Kind: captions
Language: en
the argument has been that a little bit
of inflation is necessary to stoke an
economy otherwise people will not
consume and there will be no economy
Robert Breedlove welcome back to the
show thanks for having me Tom glad to be
back very excited to have you
in any financial crisis what can
somebody do with their money strategy to
come out the other side better than they
went in yeah this is a kind of a
complicated question because one of the
things that money is I talk about this a
lot on the show is an insurance policy
on uncertainty so by definition a
financial crisis is a time of great
uncertainty
so the standard strategy you know your
grandmother's wisdom would be to save
your dollars save your hard-earned cash
um but that gets a little bit more
complicated and a very inflationary
environment where we are inflating
currency very rapidly or counterfeiting
currency
you throw that out it's the same thing
yeah so we covered that last time but
it's worth for people that are just
encountering you for the first time why
do you say that what is inflation and
why do you call it counterfeiting yeah
so inflation quite simply is legal
counterfeiting and counterfeiting is
Criminal inflation
they're mechanically the same thing but
inside of a legal Monopoly at a central
bank it's called quantitative easing or
some other euphemism that makes it sound
really good but if you or I do it we get
thrown in jail so it's it's just making
more money it's just a political
institution that has authorized itself
the exclusive ability to print money and
when you print money you are stealing
claims on wealth from other savers of
dollars
so
um you're the first person that I'd ever
heard say it like that I always thought
inflation was a law of physics that we
needed that things just inflated by two
percent year over year that's just the
way that it was
um so right now we are in a very
inflationary environment why and I would
say that's a part of why where I would
very much call what we're in right now a
crisis the media is trying to soft shoe
it but I think every day it's going to
be more and more problematic no I could
be wrong but I don't think so
um why are we in an inflationary
environment right now well we're in an
inflationary environment because we just
printed six trillion dollars in the US
over the past 24 plus months which is
what percentage of the total supply of
US Dollars you would have to check the
exact data on this but I want to say
it's an increase of about 40 percent of
the total Supply
um for since what 1913 no since 2000 20.
no but I'm saying the 40 of a supply
that started in 1913. so this isn't like
that's right that's correct so Supply
issuance starts in 1913 so for the first
108 years of dollar existence we
produced let's say again check my
numbers on this 15 trillion US dollars
and then we just increase that by an
additional six or roughly 40 percent in
the past two years so if you look at the
chart it's very kind of low and slow if
you burp burps on the way up and then
one huge Spike recently that's so crazy
I don't think people really understand
but before we go all the way down that
we will certainly get more into that so
okay we're in an inflationary
environment so how do you want people
thinking if Grandma is Grandma's wisdom
is now wrong because of that environment
and so if I because I really am right
now to your point uh you want as many
options as possible in the time of
uncertainty I am right now trying to be
as close to Gold buried in my backyard
as possible yeah I always feel the need
to say I'm not I don't actually have
gold buried in my backyard I don't want
people showing up uh but trying not to
be locked up in too many things that are
long term though full disclosure I do
own a
a very substantial amount of Bitcoin and
ethereum yeah uh but
for the most part I'm trying to have my
options open well I hope you have it in
self-custody at least
because that's buried in the backyard
yeah
yeah I'm not I'm not to the point that
you would be happy but I'm getting close
Okay because if it's Bitcoin on an
exchange or with a custodian it's not
your Bitcoin as we commonly say not your
keys not your coin
um I do I don't wanna
the spirit of Grandma she's right
actually you know holding options in the
face of uncertainty is the right
strategy it's just that the tool of
optimal optionality if that's a term is
not no longer the dollar it's
decreasingly the dollar the more you
print new dollars the more you're
debasing that instrument's ability to
store value across time so it's it's
less useful as a tool of optionality as
money is intended to be
and as a nice barbell to that strategy
Bitcoin is or gold physical gold is a
really nice adjunct because as you
debase currency that would indicate that
would basically equal you have more
dollars chasing the same amount or
relatively same amount of gold or
Bitcoin which would be a higher price of
Bitcoin or gold in dollar terms so I
want on inflation though I don't want to
leave this yet
it's a very complicated term people
often think price is going up as
inflation which it is that's a form of
inflation price inflation there's also
monetary inflation which is the
expansion of the fiat currency Supply
but to try and the reason I equate
inflation to counterfeiting because it
it doesn't exist without the legal
Monopoly of the Central Bank you don't
have
arbitrary expansion of the money supply
outside of a legal Monopoly just does
not exist so to try and give people a
useful analogy about this
if you slice a pizza into more slices it
doesn't mean that there's more pizza
available to eat
right you've increased the number of
slices nominally but the size and volume
of the pizza has not changed you cannot
feed more people with it
you could similarly think of money
as a an option on the global Capital
stock
and every time you print a new unit of
money you're basically slicing that
pizza if the pizza is the global Capital
stock you're slicing it into finer
slices or thinner slices but if I'm
printing more pizza why isn't it that I
have more pizza versus but you're not
printing pizza so Pizza is global
Capital yeah Capital stuff machines
equipment uh real assets let's say money
is just the option the call option to
acquire those assets and so if I
increase the number of options available
what I'm doing is taking away the
ability of those saving in dollars I'm
stealing from them it's you're stealing
their purchasing power
and that's why I always equate inflation
and counterfeiting it's the same thing
as if you could go out and print a bunch
of 100 bills increase the number in
circulation you could go out and buy
things that cost a hundred dollars that
other people went and worked and saved
uh to be able to afford those things
you're basically stealing from them
right you're bidding up the prices of
the things that they would otherwise buy
and that's what we've seen taken place
over the past 24 months so if it doesn't
create more pizza then why do people do
it
because people like to have convenient
strategies for wealth acquisition and
setting up a legal Monopoly to steal
from all of society is a really
convenient wealth acquisition strategy
it's interesting I think so because I've
gone on this journey I've had to wrap my
head around some of the fundamental
questions that you ask what is money
being one of them I think what this is
when people the reason that they print
is they're going to go buy assets with
what they've quote unquote printed so
uh the government works with the Federal
Reserve the Federal Reserve creates the
money out of thin air but the way that
they put it into the system is by
acquiring assets so they'll acquire
um governments or whatever yeah but
those are also born out of thin air the
government can issue debt add into an
item as the Federal Reserve can issue
dollars to buy government debt ad infant
item this is the most organized crime
syndicate that's ever existed on the
planet
okay so now that people know that that's
the way that we create inflation
what do we do in an inflationary
environment how do we protect our money
because right now I really I don't allow
myself to do overwhelm so I break things
up into manageable pieces but right now
like I don't know what to do in terms of
with my money so I have allocated about
as much Capital as I'm comfortable
allocating I'm keeping as much as I'm
not worried about being inflated into
Oblivion and inflation was as I wrapped
my head around that was the thing that
caused me to change my behavior because
prior to this I didn't want to think
about investing and then when I really
began to understand inflation I was like
whoa you have to invest your money into
something that its value goes up at at
least the same pace of inflation
otherwise to your point it's even though
I have the same number in my bank
everybody gets me exactly so
I was like okay I have to do something
but now I feel like we're going into I
feel like we are in a time of so much
uncertainty that I don't know what to do
anymore so even though I can describe I
can tell people what is happening but I
don't know that I have a good plan for
what to do like even in my own life so
what do I do well it's a number of
things
um first thing is to own assets that
cannot be counterfeited or printed into
existence so physical gold Bitcoin and
self-custody these are great options
um but Bitcoin is so volatile like how
do you do you just take a long time
Horizon approach on that well it's
volatile in terms of dollar terms right
and volatility is a function of price
Discovery so if Bitcoin is a sub 1
trillion dollar asset competing to be a
hundred trillion dollar asset you would
expect it to be volatile in dollar terms
so yes you would Advance cold comfort
when I need to buy diapers for my child
this is not I'm not advocating for
Bitcoin as a checking account I'm
advocating for Bitcoin as a long-term
savings account so Define the long term
to protect yourself from the aggression
of private property that's occurring
through the counterfeiting of currency
something like physical gold or Bitcoin
is useful for Bitcoin specifically it's
performed really well over four year
time Horizons so that's not necessarily
long term I wouldn't sit here and tell
you that Bitcoin will be at a higher
dollar price in four years and there's a
lot of uncertainty in the world no one
can make that claim but what you do know
is that you have a money with
effectively uh that's effectively
perfected the properties of money which
we talked about last time
specifically that we know it cannot be
increased in Supply whereas every other
primary money in the world the US dollar
uh leading the charge here is being
rapidly expanded in Supply so when you
price one in terms of the other you end
up with a higher bitcoin price as an
insurance policy against debasement of
the dollar
so one answers that own assets that
cannot be counterfeited Commodities
businesses
there's obviously a lot of risk here
that you have to navigate if it's a if
it's a public Equity they might actually
be printing it
um some companies issue more shares and
they actually have outstanding you can
check out the I think it was Chiquita
banana Scandal what yeah it's called
rehypothecation so there's a lot of
games played on Wall Street where they
will basically represent and sell more
shares than there actually are in
existence isn't that illegal of course
it's well it's illegal if you're not
inside the Monopoly if you're not a
prime broker okay I think is the
industry that's allowed to do that
but um so that's one area to be careful
of it's good to own businesses good to
own things uh productive factors in the
economy but if they're public equities I
do think you have to be a bit weary
about things uh another thing is assets
that are difficult to seize or
confiscate
so this again back to gold in your
backyard or Bitcoin in self-custody I
think what we are essentially seeing in
the world is that centralized
governments are bankrupt
and all government revenues are derived
through taxation inflation which are
both forms of theft and other forms of
of confiscation so I would expect those
activities to increase as monetary to
basement ramps up
um and it could even be accelerated now
that
people have an option to exit Fiat
currencies they can go into a savings
technology like Bitcoin this actually
puts additional inflationary pressure on
Fiat currencies over time because people
now have an incentive to
sell the thing you're using to steal
from me with
and hold the thing that you cannot steal
from me or use to steal from me which is
a good way to describe Bitcoin
so
assets that can't be printed assets that
cannot be seized
um
and then
the last one I guess I would say
knowledge you know it's very important
to kind of study the Ebbs and flows of
financial history
and equip yourself with a world view for
the world we're going into we've seen
currencies fail many times before you
could study the the Weimar Republic in
the 1920s Germany what happened there
um inflation has really corrosive
consequences on people's psychology
their morality their behavior
um
and
yeah I think that's a good start for
protecting yourself and the world that
we're going into so what are you doing
with your assets right now so if just
I'll go first so I have a ton in savings
just liquid basically going in and out
of really short-term bonds so no yield
but all stuff where barring the collapse
of the US government which I won't say
is is a zero percent chance risk but
certainly very low especially because
they control the money printer that's
right
um very low risk so money coming in and
out and then I have uh Bitcoin and eth
uh I have some in the stock market real
estate
that's sort of my portfolio all because
I don't consider myself a talented
investor in any way shape or form
um
what does yours look like so dollars and
treasuries are good short-term liquid
instruments people think you're smart
there
um I consider Bitcoin to be the best
long-term liquid instrument and that's
actually all of my portfolio
dollars in Bitcoin I don't actually do
the treasury game I hold a smaller
balance of dollars relative to
everything else I hold a lot of Bitcoin
now this is coming from someone who's
studied this asset in this space and the
history of money exclusively for six
years now so what I'm advocating for
other people to do is to go out and do
similar due diligence for themselves
their skill set
and create this world view and then make
a portfolio construction that reflects
that I can't sit here and prescribe you
any specific portfolio construction
because it's Unique to each individual
and if I were to do that
you would not have the level of
conviction or buy-in into that portfolio
so you would inevitably be shaken out
when the market starts to move emotions
would set in and you would be shaken out
of your positions so that's why I don't
believe in specific prescriptive
portfolio constructions but because
conviction is one of the most important
parts absolutely you have to believe in
what you're going you have to have
buy-in right it's not just that you
bought it physically but you need to
have intellectual buying you need to
understand what you own otherwise when
the price moves it's just like being at
the poker table
if someone
pushes in a big hand and you don't know
exactly what you have and you don't have
a read on your opponent then you're
going to get shaken out right you're
going to fold or you're going to call
make a bad call you're going to lose
it's the same thing when you own assets
you need to understand what you own
understand yourself understand the asset
and have a conviction in what it is
otherwise it's just not going to work in
my opinion that's really interesting and
one of the things is I certainly spend
time researching you is I just this is
my first time really paying attention to
a monetary cycle where there was
certainly in the crypto World there was
so much Euphoria until about a year-ish
ago and then it really started to falter
and go crazy and when people were
euphoric it was like man I was looking
sideways as people were taking out loans
and like getting into assets and I'm so
paranoid I was like there's no way I do
not trust myself enough and then same
thing with when people started to sell
it was like Panic selling
and the approach that I try to take is
okay I'm not I I personally view myself
as not being smart enough to beat the
market to try to do things on timing so
I'm just like what am I prepared to do
long term or what can't I lose on so
when I was talking to my the person who
handles the actual buying of bonds and
stuff like that I mean I I ask like 36
times like what happens if right the
price goes down do I still get my
principal back I may not get the
interest or whatever but I want to make
sure that I'm in something that I can
protect my principal so just looking at
all that and then on the crypto having a
thesis and saying okay as long as I
believe this to be true I'm not going to
sell if I stop believing not to be true
then I might you know look at it
differently but watching the human
behavior of seeing people
act like they're gamblers effectively
and I remember when one of the first
like big liquidation moments happened
and there were you know memes of like
people in front of their computer like
outside a nightclub there was one guys
outside a nightclub he squatted down in
front of his computer on the sidewalk
and he's just like holding his head
because obviously he had been liquidated
because I don't know if we want to go
into explaining it but like you you're
using leverage to buy it and it hits
that point where your collateral is now
exactly so boom you go from having
something to having nothing absolutely
devastating and I was just like oof this
is this isn't just I have mistaken money
for a property of physics
and when you realize that it's a
property of psychology or a useful
fiction as you refer to it you really
start to think differently about it well
there's an element of the physics as
well
um but I want to
say something here so leverage in crypto
is not a good mixture in my opinion I
think most people that play with
leverage most people that play with
assets Beyond Bitcoin which we
endearingly call [ __ ] coins in Bitcoin
Circle you almost always get burned
um I have some some friends that have
run the numbers on this as well of the
30 000 [ __ ] coins that exist
two and a half had outperformed Bitcoin
Over a four-year cycle most of them go
to zero go away or the vast majority of
them underperform Bitcoin so no leverage
uh preferably no [ __ ] coins so you might
want to sell your eth uh
do as you please but me personally I
just think that's another project that's
accumulated a lot of technical debt it
keeps moving the goal post I think it
will collapse at some point
um and
yeah those instances of people crying
and some people committing suicide I
don't know how true these stories are
but it can be ruinous to your life right
if you consider how important money is
to your day-to-day existence to lose all
of it in an instant can be
extraordinarily painful and I've you
know I've traded options in this asset
class for a long time or in a hedge fund
in the space I've felt the pain of
losing money rapidly it's not fun I
would not recommend it I would also say
that 99 of the hedge funds out there
cannot outperform buy and hold Bitcoin
just buy and hold Bitcoin the easiest
least intensive least energy output
strategy there is the smartest investors
in the world struggle to outperform that
so unless you think you are someone on
the spectrum of Rain Man intelligence or
some type of super prodigious Trader I
would not recommend leverage or [ __ ]
coins or trying to trade when Buy and
Hold Bitcoin is performed so well
all right so talk to me about the human
element of all this one of the things
that when I was researching for this
episode that I heard you talk about that
I thought was really interesting is that
for whatever reason every three
generations we forget how volatile
governments are how volatile currencies
can be I thought wow that's that Echoes
something that redalio talks about which
is this has happened many times before
just not in my lifetime and so because I
was born in the 70s to me it's like oh
this is all pretty stable like nice and
easy why do people do all these crazy
gyrations uh
but talk to me about the history of
money if Weimar Germany is the right
thing to look at for hyperinflation and
what comes of it let's start there what
what is it that the average person
living today hasn't seen that they need
to be very aware of yeah so to start
that I want to talk about how Theory
shapes how we see actually and to do
that I want to talk about Copernicus so
for a long time
we lived on this planet and we saw the
sun rising and falling right and we just
assumed that we were the center
and that the sun was going around us
right
um it was a bit of it's called
geocentrism I think it's kind of an
ancient form of egocentrism in a way or
and thought anthropocentrism where we
think we are the center of the universe
in most cases
and then Along Comes a guy named
Copernicus ran the numbers and said
actually the math says it's more likely
that we are going around the Sun
and so this shift in theory
did nothing to change the prior
empirical observations of the sun rising
and falling
but it completely inverted our
interpretation of that empirical data
all of a sudden we realized wow we've
been
defrauded by this optical illusion we
thought we were the center the sun was
going around us well it turns out we are
going around the Sun so I say this to
explain the way in which Theory right we
had a new theory heliocentrism that
actually changes the way we interpret
empirical data we often have this
inverted in our mind we think we see
data and infer Theory but it's the
opposite you have to the theory is the
frame that you're putting on reality
that determines how you see it the truth
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description alright my friend back to
today's episode and so Copernicus also
came up with a quantity theory of money
which is pretty interesting
he said that if you double the money
supply in an economy that the price
level will tend to double as well
now it's not that quantity theory of
money is not specifically correct
there's a lot of factors that influence
price but it's directionally correct if
you counterfeit six trillion dollars and
you had six trillion dollars to begin
with
in the long run prices will normalize at
about 2x to what they were so I think we
have been and as you just said you
thought it was this pillar of physics
that prices needed to go up at two
percent every year because we have been
conditioned into this false theory of
Keynesian economics
that we think Rising prices and in the
long run failing Fiat regimes is the
norm of human history
but the real problem we have is that we
are operating under a false economic
theory printing money does not solve
problems increasing nominal prices does
not make you richer
so I think that hopefully the emergence
of Bitcoin that's leading to the
Resurgence of discussions like this a
heightened interest in libertarian
philosophy and Austrian economics it's
actually throwing light on the this
Corruption of money that's hidden in
plain sight right how
crazy is it to think that the most
desired asset in the world the US dollar
is also the largest pyramid scheme we
have ever had in human history how how
do you think that affects us
psychologically when did it become a
pyramid scheme
well we started in 1913 with a Federal
Reserve
um fractional Reserve banking is
effectively a pyramid scheme right
you're you have more liabilities
outstanding than you do Assets in
reserve so you're running a fraud
so long as Oliver every dollar that you
or every 10 no every dollar that you
have in the bank you can loan out nine
or something you have a contract with
your depositor right they have given you
a dollar that's redeemable for gold and
you've given them a dollar in exchange a
liability now if I over issue those
liabilities but I don't increase the
amount of gold I have in reserve that's
why they call it a fractional Reserve as
opposed to a full Reserve yep all of a
sudden I'm now engaged in a fraud you
only have to have misrepresenting so
much of what you've promised people Yes
actually in the bank and you're good and
is it like 10 is there a number well the
number changes based on policy but in
reality anything less than 100 of fraud
right you have you have issued more
checks than your ass can cash so to
speak so if at any time the wrong amount
of people right if you're a 50 Reserve
Bank 51 of the people come to redeem
their money you're bankrupt right so
that and the you know we've seen the
bank run in movies like a beautiful life
people were again were very conditioned
to think it's the norm how does it run
on the bank even exists if it's a full
Reserve honest Bank it couldn't exist so
I would say the moment
we entered fractional Reserve banking it
became a pyramid scheme was that day one
um
the dollar was redeemable for gold
was reducible for Golden well there was
a brief moment where it stopped then we
got back on the goals in 1971 we break
forever exactly but when so we suspend
convertibility in times of War crisis so
that's when the banks know that we can
just pump money in so the fractional
Reserve can continue to exist it doesn't
want people coming to the bank to redeem
dollars for gold because that would show
the insolvency right when When the tide
goes out you see who's swimming naked as
a Warren Buffett said so get so we had
on and off convertibility
throughout the existence of the dollar
in times of war and crisis we outlawed
private gold ownership in 1933 executive
order 6102 and then the big one where we
move into this giant Global pyramid
scheme is 1971 where we break the tie to
Gold entirely so now governments have
the ability to issue dollars the US
government can issue dollars add
infinitum with no convertibility
constraint there's no check on this uh
on this issuance of dollars and I want
to say something here too
again inflation is legal counterfeiting
counterfeiting is Criminal inflation the
only thing you can do with printing
money is violate the property of others
you cannot issue any Equitable benefit
to an economic system whatsoever it's
not possible
so it's
I can't emphasize this point enough that
it is everywhere
and always only theft that is the only
thing printing money can do so any
economy that has a central bank which is
every economy has an institution an
anti-capitalistic institution of theft
integrated into its core
and that is the source of so much of the
psychological financial and moral
malaise I think we see in the world
okay so I I'm not saying this to play
Devil's Advocate I actually think this
either is something that you have an
answer for that I'm just unaware of or
I'm about to change your life I have no
idea where so one of the things
everyone's paranoid about deflation and
I'm just dumb enough that I was like why
would deflation ever be a problem that
means that my money gets more valuable
over time it has more buying power I'm
like that's amazing so but people get
really freaked out about that and you
hear economists talk about I'm actually
more worried about deflation than I am
inflation
so I was like well why would that be
true I think it was you that I heard
explain that in a deflationary
environment now people start hoarding
their money because they're like whoa
why would I spend this today if I wait a
week or a month or a year I can actually
buy more this is amazing and so they
stop spending and so then I was like
well hold on then inflation is a nudge
to get things moving and when I think
about all the amazing things that we've
built and created it requires people to
create and to buy and if you have
creation but no buying then creation
will stop and
if you have a deflating currency
people just the natural inclination is
to not spend I mean you'll buy what you
have to buy to stay alive but like even
when I think about my Bitcoin I'm like
well I'd rather hold it so
isn't it possible that it isn't a
Sinister desire to inflate the money
supply into Infinity that we create the
central bank but rather
I'm being generous but rather a desire
to know that there's going to be some
times where I have to nudge this a
little bit to keep the economy moving
and the economy moving meaning people
want to buy something because they know
oh my money they have again I'm stealing
from you here they have a a
non-intellectual understanding so it's a
visceral feeling of like I should spend
some of this money and get something
because holding it into the future isn't
all that is cracked up to be
so I'm buying things that cycle gets us
all the Innovation that we see now yeah
that is the standard Keynesian argument
all excited
um it turns out though that human beings
want to consume no matter what we have
to eat we have to have shelter we have
to have transportation clothing all of
this I don't need a new iPhone well the
argument has been that a little bit of
inflation is necessary to stoke an
economy otherwise people will not
consume and there will be no economy yep
but I don't think that water that
argument holds water at the outset is
how are you going to eat
power to the bare minimum there's no
doubt but when you like if you just
imagine a world where the currency holds
steady or deflates don't you think
that'd be a pretty different world maybe
better I think it's a great much better
world yes so today our debt Global debt
to GDP is like 350 percent so that's
saying we have 350 percent
in liabilities relative to about
um
a 100 so it's a
100 trillion dollars in global GDP
roughly 350 450 trillion dollars in
global debt
that is a consequence of currency being
debased because
in an instance
where units of currency are losing
purchasing power over time I'm
incentivized to borrow the stronger
dollars today and pay back the weaker
dollars over time right so there's this
incentive for accumulation of debt
that's one bad consequence of a Fiat
economy why is that
the accumulation of debt debt shrinks
people's time Horizon
so what you're doing is you're
disincentivizing saving
that accumulation of options against the
uncertainty of the future that we
discussed you're disincentivizing that I
now instead of
delaying gratification today and saving
for the future I now want to sell the
future and buy today that's effectively
what you're doing when you take on debt
it's an inversion of the principle of
delayed gratification
um and it increases economic volatility
significantly because what did you just
describe the guy getting liquidated in
front of the club once prices hit
certain liquidation points or margin
calls assets are forcibly sold so this
increases Market volatility increases
the misallocation of capital do you
think Michael Saylor is crazy
no you can use debt intelligently
because he's going ham dude like I'm
dead being my breath so if you can use
that intelligently is your argument that
just most people won't here's what
Michael Saylor is doing though he is
taking on debt where he has favorable
terms favorable
um repayment frequency duration Etc so
he's
borrowing the weak money
selling it to buy the strong money which
is Bitcoin and then he's paying back
weaker dollars over time subject to uh
parameters that are favorable for him in
his business right he has strong balance
sheet all of these things that's the
smart use of debt but notice what he's
doing this is gresham's law by the way
gresham's law said that bad money tends
to drive good money out of circulation
and what he meant by that is in an
economy where say dollars pesos and
Bitcoin are circulating people are going
to spend the pesos first
assuming that's weaker than the dollar
in this example the Dollar's second and
they're going to hoard the Bitcoin
because the Bitcoin has a limited Supply
so when bad money circulates people that
tactile knowledge of their economic
reality they tend to hoard the thing
that can't be printed or is not being
debased the same is true when we used to
clip coins Emperors used to clip coins
and one would have say 100 silver
content they'd do another issuance that
had maybe 90 silver 80 silver and so on
but they all had the same face value
this is where Gresham actually developed
his law so they were legally circulating
with the same face value but people
being smart they hoarded the ones with
more precious metal content and spent
the ones with less
so that um hopefully points to how
things actually monetize and demonetize
this is why gold became money right
people wanted to hoard the thing that
was difficult to inflate or counterfeit
and spend the weaker monies and it turns
out gold historically is the most
difficult commodity to inflate or
counterfeit the supply of we can't
actually counterfeit the supply of it
not economically at least so
that's why it became the premier store
value I chose to hold the asset
I being one economic actor across the
whole history of economic actors people
zeroing in on this reality that there's
only one asset that can uh most
predictably hold its Supply across time
which is to say it is the best store of
value Asset available to them
this is the process of monetization and
demonetization that we've seen play out
across history
okay so I have a base assumption and my
base assumption is I think very clearly
different than yours but I'd love you to
State exactly where yours is so my base
assumption is that if you are holding a
current the value of a currency study or
you are deflating it that you will or
you're not holding decrease Innovation
or decreasing the value it's the supply
values determined Always by the market
the impact going back to your pizza
example though if if the size of the
pizza stays the same but only so much of
it is allocated to me but if my slice
gets bigger over time I would rather not
eat it now I'd rather wait until the
slice is really big and can feed me even
though it's not I'm not increasing the
size of the pizza but my allocation of
that pizza is growing larger that would
be to use the analogy of deflation tie
it to the pizza example that's where
we'd be well in that instance though you
would be a shareholder of a central bank
if the slice of your pizza is growing or
one of the first recipients why is that
true take Bitcoin Bitcoin Pizza is the
global Capital stock and so the slices
are basically and this is an analogy
obviously yeah the slices are the
representational option people have on
that stock
so you have one pizza which is all the
stuff in the world yep and we slice it
up into uh a net worth right that what
is the value of This Global Capital
stock now who owns Which slice
now if we start printing money we
basically start creating new slices that
are crowding out the other ones yep
whoever gets those new slices first is
stealing from those the holders of the
the previous slices
okay so I think there may be uh the
analogy might be breaking a little bit
so if if the pizza is the capital
technically the the money supply is what
I'm using to buy a piece of the pizza
and so as the you inflate the money the
size of pizza slice that I can buy is
actually smaller
so
as you
deflate the money yes now it takes less
to buy a bigger slice of the capital
right because the capital isn't
inflating or deflating the what exists
to buy is remaining constant
so now just to take it off the analogy
and just talk like direct so Bitcoin I
think you would agree with this I view
Bitcoin as a deflating currency fix
Supply
correct but as more people want it its
value is going to go up which if that is
true then the longer I hold it the more
pizza that same single Bitcoin will buy
exactly so that has changed my behavior
I think of dollars as like whatever like
spend it but when I have a Bitcoin I'm
like I don't want to mess with it this
is time preference yeah I want to hold
it so
because of that my base assumption is
that if you have a deflating currency
that thusly buys you more over time
it's so counterintuitive because
deflating makes it sound like it's bad
it's getting smaller but it's actually
growing more powerful exactly it's
buying me monetary dilution as inflation
and monetary enrichment as deflation
yeah the inflation deflation is a
Keynesian euphemism actually to sell the
idea of infections well played because
my brain is having a very hard time okay
so my Bitcoin is growing in purchasing
power over time and that has already
changed my behavior so I know that it's
going to change more people's behavior
my base assumption is that will cause a
decrease in Innovation because people
are like dude your iPhone is cool but
like uh I'd really rather wait and see
what my growing powered Bitcoin that's
the leap I want to challenge right there
where we say less we say more saving
equates to less Innovation I think it's
the exact Ops
why the the nature of saving itself is
that we are delaying present consumption
and looking further into the future and
engaging in longer term production
processes yep now the austrians describe
this as the more round about the
production process which is equivalent
to saying the more finely we engage in
the division of labor so you have one
long production process to produce a
thing the more finely we chop that up
amongst ourselves the more productive we
become
so that
um
effort that impetus to push into longer
production processes that are more more
roundabout and more finely divided that
is innovation that is how we we become
more than some of our parts we
accomplish great it doesn't feel true to
me
when I that's it there's you actually
think inflation drives Innovation can I
give anything
uh well so I'll tell you why I think
inflation and look trust me when I say I
am at the edge of I am thinking through
this in real time so this is not me
saying I believe this but this feels
right to me so when I think about what
gets people to innovate it is if I bust
my ass and I come up with something
better than other people I get more
value from people in a very fair
exchange where they think they're taking
advantage of me because they'd rather
have this thing that I've created than
they would they want the money as do you
have them exactly and so I'm like this
is amazing so now where what we get into
is right now with an inflating currency
people have just a sense of like oh this
money is it's it's inconsequential it it
God this is going to sound stupid but a
dollar is only worth a dollar whereas a
Bitcoin to me feels very precious it's
like this gets becomes two dollars three
dollars ten dollars a hundred so now I'm
like uh I don't really want to spend
this okay because of that I don't have
the ease of like buying that I would so
now my evaluation of the thing that
you've created I'm way more scrutinous
so I mean maybe just raises the bar on
Innovation but it it I think you're
saying it feels like it turn to Value
investing perhaps
so
for a long time
people would only invest in projects
that created real economic value right
and if your money is holding purchasing
power over time that's a good bar
you could think about it like this
imagine we're on a world run by Bitcoin
so there's one hard money fixed Supply
everyone uses it in the world
every successful economic project every
entrepreneur every Innovation that
successfully increases productivity
that accretes to the purchasing power of
everyone's money
so
in a world where your money's constantly
losing purchasing power that is not
happening so you get more junk I guess
there's more of a there's there's
actually
the incentive and this is related more
directly to the violation of property
but there is an increased incentive to
consume rather than invest the more
rapidly you you violate property rights
and the more that it's permanent rather
than intermittent so if I know the high
degree of certainty that you keep 20 of
whatever that I make then I have a 20
less incentive to engage in investment
rather than consumption activities
and again that's what we're doing when
we print money we're actually inducing
or incentivizing consumption actions
over investment actions and investment
actions are what Drive Innovation it's
savings that underpin Investments
investments in that long-term production
structure I I suggested there's also r d
in their experimentation right we're
trying new things that is what creates
innovation in the real world
so if anything The Innovation that we've
seen in the 20th century has been in
spite of Central Banking not because of
it but it gets very murky here because
it's very easy
you could swap someone else into the
seat right now some Keynes and
economists and they'll give you a
completely different interpretation of
economic history right they can go
through the historical facts and Trace
their own Arrow of causality and say
here's what happened and we're back to
Copernicus back to Copernicus but here's
what the the libertarian philosophers
did they said you can't mistake economic
history for actual economics economics
is more of a rationalistic science you
you have axioms man must act man prefers
present satisfaction to later
satisfaction all other things being
equal like these axioms it's like
geometry I so I didn't understand why
can't I take economic history as
economics if you take economic history
you can because that's actually happened
so you're saying you can't take the
impetation of Economics social science
right you cannot mathematize economics
in the same ways you cannot mathematize
psychology
I can't sit here and tell you the reason
you're doing this is because there was a
linear chain of causality
and if we repeated this experiment again
the economic experiment would unfold in
the same way it's not possible because
it's just too complicated
there's no constants in Human Action
right so we know water freezes at zero
degrees Celsius and that's a constant we
can build a framework of knowledge
around that there are no constants in
human action
constantly changing it's all all these
psychologies interlinked into the market
process so we're going to derail on this
but I'm just going to plant the flag to
say I think there will be a day where we
actually realize that human interactions
are completely predictable Free Will is
a total myth
but that doesn't help us now that could
be a pretty bleak day
I don't find it Bleak because the
experience will never feel like that
but that's going to completely derail us
because right now I don't Free Will is
seems to just be provably an illusion
so we will definitely get derailed on
this
side yes if um
all right so instead of derailing on
that let's so this Copernicus idea of we
have a theory the theory is going to
completely shape how we interpret things
and definitely how we act so what is the
I call that a frame of reference frame
of reference is everything it is the
distorted mirror that we perceive
reality from and to your point it's
individual so everybody's got a frame of
reference it's going to dictate how they
think about what they see and that will
actually impact how they feel which will
impact what they do
what is the so are the the two using my
language frames of reference that we're
thinking about here the Keynesian model
versus the Austrian
let's talk about a very fundamental
Theory
which is the theory of the individual
now this is something that we take for
granted today we assume that you're an
individual I'm an individual we're all
freely interacting um
but in ancient times it wasn't this way
actually it was the family that was
considered to be the primary social unit
they call it the uh paterna families
and everyone was basically perceived as
a unit in that family that you you
served
the ends of that family uh it was
religious in nature this was
in ancient Rome it was the religion
it was uh the family and it was property
so we're talking about ancient people
that said on one piece of land
generation after generation the present
living family took care of the ancestors
right they worshiped the ancestors they
used to burn a hearth there was a fire
that every family maintained on an altar
and the first thing they did every time
they would wake up in the morning is
stoke the Flames of that fire and so
that was to symbolize their property
interest in that land that carried
forward from their ancestors into the
present day and if that fire were
extinguished that work that was
considered to be an
equal symbolic expression of the family
being extinguished so the whole primary
imagined social unit of the world was
the family the individual did not even
exist
now this is hard to imagine it didn't
exist or it just wasn't the primary way
that you thought of this is very hard to
talk about because what I'm saying and
often we're talking about money is the
same thing you're trying to describe
water to a fish that's never broken the
surface
how much of our cultural programming do
we inherit from our parents from our
existence from our cultural heritage in
this world
yeah but let me ask you one question
because I get where you're going and I
can collectivists versus individualistic
societies has real uh real world impact
so I know there is a thing where you
would feel that me as an individual is
very much embedded in a collective and I
have to be thoughtful about that but
nobody would be confused if I poke you
and it hurts it's not like that person
would not be able to distinguish between
you getting poked and me getting I'm not
going there so let me try to prevent the
sidebar let's just say this the
individual did not exist as an economic
or a socioeconomic conception okay it
doesn't mean that you couldn't poke
someone and they're like hey man don't
poke me right a socioeconomic exception
of the individual did not exist one of
the family did it was all centered
around the family and then families
eventually Stitch themselves together
into tribes and Clans and ultimately
nation states and that had a lot to do
with the unification of religion
but the individual is something that we
invented
we invented this the individual as an
economics as an economic actor okay and
from the individual economic actor that
came post-christ it was with Christ
and Paul's analysis of Christ and the
moral equality of men that we developed
the conception of the individual and
from the individual we extrapolated that
into individual private property rights
so we moved from a world where the
family had exclusive property interest
in the land it was also non-transferable
they weren't selling this stuff they
were just having dominion over it I
really think if anything it was like
territoriality like animals or
territorial over specific uh pieces of
land we were basically territory animals
right we were trying to survive the way
our ancestors did there wasn't much
Innovation occurring there surely wasn't
a lot of trade occurring and we had this
sort of primitive Society
but post-christ we invented as religion
was evolving we invented this conception
of the individual and I'm drawing on a
book here by that title inventing the
individual if you want to do a deep dive
on it explains it in depth but to gloss
over a little bit let's just say that
with Christ
came this idea of the equality of souls
that everyone had an equal Soul or a
moral equality if you will
and with that notion came
the 1215 Magna Carta life liberty and
property that we had this conception of
individual property rights so that you
as an individual now can stake a
transferable claim on assets in the
world
and that is what led to capitalism
proper right so we have individualized
property or we have socialized property
and I think the degree to which we print
money of the degree to which we have
government interference we are
socializing property and this is
causing people to consume rather than
invest it also causes people to
misallocate Capital because of the
tragedy of the commons no because again
if you keep 20 of everything that I make
right that's a socialized property right
you're taxing me yeah but why would that
sketch me out if this is an invention
yeah it reduces my incentive to invest
if I can only keep 80 of what I earn I
have a reduced incentive to invest
have you heard Ray dalio's take on this
so he talks about China as a
collectivist culture and he's like look
you can rail against them and think that
they're crazy but they think that we're
crazy and dealing at the individual
level and any one individual thinking
whoa you can't tread on me I'm an
individual whereas they're like you're
out of your mind like you live as a part
of the collective and if killing you is
better for the collective than kill you
we must and while admittedly those words
I'm putting in radelio's mouth his whole
thing is I know that you look at China
and you judge them and think that
they're crazy but just know that they
feel exactly the same in the opposite
direction so what I'm trying to figure
out is when I look at if being a part of
the collective makes me less likely to
invest the only way I can wrap my head
around that is if it's the same thing as
a tragedy of the commas I don't want the
collective to be able to take t