You've had a dynamic where money has become freer than free.
You talk about a Fed just gone nuts.
All the central banks going nuts.
So it's all acting like safe haven.
I believe that in a world where central bankers are tripping over themselves to devalue their currency,
Bitcoin wins.
In the world of fiat currencies, Bitcoin is the victor.
I mean, that's part of the bull case for Bitcoin.
If you're not paying attention, you probably should be.
Robert, thank you.
Thank you for joining me, sir.
Yeah, good to be here.
We got introduced by a mutual friend, Roberto, formerly known as and still known as popularly as Peruvian Bull.
He reached out and showed us the email said, had to talk to you.
We've been going back and forth a little bit through email.
this week and just really excited to touch on some of the topics that you're focused on and
passionate about globalization, silent depression, Triffin's dilemma. And as we were discussing right
before we hit record, let's start with globalization. Because obviously, I think this year, particularly,
we're seeing political reactions to globalization in the form of tariffs and economic policy
here in the United States making big shifts. And so let's start with globalization. How did it get
to this point? And where do you see it going in the future?
Yeah. So really started in the 80s, at least from what I can gather from
balance of trade, current account data. Started in the 80s. And basically, what we did was we
offshored over 5 million high-paying manufacturing jobs in critical industries to the rest of the
world. And the reason that this was done was the labor in the developing emerging market economies
is much lower. And so if you're a multinational corporation, you're able to increase your profit
margin significantly by utilizing that cheaper labor despite being an American company and
eventually selling your goods in America and benefiting from the American people.
So yeah, it started in the 80s and it also kind of coincided with some of the silent
depression stuff.
There were clearly some immigration policy, even under Reagan, under both political parties,
that kind of started to exacerbate some of the wealth dynamics that we started to see.
But the other side to a trade deficit that many people don't talk about,
they're talking about it more recently, which I appreciate, is this capital account.
So if you are running a current account deficit, as the U.S. has,
there is an opposite side to that, which is a capital account.
And so we've been running a current account surplus,
meaning we are importing the value of goods that we are importing is higher than the amount of
goods, the value of goods that we're providing to the rest of the world. And the way that you
balance that current account is by an inflow of capital. And so this, you know, kind of goes into
the Dutch disease dynamics with the dollar where, you know, certain industries have done very,
very well from this. You think FIRE, right, is the little acronym that gets thrown around finance,
insurance, real estate. If you are a MIT grad in engineering, you're not going to build rockets
for NASA. You're going to build an algorithm for Jane Street. Certain industries have done very
well. With these billions and billions, hundreds of billions, cumulative, it has worked out to be
trillions of dollars, tens of trillions of dollars actually, in capital inflows. This can be
real estate. This can be equities, corporate equities, the U.S. stock market. This can also
be treasury bonds, of course. And certain industries have done exceedingly well. And I
would also point out those that are wealthy enough to afford to own financial assets have also done
well as not only the corporate profit margin has been boosted due to that cheaper labor boosting
the profit margin for the corporation, but also due to the structural dollar bid.
And this is part of the reason the dollar has become kind of so grossly overvalued.
And as the dollar continues to appreciate, our goods become less and less competitive
in the rest of the world.
So there's a lot of kind of concepts interlinked there.
But I think it ties in well to some of the tariff dynamics that we're seeing now, you
know, a rise of what I would call, I wouldn't call it protectionism so much as I would call it
economic nationalism. You know, for the longest time, we, for some reason, our policymakers
worried more about building the middle class of Indonesia and Malaysia and China and India,
than they worried about building the middle class here. You know, and of course, traditionally,
you know, manufacturing jobs, you know, were kind of the core, the cornerstone of the kind of
post-World War II American dream. The family, especially in the Rust Belt, we've seen
that area have been absolutely decimated. And this has led to not only the economic and financial
consequences with this kind of huge amount, tens of trillions of dollars coming into
capital markets, boosting the value of, say, stocks and keeping bond yields low,
boosting the dollar, of course, and real estate. Not only that, but you also have this dynamic where
you know, socially in America, we see the highest suicide rate going all the way back to the Great
Depression. We see deaths of despair that are double the rate that they were during the Great
Depression. So deaths of despair being defined as suicides plus drug overdose. We know that,
you know, the prior industrial heart of America in the Rust Belt, it was especially hit during the
opioid crisis. And, you know, I think a lot of these concepts are kind of interlinked and it
goes into the issues with the dollar.
You know, Dutch disease, I think,
refers much more to the benefit
for certain industries, right?
The Netherlands discovered this great natural gas field
that was going to revolutionize,
you know, boost their economic output.
Well, it ended up hollowing out,
you know, all their other industries
that had been core to their kind of economic success
leading up to that.
So, you know, we've seen this hyper-financialization
of the economy.
that's what's really driving the wealth inequality story
is those who own financial assets and those who don't.
The current account deficit, the trade deficit,
is really great if you're one of the top 1%
that own the vast majority of U.S. equities.
The top 10% own 93% of household equity exposure.
We know the bottom 50% have debt.
that debt has skyrocketed in cost due to the interest rate hiking cycle. And meanwhile,
the top 1% to 10%, they own financial assets. And financial assets have skyrocketed due in part to
this current account deficit. I would say that the current account deficit on a quarterly basis
is about $450 billion. And so if you take that down to per month, it's about $150 billion per
month that mechanically must flow into the dollar and then financial assets within America. That's
$150 billion a month is a significant amount of money. And, you know, per quarter that would build,
I forget the exact number, I did the math, it was like eight or nine Ford class aircraft carriers,
right? So it's a huge amount of money that we are, you know, needing to finance via other ways.
And that gets into the Triffin dilemma with the need to run this current account deficit due to being the reserve currency issuer of the world.
And so I think, you know, I'm not supportive of every single thing that Trump has done.
But the one thing that I have been very outspoken in favor of is the tariffs and at least the attempt to start to address some of these issues.
I mean, it ends up being a national security threat when our industrial capacity is so hollowed out that we rely on what a lot of people would consider to be an enemy for 65% of active pharmaceutical ingredients.
Or we see on the defense side, we're losing a proxy war to a country with one-twelfth of our GDP.
and then you look at the net international investment position which has accrued over
many many years of this kind of prolonged current account deficit that nip refers to how much assets
do we own of the rest of the world versus how much of our assets do they own and that's negative
100 percent of GDP so it's it's a level I've looked for another kind of you know parallel to
that. And I've never seen a parallel to that in history, which means all of our, whether it's U.S.
Treasury debt, even corporate equities, to some degree, real estate as well. We saw in April what
happens when foreigners start to dump U.S. dollar assets en masse. And it basically brought the
president of the United States into capitulation on one of his core policy agenda proposals.
So the power that that net international investment position being so insanely large in a negative direction, that power is immense.
You know, foreigners literally own us to some degree.
And, you know, we start to threaten tariffs.
We put on tariffs and they don't like that.
They can just start dumping treasuries and force Trump to capitulate.
So there's a there's a number.
I mean, we we didn't get here overnight.
And a lot of these issues are interlinked.
are linked, they're complex and they'll be difficult to fully unravel. But I do see positive
steps in some of those areas. Yeah, this reminds me of a conversation I had with Lynn Alden
a couple of months ago after, I believe, from May or June newsletter, which covered this
sort of terrific, like the effects of Triffin's dilemma. You flood, you hollow out your
manufacturing base, flood these emerging markets with dollars so that they can build the things
that you're replacing. And then that flows back into financial assets. And I think what we sort of
dug into is that works for a period of time, but eventually it falls under its own weight because
you just have this imbalance socially, economically that exists domestically that is untenable.
Yeah. Well, I would, I would argue that, uh, you know, looking at some of the societal KPIs,
I'm a big, pretty outspoken on what I call GDP maximalism, right?
This idea that GDP is the end-all be-all for measuring the success of an economy.
I much prefer to look at real wages, for example, or the suicide rate, or drug overdose deaths
and deaths of despair, kind of broadly speaking.
I think antidepressant prescriptions, which have 13x'd in the past 50 years, some of those
metrics are pointing to a very sick society. And I think we see that with the political polarization
that, you know, to some degree, Trump is a symptom of, and I think it'll continue to get worse. I mean,
we see kind of, you know, I said it before, Mom Donnie, but I warned people, I said,
Trump is a, you know, your kind of populism, right? The kind of populism a lot of people might
like, but be careful because, you know, the, the natural consequence of kind of all of these things
is that we see the other side of, of, you know, left-wing populism. And sure enough,
mom Donnie kind of came out of nowhere and, uh, you know, did really well there. So yeah,
politically, I think, I think most of the issues we see in America are downstream from economics.
Uh, and, and that is not just because I'm a, you know, a macroeconomic nerd, but because that's
genuinely how the correlations that I found, you know, that's generally what the data supports,
at least for me. And, you know, like at some point, like you said, it has to come to an end.
Certain systems are not sustainable. And I would argue that a 7% pro cyclical deficit
in combination with a 4.5% current account deficit, you know, is not sustainable in any
in any reasonable world. And, you know, the unfortunate thing, you know, for us as Bitcoiners
is, you know, Lynn is great, talks about broken money and fractional reserve and debt-based money
and a lot of those concepts, which I think are great. I've been talking about this concept of
kind of global broken money, which is that in trade, you know, going back hundreds of years,
there have always been imbalances. There have always been countries that,
you know, run a trade surplus versus another country. The release valve used to be when it
was gold, gold backed money, the release valve used to be that the currency would move right to
offset the currencies were valued on balance of payments. For example, the currency would move to
offset that particular imbalance over time. You know, it's not an immediate overnight sort of
thing, but over time, the currency would be this kind of equalizing equilibrium force.
Well, that's completely broken down with the dollar's reserve status. The dollar,
at least as of a couple months ago, is even more overvalued on a purchasing power parity basis
than it was in 1985, leading into the Plaza Accord, when we saw this historic
weakening of the dollar. So the dollar has kind of remained way too strong for way too long,
and has just kind of exacerbated these issues. And if we had a neutral measuring stick against
which to measure fairly on fundamental basis, the actual strength of currencies, we wouldn't see
anywhere close to the degree of problems that we see. So that's one of the really unfortunate
things. And sure enough, we have central banks, gold has been on the rise. My hope is that Bitcoin
is joining that in terms of use as a reserve asset. The problem for America with something
like a Bitcoin strategic reserve, however, is that because we run a twin deficit country,
The only thing we can accumulate is debt.
When you think of it in those terms I think most people would agree that not sustainable If we start issuing interest debt to buy Bitcoin for example then at some point China can just turn around and say look all those 65 of active pharmaceutical
ingredients that you rely on us for to keep your people alive, well, we're only taking Bitcoin.
And because we're a twin deficit nation, there's nothing we can do. So the Bitcoin ends up flowing
out. A twin deficit nation by definition is kind of net unproductive. So really, we got to address
kind of the deeper issue, in my opinion, which is why are we running this twin deficit? And what are
some policies that can be done to address that actual underlying kind of root problem, if that
makes sense? Yeah, it totally makes sense. And going back to what you said earlier about Trump's
capitulation in April due to the dumping of treasuries, it seems since then. I mean,
there are still some posturing, hard lines, policies, decisions being made in regards to
tariffs, but it seems pretty clear a combination of Trump and Bessent specifically have sort of
committed to this, we're going to grow out of the debt situation and really turn it on turbo.
as Elon said a few months ago.
And I guess that's the big question,
like that capitulation, that recognition
that the only way out is through is a bit unnerving.
Yeah, I mean, I think it was November
when Elon started talking,
we're going to balance the budget.
We're going to cut two trillion from the deficit.
I did some math and granted,
I don't have a PhD in economics.
I'm no mathematician, right?
But just this humble nerd's math
found that balancing the budget would result in a GDP contraction worse than COVID and worse than
2008. So, you know, I always kind of faded the doge thing because it just, number one,
most of the spending, as you know, is entitlements and politically you can't really touch that.
But then number two, like if you were to really cut that much government spending,
it would result in a contraction of GDP so severe that it would throw us into a debt spiral.
immediately. So I always kind of was skeptical of, I support it, right? Like on a personal level,
I very much support cutting all that waste and fraud and abuse. But from a, you know, just pure
objective accounting standpoint, one man's fraud is another man's income, right? That USAID worker
who's getting fraudulent, wasteful money, right? They have a mortgage, they have a car loan, right?
They have personal loans and credit cards, right?
So they buy groceries, they buy insurance.
So yeah, I was always skeptical.
I was hopeful, right?
Cautiously optimistic that they would cut something.
But we look back and they cut like 1.6%,
I think of the federal budget.
So yeah, so I noticed that too,
that pivot that you noted a couple months ago.
I noticed that too, it was like all in one week,
you had Besant, Elon, Chamath,
all the key people coming out and basically publicly abandoning doge, right? Just like,
yeah, we're not going to cut our way out of this. The step, the key, how we're going to win is to
grow our way out. And I thought to myself, okay, so here's the negative real rate story, right?
Like they're going to come in, they're going to propose, they're going to find some way,
whether it's explicit QE, yield curve control, tinkering with regulatory levers like SLR and
LCR, but they're going to find a way to get negative real rates. And, you know, that's kind
of the direction I think things are headed in, generally speaking, for the next 12 months or so.
It appears that they really want that negative real rate environment, especially in bills.
And bills, you know, should be pointed out, that transition happened under the last administration
with Yellen, and Besant was very critical.
And I just did a video on the QRA, the most recent one.
He is not changing the issuance schedule, right?
So I think he recognizes the reality of the situation
of the bond market, especially at the long end.
But we're talking about a shift even more into bills.
And what's important for that for people to understand is,
and you can find this on TradingView, right?
Pull up a single percentage chart, right, and throw on like a short-term bond ETF, TLT, and then like a five-year bond ETF.
And you can see that the shorter duration bonds move very little compared to TLT, which has these big, massive moves.
And that's due to convexity with the duration.
but because the shorter term duration, the treasury bills, because those are less volatile,
they can be levered much more easily and created into new dollars,
treasuries being the collateral for kind of the global financial system.
So it's very pro-liquidity.
It's very stimulatory.
I think inflation is going to pick up.
I've been saying that for a couple months.
And I think that this, the treasury bill kind of focus and the ease at which they can be so readily levered into new U.S. dollars, I think it's very pro-liquidity.
The thing I would say, though, is I just want to know who's going to buy this negative 2.5% real yield Treasury bill.
Because Trump's talking about taking the federal funds rate from 4.3 down to 1.
He's talking about just massive cuts in the short-term rates.
That would result in bills and shorter duration follow the Fed funds.
and that would result,
we're talking probably inflation's around three,
maybe even 3.5 or four.
So you're talking like significantly negative real rates.
I just kind of want to know who's going to buy those.
Maybe it's stable coins, I don't know.
But who wants to take a guaranteed loss
where you're losing two to three to 4% per year
in inflation adjusted terms?
And we know, of course,
inflation is actually higher than CPI,
so it's even worse.
um so that clearly is their plan right and that's clearly like i think the direction that they're
heading but um yeah for me i just kind of want to see like who's actually going to end up buying
those because i i surely wouldn't want to no you touch on like such great points here number one
like besan completely shifting face about the short end of the yield curve like berating
yelling like the Trump admin gets in, like they messed up the curve. And then silently,
sort of implicitly, like recognizing, all right, maybe that was a good idea,
continuing with it. But to your broader point, and this is something that did not get enough
coverage last year, but funnily enough, Noriel Robini co-wrote a paper basically explaining
why the over-indexing or how the over-indexing on the short end of the curve is actually
stimulatory. It's like stealth QE, essentially, in a way in which you described, because you can
take that short-term paper and basically get dollars out of it and spend those or push those
dollars into other assets. And so it's like stealth QE without saying QE. It's not the mechanics of
QE as we know it. But I think the overarching point is like the system has gotten to such a
point that politically you need to find those mechanisms to stimulate the economy and that
they're doing on the short end of the yield curve and um the the other thing i wanted to bring up it's
i lost it but like building on that um that theme oh it's the stable coins right like it seems like
the genius act and they're gonna try like i don't i i think they're i don't know how certain they are
But I think they're basically exploring all the options possible to drive demand to these things.
And by really pushing the stablecoin narrative, which particularly here in the United States doesn't make any sense to me.
Like, as an American citizen, my bank account works well.
Cash app works well.
I don't need stablecoins, but they're really trying to make fetch a thing with stablecoins.
And I think what's underlying that is this need to drive demand for these treasury bills.
yeah they need balance sheet uh to financially repress um they they need they need suckers at
the car table you know uh as luke groman says they need to you know get those suckers at the
car table uh to to repress them uh and look maybe foreigners are willing to take a guaranteed 2.5
3 3.5 percent loss to to um i'm not sure i i you know i also think that uh it could weaken
the dollar, I don't see how significantly negative real rates combined with a shift
towards basically payday financing the government and just fully admitting, yeah, we're in fiscal
dominance and we're going to run the Turkey. Central Bank has no independence, right? We're
doing all the stuff with that. And the 1951 Fed Treasury Accord, we're basically reversing it,
Right. I don't see how like any of those things are bullish for the dollar.
And again, what I've been, I kind of got very bearish on the dollar, the Dixie back in like January.
And it was for a number of reasons.
But, you know, we've seen clearly kind of a bit of a short squeeze, you know, positioning got stretched and and whatnot.
But I still think that like, you know, if you just look at incentives and Bitcoiners are big on incentives and we can see kind of through.
lot of things by just looking at what are the incentives. As much as they may say they want a
strong dollar, they want a weak dollar. Going to the point of the current account deficit and trade
and re-industrialization, we need a significantly weaker dollar to make any of this viable.
A 15% tariff is not going to suddenly make American manufacturing cost effective for the
rest of the world when the currencies are, you know, 35 or 40% mispriced. And so, you know, I was
one of kind of the first people talking about like some sort of accord, right? Like that's kind of
their only option is to weaken the dollar sort of like plaza accord. And the reason was I watched,
I think it was in like May or June of last year, Besant did a speech at the Manhattan Institute.
and as soon as I got done watching it,
I watched it again
and I thought it was very notable
that he mentioned monetary reordering
three times during that speech
and he said something like,
and I want to be a part of it or something.
I think that that inevitably is going,
if they're serious about reindustrialization,
they're going to need some sort of accord
and when it first kind of came up as a topic,
it didn't have that Mar-a-Lago Accord name,
you know, like whatever it ends up being,
is it a Mar-a-Lago Accord or, you know, the Hilton Accord?
We need to weaken the dollar
if they're serious about re-industrialization
and that, you know, has consequences to it, right?
Like all those cheap imports,
all that cheap Alibaba plastic junk
that Americans have been, you know, piling up,
that gets more expensive. But the good news is that over kind of medium to long term,
high paying manufacturing jobs hopefully come back. Now, I fully concede some degree of automation
and robotics will make that difficult, right? Reshoring 5 million is out of the question,
most likely. But even Bloomberg, which I take as kind of a pretty globalist leaning organization,
even they were forced to admit, this was a couple months ago on the morning show,
forced to admit that Apple, an assembly technician, right? So not a plant engineer,
nothing crazy, not a supervisor, just a technician, US-based, the salary was $112,000 per year.
So in the medium to long term, there is a world where inflation is rising at say 5% or 6% because
this will be very inflationary, especially if you mix it with negative real rates and all the bill
dynamics. Both of those are inflationary, weaker dollar and that. So there is a world though where
inflation is 5%, but real wage gains are 8 or 9. And that's what I would hope to see. Because
going back to the silent depression stuff, the average hourly wage price in gold has declined by
80% going back to 2000. So just since .com, just since the Y2K and all that, just since
Since then, the real purchasing power of the average hourly wage has declined by 80% if you measure it in gold.
And if you look at personal income divided by M2 money supply, that's fallen, I think, 30%.
So again, in real purchasing power terms, the average American has been getting just decimated for decades.
And a lot of the turning points in my chart happened to be that early 2000s.
And I think it's not a coincidence that China was admitted into the World Trade Organization in December 2001.
And that's when deaths of despair, like literally to the year, that is when deaths of despair just went vertical.
And that is when, you know, these measures of real purchasing power wages started to decline and personal savings has been declining.
so i would argue that you know there are short-term consequences to a weaker dollar whether
that's via uh just kind of policy or via an explicit accord of course there's consequences
short-term but you know my hope uh would be that medium to long term you would see uh kind of a
de-financialization of the economy and a return towards a much more net productive economy that
is not based around a bunch of people writing algorithms for high-frequency trading firms,
making millions and millions and millions hedge fund managers, but reorient around actual
useful productive capacity.
Because whether it's the medicine that I mentioned, 65% of active pharmaceutical ingredients,
you look at chips and electronics, some of these key industries, this is a national security
emergency in my opinion.
Yeah.
Yeah. And to your point, like, I think I tweeted this out a couple months ago, but like, even if we do, if and when we reshore manufacturing, and even if 80% of it is automated by robots and AI, that's still preferable from the national security perspective that you're digging in here.
It should be made here to be over overlooked and managed by American citizens to make sure that the quality is good and that not only the quality is good but you able to make it yourself So you not dependent on geopolitical adversaries
And so that like that whole that whole sort of theme of like, oh, the jobs aren't going to come
back. And even if they do, they're automated. It's like, I don't care if they're automated.
Like we should be making it here is my perspective. Yeah. And, you know, I have firsthand experience
with domestic manufacturing.
My family has had a company for, I think, 75 years
that has manufactured goods in America.
And I think that there's a pretty large amount
of kind of overestimation as well.
I think a lot of people that are talking
about re-industrialization need to go look,
go down to your local industrially zoned part of town
and just ask for a tour.
I know if it's our company, we'd be happy to, they love showing people around and what they do.
I think a lot of people are overestimating the degree to which automation will really play a role.
We have a couple of robots that I think they got maybe five or ten years ago.
There's some degree of automation, but I think people are overestimating the amount of automation.
But to your point, even if, you know, 70 or 80% is automated, at least we are not reliant on countries that, you know, arguably at the, you know, turn of a hat, you know, flip of a coin might be our enemy, you know?
And like, how are we, if we're so reliant on, say, China for kind of chips and electronic components for our own missiles and our own defense systems and our own ships and vehicles, like the minute that they, like the minute we get into a war over Taiwan, which I hope doesn't happen, but like they just shut it off as we saw them do with the rare earths.
And like, yeah, I just, it's kind of my mind boggling that our leaders let it get this bad. You know, it just makes you wonder like what, I mean, you know, you can infer what the incentive was, but a lot of people got obscenely rich.
And, you know, now wealth inequality is even worse today than the Gilded Age, which was so bad that we named an entire era of American history after how bad the wealth inequality was, was even worse today.
So, yeah, you know, that was probably the incentive to do all this, but it just got to such ridiculous levels.
It kind of makes you wonder, like, what were our leaders thinking?
Because it was both parties, to be clear.
So, yeah, that's on the economic side.
then socially you have like the rise of neoliberal progressive ideals and if you're a student of
like yuri bezmanov and that interview he did in the 80s like have we been just under a slow
rolling color revolution in the united states over the last four decades yeah well i mean look at um
i mean trade is trade is a great uh illustration of that i would say uh globalization and the degree
to which it was embraced at the expense of the average American.
I would also point to immigration, right?
We're talking economics.
One of the key reasons, in my opinion,
that the real purchasing power of the average hourly wage
for the average American has declined so precipitously
is both parties have, you know,
our birth rate has been declining for decades.
And the way that both parties, up until Trump, of course,
the way that both parties dealt with that
was to import tens of millions of immigrants
from other countries to come in.
These are willing to work for lower wages.
And the law of supply and demand
is no different when it comes to labor,
that if you dramatically increase the supply of labor
while demand stays constant
or maybe slightly grows 1%, 2% per year,
whatever it is,
if you increase the labor supply by 10%,
wages must go down, just mathematically.
And so that's another kind of avenue where you see, like Reagan was the one that granted, kind of started it, at least from what I can gather, with kind of mass amnesty back in the 80s.
And look, like multinational corporations benefited massively from that.
You know, again, it boosts their profit margins, whether it's cheap labor here in America or cheap labor elsewhere.
So there have definitely been beneficiaries.
The other thing I'd point out that I think is really interesting is if you take the net worth of the top 1% and look at it as a share of GDP, so denominated in GDP, and then you overlay the balance of trade and you invert it, so it's the capital account surplus, it's almost a perfect fit.
So the net worth of the top 1% as a share of GDP has basically been identical to an inverted trade deficit.
So as the trade deficit has gotten larger and larger, the net worth of the top 1% is increasing at a faster rate than GDP.
When you do one of those relative charts, when the line goes up, it means that the numerator is increasing faster than the denominator.
So the net worth of the top 1% isn't just growing with GDP.
It's growing faster than GDP as the trade deficit gets worse.
So there are very clear beneficiaries to a lot of these policies and kind of the capital
class, right, that Wall Street and those that own financial assets.
It's the same thing with the housing market, too.
Like, I'm a young person that liked to own a home.
I worked really hard for 15, 16 years, had a particular career, climbed the ladder.
And it's the same story with housing.
If you look at the average sales price divided by the average income for a family, say, and
again, overlay it with the trade deficit, it is a perfect fit outside of QE2 and 3, where
the Fed bought trillions in mortgage-backed securities.
but interestingly when they engage in quantitative tightening
that it came right back down to where the trade deficit or the capital account surplus
would indicate that it should be so you know i whether that's a correlation without a causation
and that's just a spurious correlation i'm not sure but it's like the more the more of these
metrics that i've been finding over the past year or two the more i'm convinced that it's all it's
all kind of one trade one story uh at the end of the day yeah the whole correlation is not causation
thing it's like it's it's a whole it's like a way to obscure what you know intuitively to be true
but it's like so hard to like directly connect the dots that they're able to hand wave it's like
correlation is not it's like come on this is certainly happened like if you have two brain
cells to rub together and you can think about second and third order effects. It seems like
there definitely is some causation here. Yeah. Well, you know, M2 money velocity,
personal income as a share of M2. So real purchasing power of the personal income,
S&P in gold terms, labor force participation rate, all of these peaked money velocity as well.
All of these peaked, you know, around the same time. Average hourly wage and gold terms as well
also peaked in the early 2000s.
So it's like, okay, I understand, you know,
contesting one of those or, you know, two of those,
but like I've presented so much data
over the past year or two charts, right?
That it's like, I just, it baffles me
that people still try to dispute some of these things,
you know?
Yeah.
And let's get like, let's get into like silent depression
and like something you said earlier,
which is like, let's get away from financialization.
Let's definancialize the economy, get back to a productive economy
where people are actually working, building things
and not just creating sort of synthetic financial exposure to things.
Because it's all connected.
Again, in my mind, correlation is causation with a lot of these things.
Like, you're not going to tell me that these things don't have effects on each other.
and it's like it's weird because we live at this time
my go-to example whenever something like like we are literally you're on the other side of the
country i'm looking at my laptop i've got my mic in my hand we're going to distribute this
on many platforms and it'll be accessible to many like it's inarguable that the tools that we have
the technology we have is is incredible today and that's what they use like hey like things are
Great. Look at what we can do. But despite that, there is this silent depression, these divergences in the quality of life between the haves and the have nots.
And there has to be a better way. I think we have all of this in spite or despite, excuse me, despite all of these things.
They try to use the fact that we have all these technologies as evidence that everything is all well and good.
But I'm a strong believer in it could be much better.
We have all this despite all of that.
Yeah.
I mean, look, it's great.
I worked in healthcare.
That was kind of my day job.
I started working very shortly after Lehman collapsed and was doing my first interviews at like 18 around that time.
So that was the start of my adult life. And I know a lot of millennials, especially Zoomers,
are kind of in this boat where then we had, of course, the kind of prolonged great moderation,
as they called it, but really kind of a lost decade of stagnant growth, very similar to Japan's
lost decade. And then we had 2020, all the craziness of that. But really in my adult life,
Like it felt like no matter how hard I worked, I kept climbing the ladder and getting the next better job, you know, from from the bottom to, you know, middle management.
And then from there to to, you know, basically right below the owner as a director, making a good salary or what I had thought was a good salary.
And just for real concrete numbers that people can wrap their head around, at least here in LA, in 2019, 2020, my salary of $90,000, $100,000 would have bought a starter home, a 70-year-old starter home, not in LA, but in one of the suburbs like the Valley, for example.
I would have been able to do that. And I was looking at buying a home back then.
And, you know, the income, I could make it work with interest rates being what they were.
Well, today, that same house in that same neighborhood, not great neighborhood, not great schools, pretty high crime rate, 70, 80 years old, right?
Probably needs some work. That same, I would need to triple my income to qualify for a mortgage on that same house.
So, you know, like this, this, I understand why they changed the CPI calculation, but that's like a very real cost for a young person, right? Like if, if the income needed to qualify for a mortgage on the same house increases by 200% in five years, you're going to tell me that inflation is only 21, 22%. Like it just doesn't make sense.
And yeah, I think the societal KPIs, antidepressant prescriptions, 13x since 1970, the suicide rate at levels rate, not nominal numbers of suicide, the rate per 100,000, that rate not being this high going all the way back to the Great Depression.
That's the last time it was this high.
Deaths of despair just going absolutely parabolic since 2000.
We see it with political polarization as well.
like all these societal KPIs, all these like horrible events that keep happening in public,
right? That, um, you know, try and be careful, like not to use bad words, but you know, the,
the, these things that just like every day we're seeing, you know, people acting out in,
in just absurdly violent ways. And there is, there is this kind of like scream from especially
the younger generations, uh, that just appears to be falling on deaf ears, uh, with, with the
boomers. And if it was just deaf ears, that might be one thing, but instead it's generally met with
righteous indignation, of course. But yeah, it's going to continue to drive all of those same
problems until the actual issues are addressed. Wealth inequality will get worse, and therefore
the kind of political polarization will get worse. We'll see racial divisions get worse.
We'll see the political extremes getting more extreme. I mean, if, you know, I've talked to a number of like, you know, kind of average Zoomer men, and these guys are going to make Stephen Miller look like a moderate, right? Like, this is just a natural consequence of what happens when you default on the social contract.
And I think that, you know, until we really address the underlying issues that are driving these these problems, all of the things that are bothering the average American person are going to just get worse and worse and worse.
And I don't want that.
Like, you know, I want a safe, prosperous country.
I want, you know, my people to succeed and do well.
I want a land of opportunity again.
And look, to your point about technology, there are certainly certain advantages, I guess you could say, over the past couple of years as I've started doing all this markets and economics and YouTube and all this various stuff.
It's a crash course for me in this whole new world that I didn't really know anything about.
And look, I'll be the first one to say that it's great.
You know, I can, I can do spend an hour or two, you know, putting together a video, hopefully educate people, put that up on this website that people have on their phone.
Right.
They like, there's some really cool stuff.
Like I'm not trying to make it sound like it's all bad.
But, you know, we, it kind of goes the other way too, which is like, you, you know, you look at the average zoomer, the average young man, and what are they doing?
They're gambling, whether it's meme coins or sports betting.
We've seen a dramatic increase in that.
Like the financial nihilism, I would say offsets the benefits from like, look, the Internet's
great.
The kind of everything being connected, the world being connected, it's great.
But like it also enables these very negative and destructive expressions of you know within technology whether that you know the meme coin casinos and kind of all that craziness
I mean, I know a girl that just buys tech options every day, zero DTE tech, you know,
meta, Nvidia, just buys calls every day.
Doesn't know what a bid ask spread is.
Doesn't know what IV or Delta or Gamma or Theta, just buys calls.
Like just totally gambling, right?
Like this is kind of the norm now with young people is that without that 10,000 X return, they feel like they're never going to get ahead.
So just as much as the internet can be used in positive ways, right?
Responsibly.
It also has, I would argue, offsetting negative sides to it too, which is it enables some of this gambling and kind of the financial nihilism piece.
If that makes sense.
Completely agree.
that's exactly what i was trying to get to as well as like this financial nihilism the enablement of
it and this like this strive for yield the younger generation specifically that feels like they have
to play catch up and take obscene risk is real and it's having extreme negative consequences like
you're talking about death's despair you brought up sports gambling if you look at it's not only
affecting zoomers like it's affecting millennials and gen xers too like there was a i think some
vandals getting sued by the wife of a guy who blew their 14 million dollar trust
because he was a high roller and just it's so easy to access that he blew
eight figures of wealth within a very short period of time and that's i think the big
question for me and a lot of what i've explored over the years on this show and just doing
introspection personally is like, can this actually be solved via political means? Or
do you need something outside the system to actually fix it? And that's why I focus on Bitcoin.
I do tend to sort of bend that way and believing that you're not going to vote your way out of this,
like you need to create systems outside of the terminally ill system that got us into this
predicament in the first place. And to that point, do you view it that way at all?
Yeah. And with all this YouTube channel and all this stuff, the hunger and the degree to which it's resonated for someone who spent, I don't know, 30,000 hours nerding out, digging into academic papers and Investopedia and TradingView and the Fed and all this stuff, right?
Like digesting it for normal people, the amount, the degree to which it resonated, which is random, everyday, normal people, I was not expecting.
So what I would say is that there's clearly, like I underestimated the appetite for that sort of content.
Because I think everyone knows that things are deeply, deeply wrong.
Uh, it's just that, you know, you shouldn't have to spend 30,000 hours, you know, nerding
out, uh, to, in order to, to grasp some of these concepts and understand how your own
financial system works.
Uh, and I would say that like the Overton window, the, the, the discourse is shifting,
you know, like a lot of people have been talking about the, uh, the interview Tucker did recently
with Werner, the economist.
And that was actually one of the first things
that I did a Twitter post or article on
was I had listened to one of his speeches
at some university about Japan.
And the fact that that sort of discussion
is happening on such a large platform,
and I've had invites recently
for kind of not Bitcoin channels, right?
Not, you know, economics or macro markets sort of channels,
but like much more kind of political sort of channels.
And like, there's clearly an appetite
for discussion about economics and what's really going on
because part of the problem and what I always try to do is,
you know, if you just look at the average hourly wage,
which is what you hear reported on the nightly news,
the line is, it looks great.
It's up and to the right.
It's kind of even parabolic.
You would think everything's great.
Well, you got to go a couple layers deeper, right?
Like all these numbers that they're reporting to the American people, it's like they're
sitting there, you know, getting home after their third job, right?
And, you know, using a firm to pay for groceries, hearing the nightly news talk about, oh,
unemployment's only 4.1 and GDP grew at 3%.
And they're like, huh?
You know, like what I always say is what good is GDP if the average hourly wage or personal income is not keeping pace?
So, yeah, like, you know, certain things have outperformed, of course.
Government debt has outperformed GDP.
That's why government debt to GDP has doubled right in the past like 40 years.
The net worth of the top 1% has also doubled as a share of GDP over the past 20, 30 years.
And then you look at financial assets, the S&P 500 just radically outperformed GDP.
A stat that I think is really telling to the hyper-financialization and the K-shaped economy
is if you take the S&P 500 divided by the average hourly wage, what you get is the number of hours
needed of work at the average job to buy one share of the S&P 500. And it goes all the way back to
the 60s. And the average, when my parents were coming of age and working, was like 15 to 20
hours of work at the average job to buy one share. Now that number is 200, right? So what that
indicates is that the S&P 500 has increased 10 times faster than the average hourly wage, right?
So those that hold financial assets, those bureaucrats that have benefited from a massive
expansion, a massive expansion in the size of the federal bureaucracy, that, you know, the top 1%,
right, that own all these assets, they are doing better and better and better. And people see that,
like they might not know the stats, right? They might not be able to kind of conceptualize it,
but they feel it and they see it and they know it. And so I would say that like the benefit or
or the side of me that's optimistic
is that there is such a growing kind of recognition
and willingness to talk about it,
even on the right wing, right?
Which, I mean, both parties were equally responsible,
in my opinion, for a lot of the globalization,
you know, a lot of the things we talked about.
But, you know, historically, when I was younger,
you know, started paying attention to politics,
it was like, you couldn't talk about wealth inequality
or corporate profits greatly outpacing GDP.
That's another one that's outpaced GDP growth.
Like you can't talk, you couldn't talk about those things.
Well, now not only are you getting it
from the kind of mom Donnie side of things,
but you're having a willingness to talk about it
even on the right wing.
So like that to me, that's a positive sign
because that's kind of the horseshoe theory in action.
You know, we're seeing that on a political level,
at least there's a willingness to talk about it.
Now, to your point, whether or not the solution
ends up being a political one, I'm not so sure.
But I would point to, I think that I'm seeing more and more of a discussion around the struggles for young people, the structure of the economy, wealth inequality.
I'm seeing more and more discussion about it.
Just over the past couple months, it seems like it's just absolutely gone exponential, which for someone who is like the old man yelling at the cloud about it for two years, it's good.
because I feel like, oh, you know, I didn't do that much, right, to actually hopefully, you know,
advance it. But it's like, it makes me feel a little bit more validated that like, okay, at least,
at least like everyone's kind of talking about this now because we're not going to be able to
get to a solution unless everyone knows what the problem is. That's an incredible point. It's funny
that you mentioned that because literally I recorded an episode this morning with Zuby
about this exact topic. He wrote a Substack piece last week about like 12 pieces of advice
for Generation Z.
And we walked through that.
But the whole point of his article
and our discussion about the article
is to sort of transfer knowledge to the Zoomers
of like, hey, we're a generation ahead of you.
Like, here's exactly what's happening.
You guys need to understand this.
And here's how you should operate
with that understanding.
And I completely agree.
Like, the recognition of the problem
is greater than it ever has been
for somebody who was radicalized by the great financial crisis.
And like I went, the timing for me personally was perfect because I was a senior in high school.
It affected my dad and my father's career and sort of like engendered me with the spirit of know your enemies.
So I went and studied econ and always, even when I worked at a fund and was doing like sort of TradFi world things,
in the back of my mind was always like, the system's broken and you figure out how and ultimately found Bitcoin.
I was like, all right, this is what I think is a key part to the solution of solving these problems.
But back then, it was like an island.
It was that crazy Bitcoiner.
2013, 2014, people were like, shut up.
Now, it's not Bitcoin specific, but I just think, to your point, the recognition of...
Because it's gotten to the point where it's impossible to ignore.
and it sucks it had to get to this point but you can only solve a problem if you recognize that it
exists in the first place yeah yeah and like if i had to give one piece or maybe two pieces of
advice for the for the younger folks like i think it's hard for them because we as millennials
um like you know when i was climbing the corporate ladder and you know trying to trying to get ahead
and stuff. I could look to the Gen X, right? The generation ahead of me, they have the, you know,
nice car and a house and the kids and a good salary that they were comfortable on. You know,
I think what is part of what, part of what the zoomers have that's so difficult is they look to
us, they look to the millennials and we're like directors making a hundred K a year and right,
like not having any of that. So, uh, they have it, I, I, they don't have that like optimism,
right? Like at least we, at least I, and a lot of the millennials, I know we could look to the
Gen Xers for kind of like optimism or hope. Uh, but the zoomers don't have that. Like all they
know is bad. Um, and if I, if I were to give two pieces of advice, it would be, um, trades,
right? Like, I think that, um, you know, the, the wall street journal did an article like the next
millionaires wear a tool belt or something like that was the title. And I think that that'll
continue to be a trend that some of the highest paying, most successful people, especially
if we de-financialize with a weaker dollar, some of the best industries for a young person to make
a living in will be trades. And even now, like even today, they're making like hundreds of
thousands of dollars. I know a guy that drives a GT3 and he puts in pipes. I still don't really
understand. It's probably more complex than that, but he basically digs holes and puts pipes in.
He has a GT3. So it's already kind of at that point. So I would say trades,
the traditional four-year education, I think is a scam. And I think it's dead and gone.
And then I would also say, of course, save in scarce assets like Bitcoin that will preserve your purchasing power and hopefully continue to outpace the amount of kind of currency debasement that I think, you know, I think most of us are, whether it's Larry Lepard with the big print, I don't think it'll be that big.
You know, I don't think it's one big print, but I do see kind of a higher inflation period of, you know, regime that we're going into.
Scarcity is the antidote, right?
So like, you know, or as Jack says, you know, don't don't work for money that another man can print.
I think that's great.
And so, yeah, you know, saving your your time and energy and your labor in an asset that cannot be inflated, cannot be printed.
I think that that's another critical.
I mean, if I had done I, I came across Bitcoin in like 2009, 2010.
if I had even put just 5% of my average weekly earnings,
I would be insanely rich.
I didn't know what I had back then.
I thought it was just an internet money thing.
It would have a little run-up and I'd think,
oh great, that was great, sell it.
So I didn't really know what I owned until recently, unfortunately.
But I think that the antidote to an overabundance of fiat currency units is scarcity.
And Bitcoin, we know, has one of the lowest supply increases of any asset.
So when it comes to the scarcity side, it is one of the more scarce assets that you can own, even now more than gold.
Yeah. And bringing this back to how do these overarching problems get solved in the long term,
I'm a big believer that Bitcoin can lead to the great definancialization.
Parker Lewis's blog post and ultimately a chapter in his book, Gradually and Suddenly, about the great definancialization is something that I truly believe in something like 1031.
We're investing behind.
Obviously, you were just talking about the individual saving scarce assets like Bitcoin.
Ideally, I think, inarguably, if you look at all the scarce assets, Bitcoin is still going in the very early stages of its monetization phase and has the highest upside.
But then in terms of like actually beginning to definancialize the world and sort of manufacture a soft landing in the long term, I think Bitcoin needs to be injected as collateral in credit structures.
You need to refinance the existing pools of credit that exist out there with better collateral.
And to what you were saying at the beginning and throughout this conversation, really,
it's like we've seen the financialization people are the people who understand what's
going on and want to outpace inflation.
They're pushing it into real estate, into stocks, into financial assets.
And now an alternative exists.
Like instead of basically putting money in a house and using that as your long term savings vehicle, you can put it in Bitcoin.
And now we're getting to a maturation point of Bitcoin's sort of development where you can sort of replace instead of taking out a mortgage on a house and just using the house as collateral loan, you begin to dual collateralize it with Bitcoin.
And at that point, you're not really wholly dependent on the equity value of the house. You have the Bitcoin collateral in it as well. And to me.
I could be wrong. I'm very interested to get your thoughts on it. That's how you
manufacture a soft landing from the private sector and you're not beholden to the whims
of the political apparatus and the ping-ponging that goes on there.
Yeah. And Luke was like way, Luke Roman was way out ahead of this concept, but they need something
to inflate. Ideally, it's not a commodity that's needed as an input in critical industry or global
trade. You need an asset that can absorb something. We know financial repression is coming.
We know it's really the only way out of a 7% pro-cyclical deficit with interest expense eating
up 20% of tax receipts and mandatory spending over 100% of tax receipts. It's getting to a point
where we know the only way out is to inflate the debt away, run it hot, whatever term you want to
use. And Bitcoin emerges as a perfect asset because it's small. To your point, it's still early days.
$2 trillion is a lot of money on the one hand, but when you compare it to say gold or equities or
certainly bonds, it's still relatively young, very young. So, you know, it offers kind of an escape
valve for the coming financial repression. And Luke, you know, was kind of the first person to
frame it that way. And I think it's a great way to look at it. I would say, you know, like with
the young people and Bitcoin versus homes, the only kind of pushback that I usually kind of think
of when I hear that argument in the Bitcoin circles is the real secret with housing is that
you get insane leverage. So, you know, you go and put 10% down on a million dollar home. And,
you know, when that million dollar home inevitably doubles over, say, five years, six years,
you get the equity of the whole home, right? You can then tap the home equity line of credit for
2 million to however much was.
So your equity is the entire value,
even though you only put up 10%.
So the leverage is really where
owning a home builds wealth.
It doesn't actually build wealth
because the home price is just going up
as the currency is debased.
But in dollar terms,
that leverage is really the secret.
Now we know Bitcoin has an insanely high CAGR.
so it could be the sort of thing where bitcoin continues to appreciate a you know 45 50 percent
kegger i think that that would be enough to offset the leverage side of of that's why i always say
like home ownership and the wealth that you get you're what it really is is just levered exposure
to currency debasement the house goes up you know it's optical illusion the home price goes up as
of currency is debased, you have a large amount of leverage and can then tap the equity.
So if there was a company that came out to offer Bitcoin mortgages, that would I think
be probably the single best thing that could be done.
Because then you're getting the benefit of leverage and the Bitcoin's appreciation.
And that's where the young can really get ahead in a quick way.
because that's really what the home situation,
that's really what it is.
It's just leveraged exposure to debasement.
And because Bitcoin, I mean, you can get leverage with Bitcoin,
but it's not as intuitive
and it's certainly not as large of an amount of money.
Like no one's going to give some Zoomer
that's got $5,000 of Bitcoin,
no one's going to give them crazy amounts of leverage.
So in a 30-year structured product like that
with a relatively low interest rate.
So yeah, I think, you know,
I've heard people saying
we want to create that sort of product.
You know, and like we were both saying,
you know, it's early days.
So maybe something like that comes along
and is able to kind of really accelerate
the degree to which the young people can get ahead.
Yeah.
And it's not catered towards young people at all,
but we invested and sort of helped incubate
this idea of battery finance
where they're starting out focusing on commercial real estate,
which is a market that desperately needs more creative financing options.
And they basically go and find high-grade properties
that are sort of at their pick of the litter, refinance,
give them the cash they need to pay off their original mortgage,
a little cash for improvements if they need it,
and then a chunk of cash to put into Bitcoin that sits in the loan structure.
And just having been close to the development of that product, like I'm wholly convinced that like this is the way you manufacture sort of like a transition from aping your your leverage and your your sort of savings and value into real estate and begin sucking into Bitcoin.
And they'll start like dual collateralized.
And then hopefully over the long, long run, like these, these assets that really aren't optimal to be stores of value, long term, long term stores of value because they have other use cases, consumable use cases that that more people should have access to.
That's how you get them to reprice to what I would argue is like a real, a real price for these assets.
Yeah, and the thing I would say about Bitcoin in particular,
kind of going to what we were talking about with the direction the Fed and Treasury and all that is going,
I would say that in a world where there's basically a political puppet as Fed chair
and monetary policy is now a political decision,
I would just say for those on the right that support Trump and all of that,
Just imagine a Biden-controlled Fed where everything about monetary policy was a political decision.
I don't personally think that that's going to be very good, no matter who is in charge of it.
And I think that as we see that go the emerging market sort of route, probably higher inflation and a worsening of the K-shaped economy as asset prices really take another leg higher,
All the dynamics that we've been talking about today, I think something like Bitcoin emerges
is like, you know, what's so cool for someone who's so immersed all day in macro and markets
here in US and Europe and Asia and all this stuff, following every word of every Fed speaker
and watching every bond yield in the entire world.
What's cool about Bitcoin that I keep coming back to that I always tell people is like,
look, you know the monetary policy of Bitcoin.
you know the monetary policy of bitcoin today six days from now six weeks from now six years from now
60 years from now you know the monetary policy of of bitcoin and uh these kind of you know bear
assets that are are neutral right this ability for neutral reserve asset uh that a lot of people
been talking about like i think that the appeal of that is going to grow just generally speaking
I think corporations, I think in the real estate sector,
I know Grant Cardone is doing a lot of cool stuff with Bitcoin
and real estate.
I think on the individual level,
there's so much chaos and instability
and all this kind of stuff.
I think normal people,
the emergence of an asset where it is so predictable,
you know exactly what the monetary policy of it is.
It's consensus derived. It's hard coded in lines of code that are confirmed and secured by the strength of the network, which keeps growing.
All the properties of Bitcoin that Bitcoiners talk about, I think are going to start to really become appealing amongst kind of normal people, if that makes sense.
Yeah, it's this anchoring mechanism. It gives you a high degree of certainty in an incredibly uncertain world.
Right. And if you can, I think that's just like the like when you get back, when you get to like first principles, Austrian economics perspective of Bitcoin, like that is the sort of stabilizing nature of the asset is like conversely, like why everything is so instable is because you have an inability to know at any given point in time what's going to happen with your money because it's centrally controlled.
Once you can have certainty and anchor into that certainty by using Bitcoin, you can then begin to coordinate economically with a higher degree of certainty and have to you can take less risk and you don't have to financialize everything to get a return.
I think succinctly put first principles, Austrian perspective of Bitcoin. That's what it does. Right.
Yeah, and it's also outperforming so many other assets.
The first thing I do when I see someone advocating,
oh, buy this stock or buy this,
the first thing I do is just divide it by Bitcoin.
It's almost always just down and to the right.
You know what I mean?
So it's outperforming the vast majority of assets.
Yeah, over certain timeframes you can find some tech stock, whatever.
But the vast majority of people don't have the skill to be stock pickers.
So it's very simple, it's very straightforward.
You just buy it and hold it and it goes up.
And it goes up forever because the dollar has no bottom.
There's no top in the Bitcoin price because there's no dollar on the bottom.
There certainty with what it is how it works the monetary policy the new supply All of those things And I would also point out that since the TradFi adoption
which at first I was kind of like knee-jerk reaction was negative
because the whole reason I found it in 2009 or 10 or whenever it was,
was some anarchist blog spot.
And it was like the cypherpunk ethos and the kind of revolutionary sort of side of it.
And so then to see it kind of be adopted by BlackRock and this, my first reaction was negative.
But now that I've had some time to kind of really think about it, it's really decreased the amount of volatility that we've seen.
It's almost like Bitcoin pre-ETF versus after ETF has been just a different thing.
And I think that to your point with the stability, I think that the lack of that volatility as we build derivatives complexes on top and all these different products are offered and it becomes a bigger market,
I think that we'll see less volatility and that'll, that'll, uh, encourage more inflows, right? So it becomes a, uh, it becomes a strange game where the only winning move is to play. Um, the, uh, no, that then I completely agree. Like the, I had similar aversions initially, but now when you see it, I do, it would be naive to think that there aren't going to be some actors.
in the traditional financial system getting into Bitcoin in size that make mistakes, get over their
heels, get over levered, ultimately blow up. But I think in aggregate, the most important thing of
this wave of adoption is it's growing the number of different archetypes of demand for Bitcoin.
And I think we're getting to a point where there's so many different demand drivers, whether
it's an individual looking to outpace inflation and save their value in an asset that can't be
debased, or a company that realizes, a private company, small, medium-sized business that's
profitable, is run by a Bitcoiner, who understands that if you're unprofitable and I'm skimming some
of those profits into Bitcoin, it's going to be good for the equity value of my business.
You have individual states who are saying maybe we should have a state-level Bitcoin treasury.
Obviously, countries doing that. And then you can see going to like Luke Roman's thesis of a Mar-a-Lago accord or something like that probably won't happen.
This administration, but at some point down the line, I think at the geopolitical level, it's going to be impossible to ignore that this neutral reserve asset that nobody can control is optimal and preferable to this sort of system of barter that exists in FX markets.
Yeah, and I would say we saw a very early glimpse of what the dollar trading on a balance of payments basis looks like.
We basically saw the early stages of a balance of payments crisis right after Liberation Day.
We're in a tricky spot.
There's not a ton of room to really navigate politically.
uh you know because this nip is negative 100 percent of gdp foreigners own tens of trillions
uh you know of of our assets they have us kind of you know they can control us if they don't like a
particular policy so ultimately like you have to get to the root of the problem which is kind of
the structure of the system and i would say that you know nations if i was a current account surplus
sublustination, either in the Middle East or Asia. Traditionally, it was you put those surpluses
into U.S. treasuries. People say the dollar, but really it's interest-bearing dollars like
treasuries. Traditionally, because we're in the secular bull market, that was a good move,
but it's not a good move. That bull market, that secular downtrend in rates,
we've broken that in 2022 and you know i'm i like uh peter turchin and neil howland those guys those
demographic guys and they talk about these long interest rate cycles um and if you look at all
the structural drivers of inflation and and kind of if you look at negative catalysts for sovereign
bonds uh it's just you just go down the list there's like half a dozen uh right catalysts
whether it's deglobalization, whether it's the fiscal side of the government's balance sheet,
whether it's a move in a different direction in regard to immigration policy, that's also
inflationary, just as increasing the labor supply keeps wages suppressed. The opposite is also true,
so you'll get inflation driven by wage gains. You just go down the list and it's all bad for bonds.
And so I think that that long interest rate cycle, I think there's truth to that.
Now, they could always do yield curve control and just totally nuke it.
But I think that the bias is towards higher rates, especially at the long end.
I mean, since the Fed started to cut rates prior to the last election, they cut by 100 basis points and the 30 years up 90.
It went in the opposite direction by 190 basis points.
Of course, it wouldn't be one-to-one on the cuts, but it went in the wrong direction.
And since the cutting cycle began, we've been in a bare steepener.
Now, today, there's a big bid into bonds, especially the short end, because the NFP was weak.
But yeah, bonds, especially long-term duration, I don't see how it's appealing to all these current account surplus nations,
especially after we did what we did to Russia
where we basically just turned off a bunch of QSIPs
and defaulted on treasuries that they rightfully owned.
What was it, $200 billion?
Yeah, it was over $100 billion.
It was a lot of money.
It's like the appeal of something like Bitcoin.
If I was an emirate country with a lot of oil
running a current account surplus,
it's perfect.
It's a bearer asset that's not centralized.
no one can control it. It's scarce. And it's easily divisible, easily transportable,
like all the properties we know. And it'll hold its value. Because if you're a current account
surplus nation, that is really the purpose. It's really your goal is to, you know, you're
accumulating national savings via that current account surplus. You're trying to store the value
of those savings. And, you know, Japan did it in U.S. treasuries. They also bought a lot of real
estate, of course. And I think that there will be on the margins a shift towards Bitcoin. It's not
going to be like 20% of current account surpluses overnight get put into Bitcoin. But around the
margins over the next five, 10 years, I think it's inevitable that we will see that kind of
start to grow. And really just around the margins, slowly but surely, very gradually,
stable sort of increase. I don't think it'll be violent.
But you never know if there's a black swan event
that just collapses trust
of the system.
I think you could see a little bit more of a dramatic
move into Bitcoin from not just
nation states, but people, corporations,
and everyone involved.
Yeah. When you think about long-term bonds, particularly
the 30 year and then like yeah people like chamath saying we should do a hundred year bond a 50 year
bond it's like take a step back and like what are you doing you're literally lending money
and your counterparty has proven that they spend that money terribly and uh they're only racking
up more more debt they're tapping the credit line the revolver more and more every time in 30 years
is a long time to take that risk.
So like why, when you have alternatives like Bitcoin,
would you ever take that risk?
And then you pile in the sort of geopolitical situation,
the fracturing, the bipolar, multipolar world
that is manifesting before us.
And it just doesn't make any sense at all.
Yeah, and look, like buying,
listening to the power centers,
like the Fed and Treasury,
you know, it blew up regional banks, right?
Like they listened,
They bought all those really, really long-duration treasury bonds.
And as soon as rates started moving higher, due to convexity, those 20-, 30-year bonds just collapsed in value.
And ended up taking down some of the, I think it's three of the largest four bank failures in U.S. history occurred during that time period.
So yeah, I could not be more bearish on long-term bonds.
There's no world that I could ever see where I would.
Now, as Jim Bianco says, there's no bad bonds.
There's only bad bond prices.
If the thing was yielding like 50%, like some emerging market bond, then I don't know, maybe I would buy a 30-year treasury.
But then you get into the interest side too, right?
Which is like, if you take all of our marketable debt,
the average interest rate on all of our marketable debt
is 3.3.
As of yesterday, there's nowhere on the curve
where you can issue a 3.3,
which means interest expense will only continue to go higher If they are not able to kind of gain control of the Fed and really force rates down through mega dovish forward guidance yeah like interest
expense is only going to go up. And so, yeah, you get into a situation where you're stuck.
I think that they're very close to admitting, look, it's fiscal dominance. Can't blame us.
It wasn't our fault. We just inherited the situation. Here's what we got to do. We got to
run negative real rates. I think what I was saying last year that I think would be smart
is to strategically, we know they need negative real rates, use those negative real rates
strategically to help domestic industry, right? Use it as a, create some sort of structure like
Japan had. They might still have that, I'm not sure, but some sort of way to try to approach
fiscal and monetary policy and meld it with industrial policy,
domestic industrial policy.
I think, look, maybe people might think that that sounds very anti-American,
but if we've got to run negative real rates and financially repress the bondholders,
shouldn't we at least be using it as a benefit by cheap financing for things that we need,
like critical infrastructure and defense and all that?
Yeah.
yeah i'm thinking here the i could certainly like if i guess the point i would make there is like
yeah if you have to do it like and you're trying to optimize for optimal outcomes for american
citizens that makes sense but what i would worry about like particularly when it comes to yield
curve control and building on a point we made earlier is that more like you're seeing it with
your channel, like more people are hungry for this. They're recognizing it. And the,
it sort of seems like it's a foregone conclusion in many circles that like, yes, implicitly,
it's very implicit right now. It's not quite explicit, but it's beginning to become more and
more explicit by the day that they want to sort of officially eliminate the independence of the
Fed, tie it in with the Treasury and go towards the Japanification of sort of the Treasury market.
And I totally believe that's their intent and their goal and what they're going to try to do.
But I always wonder, like, we have, we can just look at what it's done to Japan since the 90s.
And it's arguably not good going back to, like, Silent Depression, like in Japan.
it shows up there in the fertility rate.
They're going to have population collapse.
And I just wonder socially if enough people become privy to,
we're doing what Japan just did.
Let's look at Japan and see how they're doing societally.
Is that optimal?
And people say, I don't know if we should be doing that.
Does that throw a wrench in the yield curve control plan?
I don't know.
Yeah, I mean, I looked at one of the videos I did
looked at like the world war two, right. The last time we've seen this sort of thing and inflation
was like 18% during, uh, one of those years of, of yield curve control. Uh, and granted it was,
you know, wartime and there's, you know, we were industrial economy. It's not a one-to-one thing,
but like, yeah, there's, there's certainly consequences to it. Um, for sure. And, uh,
yeah, like I, I just don't see how we don't have, you know, higher inflation for the next
decade or maybe even more. It depends really on how negative they can get the rates and how far
below nominal growth they can get those interest rates or the average cost of the debt. That, I
think, will determine how long they will have to run the particular regime. But yeah, what I always
say is you can't defy financial gravity forever. America tried to defy financial gravity for
decades and was successful. And, you know, at some point, like the bill comes due. And there is no
easy way out. There's no painless way out. There's no way out that is just perfectly, you know,
risk-free and without consequence and pain due to, you know, like accumulated policy decisions by
the prior administration, prior generations. So yeah, it's going to be volatile, I think.
it's going to be unstable. It's going to be uncomfortable, probably. Yeah. Generally,
you don't want to see monetary policy become a political tool. Turkey did that, Erdogan did that,
and they had 45%, 50% annual inflation. The price of gold in lira is the craziest looking chart.
when he started to really make it a political organization.
Now, of course, we're not Turkey,
but it's not going to be without consequence for the U.S.
And I just, yeah, I feel that sentiment building
that people know something's not right.
I think people also know that something's coming.
There seems to be this really pervasive sense that I get
from reading comments and stuff of people,
like feeling like there's something right around the corner, like some shoes got a drop. Uh, and
you know, maybe it's all, I hope it's not war. Uh, you know, maybe it's all this kind of stuff,
you know, negative real rates, yield curve control. Uh, you know, they probably won't call
it yield curve control. Like I think if they end up going down that route, they're going to make an
effort to make it sound as different as possible from Japan. Um, you know, different names,
different acronyms, different terms. But like, yeah, with one of the silent depression kind of
pieces that I did looked at total bank loans and leases, right? And this is what drove private bank
credit creation was what drove, you know, the post-World War II kind of booming American economy.
And if you look at like total private bank loans and leases divided by M0, the monetary base,
which is that government money, private bank credit just fell off a cliff in 2008 and hasn't
recovered. This is something that Warner was talking about with Tucker in that interview,
is that where the funding is going can be just as important. If the banks are going to create
private credit creation, but it's going to securities purchases, that's not going to
benefit most Americans. And in fact, if you look at GDP divided by M2, we had GDP growth outpacing
the money supply. Again, up until the late 90s, when that turned over, and we've been getting
negative returns for each new dollar of debt that we print, we're getting less and less actual GDP.
And it's the same story if you look at it, the GDP divided by the debt. And GDP outpaced debt
growth up until I think it was 82. And then in 82, 83, in the early 80s, it rolled over and we have
been getting less and less return on each new dollar of debt. So they, they got to do something.
And if they, if there is smart policy that can get, uh, that side of the economy, the bank and
the lending side, uh, to somehow direct into more productive, like you start getting into
uncomfortable conversations though, because like, you know, what, if you take that one or two steps
further, that's like, you know, socialism or, uh, some pretty ugly industry. Yeah. Like it,
you get into some uncomfortable conversations, but like, uh, and, and to be clear, like, I don't
support, you know, a lot of that craziness, but like, I think that there is a way that we can,
um, I mean, Japan had that, right. That was one of the things that they had like the trade
industrial ministry or whatever it was. And it coordinated with, and look, like Japan did great
after World War II, you know, up until kind of the bubble started. They were doing amazing. I mean,
they thought there were people here in America that were worried that Japan was going to overtake
America, like this tiny island country was going to overtake America. So like, you know,
I think that, you know, free markets are generally good, generally the side you want to err on.
But I think that like to ignore any and all evidence that to the contrary, I think, you know, like Japan made it pretty clear that like the average Japanese person from call it, you know, 1960 through to 1985 did really well.
And the economy as a whole did really well.
And, you know, I think, you know, even Howard Lutnick is calling for some of this kind of much more like not typical conservative stuff.
He did that interview with Pomp where he was talking about basically nationalizing the defense companies.
So this is not the Republican Party of my parents or my grandparents.
And so I think there will be some degree of coordination to try to direct much more productive lending.
Because I think that's a big story.
I mean, if you look at that private bank credit creation, if you look at it as a logarithmic trend, it fell off in 2008 and it's just been anemic going sideways.
And I think that's a big problem.
And Werner was very on point with his discussions about it.
Well you seeing the product of that be the manifestation of all these private credit funds that are spinning up to service this market because the banks either won or can for some reason Yeah And last question because this is a big meme and part of like that we going to grow out of this like do you have any hope or optimism
about like the productivity miracle provided by ai like is that is this a silver bullet like
black swan that we're getting handed it's possible um i am not the biggest like just on a personal
level. I try not to let like my personal beliefs or feelings influence like my analytical, right.
But just on a personal level, like I'm much more into like, give me a cabin in the woods of
Montana, right. And like, I'm not one of those like tech accelerationist sort of people that is
like begging for the singularity and all this craziness. It's generally not kind of who I am
as a person. So that being said, my bias being clear, I don't think that it's very likely. I
think it's certainly maybe 10, 20, 25% likelihood that you see productivity. But as Lou Groman
points out, and what he says, I have found as well through looking at it independently,
it would have to come at the right pace, not too quick, not too slow, and just the right amount.
Because otherwise, if it comes too quickly, you're talking about, I don't know, 20, 30,
40% unemployment if you throw robotics in there. You could see such massive disruptions. And then
how do you fund the UBI that ends up becoming necessary for that in that world? Some people say,
look for every job that's lost, one will be created. I don't fall into that camp. I think
more jobs will be lost than created with this, especially once you throw in robotics into the
mix. So yeah, I think that we know how inefficient the government is and the cost of administering
some of these social programs. I did a post maybe last month that looked at Medicare outlays,
social security outlays and VA outlays relative to tax receipts. And I think it was Medicare has
grown 7.4 times faster than GDP or tax receipts going back to 1965. Social security, I think,
was 3.4% 3.4 x faster, 3.4 times faster than GDP or tax receipts. And VA, I think, was in the
in the low threes as well. So government programs kind of by definition aren't efficient.
So if you have high unemployment, it'll take money to then administer the programs that do all the UBI.
So you end up talking about even more money.
Compoundly inefficiencies.
Yeah, and you ask the question, or I ask the question for tech stock kind of people, how are you going to fund that?
The only way that I see that being funded is by just massive taxes on Google and Meta.
Whoever has those tools, just massive taxes on them.
And then it's like, well, why own the NASDAQ?
Yeah.
And then also to that point, and I'll put my bias out there.
I'm probably more optimistic because we've been leveraging AI here and it's made us more productive.
And I haven't fired anybody for it.
I've just equipped people with it.
Extend your capability.
But to your point, I think it's very unclear how many, if any, of these companies are profitable yet.
I think that's the big question.
How much cash are they burning behind the scenes?
How much of this is just an attempt to try to create enough energy and attention and adoption to try to get to profitability?
but like certain companies at least i think it's pretty clear they're burning incredible amount of
cash and not getting huge amount any return in terms of profits and it's like have we reached
a point where these companies can actually do it profitably yet like i think no and like will
will it ever manifest like that's i think that's a big question yeah i mean i would say like i
at first was like very opposed to adopting ai just myself um but then i was like no i'll try
it out. And so I kind of started tinkering with it. And I got to say, I've come around personally
to AI. I was one of those people that kind of hated it in the beginning and was very skeptical.
But it's helped immensely. I can throw into it some complicated, I can say, country XYZ has a
current account deficit. They're running a fiscal, right? Give it all these conditions,
all these inputs or variables, and then ask it to interpret how a particular policy on this side can...
The degree to which it can think beyond my capacity so quickly has enabled me to...
It's helped me a lot.
And of course, it helps with little things like help me write an introduction to my video,
stupid stuff like that, that saves you time.
And so then that's more time that I can spend reading academic papers at the Fed or whatever.
And so I do think, I'm not trying to say that it's like a horrible thing.
I think that the productivity, I think that if people are skeptical of it, I would encourage them to try to just adopt it.
It's not perfect yet, of course, but I was one of those skeptics.
And I got to say, it's been a massive boost for just a single guy that's trying to do all this YouTube and Twitter and all this stuff.
It has massively benefited.
Yeah.
Fun times.
Exciting times.
Are you optimistic?
Pessimistic?
I'm optimistic.
I think I see a spirit that's kind of reemerging, especially amongst younger people.
it beneath the anger beneath the resentment and hopelessness and despair. Like there is this kind
of bubbling up of, you know, this is the first turning that Neil Howe talks about. And I think,
you know, we're, we're certainly in a fourth turning and it's certainly, you know, I think
the next couple of years are going to be very volatile, very unstable, uncomfortable maybe,
But the benefit is that coming out of this, we are going to have such a golden age of American exceptionalism that I think might even surpass the last golden age of America after World War II.
uh and so that part gives me hope you know and i would say for the people that like are worried
about where we're at today and where you know the volatility and the chaos and this and that
i would just say like just try to to weather through the storm because it i do have hope
that it gets better um and you know that's what history that thousands of years of history right
like peter turchin goes back like hundreds and hundreds and hundreds of years and finds the same
cycle. So yeah, like the inevitably kind of coming out of this fourth turning will be,
you know, a golden age, unlike any other, because now we're going to have tech, right? And, and look,
one of the things to say about America is like, we by far have the best tech companies and the best
kind of innovation. So that's a positive. And yeah, I think definitely medium to long-term
optimistic, short-term it could be, you know, but you just got to like weather the storm, right? Like
Don't do anything stupid.
Don't use leverage.
You know, just kind of keep it simple and just hold on.
And I think, you know, 10 years from now, things will be a lot better.
Hopefully.
I agree.
And that sort of energy that you're describing, it feels like for a period of time, particularly post 2000, there's been a lot of complacency.
Like we were given, like us as millennials, we were given the roadmap.
Like you go to school, you get a four-year degree, you get a job.
It's done.
A lot of us went.
I didn't do it.
But like a lot of people, I went to college, but like I didn't like stick to a career because I had basically sniffed out pretty early.
Like, this doesn't seem like the right thing to do.
But many of our generation did and recognizing like the roadmap didn't lead me to where I thought I was going.
Yeah. And I think particularly with Zoomers and millennials that are privy to what's going on like yourself,
there's a degree of agency that's re-emerging where it's like i'm not just gonna take the the
roadmap and basically use that for my life like i'm gonna try to figure out and actually understand
things and make my own way which is incredibly encouraging yeah it's the the weak men's weak
men create hard times and hard times create you know strong men strong men create good times it's
kind of i mean it it sounds stupid but it's kind of the pattern that i i see as well yeah robert
this was incredible. Where can people find out, uh, where can they find your work on YouTube?
Yeah. On YouTube, it's, uh, infranomics, I N F R A nomics, like economics. And then, uh,
on Twitter it's at infra I N F R A a underscore. And I have the blue check. There's, I guess I'm
at a size where I get the imposter. So just make sure it has the blue check, um, and the underscore
at the end there.
And yeah, that's basically
most of where I am.
I do spaces and stuff.
So I try to respond
to all the comments on YouTube.
So I try to engage with people
as much as possible.
If you ever want to talk,
come to one of the spaces we're in
and just hang out,
ask your questions, talk.
Hell yeah.
We'll link to all that
in the show notes.
We should definitely do this again.
This was fascinating.
Yeah, it was a great time.
Awesome.
All right.
That's all we got today, freaks.
Peace and love.
Okay.
Thank you.