more and more growth, you ultimately kind of live faster and live shorter. And I think there's some element of that. I think we have, right, the Federal Reserve and, and fiat. The introduction of that was created to smooth the business cycle. Our founding fathers of the US would be turning in their grave if they knew that existed. Because the whole point was you need crisis to bring people together to pass and reinvigorate the system, pass amendments and, you know, all kinds of other structural reinforcements. So the system doesn't entropy the systems. Take a look. It's an entropy, right? And the reason is because of the Fed and monetary policy creating a smooth. Like, how much reinvigoration to the structures of democracy did we do in capitalism in 08090? Like almost zero. And they lasted so short because the Fed swooped in and made it not a real problem. Right. And so I do think, anyway, not to go on and on about it. But I do think that's an incredible metaphor and, and very relevant here given where we stand. And I actually argue crisis is the best thing we can hope for at this point because a short crisis might invigorate the system and make it go another 40, 80 years. As it is, I'd like to kind of jump to the next idea now, which is authoritarianism versus democracy. Right. I think a lot of the smooth, if you look at, you know, fourth turnings and the smooth, like incredible, precise kind of in the us you know, cyclicality to it, a lot of that I think is tied because the political will and this left versus right and the fixing of the problems is translated to policy more smoothly because of the democratic kind of structure. And that was the whole idea to democracy. It's one of the benefits. There are lots of problems with it, but like that's, that's a huge benefit if we're moving to potentially, period, more authoritarianism and maybe just more broadly going from, you know, to, to, to a more structural authoritarian regime here in the US even. How does that change the potential cyclicality and the fact that, you know, you know, maybe nothing stops this trade is not the issue there. Maybe exorbitant privilege goes on longer or gets degraded. Let me know your thoughts about that. I think it's important part of the argument that people haven't thought much about because they assume that it couldn't happen, much like the exorbitant privilege of the US dollar. And I want to explore that given the accelerations and issues we're, we're seeing there.
- [44:13]
Lynn Alden
Sure. And I think, of course, the challenge is that even authoritarianism and democracy can have kind of a spectrum. And so along with these cycles we talked about, they're obviously, you know, all the going back to like, you know, Greek philosophers. There's these cycles where you have democracy and then it kind of slowly poisons itself and then you have a rise of like a tyrant and then that kind of, you know, you kind of go through these cycles and, but even in the more mild sense, when you have this kind of like fraying situation and you get that rising populism, you're more likely to get say a landslide and you kind of consolidate power. And so, for example, fdr, you know, had unusual amounts of power. He had like 70% of Congress. You know, he could, he basically had a super majority he could potentially stack. The court press was under kind of fire. I mean, they banned gold ownership for 40 years, which is incredible. In the land of the free, they could kind of just unilaterally do a lot of things. And then that, you know, once that kind of period was over, kind of that. That power started decentralizing again. And in recent decades, we have had a strengthening executive branch once again. And, you know, I do think that we've kind of entered a little bit more of a mild authoritarian aspect here, which is just more is happening via, say, the executive order. It actually is kind of like since the time of fdr, just the sheer rapidness of executive orders and kind of the challenge of the legal system and other things that kind of keep up with that. The fact that we can have just so many military operations without Congress declaring war, for example, which have massive effects. I think we are in that kind of more. It's not an accident that as you kind of get that rising populism, those rising balances, you're more likely to get people to say, I don't care what, you know, if it's democracy, not burn it down.
- [46:01]
Jem Carson
Right?
- [46:03]
Lynn Alden
Yeah, exactly. And of course that if you pick depends what way you go, that can obviously backfire tremendously in many cases. And I think another challenge, of course, is that the global structures is a slightly. A slightly. It's a very related, but a slightly different thing than the authoritarian democracy spectrum is the rule of law spectrum. Basically, in any given jurisdiction, how strong is the rule of law with, say, independent courts or just kind of like that? The rules don't change suddenly. And you can have often the case it's a generally more democratic environment, will have rule of law because, you know, in an authoritarian environment, the rule of law is what the ruler wants. Whereas in that kind of more decentralized power, the rule of law is kind of the highest thing in the land. There are occasional kind of partial exceptions where you'll have something like Singapore, which has some authoritarian characteristics, again because this is a spectrum. But they also are a very attractive place for capital because they generally do have pretty good rule of law. It's generally kind of among the closest you get to something like a benevolent type of authoritarianism. And so they're not like perfect correlates. But I think that what matters here is that one way or another, we do have a weakening of rule of law in the U.S. i would say a big part of it, but also elsewhere, not everywhere equally. And that affects one where capital wants to be. It affects how quickly capital can form and how efficient that capital gets allocated. And in those more authoritarian environments, or in those more kind of like fiscally dominant environments, when the state's kind of running very big interest expense when it's very indebted. It doesn't usually just let that happen passively. It starts kind of fighting back. And you know, like in, in the, in the FDR era, we entered industrial policy. And now that's a term that's coming up a lot again recently. It's like running industrial policy, you know, kind of just, just being more open about some of these things and kind of taking on more, more industrial or mechanicalist policies. I think it's not an accident that these things.
- [48:09]
Jem Carson
Yeah, I completely agree. I think another thing that, to kind of shift gears here that correlates and I don't think it's a coincidence that people don't talk about very much is the growth of AI. My view is that, you know, we've gone through this 40 year period, right. Of monetary policy, driven what I call supply side economics, right. Sending money to planet Palo Alto, I call it. Right. Which is a supply side, you know, set of policies, you know, borrowed money, QE that goes to capital. And because of that we've created massive technological development.
- [48:44]
Lynn Alden
Right.
- [48:45]
Jem Carson
That's part of what's driven the inequality. Right. This happens during every one of these supply side periods. I think it's been on steroids the last 40 years. And so, you know, since the introduction of the wheel, everybody will think, oh, this time is different. But new technology and the speed of its development, once you get to the kind of this point where policy starts turning to more fiscal, fiscal policy and populism is exactly at the moment that that technology is almost at its kind of unimaginable, like exponential ascent, but its actual ascent is a threat as all technology is to labor and to populism and to people. And again, that's not a coincidence either there. So I actually see AI as this incredible accelerant right at the end of this cycle, right to the populism that's already there. And again, one of those momentum things we talked about that has is likely to actually undo itself. And people, everybody will think, first order thinking that AI is incredibly deflationary. It's going to create this deflationary force that's going to wash over everything we do. And yes, technology is the beginning of time, is deflationary and the growth of it is immensely deflationary. Not arguing that. Right. But I think what too few people think about is how inflationary the response is to that deflationary impulse exactly at this moment where populism is front and center. And I don't think that's a coincidence at all. Again, think about what led to the start of this inflation in 2020. I would argue Covid was probably other than the supply issues that were more short lived was structurally deflationary. Well it led to massive inflation, led to the catalyst to that populism which unleashed massive inflationary pressure. So I'd love to hear your thoughts on Again, sorry to dominate that, but I want to get that thought out there and see see your thoughts.
- [50:39]
Lynn Alden
Yeah, I agree with that. And one day I would kind of characterize that is because the tech deflation and the response. One way to kind of look at that is that over the course of time you've got a money supply, right? And different types of monies grow at different rates. I mean back in the 1800s there was gold and silver and kind of the free bank system on top of it. In the modern era we have central banking and the fraction reserve system on top of that. And so we have pretty good data going back to something like the late 1800s for the US the UK and many other countries of what money supply was doing and what prices were doing. And over that, call it 150 year history, there were some periods of time where the gap between money supply growth and price growth was bigger or smaller than others. And that's pretty correlated just how much productivity is going on, which partially is a lot of it's technology and sometimes it's region. So for example, in the late 1800s you had a bigger than normal gap in the US between money supply growth and price growth. Because we were literally expanding across a partially empty continent. There's like very, very little shortage of raw materials. They had the gold rush, they were finding new money population was coming from the rest of the world here. And so you had all this kind of growth in the nominal money supply but very little shortage of goods and services. Tons of labor was coming, tons of land was available, tons of literal resources like commodities. So you get that bigger than normal gap. Whereas if you look at the UK at the same time, UK is already a developed country and you have a much tighter correlation between money supply and prices because there's no like just massive like, like source of just abundance. In a similar way, you know Japan after World War II, hyper productive bigger than normal gap or Australia during the rise of China and their and their huge commodity demand, you know, their nearby neighbor Australia that was happy to supply them all their commodities, they had this bigger gap between money supply growth and inflation because they're bas. They have the China effect on them. And in the US the other kind of big period of time was the, you know, the 80s and 90s and early 2000s where we had a bigger than normal gap between money supply growth and price growth. And a lot of that was automation. So we're automating manufacturing, we're globalizing. So you know, we're hiring very inexpensive workers in China and Bangladesh and back then Taiwan, now Taiwan's wealthy, but you're hiring a lot of these foreign workers. So you're keeping costs down, you're keeping wages down. Speaking of labor. And you're able to grow money supply a lot without that translating into a lot of price growth. Finish up. The inverse of that is when you have either slow productivity growth, you've run into tech ceilings, for example, temporary tech ceilings where you're just not getting much better very quickly, or you have war or shortages of raw material where you just don't have that abundance sink. So when you grow money supply, you get price growth that happens about as quickly because you're not getting those productivity offsets. And so what AI represents, the better it is, the more it is a productivity boost. And it suppresses kind of that white collar wage and it creates so much more abundance and kind of white collar type of services in a similar way that the automation wave and the offshoring wave did for blue collar type work in the 80s and 90s. And it's a similar effect. We can get that.
- [54:07]
Jem Carson
I think it's really interesting because it's, it's one to one correlated too with the velocity of money. I mean it's almost like a mag, what you're talking about. The productivity is a magnifier to the velocity of money. Because if we send money to capital, that money doesn't, doesn't trickle down really into the system. Right? It does at first, very briefly, but then the real like the velocity of that is almost zero actually some argue negative deflationary ultimately over a longer time period. Whereas you send money to the bottom, it's one to one velocity of money, right? But those that where the money is going also drives that productivity and that that kind of magnifying force on top of it. The two are one to one actually. Like you know, they get just a magnifier that the 1 to 1 correlated and the driver is who's getting the money at the end of the day. And so I completely agree with you. Again, there's other factors you can't always over. I mean we're over. I'm oversimplifying obviously, but we're talking about how the broad structures tend to work and the pressures in the system. So I think that that's the thing that most people don't think about. Most people think about AI and technology. It's deflationary, it's first order, like this is going to change the world. But the reason that this is likely not to be that first order that everybody thinks is because actually it's a kind of a closed system with the pressures that then lead to the undoing of those exact pressures at the end. And the cyclicality that we're talking about, I think that's so critical. It's interesting to hear. We really agree on a lot of things, but like really kind of come to it slightly different. I think that's, it's really, really, really powerful. So kind of one of the last things I want to talk about here is one of the things you talk a lot about, right. And as popular as a lot of your work is focus on crypto and its role kind of in this system. I'd love to kind of have you speak a little bit to a broader maybe audience that about your views on crypto and then maybe go back and forth a little bit because I have maybe some little slightly differentiating views on that.
- [56:04]
Lynn Alden
Sure. So I kind of have two very different opinions on crypto depending on what part of it we're talking about. So I kind of. There's two areas of crypto. One for me is that I'm actually bearish on most things in crypto. So I've been, for example, structurally bearish on altcoins. I mean, occasionally they're tradable, but structurally kind of bearish on their overall use case, their overall kind of structural growth. I've written a number of pieces on that. Whereas the two areas that I have been long term constructive on are bitcoin and stablecoins and for somewhat two different reasons. So bitcoin, basically I view it as, you know, it's kind of the invention of a decentralized ledger, which of course when it, when it comes into existence, the first question is can it work over a sustained period of time, you know, have the kind of variables is this system that's finally going to, you know, kind of function. Because there were some predecessors that of course didn't, didn't really last. And now that we're 17 years in, we kind of have at least some data on how it's working. And there is a network effect aspect there. Kind of like Ethernet, kind of like usb, kind of like simple mail transfer Protocol kind of like tcpip where once you win a protocol war, you get this self reinforcing effect. It's like you can come out with an ethernet that's a little bit more efficient, but you're competing with the fact that there are 10 billion devices that already have ethernet ports, for example, or simple mode transfer protocol, or even just a human language. It's hard to say, okay, we're all using English now, but here's this more efficient language, we're all going to shift to that. It's like, well, you're chipping into a network effect. And so Bitcoin kind of has that self reinforcing network effect of security and liquidity as well as being just a kind of a simple design, the base layer that kind of maximizes for decentralization. So I view generally Bitcoin as a structural winner, not without risks and challenges and of course massive volatility, but has been something I've been kind of multi year bullish on. And then the other one is just stablecoin coins, which is when you're, when you're running a ledger like this, you can have tokens that are proxies for things and so you can tokenize assets. And tokenizing the dollar has, has of course been the popular one, which is another way of putting it is that, you know, for, for many decades people have liked offshore dollar bank accounts. So there's, there's 180 currencies in the world. Most of them are not very good, most of them lose value very quickly. Many people would like to store value in more stable areas that's generally been accessible to the wealthy because of all the overhead costs and all this. And stablecoins are kind of like you use technology, you compress the overhead, you make a offshore bank account available to anyone with a smartphone. So anyone can just hold dollar proxies. You have to trust those dollar proxies. You have to trust that the US is not going to sanction those dollar proxies. But let's say you're in Nigeria and money supply is growing by 15% a year and you'd rather hold dollar equivalents. You're saying, well, it's centralized but it's not controlled by Nigeria, it's controlled by the US and these other entities. So it kind of, it breaks the borders of finance to some degree. And so I've, you know, ever since the market cap of Stablecoins was about 30 billion, I've been bullish on it. I mean now it's in the ballpark. Of 300 billion. So we've had like a 10x and I still think, I still think it's got significant room to run. So those are the two areas that I've been constructive on both as an investor and analyst and even I work in venture. I'm on some boards for companies. So I also see in kind of the development ecosystem.
- [59:38]
Jem Carson
I love the nuance and I'm going to add some other layers of nuance here and I'd love to kind of discuss. So I would agree 100% that DeFi is a incredible technology, allows for a much more efficient system writ large. Blockchain in general, I think is a transformative technology not just in finance, but across all, you know, it'll be, it'll permeate all technology eventually like that, that, that ability to be truly secure. If that is true, by the way, we always have the, the other arguments that it may not long term be fully secure but. But assuming that and that they'll solve those problems. My. And by the way, I am also bullish of bitcoin and you know, the core cryptocurrencies in some short to medium term meaning a couple of years, maybe five years. And that is more though a function of this demand by this generation as I mentioned, who has one exception experience which is technological advancement, inequality. Right. And, and a belief in that a system should be more fair. I think that's what's led to its rise. And they're rising to political dominance. Right. Over the next decade. You know about when they peak and I think so over the next five plus 10 years. I think that the demand and growth and political will to accept these things is strong enough to in a sense be to support it politically. My biggest concern long term and I do think it structurally has major problems as a currency or sort of wealth because it threatens power.
- [61:23]
Lynn Alden
Right.
- [61:23]
Jem Carson
We just talked about the exorbitant privilege of the US dollar. Right. And how critical that is the US and its standing power. My view, you, I think have a little bit nuanced view. You don't think it's all good, all bad? I definitely think if the US loses exorbitant privilege of the US dollar, it loses its power. Its greatest source of power in the world is my strong opinion there. And bitcoin threatens that. And so yes, we currently have a president who for a number of reasons which we won't get into, supports crypto and it is politically popular to do so as well. But I do believe there is a core. This is why China has had problems and with it, and by the way, if China becomes more dominant, it will crypto will also take a back seat to the system. To be clear, they've already kind of signaled that they want that exorbitant privilege. Everybody wants that exorbitant privilege. Kings and queens want the ability to shave coins. They want the ability to control these financial outcomes to tax the people around them. Right. So I think long term, meaning 10 plus years, I think the, the power and the growth of crypto actually bitcoin undoes itself as a currency. So I think its use case as a currency ultimately will undo itself. I think in the short to medium term, meaning five years, which is a pretty long term. That's all that matters now I think supply demand wise and given the regulatory current pathways, I think it's, you know, it's a structurally positive path for it. But, but I do think long term it has a major problems as a, as a long term career. Unless you believe a utopia can happen, unless you believe that power, you know, the law of the jungle ultimately won't hold true and that those with power won't want to, you know, use their power ultimately in the world. You know, it says castrates power and the places where it exists. And that's kind of the whole point. That was the whole idea. That's why it had political power to begin with. And I think that is in my opinion a wonderful ideal, but doesn't really live well in the real world. I'd love to hear your thoughts.
- [63:31]
Lynn Alden
Right. I think it'll partially depend on how much they can convince the people of that narrative. I mean as an example, the US banned gold, but then 40 years later unbanned it. Right. And it's not because they stopped caring about power, it's just because over time it became more untenable to keep, you know, make it illegal to own a benign yellow metal. That the narrative just wasn't really there compared to, you know, say that the 1930s. And so, you know, to the extent that a government says a, at the end of the day, Bitcoin is basically a decentralized Excel spreadsheet backed up by energy instead of just like a centralized thing. So when a government kind of finds itself saying a decentralized spreadsheet challenges us, it's really hard to sell that narrative to the people. And one of the kind of the most bullish things is when China will ban bitcoin mining a dozen times and there's still a non trivial amount of bitcoin mining in China. For example, like when China has trouble fully banning something. It's actually kind of resilient. And then there's the global element. So you know, when China did their really big late 2021 ban on mining, I would say it's actually was good for the network because you had something like 60, 70% of known hash rate in China. And by banning it they didn't get all of it, but they, you know, they disincentivized and pushed a lot of it out. It actually decentralized the network further. And bitcoin, because it's kind of got this decentralized, kind of self rebuilding, self correcting aspect to it, it can kind of route around to wherever the biggest friction points are. So you'd have to have a very coordinated attack on it and sustain it and get buy in from the people so that it doesn't just become this massive gray market thing. In a similar way that many countries try to make it illegal to own dollars or add frictions to their citizens from owning dollars, dollars still get in there and still get used. And, and so I think that kind of like gold, kind of like dollars in emerging markets, it's going to go through a test. I totally agree. That many, you know, I mean, Europe's, Europe, one of the phrases is we have to ban self hosted assets. Self hosted digital assets. It's basically saying that it's too dangerous for you to memorize 12 words representing your seed phrase. That's too much power for our people to have. We don't want that. And of course the narratives they will try to use is say, okay, it's used by terrorists. So we have to make those.
- [66:00]
Jem Carson
There's always a narrative to sell it.
- [66:01]
Lynn Alden
It's used by all these other people. Yeah, yeah, yeah. If you can convince enough people. Right. So if you have an environment where a lot of people, they really want that security over that freedom, they really do trust their leaders to a significant degree, then yeah, they can push, they can make it much harder for bitcoin enthusiasts or any sort of digital asset enthusiast to be in their jurisdiction. And if you do that, the top five countries manage you that pretty persistently. It takes a lot of liquidity and size out of the network. But at that point, say five to ten years from now, they'd be going up against a pretty big network. Most likely, I think the smart ones and I think the most likely outcome here is that they target more because the biggest attack they have on it is they don't like privacy on digital assets because that makes it harder for them to to trace it and tax it. They'll rarely say that they'll focus on the terrorism aspect or they'll focus on that kind of thing when they talk about privacy. But what they also really mean is they want to make sure they know if someone owns it so they can tax it. Because from their perspective, if someone's a bitcoin billionaire equivalent, as long as when they sell it or when they transfer it, as long as the government's getting its cut, I think that that's where it's easier for them to have the battleground than to try to make it so that you get China, like draconian bans on it. In an environment where you have the Constitution or we have countries with some degree of rule of law, it's just really challenging to get kind of broad buy in. But I think they're going to try.
- [67:39]
Jem Carson
Yeah, I think the reality is, look, prediction for me has always been a function of incentive, right? Like, show me the incentives, I'll show you the outcome. And I'm just saying that the incentives of those in power is both from a tax perspective and a tracking perspective and a control perspective.
- [67:58]
Lynn Alden
Right.
- [68:00]
Jem Carson
As well as from the perspective of controlling money supply. Right. Because again, exorbitant privilege allows you to get better outcomes versus adversaries. If you can control your currency, you know, countries lose that control. That's actually the whole point of coin. That's why it's so popular, right? Those two reasons, the anonymity and the flexibility and ability to move and not be completely as well as, you know, not being subject to the, you know, the, the, the fiat kind of constraint. So I think ultimately that unfortunately, it's a cynical view and it's a pragmatic view, but it's also a realistic view in my mind. But we agree that there's still some time for that. Hopefully we'll be talking in five, 10 years and we'll get to kind of. Lynn. Discuss where we are at that point. But wonderful conversation. Thank you so much for coming on. I think we covered some really interesting points and look forward to chatting more and having more conversations over time.
- [69:09]
Podcast Host/Announcer
Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today's episode, the best way to stay updated is to go on over to your favorite podcast platform and follow the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you. And to ensure our show continues to grow, please leave us an honest rating and review. It only takes a minute and it's the best way to show us you love the podcast. We'll see you next time on Top Traders Unplugged. But before we go, we just need to remind you that this podcast expresses the view of Kynexis, LLC and the guests appearing on the podcast as of the date of its recording, and such views are subject to change without notice. Kynexis LLC and Top Traders Unplugged do not have any duty or obligation to update the information contained herein. Furthermore, Kynexis, LLC and Top Traders Unplugged make no representation to its accuracy and it shall not be assumed that past investment performance is an indication of future results. Moreover, wherever there is a potential for profit, there is also the possibility of loss. This content is made available for educational purposes only and should not be used for any other purpose. The information contained in this podcast does not constitute and should not be construed as investment advice or an offering of advisory services, or an offer to sell or a solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends, performance and other data is based on or derived from information provided by independent third party sources. Kynexis LLC and Top Traders Unplugged may believe that the sources from which such information are obtained are reliable. However, each of Kynexis, LLC and Top Traders Unplugged cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This podcast, including the information contained herein, may not be reproduced, copied, republished or posted in whole or in part in any form, without the prior written consent of Kynexis, LLC and Top Traders Unplugged.
- [70:51]
Jem Carson
Sam.