What happens when people start losing jobs to AI?
It all depends on how quickly it happens.
You never want a short kind of multi-decade human productivity.
But on five-year, 10-year timeframes, there are, you know, they're not magic.
There's no way around it.
That's rough.
Is there a chance this is the last debt cycle?
Like, could this be the one that actually breaks the fiat system?
I think it could.
The fiat system as we know it only goes back to the 70s.
Commerce is happening globally.
it's those intermediaries that have all the power.
Until the dawn of Bitcoin, there was no fast settlement.
And now we have alternatives.
Can this fiat system survive that?
We are already in the period where debt matters.
The debasement's already happening.
That's kind of the straw that breaks the camel's back.
If people can't get to work, if they can't get the lights on,
that's when you get revolution.
This is like DEF CON 5.
This is, you know, this is a catastrophe.
Lynn Alden in Bedford. How are you doing?
I'm good. Thanks for having me.
Did you enjoy Teat Code yesterday?
I did, yeah. Always a great conference.
You did an amazing talk, and then we did a fireside,
all about the long-term debt cycle.
I think we should kind of go over the talk you did and then get into it.
Sure.
So I think you started this by talking about when the long-term debt cycle matters.
Do you want to pick it up from there?
Sure, yeah. I basically started out by saying that one of the most common questions I get,
people ask, when will the debt matter?
is what they ask. As though people have, I think, in their head that there's like some
day of reckoning where suddenly, you know, a treasury auction fails or some crazy thing happens.
I think I had this in my head.
Right. It's commonly what you think, because that's how many debts matter, right? Many,
you know, if you have private debt, it often matters all at once. It doesn't matter until
it does. Sovereign debt tends to work differently. It tends to be more of a process. So one of the
arguments that I was making at the start of that talk was kind of saying that it has been
mattering. Realistically, I would say that it's somewhat mattered since the global financial
crisis. But really, I would say since about 2018, 2019, I think it's been really mattering,
which is to say that we're shifting more and more toward that kind of fiscally dominant
environment. So it kind of reduces credit cycles because the US deficits are so large,
partially because of interest expense. And then in addition, I think the populism that we're seeing
in the US and Europe especially, a lot of it does tie into basically these very top-heavy
entitlement systems with slowing demographics. And that's basically a debt problem.
And even things like war that we sometimes see with a number of steps can be potentially tied
back to debt problems that basically financial imbalances build up and countries start making
more extreme decisions in those contexts. So my view is that the debt has been mattering
from a macro standpoint, even just from an investor standpoint. I mean, I use the phrase,
nothing stops this train in large part because we're running these six to seven percent of GDP
deficits. And a lot of it is so locked in because we already have so much debt, including so much
interest expense on that debt. And so a lot of it is just kind of on autopilot at this point.
So you say there's not like a moment that it matters. There's not going to be
a failed treasury auction, which is the key moment. It's a process. But what happened,
like when in 2008 or in 2018, 2019, when did it start mattering? Like what happened that meant
this started to become a problem? Yeah, good question. I back up and say like there are
moments where it matters more than others. Like I would say it's punctuated by many crises.
in the UK, for example, the guilt crisis in 2022,
like the Liz Truss moment.
Yeah.
That was like a moment where it mattered,
but it wasn't like the apocalypse, right?
It wasn't like the day it mattered all at once,
but it was like a moment where the debt,
the deficit were basically called out in a sense.
And the US has kind of gone through similar moments.
The reason I kind of point to 2018 or so
is we started to see overall deficit spending
was larger than total bank lending in the country.
And even when you add total bank lending
and total net new bond issuance,
you're kind of taking a pretty big snapshot
of private lending.
And the U.S. deficit was as big or bigger
than all of that combined.
So when you say, well, where's net new money creation
coming from?
You know, in the 70s, in the 80s, in the 90s,
in the 2000s, the answer would have been
mostly from the private sector.
even though the government was running deficits too.
But once we got over 100% debt to GDP,
so we have pretty substantial interest expense,
and we're running these entitlement systems
that are kind of no longer mathematically as sound
as they were decades ago,
that combination of the demographics
and the accumulated debt made it so that
even in a non-recession year,
so it used to be that only in kind of recessions
would deficit spending exceed like bank lending
because bank lending would contract in a recession,
deficits would blow out in a recession.
So you'd have these kind of brief moments.
But this was like the first time where in a non-recession,
just as a baseline, deficits are bigger than private bank lending.
Like all banks in the US combined do deficits bigger
than all their net new loan creation.
And so that starts kind of, it creates like a run at hot environment.
So recessions start to feel different
because you're almost pre-stimulating in a way
before a recession would hit.
You get more inflationary recessions.
So at least, or at least less disinflationary recessions.
Of course, COVID threw a whole wrench into everything.
But even apart from that, just we, even just before COVID, we started entering that.
And then even.
Is that when we had like the repo crisis in 2019?
Yeah, that's, that was a key moment.
I think about a year before that, some of these signs were showing up.
That's actually when I found Luke Groman's work.
He made very good calls about what was going to happen.
I looked into it at the time.
And when the repo crisis happened, people were quite confused.
Some people were like, the doomers were kind of naturally like, oh, there must be major banks failing and such and such.
And then the establishment was like, no, no, it's a technical problem.
It's no issue at all.
And the view that I was taking at the time, the view that Luke was taking was, no, no, this is actually kind of tied to excessive debt issuance.
Basically, all these T-bills and debts were coming out.
There were a bunch of other financial plumbing issues.
but at the end of the day basically the fed had to go from balance sheet reduction
to balance sheet increases despite no recession uh just because they they needed more liquidity
with their own liquidity rules to account for like how much treasury securities were coming
to market when foreigners were not buying enough banks could only buy so much insurance like other
kind of balance sheets could only buy so much you add a couple other kind of uh topical factors on
that are kind of probably too wonky for this podcast.
And you get this moment where the Fed has to step in
and buy T-bills just because it's too many T-bills.
So when we obviously got COVID early 2020,
and then there was the insane COVID stimulus,
was that inevitable anyway, even if we hadn't have had COVID?
Do you think they'd have had to step in
and do something like that?
I do think so.
And it's funny because even BlackRock had a paper out
before COVID that was like,
the next recession that happens,
we're going to have to get more direct.
We're going to have to do more like helicopter money type stuff to re-stimulate.
And I'd even read an article in mid-2019 called, I think it was called,
is this a bond bubble?
Are we in a bond bubble or is this the new normal?
And it was a whole thing kind of like how bonds work.
I was looking at the fact that there was now 18 trillion in negative yielding bonds in the world,
mostly in Europe and Japan, let alone very low positive interest rates in the US.
and my i took the stance that this is a bubble this is like people like i was like people always
ask me if the stock market might crash i was like i'm far more worried about bonds uh at this time
and i even talked about i was like people have gotten so used to disinflation they don't realize
that the next time we have a major recession central banks and governments can do crazy things
like i didn't have obviously covid in my mind but i was like basically they can do much larger
monetized like they can always create inflation yeah that they have no problem creating that if
they want to um you know it's harder to stop inflation than it is to create inflation my
rule was kind of like the last few years have proved that you've proven that and that but that
in 2019 that was a non-consensus view uh so then when it started to play out in 2020 i already had
a lot of this mapped out i mean just from reading ray dalio's research uh and then kind of go like
going even like i would quantify it even kind of more than than he did in a lot of his um
presentations, I would kind of go and double check the math myself and look at other avenues and try
to disprove it. And really kind of made up my own research at that point. And so when all that hit,
when all that COVID stuff hit, I was like, okay, this is bigger and sooner than I would have guessed.
It didn't have to happen at that scale. But the numbers were already making it so that this was
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So when you, like, obviously this has got worse since 2018, 2019.
What are you worried about now?
Like what are the areas of the market that you're most concerned about?
Oh, entirely the straight-up Hormuz.
People ask me, for example, if I'm worried about private credit.
I mean, there's always little pockets to be worried about.
Like, for example, in the 2023 regional bank crisis,
uh literally the day i think it was march 9th when it was kind of playing out uh i i just went
on twitter i was like i know it's like non-consensus at the moment but most banks are going to be fine
this is like a it was a specific bank issue a handful of banks that were like had very specific
issues that they ran into yeah uh and most banks were fine um and very small amounts of tweaks were
able to just kind of put that fire out what makes you think that because i did a show with your
sparring partner, Jeff Snyder.
I can't remember exactly when it was,
but I think it was just before the war started.
So to be fair, he didn't have that to sort of tie into this.
But he was looking at private credit
and thinking this might escalate into being a real issue.
And he wasn't calling for financial crisis now,
but he was like, this is something we need to pay attention to.
Well, I would agree with that phrasing.
And even in my own research, I was like,
I don't consider it an issue yet,
but I mean, it's notable enough that I'm watching it,
especially because if people are always asking about it,
I want to be able to give them answers
that are backed by analysis,
not just kind of like off the cuff.
But we need to quantify the size of private credit.
So it's total bank lending
to non-deposit financial institutions.
It's otherwise known as shadow banks,
which sounds scary.
In some ways, they're less scary than normal banks
because normal banks do fractional reserve bank lending.
They take your checking account,
like your demand deposits,
if you're running a business,
like literally your payroll account,
and they go and make a liquid loans with it.
And they just hope that not too many people
withdrawal at once. Now, because they are so risky, they're also highly regulated banks,
especially after the global financial crisis. So shadow banks are entities that make loans,
but they don't use depositor funds. And if anything, so it's mostly like high net worth
investors, institutions that want to return, insurance companies, pensions, just large balance
sheets, as well as just wealthy individuals will put money into this fund. And right up front,
it'll say, we can't guarantee liquidity.
This isn't a savings account.
This is you're putting capital in,
and we're making loans with this capital.
And when you want to pull your money out,
we'll try to accommodate that.
But if too many people want it at the same time,
you're going to have to wait.
Tough luck.
Yeah.
And that makes sense for savings,
not for a checking account or near-term savings.
So when they gate withdrawals,
it's not nearly as bad as a company
whose payroll, what do you say?
What do you mean it's not there?
What do you mean I can't access that?
Or what do you mean by checking account?
So it's in some ways less scary.
But the part that, of course, freaks people out
is that it's one, it's more opaque.
It's less regulated.
And they do generally engage in riskier types of lending
than a regulated bank.
And the kind of the cheat code, I guess,
I'll use the word cheat code because where we are,
is banks want exposure to that area,
but they want risk-reduced exposure.
So instead of lending the types of entities,
like these smaller businesses
that might be recipients of private credit,
banks will lend to the private credit fund.
And then the private credit fund
will go out and make loans.
Now, the difference is the bank's not lending all the capital.
So the private credit fund's mostly taking capital
from investors, either, again,
high net worth individuals or institutions.
They're lending it out,
but they're also borrowing from a bank
for a smaller portion of their capital.
And let's say they do make bad loans
because some of these are risky.
Some of them are consumer loans.
Some of them are business loans.
There's different specialties.
And let's say they do start to go badly.
The first people that get hurt are the investors,
the ones that decided to put money in
and they expected to make, say, 90% returns on these loans.
But that risks on them, that's kind of fine.
Yeah, and that's fine.
I mean, it's not great.
Around the margins, the negative wealth effect
could hurt the economy.
because if you had a billion dollars in this fund and it got cut to 700 million, maybe you'll
buy a couple less cars that year. It could affect high net worth spending around the margins,
but it's not a grave concern compared to a true financial crisis. It would have to get so bad
that they lose so many loans that even their bank loans, they have trouble paying back.
They're more kind of frontline creditor, not just the investors in the fund.
And when you quantify the numbers, so banks in the U.S. currently have $1.9 trillion in loans outstanding to all non-deposit financial institutions.
And that sounds like a lot, but that's out of $25 trillion in total bank assets.
So something like 7% or 8% of their assets, which of course their assets are someone else's liability.
But of their assets, 7% or 8% is in non-deposit financial institutions.
of that some of that is private equity which actually has its own problems at the moment
so only a subset of that 1.9 trillion is private credit
and so you know it's a trillion in change
and let's say half of that were to just go away
it is really half of all private credit just defaults tomorrow
well first the investors take hundreds of billions in losses some of the worst hit funds
then might start defaulting on the bank loans
but the the amount of that gets through to the banks the losses we're talking you know 100 100
billion 200 billion drop in the ocean 300 billion i mean yeah but they have 25 trillion assets and
they have i mean their bank capital like their the amount that their assets exceed their liabilities
it's well over two trillion um so while there might be individual banks like probably banks
you never heard the name of that suddenly we wake up and kind of like how silicon valley bank had a
very particular issue and a couple others along that. You could absolutely have a bank failure,
but it won't be, generally speaking, the ones that you know the names of.
Yeah. I mean, I even had that with Blue Owl was the one that I think Jeff Snyder was talking about.
I'd never heard of that before. These are things that...
And it's a bellwether. It's a canary in the coal mine. There's aren't headlines that are dismissible.
So, for example, when people ask, are you worried about private credit? I'd be like,
well, if I was a private credit investor, I'd be worried about private credit.
What people are really asking is, can this tank the whole economy, or can this contagion into the banking system?
Those are the parts where my view is not that much, other than what if it's combined with other issues.
Like I mentioned the straight-up Hormuz, if we have an energy crisis that then has all these negative effects,
and then on top of that, we have some private credit also.
Things can, of course, pile on to make a really bad outcome, but I don't view it as emanating from private credit per se.
It's not truly big enough to be frightening in that sense.
That makes sense.
I think when we're on stage yesterday,
we were talking about the things that do frighten you.
And you said when it gets to the issues,
it's like straight up humus is number one, two, and three.
Yeah.
So obviously the energy crisis being a part of that,
but what are the things that you're looking at there
that concern you?
Well, one is, I mean, 15 to 20% of global energy production
is just offline, or at least can't get to where it has to go
and then starts going offline.
Some of it's damaged.
It's not clear when it's going to reopen.
It could, you know, peace talks could break out a week from now.
And then after some further weeks, we start getting things coming back online.
So either way, it's going to take bare minimum weeks to get flows.
But I mean, that could take months or longer.
And there's no kind of viable alternatives to get that energy out.
And really, energy shortages or food shortages are about the worst case scenario for any economy.
and they often even go together because it's not just oil and gas going through the straight
it's also fertilizer inputs i mean natural gas is a major fertilizer input there's also other
urea sulfur helium there are things that either for fertilizers or for electronics manufacturing
or for even just medical equipment there's tons of components so when you talk about oil food
production medical equipment electronics it's like it's everything it's everything yeah and it's it's
the it's the foundation it's like you know where the economy is based on upside on pyramid and that
little tip is basically raw materials and that the part that disrupted because if you have a i mean let go back to private credit let say you have a 500 billion dollar hole just shows up in private credit I mean that three months of like US deficit spending Like that like literally you can snap your fingers
and make that problem go away.
Or just, it's like, it's, you know,
we live in a fiat world.
But when you have molecules that just can't get
to where they have to go at that scale.
The Fed can't print oil.
Can't print oil.
And it's not, you know, like, it's funny
because the oil analysts I follow,
I mean I purposely try to follow the non-sensationalist ones
the ones you know there's just like any field
there are perma bears there are perma bulls
you know so the analysts I follow
were not either of those if anything they probably lean more
bearish because that seems to be in oil the sensationalist
ones are more like tend to be perma bulls
like all this is going to go wrong we're going to get a massive
and they're always like no no it's going to be fine it's going to be fine
well this time all those like my closest analysts
they follow, they're always like, no, it's fine.
They're like, okay, this one's not fine.
This is like DEFCON 5.
This is, you know, this is a catastrophe.
And everything I track says the same thing.
So how does it work?
Because all the oil that's coming through the straightforward moose,
generally, I think, is going to South Asia, Southeast Asia.
Obviously, it affects the oil price globally.
But it doesn't have a direct impact on production in the U.S.
Or does it?
It doesn't have a direct impact on production in the U.S.
If anything, if prices are higher for longer, it could encourage a little bit of shale oil
to come back online.
So it could increase our production a little bit, but not 15 million barrels.
I mean, it might be to get another million barrels, not 15.
And the complicated thing is not all oil is the same.
You know, there's lighter crude, there's heavier crude, and then refiners are set up
to refine a certain type of crude.
That's why even though like a country can produce as much oil as it consumes, it might
still have to import and export because it might not be producing the right type for its own
refineries, ironically. And that's like the US's case. You still have to trade. And so it is true
that almost all what comes out of the straight goes east. But especially the wealthier ones there
can then bid for other sources of oil and liquefied natural gas in the world. And that's why
already, I mean, it was three weeks into the war, gasoline in the US was up 30% or more.
because it is like a global market.
Some energy markets are more fungible than others.
One of the least fungible will be natural gas
because transporting it is so cost and expensive.
You either need a pipeline
or you need liquefied natural gas,
which is a very expensive facility to freeze it,
ship it, and then get it back into its gaseous form.
There's a limited amount of LNG capacity,
which means that when there are gas shortages,
um they tend to they last longer than like oil price differential so for example when when europe
had a gas shortage um gas prices in europe were way higher than u.s gas prices and it lasted
a very long time and it's i mean that that delta is kind of always there because there's only so
much lng capacity that you can use to to arbitrage that whereas oil markets because it's easier to
move oil around except for an extreme scenarios like like this or or similar ones uh you can
arbitrage spreads easier okay so but the the point is that basically and using like say 22
as an example when europe had a natural gas shortage they're wealthy enough to say okay
we'll pay whatever we need to keep the lights on which means that like lng that was like headed
toward pakistan would just get outbid and just go to europe and then pakistan can't you know i'm
using them as an example they had other issues but that was one of the issues they had that year
And so the poorer countries, often, they're the ones that actually end up with the true shortages.
And I think we'll see a similar thing here, which is people will look at, like, Taiwan stockpiles or Japanese stockpiles.
It's like, well, they're pretty wealthy.
They've got a lot of options to bid pretty much whatever they need to to keep the lights on.
It's the developing countries in the world that I think are going to be the hardest hit, including South Asia, including Africa, parts of South America, many parts.
I mean, you were saying again on stage yesterday that that's already happening in Egypt where you spend a bit of time.
They're having, are they going into sort of rolling blackouts?
Yeah, it's starting to happen, not just in Egypt, but elsewhere.
So in Egypt, historically, because they've had energy issues in the past.
They, like, for example, they built some ghost cities before they built like a nuclear power plant.
Done it the wrong way around.
Yeah, if you're going to at least do the power plant first.
um but anyway so they had electricity shortages uh and it but it shows up mostly in the summer
months because you're in the desert people use air condition um so they'd have they have
in summers they'd have rolling black brownouts um and what's happening this time is here in the
spring um they're already planning to say okay like cafes are gonna have to start shutting down
at 9 p.m uh other times you know just a bunch of these kind of limiters uh which is all these
constraints on the economy because their natural gas import bill tripled on a monthly basis is
tripled and it's it's a poor country upon a per capita basis so they just get outright shortages
and we're already seeing i mean there are countries in southeast asia that are kind of
reporting similar things that are saying you know we're doing gasoline rationing and it's those
will just keep getting worse kind of starting mainly with the with the poorest countries so
This might be a silly question after everything we've just spoken about,
but when I had Luke Grohman on the show recently,
he was talking about oil at $130.
I think he used $130 as the benchmark.
Oil above $130 is basically a catastrophe for the economy.
When we were speaking last night,
you said you think it can go far north of that.
What is the constraint that puts on everything?
Why is that such a big issue, aside from just gas prices?
Yeah, so if the trade is closed for a prolonged period of time,
it can go well above $130.
30. And I don't know, the magic number changes over time just because we keep growing the money
supply. So $130 is not the same as $130 barrels 10 years ago. But generally speaking, when you do
get to atypically high levels, the problem is that's a raw input. And when you have, let's say,
private credit contagion, that's going to impact funds and things like that, people that have the
spare capital. Gasoline impacts, I mean, there's consumers that are just, you know, they're very
constrained in terms of their spending. In the US, I mean, people have been suffering from higher
food prices, higher insurance prices. I mean, even though the bulk of the price inflation is behind
us, but it's still trickling out in these other categories. And the last thing they need is
gasoline, 30% more expensive, let alone if it doubles, you know, if it goes to record highs or
something. It just, there are many income in many households in the bottom two thirds of the income
stack that that is, that's a kind of a catastrophe if gasoline prices just double. Then you add
businesses. So many businesses that are not like software companies, they, they operate on 10, 20%
margins. And especially if they, you know, if they're moving things around a lot, I mean, energy
is a huge component of that. So just business margins get eaten up by these energy inputs.
and then like i mentioned natural gas is a huge input for fertilizer um and so you start to get
a situation where farmers uh their input costs have gone up substantially which means they're
going to have well one they they run into their own financial issues if if they're if they're if
their crop prices don't go up quickly so their inputs are going up and not their x so they're
getting squeezed over if that persists of course then the the crop prices go up which means food
prices go up, which, you know, again, if you're in the top 10% of a wealthy country, you might not
even know, like, you might not even notice. But if you're in, most people will notice, and especially
if you're in a developing country, you'll absolutely notice. I mean, a large part of what
caused the 2011, like Arab Spring, like the uprising in a number of countries, they were
protesting against kind of dictatorial policies, but the catalyst was basically high food prices.
That's kind of the straw that breaks the camel's back.
If people can't get to work, if they can't get the lights on,
if they can't get air conditioning on...
That's when you get revolution.
Yeah, it's scary.
You said earlier that the debt crisis was one of the things
that played in or can play into potential wars like this.
How does that work?
It works in two ways.
One is obviously war is expensive,
so war leads to sovereign debt crises.
I mean, this was true in World War I and World War II.
uh but then also um very indebted sovereigns especially if you're like the kind of incumbent
like hegemon the empire uh usually you don't kind of give up your your borders your influence your
your scale usually you try to put that problem somewhere else you know if you're a smaller
country uh maybe higher debt won't make you more belligerent because you don't really have the
option uh too much but if you're if you're you know the us or previously britain or you know
before that and any number of empires,
they tend to lash out when they start to have problems.
And so they get feisty.
So it's classic fourth turning stuff
where it just gets more and more volatile.
Yeah, it gets more and more volatile
until it just kind of finally settles.
And of course, like it, you get more,
on average, you get more polarized politics.
You get more populist politics.
And you just get, yeah, over time,
you need just more extreme decision-making
compared to times are good, business is normal.
It's no, no, we need to make radical changes.
And of course, whenever you have big imbalances
growing in the economy,
it's very easy to misdiagnose
where the problems are coming from,
who's causing it.
Either just subconsciously,
most people don't wake up and they're not macro experts
and they don't know why a lot of this is happening.
They have other jobs and other expertise.
so they easily complain the wrong thing.
And then politicians also can purposely target a group,
an outsider or something, and say, this is happening to us.
You'll see that a lot in developing countries
when they have a currency crisis.
They're like, no, it's the outside speculators
that are breaking our currency.
That's why we need to do capital controls.
And it's always, it's some other entity's fault.
I mean, that's happening in developed countries too, though.
Like it's blaming immigrants for,
which like, I'm not saying that we should have
completely unfettered migration,
but it's a very easy scapegoat when things aren't going great.
Well, yeah, I mean, I think it plays into that kind of pattern, that mindset.
And I think that another issue is that even some of the immigration policies we see,
some of that ties back to the debt and demographics,
because it depends on the country.
Some of them chose to have looser immigration standards
to try to fix their demographics problems.
So they would have these bloated entitlement systems that are very expensive.
and when they were designed in the you know the middle of the the 20th century it was kind of
based on the idea that you know every generation is going to be bigger than the prior generation
population is going to keep growing so you always have plenty of young workers paying in to support
the the retired workers but when birth rates slow down and and people have fewer kids uh you start
to get very top heavy demographics you'll bring people in you yeah you've got major issues i mean
the u.s i mean it used to be you know when social security came into being it was like over 10 workers
per retiree and then in for you know kind of stayed more at like six workers or five workers
or it was like inching down and it gets to the point where it's like three workers for every
retiree and it just becomes more and more imbalanced um and uh so then policymakers say well
maybe we shouldn't a lot of immigrants um what could go wrong you know let's do all at once and
And then, of course, that has its own ramifications,
that has pushback, that leads to the populism.
And so you're putting out one problem
with potentially another problem.
And so these problems don't,
they tend to cluster for a reason, unfortunately.
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So in terms of getting out of the debt,
there's really three levers.
There's the idea of defaulting on the debt,
inflate the debt away, or grow your way out of debt.
Do you think, which do you think is the most likely of those three?
Combination of inflate and grow your way out.
They're never going to default.
I mean, almost never.
Almost, well, any country that can print its own currency
will rarely ever default.
There are obviously developing countries
that owe debt to nominate in dollars yeah and sometimes they i mean the polite word is
restructuring that's kind of the polite word for defaulting you you know you it's not saying you're
not going to get it back it's saying we're going to shift the terms around that you get it back
um and so yeah that can default uh same thing with like the eurozone um you know you can have bail-ins
where you know you thought you had money in the bank and now you have less money but maybe you
own shares of this now crippled bank yeah like you know much diminished bank um so if if the if
the entity in question can't just unilaterally create its own currency then default is an option
just like household debt corporate debt uh the main difference is that if you're a sovereign that
prints its own currency why would you ever do that you they rarely do they almost never uh and so
instead they debase their way out of it whenever they you know if they ever have a trouble with a
bond auction uh whenever they have a repo spike like 2019 or more recently um they expand the base
money supply uh as needed uh and they so it defaults through purchasing power and inflation
rather than through a nominal default so in the u.s for example in world war ii
i mean it was the dollar was one of the least impaired currencies in the world but even our
currency uh you know we had at one point we had 19 inflation but we're doing yield curve controls
who are artificially holding treasury yields at 2.5 percent on the long end shorter on the i mean
lower on the short end while inflation is 19 money supply is growing dramatically and so if you were
holding currency or bonds crushed you're just crushed you can buy less less uh gold less house
less food anything that's kind of scarce semi-scarce you're going to get less of it and over the past i
I mean, I talked before about that article,
Are We In A Bond Bubble.
Yeah.
We literally, starting in like from mid-2020
until like the next five years,
that was like the worst five-year stretch
for like developed world bonds,
like roughly in history,
nominally let alone purchasing power.
And that's because we are already in the period
where debt matters.
The debasement's already happening.
The reason growing away out of it is a factor
is because inflation feels less bad
when it's partially offset by productivity growth.
You know, if we double the money supply,
but we somehow use that money
to build a bunch of like power plants
and manufacturing facilities and hospitals,
and we keep prices down for a lot of things,
kind of the MMTers dream,
then it'll still be inflationary
for things we can't print more of,
you know, gold or Bitcoin or waterfront property
or fine art, for example.
but the things you're actively making more of won't feel as inflationary um if you're also
benefiting from technological trends like moore's law you know semiconductors are always getting
cheaper tvs are getting cheaper computers getting cheaper peripherals uh you know offshoring
automation so plastic toys went down like 95 in price from their peak and you know textiles haven't
gone anywhere in a long time when all that's happening the the effects of inflation debasement
of more subtle you know you start to see it show up in in wealth concentration things feel a little
harder but you can't put your finger on it because you're you're kind of on a treadmill that's semi
balanced um where it really gets painful is when you have inflation without productivity growth
you know like um war is a classic case of that because you're literally building stuff to break
other productive things and they're trying to break your productive things uh so for example
a closure of the Strait of Hormuz and then damage to energy facilities is a negative productivity
shock because it's like all that stuff that was working and that was abundant is now less damaged
and more expensive to get anywhere. And so policymakers, their kind of optimal scenario is,
okay, we're going to run it mildly hot, and then we're going to hope that Moore's Law and AI and
all these other things can, you know, let's say you grow money supply at 8% a year and you've got
4% better technology every year. And, you know, things would be 4% cheaper because of that.
Instead, they're only 4% more expensive on average. They're like, well, 4%, the population
will deal with that. That's kind of how they will think. So it's a combination of inflating and
growing a way out. And for the growth side, do you think that that is all kind of pinned on AI
Is that their real only option I mean that the biggest one by far I mean for example in the 1990s so over the long arc of time there always kind of a delta
between money supply growth
and average price inflation.
And it's because of that productivity amount.
And some periods are more productive than others.
And it depends on the country.
So for example, in the UK, in the late 1800s,
money supply and inflation were highly correlated
because it was already a developed country.
Whereas in the US, we had this like big,
untouched continent, more or less.
Plenty of land
and, you know,
plenty of gold.
And so they could actually grow money supply quite a bit
and not have it show up in prices because there were just
fewer supply constraints.
So we had a bigger than normal kind of gap there.
There are other periods of time like
Japan after World War II.
I mean, they were just
the most insanely productive kind of
civilization for like several decades
after that. It was like a huge kind of productivity
miracle uh australia uh with the rise of china um there was a long stretch where australia had a
bigger than normal um money supply uh growth compared to inflation because you were getting
all this investment from china and all this demand for of commodities from china yeah um and then
in the whole developed world throughout the especially the 90s and the 2000s when you had
the rise of offshoring, China, and just in general automation, so even domestic automation,
they dramatically lowered the cost of manufacturing. And that was disinflationary.
And where inflation showed up then was things that were not getting automated. So hospital services,
education services, anything that required other workers in developed countries doing things for
you in some way that's the part that wasn't getting offset rather productivity growth so you
had kind of pockets of inflation and pockets of disinflation um going forward you know we've
already kind of optimized a lot of what we're going to get out of globalization manufacturing
automation that sort of stuff uh which means that kind of really the next realm to tackle is to try
to make some of those white collar services less expensive more more you know less human labor
intensive um and so i do think that ai is you know it's it's kind of the the next major thing
where depending on how good that technology can get and how efficient it can be used um that can
keep costs down and obviously you know just like how manufacturing automation and offshoring uh had
you know there it there were losers and winners from that because in the us we had the rust belt
for example yeah um the uk is also a part of time has been been hollowed out industrially definitely
And so there's losers to it, but from a productivity growth standpoint, AI is kind of the main thing.
There's no other clear area, at least to me, where we're going to get it rapidly better at making something other than kind of white collar services.
See, this is where I have a couple of worries, and I'm hoping you can kind of ease my fears on this.
Because the big question I have is at what cost?
Because we are definitely,
I think AI is going to increase productivity massively.
I think it's going to replace a ton of white collar jobs.
But what happens if that is the case?
Because we saw, like you said, in the Rust Belt,
when a load of manufacturing jobs went over to China, essentially,
that there was a huge opioid epidemic.
It was like the economy of despair, essentially.
I think we could see something like that.
But instead of it being the blue collar workers in the Rust Belt,
is going to be the white collar workers on the coast.
And then on top of that, that's question one.
On top of that, what happens when people start losing jobs to AI?
Because I don't think you need a huge proportion of the population
to lose their jobs before you start seeing people defaulting on their debt,
their mortgages, their car loans, all that stuff.
And can this fiat system survive that?
Yeah, good question.
So starting with the first one,
it all depends on how quickly it happens.
I mean, this has been a pattern going back really since kind of the dawn of hydrocarbons.
So before then, population growth was pretty slow.
Technological growth was pretty slow.
The reason hydrocarbons accelerate everything is because, for example, a barrel of oil is
the energy equivalent of thousands of hours of human labor.
And it's just an enormous productivity boost.
Once we got coal and then especially oil and gas, huge effect.
Um, and it started like, for example, we used to be depends on the, on the area, but you know,
two thirds of the population would work in farming or kind of close to farming.
Uh, and that's just subsistence farming, uh, or near subsistence farming was kind of just the
baseline. Um, but when you have hydrocarbons and you have tractors and you have other kind of,
uh, high tech equipment, uh, and this is of course high tech a century ago or a century and a half
ago, it allows vast majority of farmers to stop farming and to go do other things. They can go be
engineers and doctors and accountants and, you know, the rest of civilization. So it ends up being
that 2% of the population can feed everyone instead of half the population having to do it.
And of course, if that happens in 10 years, you've got a lot of out of employed farmers.
But if that happens over a generation or two, it just means that, yeah, it's an adjustment. It
means that someone who was a farmer's son and was going to be a farmer instead goes to medical
school. And it's most people would consider it a good thing. It's kind of like, okay, the next
person will be kind of more educated and more able to travel and, you know, generally do other
things. And, but, you know, if it happens quickly, it can be disruptive. The same thing is generally
true. I mean, you know, if it takes 20 people on a manufacturing line and you find ways to automate
that and make it so you only have two people overseeing bots and fixing them sometimes and
call you know fixing edge cases and occasionally calling in a tech expert when you really need
something help that's a good thing it's obviously bad if it happens in a 10-year stretch uh for
people that they can't retool their careers and change everything um so i think ai is no different
which is um you know a lot of iterative tasks uh we i we on average we want to spend less time
doing those yeah uh now obviously if you make your living from doing those things
that's disruptive if it if you know if you'd wake up one day and compared to two years ago
your services are just greatly devalued um that's that's there's no way around it that's rough
um but if it you know happens over a longer stretch it's fine and then even if it happens
over a shorter stretch there's an inevitability to it which is you can put kind of artificial
constraints on it but it's just it's like a jobs program at that point it's like we have a cheaper
way of doing things um but we have to kind of slow it down on purpose yeah but the genie's out
of the bottle genie's out of the bottle yeah pandora's box is opened um and you know i think
i still think there's we don't know for sure how quickly this is going like i i'm an ai bull but
not like the super bullish kind.
Like there are people that you'll see people
kind of talk in their own book,
like, oh, in 18 months,
it's going to make all jobs useless
or kind of these, and like, not really.
It's, you know, there's obviously a lot of things
that require conscious thought.
And there are a lot of things that can be iterated on.
And of course, the longer you look out,
you never want a short kind of multi-decade
human productivity,
but on five-year, 10-year timeframes,
they're not magic.
I don't think this is an 18-month thing,
but I could definitely see it happening in a decade.
That could also be too quick.
I think we saw in COVID
when people were losing their jobs
and they were retrained as a computer programmer
and now computer programmers are completely getting disrupted.
I find it hard to believe
or hard to imagine the future
where your 50-year-old accountant or lawyer
has to retrain to become a plumber.
That seems like a crazy timeline.
Yeah, I don't think that happens.
I think, so your second question was, how can this potentially impact like credit cycles
and things like that?
I mean, basically, so we've been under a two-speed economy for a while.
That's one of the kind of the risk factors when you have fiscal dominance.
So in the US, for example, if you're an older American, you're on the receiving side of
social security and healthcare.
Obviously, there are richer older Americans, there are poorer older Americans, but on average,
older Americans are richer and they're the recipient of bigger deficits.
In addition, if someone works in defense,
and that's where a lot of our money is going,
people on the receiving side of the deficits are generally doing well.
Those that own assets that are getting inflated by all the deficit spending
are generally doing well, whereas those who are not on the receiving side
are generally the ones that are more struggling.
And I think that AI is going to actually probably add fuel to that fire,
which if someone is an earlier adopter of AI
and is using AI to be more competitive
than their peers or their competitors,
then they'll probably view it as a good thing.
If someone just wanted their status quo
and they start getting disrupted by AI,
I think it's going to be a rough time.
And I think, I mean, kind of like how we see in the US
and other places, you'll see wealthy people
and a few blocks away, you'll see like tent cities.
Like I do think that there's,
that risk is going to keep happening,
which is that there are some people that it just,
everything kind of aligns.
And there are other people that just can't find an avenue
to get a handle of things
because they might have done an educational path
and taken all the student debt.
And then their income is now sharply reduced
because of AI.
See, this is like, again, getting back to the debt cycle.
This is where I see it as an inevitability
that we have UBI at some point.
Because the social unrest,
if we did have the rich suburbs next to tent cities,
will be insane.
And like you say, this is when revolutions happen.
And so surely to kind of stem any of that,
they're going to do something like UBI.
I think there's a good chance.
I mean, yeah, you could have like a robot tax,
you know, basically.
Like, so yeah, yeah.
I think on a long enough timeline,
that could become more commonplace.
And I mean, there are, like Japan is an economy
that's very interesting because they have the worst demographics issues roughly in the world.
I mean, other ones are now kind of catching up, but they've had the long-term bad demographics.
Really aging population.
Aging population. Now, I mentioned before how some of these things tend to cascade into other issues.
They've actually managed to mostly avoid the cascading problem. So they were highly productive
for a long time. So they had huge trade surplus, which then turned into current account surplus
because they take all their capital
and then they buy bonds and equity and commodity deposits
and all these assets around the world.
So they're getting interest in dividend income
from the rest of the world.
So they've kind of set up a financial fortress,
even though they have a high sovereign debt
in their own currency, they also have tons of assets.
So this is why they could have such high debt
without really seeing inflation.
Yeah, that's why they're an outlier.
And then in addition,
I mean, the early adopters of automation,
I mean, they were kind of known for automation and robotics and things like that.
And then they also have a very kind of harmonious society.
And they didn't fall into the pattern of saying, well, let's fix our demographics issues by dramatically increasing our immigration.
And so they said, we're going to just tank this issue.
They also did things like, I mean, even though they're older than the average American or the average Brit, they spend way less money per capita on health care.
and yet live longer.
So there's social aspects there.
There's also how they structure their healthcare system.
They've had very little military spending for a long time.
So they're running, on average, pretty substantial deficits.
Not as big as people think.
But they've been running fairly large deficits.
But actually, go back to the people.
Their deficits are just going into healthcare,
going into kind of well-being.
And it's not, I mean, obviously, Japan has a,
it's known for workaholicism.
not very productive corporate sector
in terms of how many hours worked versus output.
When you look at quality of life or happiness ratings,
they're not to be near the top,
like say some of the Nordic countries are.
Those two seem very aligned.
Yeah, but they've avoided a lot of the crises
that you'd otherwise expect when you're 15 years.
I mean, they're further into fiscal dominance
than any other country.
And that just kind of shows that, yeah,
it's a combination of debasement
and then trying to keep the wheels on the car
in terms of productivity growth.
I mean, they've managed their energy policy pretty well.
They haven't made any crazy decisions around energy.
So, I mean, yeah, things can be softened
when there's a social contract in place
and people kind of feel part of a nation
that they're not just being,
it's not like one side is just kind of screwing over another side.
But yeah, I guess if things get more automated,
certainly from the left side of politics,
you're going to get more and more calls for UBI.
And it'll probably be more and more enticing
to a larger share of the population
should some of these AI technologies
keep taking off as the polls expect.
Yeah. And then what does that do to the debt crisis?
Because we've had debt cycles in the past.
You've talked a lot about the 40s
and comparing now to the 40s.
Is there a chance this is the last debt cycle?
Like, could this be the one
that actually breaks the fiat system?
I think it could.
I mean, well, the funny thing is
the fiat system as we know it only goes back to the 70s i think if we go back a little further
we can say it kind of goes back to the dawn of the telecommunications age um because and i talked
about slot and broken money yeah which is for most of human history like information couldn't really
go faster than humans could get somewhere so by by foot by horses by ships the fastest you could do
like birds or fires in the night or something,
but that's not high bandwidth.
So you were kind of constrained.
Once we had the telegraph,
so it was invented in, say, the 1830s.
It wasn't widely deployed across ocean
until the 1860s.
You started to be able to share
fairly high bandwidth information around the world.
By the time, it wasn't until the early 1900s
you were going across the Pacific.
And at that point, you could do transactions
at the speed of light,
but not settlements. Settlements, how do you do irreversible value transfer? Well, you ship gold
and you audit and ensure the gold and it's a whole expensive, lengthy process.
And that delta, that mismatch between fast transactions and slow settlements was like a
godsend to the banks and the central banks. It said, oh, you need a middleman.
It centralizes all the money.
It centralizes all the money. It's a massive tailwind for the money centralizers.
before it's not that banks didn't exist before then it's not even that central banks didn't exist
before then in some cases it's that their services are more optional because you're you can still
just really hand a coin to someone or but when you literally are doing when when when commerce
is happening globally and most money's slow it's those intermediaries that have all the power
and so from from really the dawn of the telegraph until the dawn of bitcoin there were there was no
there was no fast settlement and then so bitcoin gets bitcoin gets uh developed and then even then
of course there's no it's worth nothing it has no network effect it's a novelty so even you know
for the first say decade of its life it wasn't moving the needle at all even today it's it's now
it's increasingly part of the conversation but it's still a small asset in the grand scheme of
things um but basically i would say that we we've reached the height of fiat currency in the sense
that we've been in this period of time
where there was no alternative
between fast transactions and slow settlements.
And now we have alternatives.
And then while fiat currencies enjoyed
that kind of monopoly on what works,
they broke all their ledgers.
They bloated their entitlement systems.
They built kind of social insurance
with the idea that every generation
is going to be as bigger, bigger than the prior one.
And all those things are kind of coming home to roost.
um so i do think that one i think this cycle will last a lot longer than people think i mean that's
part of why i use nothing stops his train there's two sides of it one is no matter all these attempts
they're going to try to reduce the deficit spending they're almost all going to fail
so people were really excited about doge i was like nope here's why didn't even move the needle
um so it's on one side it's bearish but it's also saying it's also the wheels are going to be on the
cart longer than you think, just because I think this is going to be a very stretched out cycle.
So how long do people think it's going to last? And how long do you think it's going to last?
I mean, there were people that thought the global financial crisis was going to break it all.
There were people that thought COVID was going to break it all. Then there were people that every
crisis, when the regional bank crisis happened, like, this is it. And it's always like next year
next you know five years um i mean i i there's only so far you can look out because like literally
you can have political structures be entirely different in say the 2040s yeah you know so i i
look out something like a decade um in the u.s for example that's when our social security uh trust
fund uh technically the surplus runs out we've got something like a three trillion surplus in there
just from prior uh overpayments that's now in draining mode because we're very top heavy
And then either Congress has to kind of say,
well, all retirees are now going to get 80 cents on the dollar
or 75 cents on the dollar,
or we're going to print the difference.
I know which one that won't be.
Probably, yeah.
That actually requires a decision at that point
because it's kind of a separate pool of money.
So it'd be interesting to monitor.
And I mean, the political discourse around that time
is going to be like lit.
And so, but I think I look mostly into the 2030s
and say nothing really...
seems like it's going to slow this down anytime in that investable timeframe.
You look out further than that and you get science fiction.
Science fiction. We will get onto that.
So if this is going to take longer,
what should people be doing now to protect themselves through this?
Well, one, I mean, for people that have the luxury,
it's making sure you're living in a spot that you're comfortable with,
either in terms of the political structures, the social structures.
um you know all the things that you somewhat can control on average wealthier people have
more optionality there than than people that are lower on the income stack um trying to make sure
either your job is ai resistant or that you're using ai uh that you're not just kind of ignoring
the trend that you're you're you're trying to to use the tools to be as as competitive as you can be
Yeah.
For long, I mean, owning where possible scarce assets
and trying to avoid bubbles,
because even scarce assets can have five,
10 years of price declines
if they were bid up into a manic bubble.
Is this gold that you're really talking about here?
I think gold was overbought.
I hesitate to call it a bubble
because if we do have a long-term popping
of like the whole sovereign debt crisis,
gold has to get pretty insane numbers to like truly have like a 10-year loss like a lost decade
but i mean gold had a lost decade really after 2011 it got bit up to to high levels
and i think it's obviously taking your breather now for a period of time but i think i mean there
for example i use costco stock as an example uh it's like people look at it's like the most
bulletproof company in the world it's one of the few companies where like employees generally like
customers like it and investors like it usually you only get one or two out of the three somehow
they you know it's the trifecta it's the trifecta a lot of probably rests on the hot dog um uh but
costco trades like 50 times earnings crazy uh for a you know 40 plus year old blue chip retailer they trade it they trade it Yeah that like tech stock valuations Yeah tech stock valuations So nothing stops that from one day
going down to 25 times earnings,
which is still actually rich.
That's still premium multiple.
And it doesn't have to happen all at once.
A really good example is in the late 90s,
we think of it as the tech bubble.
But for example, Walmart was trading 50 times earnings.
Coca-Cola was trading 50 times earnings.
They had very good growth in the 90s.
and over like the next 10 15 years their stock prices basically just went sideways
um you know sideways can be up up 20 down 30 up you know it's not literally sideways but it was
a chop solidation chop solidation for like 10 15 years while their earnings would double or triple
until literally through time they'd be trading at 20 something times earnings and that could
absolutely happened to stocks today that look like costco um or like a couple years ago i mean
recently we've had sales in the mag 7 you know these high quality companies that some some in
some cases people were paying really high multiples for um their fundamentals are still doing fine in
many cases but but you know especially with capex and ai um they've been running into frictions so
the point of all that is whether it's whether it's gold whether it's high quality real estate whether
high quality equities those are generally things you want to own obviously bitcoin as well and just
you just want to be careful of your enthusiasm when you're buying it you know you want to you
don't when when it's just all over social media when it's at a strictly high valuations that's
when you generally want to have a pause and say okay even though there's money printing can this
thing still have five or ten years of being dead money um but other you know basically buying scarce
assets at reasonable prices, trying to manage your location if possible, trying to make sure
on the right side of trends where possible. So there's obviously, I'm sure a lot of people
listening are psychos like me that are just basically 100% Bitcoin. But for an average
portfolio, how heavily would you weight Bitcoin in it? So for a lot of people, they have like zero,
1%. So I mean, I say, well, I think zero is the wrong number. That's kind of my kind of baseline
is like there's a lot of numbers that can make sense zero is not really one of them i think
uh so it starts by getting off zero um i i think five percent is reasonable i mean it's funny if
you look at portfolios um gold has been underweighted in portfolios for a long time despite
a lot of evidence showing how useful it is for portfolios especially replacing some of the bond
component uh so my view is always have more gold than like the baseline which is almost nothing
in a typical kind of managed portfolio and with bitcoin i mean i was early to put say
five or ten percent in um now in my personal like holdings it's i i hold cold storage bitcoin
uh you know i i do venture in in bitcoin um so for me it's obviously much higher than that five
to ten percent especially if you go through a couple cycles and you don't really sell you just
it just becomes higher it becomes higher um but the way i kind of look at it is like i think
five percent can make a lot of sense and then as someone you know if they if they do a podcast
circuit and you know listen to like your show and other shows and they read the books and they you
know they spend a you know 500 hours in the space i mean they then they know maybe they want they
might want to dial that number up but they're the ones that know when to do that not not me telling
them that they want to do that yeah that's fair and last question on this before we move on some
other stuff and we've spoken in the past and you said your base case was that we were going to have
money printing but it was going to be sort of gradual money printing that was sort of aligned
with GDP growth.
Does this war in Iran change that?
The short answer is potentially.
So I started pointing out the gradual print scenario.
I mean, in my research service,
over the past couple of years,
I've been kind of aiming that roughly in this 2025 period,
we would have had it.
And that was actually the Fed's own projections roughly too.
It was one of the few times I agreed with the Fed.
Because a lot of it was just kind of pretty,
like unavoidable math.
um and so when we got to late 2025 uh we started to get that gradual print scenario it started
kicking in december uh so actually a few months into the gradual print now in spring of 2026
um so iran war aside that's the baseline is that they're growing the in the u.s they're growing the
base money supply um roughly in line so that it's a pretty standard percent of gdp um and they're
not trying to stimulate they're trying to do that to keep fractures or bank lending just the the
wheels just kick the can down the road indefinitely um the war in iran it doesn't immediately threaten
that but if it stays closed for months and you start to get if gasoline in the u.s doubles
and other countries just i mean like you know like egypt starts to shut off at 9 p.m every night and
you know the philippines gas rationing and europe you know is freaking out if it's just across the
board, if there's economic turmoil, you could start seeing, on average, rising U.S. deficits.
And then the central bank, you know, it can run into liquidity issues. And they have to kind of
up their expected rate of money supply growth to kind of keep the treasury market functioning,
to keep the interbank lending market functioning. And then it comes down to, will a highly polarized
congress agree on a stimulus especially for a war we began right that's tricky it's like oh hey your
gasoline prices are high uh because we initiated a war um but we here's a gasoline stimmy you know
yes uh that's good looking at that through congress um and so there are certain like kind
of binary decisions at that point that i'm not going to try to predict what even because not even
being tabled in Congress yet, really.
But the first step is to just,
if asset prices struggle,
if consumers struggle,
if the economy struggles,
all of that impacts tax receipts
and that starts to widen the deficits,
do you start to inch out
of a potential gradual print scenario?
But I don't think we're there yet.
Very interesting.
Can we do something a bit different?
Sure.
Because we've done, I don't know,
on what Bitcoin did,
you must have been on 25 times
or something crazy like that.
And I don't think we've ever really talked about you.
It's always about macro.
And when we were at dinner last night,
you've got a pretty crazy story.
Everyone knows you as one of the best macro analysts in the world,
but you came from very little.
Can you talk about your childhood?
I mean, it's a lot.
Yeah, I think there's a couple of podcasts where it's come up,
but he has not used something I kind of talk about a ton.
I mean, I was homeless for a few years as a kid
and then grew up in a trailer park is kind of the short of it.
How old were you when you were homeless?
Roughly four to seven.
That's crazy.
Give or take.
And so you were on this,
were you living literally on the street
when you were homeless?
So it started out,
first we were living with my aunt.
Then we left and we were living in a homeless shelter
and a couple of different homeless shelters.
Then we lived in a motel, like a cheap motel.
And then at the last stretch, we were living in a car.
And like we would, for example, to bathe,
we would sneak into a public restroom
and crack a dawn before anyone's there
and clean ourselves off.
So not quite like street street,
like not like, but if you're in a car
and it wasn't like a camper,
it was like a sedan.
Like, so yeah, living in a sedan.
Whenever you like look back at your childhood,
like I had a great childhood, very privileged,
but I think you always look back on it
and you remember this good times.
Are there any parts you look back on that fondly?
um well some like when we were in the homeless shelters especially because we were we were in
two different states the the first phase of it wasn't that bad it wasn't a very crowded shelter
there were other kids there um and so it didn't feel that normal from a kid's perspective you can
like kids don't need a ton if they feel safe and did you feel safe i did feel safe that's the thing
I felt safe at that time.
Wasn't like actively,
never got to the point where I didn't have enough to eat.
So it wasn't like third world poverty.
It was like developed world homelessness
and not the most extreme kind.
But that, it didn't, yeah, it was totally,
certainly workable.
I think the bigger issue was conflict between my parents.
That's the part that a kid gets kind of tuned in to,
not necessarily the physical stuff.
once we kind of got into the motel
and then the, especially the car
that's when it becomes a lot less
even for a kid, a lot less fun
and is this why you got into MMA?
was it like an idea of defending yourself
while you were living in these places?
that might have been part of it
I think it's actually contributed to why I got into investing
because from my, when I went to go
so all that homelessness I was living with my mother
it got so bad that I went to go live with my elderly father
um and in his trailer um and from that point on i was like a super saver like if i got christmas
money or i got easter money or i um got allowance i would save it i even got into precious metal
collecting like literally as a kid no yeah little little uh silver coins and eventually like little
like um one tenth ounce or up to like a half ounce gold coin this is back when gold was only like
$300 an ounce.
So I was a little bit of a coin collector.
I could have told you about inflation back then.
No way.
Yeah, I was just for whatever reason.
Did you keep any of those coins as like a momentum from then?
I held them until 2011.
It was the only time I ever sold physical precious metal
because it was like a bubble.
So I actually sold my precious metal collection then.
I eventually rebuilt it much larger.
But yeah, for years I had coins.
And then I got into, when I was a teenager,
I got into equity investing.
And I think a lot of that was
because I went through this period of instability.
So I think the pendulum for me,
you know, like how people in the Great Depression,
to use a more extreme example,
like you'll have like a grant,
like especially in the US,
we'll have like a grandparent
that like saves the rubber bands
where like never,
this never throws anything out.
It's super economical
because they lived through the Great Depression
or they were a kid through the Great Depression.
So it's kind of got imprinted on them.
Waste not, want not.
Exactly.
So I never developed that tendency,
but I did develop like a high savings tendency
from literally childhood, I think in part because I was used to chaos and wanted less chaos.
And so how do you go from there to, you know, going through college,
college is expensive in America. Like what happened there?
So my dad helped with the first year of college. After that, it was all student debt and part-time
jobs. So I had to work my way through college, which is, I mean, it's especially if you're doing
an engineering program i mean they're not they're not easy so it's um uh like i was envious of the
kids they could just you know they just it was all covered for them they had no debt yeah uh for me
it always kind of felt like i was on a timeline i always had to you know try to find time for it
but yeah i was working my way through college graduated got a job had uh 50 000 in debt which
i mean today is probably the equivalent of like 90 000 in debt yeah um like it was equivalent to
like basically a full year's gross pay. But of course, when you factor in your own expenses and
everything, that takes many, many years to pay off. So then I just, over time, gradually paid
off the student loans while continuing to invest and just kind of snowballed. So if as someone who
was investing from really young, why did you not go into that as a field? Why did you choose to go
into engineering? I was torn. I, when I came down to university, I was like either finance or
engineering um i had always in school i'd always been interested in kind of the math and science
classes um and for whatever reason it was kind of arbitrary to pick engineering um but then i over
time i found out that my heart was in finance um like for example there were like other kids and
other other students in university they'd already been like building circuits and stuff in like high
school and i was like oh you're like a real engineer like like i'm just showing up like
so i never was like a hardcore like super engineer um when i eventually graduated
uh i eventually um you know like for me it was the com it was engineering like we were building
aircraft simulators but from the beginning i kind of realized i want to do a hybrid approach i want
to be an engineer but i would eventually want to get like say maybe a master's in business
and then be like a manager of engineers
or managing the finances of like an engineering facility.
Kind of the hybrid technical decision
and kind of more business, that hybrid.
So I said, okay, I'm a decent engineer,
but I'm not the type of engineer
that's clearly born to be an engineer.
They're just absolute psychos.
And I'm like, I'm good, but I'm not like a psycho.
But I was the kid that was like watching.
When I was like eight, I could tell you what the Nikkei was
and what the price level was of the Nikkei.
because i would watch the financial section of news i was like that i was like that i was like
that kind of psycho so i was like okay clearly i have to get more into finance so in my engineering
job i gradually transitioned it toward um managing uh engineers and running the finances of the
engineering facility making kind of big technical financial decisions um while i was writing about
investing in the early kind of blogging days of the internet um and i had like a little blog about
stocks and I eventually sold it to a larger publisher. And then at some point I started
LyndAlden.com and it just grew so big. I had to leave my engineering work.
Why do you think there's such a crossover between Bitcoin and engineers? Like Michael
Sayles is an engineer. You are. Checkmate. I'm sure there's a ton of others that I can't
think of, but there seems to be a real crossover there.
I mean, I think because Bitcoin is a hybrid of finance and tech. I mean, in order to assess
it you have to have at least a decent understanding of its tech i know if you're because i mean if
you're comparing one is can this thing even work two okay now there's thousands of altcoins and
they're all claiming to be the next bitcoin or better than bitcoin or they fix you know bitcoin
is too slow we have to yeah so you have to build a set okay what are the trade-offs then uh how do
network effects and protocols historically develop uh what what you know what are what are these other
coin sacrificing to be quote unquote faster, more programmable and all this, um, that requires some
degree of, of technical knowledge. Um, so it's inherently multidiscipline field. So engineers
that also like finance is kind of the perfect background to find Bitcoin and sort of appreciate
it. And I think I'm right in saying you first started writing about Bitcoin in like 2017. Is
that right? That was the first article. Yeah. But you, you weren't really all in Bitcoin in a sense
until maybe 2020, 2021.
Is that right?
It was the 2019, 2020 period.
Yeah, so I wrote about in 2017.
And by that point,
I was convinced on the fundamentals.
I still, I had two main hangups at the time.
One was I wasn't sure
that the network effects would be strong enough
so that, okay, there's Bitcoin.
That was also when Bitcoin Cash was,
and I hadn't done like a thousand hours on that.
Ethereum was really big.
And I was like, I don't know five years from now
what the market share,
how fractured the market share is going to be with all the different coins um so that was number
one and number two i was like okay in in late 2017 i'm like these are this is a bubble you know
might not be the end of the world bubble but this is i mean this is a very euphoric pricing so i was
like not gonna i was like interesting tech not gonna touch it but what i did was that in in so
before that i had watched prior cycles i saw like the i knew someone who mined it in 2010 and i was
like oh that's neat it's super cool but i just i don't know i didn't i was like i i was always like
i should look more into that i was never like dismissive i was like oh that's neat i should
look more into that i just don't and then cycle comes and goes and then it was like the 2013
kind of cycle and i was like oh it's like the like the cool like libertarian money that's you know
i hope they do well and it's kind of yeah i didn't follow up on it but in 2017 when we had that kind
of third it was like my third kind of awareness i was like i'm not going to just forget about it
this time so then i was correct and it did have a big correction it did do a long stretch of
underperforming most other assets but i watched the blocks as were play out um i i kind of
kept thinking about how to analyze how to value it um and so by 2019 i started to get pretty
convinced and i was kind of like but what's a good entry and then covid happened and i was like well
that's my entry so i mean that's a pretty good entry that's still my proudest buy i think it was
March 9th, 2020.
That's good.
I got it in April.
So it hit the bottom and it's coming back up.
And because I had a long stretch of history
of kind of investing in precious metals,
I mean, silver had a big drop.
Gold had a big drop, a smaller drop than silver,
but silver was like a really brutal
and a Bitcoin was behaving just like them.
So when they kind of the V shape happened,
I was like, I see, like I could sell it
where this was going to go.
So I got in pretty heavily in April and afterward.
When you see your friends from the engineering days, are they weirded out that you're this like micro superstar now?
I don't think so. I mean, I, you know, I think you always see people, you know, the same way.
And also we're in kind of a bubble. Like, you know, it's funny to them that they can see me on YouTube everywhere and like crazy number of followers on social media and stuff.
But we're, you know, people outside of our niche, you know, we're like little micro celebrities, you know.
I think you're kind of outside the niche, though.
You're in multiple niches, at least.
Multiple, but yeah.
I mean, I think they find it interesting.
But yeah, it's just nice catching up with them.
And when did sci-fi come into this?
Oh, yeah.
We've got to plug the new book.
Plug the new book, sci-fi.
The Stolgard incident.
I wrote a sci-fi book.
I told you I've started reading this,
but I need to read it when I'm not going to bed
so I can actually concentrate.
Yeah, it's not one of those light beach reads.
No.
It's pretty dark and pretty, but I, so I, I mean, I've long been interested in the kind
of fiction.
And I, I mean, the story idea for that, it's been in my head for well over a decade, but
I was like, when am I possibly going to find time?
Cause I was like, working in engineering while also on the side, writing about investing.
And then eventually that took off.
Then I was like, then I was adding, I got into venture investing with Ego Death Capital.
I sit on boards of companies
I'm like when am I possibly going to find time to write
but in 2024 I wanted to just kind of
improve work life balance a little bit
and then also just because of
just kind of logistics I had a little bit more time in the evenings for a period of time
as I finally was like you know what I'm actually going to write the
thing that's been distracting in my head for quite a while
Did you use AI at all to write it?
Nope. All your hard work, that's the way.
just me i used ai as like a research assistant so i would like for example vr virtual realities in
there or uh gene editing or um uh like how good will batteries look in 50 years right uh like i
have an engineering background but i mean these these multiple it's a multi-discipline thing so
i would say like okay what is like here's my conception of vr in the 2070s like what do you
do you think of this and the ai would you know give me its analysis or or like how energy dense
could batteries be in the 2070s and what type of batteries are they likely to be um or here's this
laser design does this make sense so it was like a useful it's kind of a second search engine or
research assistant um sometimes i'd also i would give it a chapter and be like like what do you
think of these characters like do it do an analysis of this chapter or something like that
It's kind of almost like a beta reader.
Or I would say, do you see any, you know, proofread this?
Do you see any like obvious errors?
I still gave it to human editors, but it's like, you know.
It's like the first cut.
Yeah, the less time editors have to find periods and, you know, misspellings,
the more time they can focus on substance.
It's funny.
I was excited to read this book anyway,
but we were at dinner the other night with Eric Herzman,
and I was going down my Matthew Pines conspiracy crazy shit.
And every time I mentioned something, you were like, read the book.
Yeah.
So I'm very excited now.
I say on behalf of everyone, it's really annoying that you can just do everything.
I can't do everything.
Like, how do you just pump out what I'm sure is an incredible sci-fi book?
How long did it take you?
So actually, the funny thing with both this and Broken Money is the actual writing process
was very quick.
Because with Broken Money, I had been thinking about doing a book for a while, but books
are super tedious.
Nobody should really write books for money.
if you work in finance like books are not where money is not a good investment not a good investment
um so my my strategy was don't write a book unless you feel like you have to
uh and we've broken money like the pillars the core concepts is built in my head so much
the book was there and it became more distracting not to write it okay like i had to just get it out
so by the time i actually go to write it it took six months to write it and another six months of
polishing it and literally within a year broken money's out and it's it's rather polished 500
page finance book but it's based on years of research but the actual process was actually
surprisingly quick and i was i was so passionate about it that it was like just hours and hours of
like late night just grinding and it just kind of came together very quickly like a fire hose
and this was kind of the same way which was the first draft was little over two months
to write a 400 plus page book.
I added a couple more chapters
in like the month or two after that.
But then actually that took a longer refining process
than even broken money
because fiction is not my expertise.
So that went through like broken money
and went through fewer rounds of editing
and fewer beta readers
because I was more sure of it from the beginning.
This was like writing exactly in my area of knowledge.
So other than a handful of people seeing it I just knew it would go out and just kind of people would experience it the way i experienced it whereas this one because it fiction i was like i have to get more eyes on this i have to go through more iterations i have to have editors that can
make sure that my prose is like in line with with genre conventions and things like that so
it was a shorter writing period but then a very like a year plus long revision period which one
more enjoyable to write? Actually equal. They both, both of them, the, the, what they had in
common was that they both consumed me when I was writing them. They like, I wanted to like get other
work done so that I could like work on my book that night, um, for both cases. So if anyone is
interested, what's like, what's the premise? How do, how do we hook people in? Uh, the premise is
near future. Um, and it's not a dystopian world, but it's kind of like our world further along into
like surveillance and AI.
It's like a Black Mirror episode.
Yeah, kind of.
It's a Black Mirror episode.
But it's action oriented
because basically what happens
is a terrorist with strange abilities
starts kind of doing a series of violent attacks.
And this investigator tries to figure out
why she's doing it and to find and stop her.
And there's a rabbit hole that they go down.
I love it.
I've started the book.
I've got a long flight coming up.
So hopefully I can get through a big chunk of it.
But go and check out the Stolgard incident.
Buy it.
Thank you, Lynn.
You're awesome.
This has been fun.
Anywhere else you want to send anyone apart from the book?
People can go to lynnaldon.com.
But yeah, I think they know where to find you.
They need to buy the book.
They know where to find you.
Thank you, Lynn.
Thank you.