Moody's Talks - Inside Economics - Digital Currency and Delta

Episode Date: September 11, 2021

Aaron Klein, Senior Fellow in economic studies at Brookings Institute, joins Mark, Cris, and Ryan to discuss the current state and future of crypto currencies.Recommended Reads:Natural Disasters From Coast to Coast Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, chief economist of Moody's Analytics, and I see a familiar face, Chris. Where are you been, Chris? I've been out and about. Visiting family in Italy. Made the big jump over the ocean. Yeah, and you're speaking to us from a little village. A tiny village, home village of my father at Enoeobruzzo, which is on the opposite coast from Rome, so on the Adriatic Sea. A really tiny village. They say there are 1,900 people here, but I don't believe it. I think they're counting people like me, immigrants. So a really small agricultural village, and surprisingly, the Internet works this time. Yeah, you sound better than Ryan.

Yeah. You said it's a Brutzo? Is that the name of the village? Abruz, yes. Brutze. Yes. That's the region. Oh, I see.

And so how is Italy navigating the pandemic? Any better than we're doing here in the U.S.? Actually, much better. I was really left at the end of August. I was really concerned to have a young son, as some of the podcast listeners will know. But actually, the numbers are much better here in terms of the number of cases.

Vaccination level rates are higher, and people are just, I see, very aware, masking is routine. I think because it's such a tourism-driven economy, everyone knows that, you know, they need to help out or do their part to ensure that tourists feel safe and comfortable. Well, it was good to have you back. You were gone for two weeks, and it was just me and Ryan, and I tell you, that's tough, you know. I got to keep keep things going here without you.

So it's good to have you back. Hey, and it's good time to come back because we're going to talk about crypto. It's the only reason he came back. Is that right? Yeah. I got to learn. You know, he's the Crypto King. Remember the beginning of the podcast, the whole Crypto King thing, although he's a little less wealthy today than I think he was a few weeks ago.

But we'll come back to that. Is that right? Great guess that I'm going to introduce in just a minute to help us kind of navigate the crypto issues, which are numerous. And then you heard the voice of Ryan Sweet? Ryan. Oh, and I should say, of course, Chris is the deputy chief of Congress. So good to have you. And then, of course, Ryan is the director of real-time economics.

And Ryan also manages our Economic View website. And Ryan, any good research this week on the Economic View website? This is a test, by the way. No, actually, there was Laura Ratz, our colleague, did a great piece on natural disasters, kind of summarizing like what happened, like the economic cost of Hurricane Ida, but also weaving in the wildfires that are ongoing. on the west. So I thought that piece really stood out this week. That is not the piece of research I had in mind, right? No, I know what you're trying to beat me into the piece that you did on

foreclosures. And now I'm going to pick something else. Yeah, exactly. Rental eviction moratorium and, you know, the emergency rental assistance. And I thought you're telling Chris that you had to carry, you had to put me on your back for the last two weeks. And then you expect me to say, oh, here's Mark Zandi's greatest piece. Good point. That's a great point, actually. You make a good point there. Yeah, but yeah, I recommend that piece on if you're interested in the rental eviction issue. I thought that was a pretty good piece. Yes, I did co-author with Jim Parrott over at Urban Institute, but yeah. But we also have a guest this week. Aaron Klein. Aaron is a senior fellow in Economic Studies at Brookings. Welcome, Aaron. Good to have you. Mark, pleasure to be here.

And you're all things financial system at Brookings, with the, I know more of a focus on financial technology and the payment system and obviously a great guy to have on to talk about digital currency. So thank you for coming. Hey, I was reading your bio. I didn't realize you were kind of like the chief economist for Treasury early on in the Obama administration, right? I served as Deputy Assistant Secretary for Economic Policy for the first term of the Obama administration,

joining right in the teeth of it in 2009 doing TARP implementation after having been the chief economist on the Senate Banking Committee when we wrote and enacted TARP in 2008. People forget Obama inherited that program. He didn't create it. That's a great. Of course, it kind of evolved, right? I mean, early on, it was some kind of reverse auction kind of system kind of thing. So that evolution was all during the Bush administration and secretary Paulson, who pitched a two and a half page bill to Congress with almost no oversight or specificity and an idea of this reverse auction. In fact, the original proposal he put before Congress wouldn't have even allowed him to legally inject capital into banks. I was part of the team that rewrote that to make possible. the exact course of action he pursued.

Got it. And of all the myriad aspects of Dodd-Frank, that's the financial regulatory reform that was passed, I guess in 2010, wasn't it, in 2010, in the wake of the financial crisis, I've been dying to ask someone this question who worked on it. What would you put as the best,

most effective provision in that legislation? Now looking back, you know, some 10 years later. The creation of the Consumer Financial Protection Bureau, we had a structural problem in financial regulation where you had a group of bank regulators that prioritized the bank's health above that of the customer. And we were never going to get out of that viewpoint without creating a separate entity whose sole purpose was protecting consumers. And I think that was the number one accomplishment of the legislation. Interesting.

And has lasted. You know, people said, I think President Trump campaigned on doing a big number on Dodd-Frank. And here we have the CFPB more than a decade old and with some strong new invigorated leadership. Yeah, exactly. They've played a big role in the eviction crisis and trying to help mitigate the fallout from that. Let me ask you this question. Of all the myriad provisions in Dodd-Frank, which did you like least?

which has been least effective. So that's a very good question. I like to put it to you the following way. There's a core of Dodd-Frank that kind of works together. And then there are a series of things that were added to Dodd-Frank, usually named by an amendment for someone else. And when you think about Dodd-Frank, it was passed with the bare minimum number of votes in the Senate.

There wasn't a single vote to spare this 60 threshold. point of order. And so that's unique. Every other major banking bill in the 20th century, whether regulatory or deregulatory, ultimately had a large bipartisan consensus. Sometimes it was geographic. The agriculture states against the banking states, the banking states against the prairie populist states. But they all had very large numbers. Even Graham Leach-Bly, which deregulated the financial system was passed finally at a 90 to 10 vote. When you have big bipartisan majorities, you're able to hold off kind of little external amendments, which may or may not make sense with the theory of your bill. In legislatively making Dodd-Frank happen, which was not a sure thing,

a lot of compromises had to be made and amendments added onto it. Some of those amendments are good or bad, Mark, most of them aren't part of the core theory of Dodd-Frank, but all of them ended up bringing somebody on board. And when you don't have a vote to spare, you have to make those types of sacrifices. So I like to say kind of most of the time when I'm dealing with Dodd-Frank critics, they talk about the this amendment or that amendment is their big problem. Right. I say, well, you know, if you bought on to the core of the bill, things like the failure resolution provision, which when separately voted on had over 90 votes in the U.S. Senate, you know, maybe with some broader legislative tradeoffs, we could have held off some of those extraneous amendments, which today people are complaining about. Got it.

So you're telling me there's some things you don't like, but don't blame me for them. Or someone else's fault. Got it. Everything the Obama administration did in the first term that you like, I strongly supported. Yes, exactly. I fought against internally. And everything you wish we'd done, I was all for. And I never went to a single meeting on Obamacare.

I hear you. I hear you. I hear you. Well, I got to have you back. We have to have you back on just Dodd-Frank, because there's so many elements of that. I'm not, I don't want you to answer this, but I'm just really curious how what you think about risk retention. that's a whole another aspect of Dodd-Frank, I thought, was, you know, something to talk about. But we'll get you back on if you're, well, we'll see how this one goes.

And if you want to come back, you know, given, you know, Chris is, you know, really lays it on hard on our guests. So some of them don't want to come back, but, you know, assuming you want to come back. Smart move walking back that, that invitation to have me back before you'd even see how I did it. Yeah. I didn't want to be presumptuous. That was, that was the reason for rolling it back. Now, you're welcome anytime. You're welcome any time.

But we will come back to the topic du jour, and that is digital currency in just a few minutes. On the podcast, we begin with a bit of a game around the statistics, just to give people's sense of how things are going in the economy and how the recent statistics play into our thinking about the economy. And, Aaron, you're more than welcome to play that game. Just to give you a sense of it, maybe I'll start with, Chris, should I start with Ryan this week with his statistic of the week? Either way. Okay. All right, let's go. Let's go to Ryan first.

But by the way, I should say, Aaron, Ryan is, I will stop saying this at some point, but Ryan is arguably the best forecaster of real-time economic data in the world. He's very, very good at this. and usually Chris and I can't keep up with them, but we'll give it a shot. So fire away, Ryan. All right. There wasn't a lot that came out this week. It was a very, very slow week. Yeah, it was quiet.

This number is a record low since the inception of the data in the early 2000s. It's a ratio 0.8. Mark, you should know this one. Is this from the Joltz report? It is. Joltz-Bing job opening labor turnover survey. Which gives us a read on everything from open job positions to hire. That must be separations or layoffs.

No? You're almost there. Layoff rate. Layoff rate? Nope. Ratio. ratio. Well, layoff rate is a ratio, right?

Right. It's not a person. Yeah. Oh, it's a ratio. Oh, is that the, is that bait? Oh, I know what it is. It's the number of unemployed to open job. Correct. Very good. Oh, that's a record low. Ding ding ding ding, ding, ding. I got it.

Well, I took a me a little. Chris, just to you know, like, Mark was over while you were gone. I was. To be fair, he's right. So that's a record low. And we have 10.9 open positions. So it's, again, getting back to our discussion in the past, it's not a labor demand issue. It's a labor supply problem. And that's why the Delta variant is a little bit concerning that that, could delay when more people come back into the labor force, which we desperately need. So 10.9, did you say 10.9 million open job positions? Correct. And that's a record number by, I think, orders of magnitude, right? Oh, yes. Yep. Yeah. So when I look at that, fundamentally, it just makes me optimistic about the economy's prospects, right? I mean, because you're right, the supply side of the labor market has all these impediments that we've talked about in previous podcasts, but those who get ironed out as the pandemic ultimately winds down and people, you know,

figure things out. Well, towards the top of the list, I think looking at the household poll survey from census, the number one reason people give that for not going back to work is their parents and they're taking care of kids. So, you know, presumably with schools now reopened for in-person learning, we should start to see that wind down. And then a lot of, after that, it's people who are. are sick or taking care of sick people are fearful of getting sick. And presumably that should

wind down too with the pandemic. So to me, that 10.9 million means, you know, assuming the pandemic winds down here in a reasonably orderly way, we're going to get lots of jobs, you know, over the next year or 18 months, right? Is that your interpretation? You agree. Okay. The next few months are going to be a little bit rocky. You know, we get the hurricane effects. we've been tracking the number of school closures or schools moving to virtual learning across states, and that's beginning to creep up. So September, October, you know, might be a little bit difficult for the job market. But I agree with you. Next year, we're going to see, you know, really strong job growth. Well, I've got a number for you, and I'm just going to say it because it comes out of jolts,

but let me see how good you are. Four million, four million. Is that quits? $300, $3,977,000 to be precise. Is that quits? Oh, that's quits. That's great. Yep. That's the number of quits.

Yep. Which is also, by the way, record high. Yep. So if you've seen over the last few months, we've seen a lot of larger than usual upper revisions to job growth. And that's not unusual when you have a quits growth in the number of people quitting their job running that we've seen recently. So, you know, there's a lot of labor market churn.

So your first estimate of employment is going to be a little bit difficult to, you know, pinpoint accurately. That's interesting. It makes sense because people are in transit, as you say, in jobs, right? I should point out this Joltz number that we're talking about is for the month of July, right? So it's a bit lagged. We did get August employment data, and that showed a pretty soft month. We talked about that last week. So I suspect the Joltz report, this report we're talking about for the month of August. will show some weakening relative to what we saw in July, be my guess. Yeah, I would think. Okay.

Okay, very good. So inherently optimistic report, that's a good one. Chris, you're ready to play the game? I know you're... Yeah, of course. It might be a little bit rusty not playing this game for a few weeks, so a couple weeks. I think I've kept up. You know, you have.

It has been a slow week as well, though, so you're probably going to get this one pretty easily, 18%. It's got to be house prices. That's all he talks about it. Record high growth rate. How can I not cite that one? And he even made the foreign press here. Another record high. That's a record high.

Another record high growth rate since the inception of the series back in 1976. So pretty incredible. And then if you look at it by Metro, right, or by state, it's even more impressive, right? Idaho's up 33.6% on a year-over-year basis. Phoenix is up 30% on a year-over-year-year basis.

So house prices are just rip-roaring, and I think it feeds in nicely to our crypto discussion. Yeah, the Fed must buy mortgages to keep the economy going, and that has no sortative effect on asset bubbles whatsoever. They are friends at the central. Listener, that's sarcasm coming out of the bookings. That's how they sound sarcasm. Yeah. Yeah. Okay, but that's the, is that the CoreLogic index? The CoreLogic HPI, House Price Index? Okay, repeat sales. On Tuesday. Okay. All right, which metro area is experiencing the strongest HPI growth? And this is year-over-year growth, I believe, through the month of, is it August or July, did you say? July. July. Coverage is July. It's Phoenix. Phoenix. Yep. Phoenix was 30 percent, right? Clist or three percent? 30%.

Yeah, 30%. Can you imagine that your house just appreciated by almost a third in one year? Does that make any sense? Not really. Okay. But crypto is up 300% probably over the same period. I will come back to that. Yeah.

Yeah. Okay. Very good. Okay. So, Aaron, you got to get the gist of the game? Yeah, I got a number. And since I'm here from Washington, I thought I'd give you. And since I started my career in statistics and I've since come to believe that the margin of error often swamps the certainty with which economists rely on data, I'm going to give you an actual factoid as opposed to a sample or a statistic.

And the number is 17,576. 17,576. You've got to give us some content. Is this in the financial system in some way? No. It is a, it is the answer to a question that root cause is one of the problems as to how government officials and some people in the private sector speak. Wow. Do you guys have any sense to that? No. Really? 17,576.

17,576. Is dollars? Nope. Okay. Okay. Words in a bill. Give us one more hint if you can do it without giving it away.

So a lot of people are talking about the square root recovery. Yeah. Yeah. Right? This number has an integer cube root. Oh my God. It sounds like it comes out of Washington. Am I being Brookings darky enough for you?

you guys. You are definitely, you can play this game anytime you want, Aaron. Yeah, this is good. So I will, I will give you the answer. Yeah. You guys have a question. I think so. Do you guys give? I give. Yeah, I give up. 17,576 is the answer to the question, what is 26 cubed? 26 cubed would be roughly the number of, would be the number of possible three-letter acronyms. Oh, okay. Somewhere, some, I'm sure somebody would have got. net. Some other person who does that, despite having 17,576 different options in Washington, when people say CRA, I don't know if they're talking about credit rating agencies, community

reinvestment act, the Congressional Review Act, or the Credit Reform Act. Credit Reform Act. All of which are CRAs that I deal with from time to time and work. Yeah, yeah, yeah, yeah. Actually, that would make a good paper, you know, just go through all the acronyms and Yeah, that's a really good one. I won't bore you with how many different ABAs there are in town, although I will tell you that one time I tried to invite the American Bankers Association

and my staff are invited the American Beverage Association. Close. And so we got a bunch of beer instead of some bankers, neither any lawyers from the Bar Association or bus riders from the American Bus Association. You're making that up, Aaron. I can tell. You're making that up. Really?

And on a stack of Bibles. Oh, my gosh. That's a good one. That's really a good one. Well, we've got our own set of acronyms as well. But we're careful on this podcast to define our acronyms, which is apropos for, you know, what we're going to do soon and talk about crypto. Should I give you one statistic?

I mean, because it was a pretty thin week, but maybe just to temper kind of the optimism, you know, the 18% each house price index and the, you know, 10.9 million open job positions. And I'm going to preface it by just reminding everyone. And Aaron, I don't think you'll get this one, but it's a pretty good shot, Ryan well. But I'll preface it by reminding everyone of a statistic you talked about last week, Ryan. And that was our tracking estimate for GDP in Q3, the current quarter. And that's been coming down because of the effect of the delta virus on the economy. It's definitely denting the strength of the economic recovery.

It's now down to 3.9%. And it had been back probably four, six weeks ago, closer to, I think it's high as 7%. Is that right, right? Yeah, we started off above 7. Yeah, so we're now down at 3.9, which in any other time is pretty good, but that feels like a pretty big come down. And it's headed in the wrong direction. But here's the statistic. And remember, the 3.9 is just to give you a bit of a clue.

So minus 0.4%. Minus. 0.4%. And this came out this week? It might have been the week before this week. Okay. Yeah. But it is a statistic that we cover on economic view.

So you should know it. In fact, you may even cover it. You may even write about it. I'm not sure. You construct it, for sure. It's one of your babies. Oh, is this monthly GDP? Got it.

There you go. Yeah. Yeah. For the month of July. For the month of July. So in the month of July, we created over a million jobs. But a monthly GDP that's just toting up output in the economy, production in the economy, declined four tenths of a percent. And if you look at the monthly data, GDP, real GDP, that's the value of all the things that we produce, really has not moved since April.

So, you know, we got the American Rescue Plan in March that really pumped things up in March going into April. And then May, June, and now in July, basically, you know, if you look through the ups and downs and it was down in July. But if you look through the ups and down, it basically flat, which is, you know, clearly in part, reflection of the fading of the fiscal support from the American Rescue Plan. But also a big part of that is now, I think, Delta. And Delta's big impact probably will come in August, right? I would think. So, you know, a cautionary tale that this economy, this recovery, while prospects are really good here, is still tethered to the pandemic. The ups and downs of the pandemic really matter to what's going on.

So with that, one more question before we move to crypto, and I know we're going to get there, I promise. What do you think of President Biden's executive order yesterday using OSHA? that's the folks that look over the safety of workers to have businesses with over 100 employees require their employees to get vaccinations. What do folks think about that? Do you have a view? No? Okay.

You don't want anyone to touch that. Aaron, do you have a view on that one? It's not my core area, but there's a secondary question. There's like a bit of kind of, I would say, it's just a, it's not. really a white-collar, blue-collar, but it's really the more modern version, which is, can you do your job remotely? So if you can do your job remotely, and the employer essentially runs an organization that easily transfers to remote work, is a vaccination mandate among all of their employees enough to bring people back into the office? Or will, right, because you can require all your employees

to be vaccinated and not return them back to work. There's kind of that hidden assumption. Now, if you require in-person work, right, you can see a very different argument in which the vaccination status of the person, you know, two feet to my right on the kind of assembly line or the restaurant or whatever it is that you want to do has a direct health impact to my consequence. And then you can ask the question again, you know, what's going to be the verification of this process, right? I mean, we require all employees to present valid tax identification numbers. You know, is that followed for all employees and employers there? And how is that going to work? And what is that going to mean for people who are really choosing not to get vaccinated and where are they

going to fit into this differing labor force? Yeah, lots of open questions. I mean, though, I can see, It's, you know, arguments on both sides of this one, but fundamentally, if you buy into the view that the economy's performance that is critically dependent on the pandemic and the pandemic, the reason, you know, it's obvious if you have more people vaccinated, the pandemic is going to be less of an issue, that it's very much an economic issue, that this should be, at least on the margin, supportive of economic growth, you would think. you're assuming that more people vaccinated changes the psychology and process of how people engage in the economy and what at least I'm observing somewhat anecdotally and somewhat in the data is that vaccinated people for a variety of reason are still perceiving the risk of COVID to be greater than what appears to be the scientific consensus as to that actual consequence and or the question about when are we going to vaccinate people under the age of 12, I think plays a very large role into that question because there's this, you know, parents are simultaneously judging what's the, what's the risk to me

of infection? And if infected, what risk do I pose to my children? And, you know, one can understand people perhaps being overly cautious when it comes to the future health of their children vis-a-vis and taking a different risk premium perspective than say what the Center for Disease Control says are the actual health consequent risks for kids under the age of 12. Yeah, you're totally right. I mean, it really depends on the behavior of individuals, how they respond. And it's hard to. Right, this is one where our macro models really break down because there's such heterogeneity

of responsive individuals. We can assign people different probabilities, but we have very limited data to kind of point to the question, like, what share of people will not go to a restaurant, what share will only do outdoor dining, what share would do indoor dining, if there was a vaccination requirement,

if there wasn't a vaccination, does anybody have a guess? And then how does that change geographically? Is Applebee's the same as Ruth's Chris? Right? I mean, there's a whole different set of questions here. Yeah, all good points. And actually, you know, talking about human behavior, maybe it's a good segue into the topic,

and that is digital currency. And let me just frame it a little bit by saying when I talk about digital currency, I'm speaking more broadly than just crypto. Crypto, everyone kind of associates with Bitcoin and maybe Ethereum, although there are thousands of cryptocurrencies out there now. but it also goes to new types of digital currency, like stable coins is a new one, utility coins. And something that's come to the fore even more recently

that I think we need to talk about is central bank digital currency as well. So there's lots of different digital currency. But before we kind of dive in and listener, we're going to try to do this in a way because I know it's very confusing because we're mixing finance with technology, both pretty mind-numbing disciplines, you know, and bringing them together makes it all the more mind-numbing.

And it's all changing very rapidly, so very difficult to keep track of. So we'll do our best to kind of define terms and, you know, make sure that, you know, we make clear our arguments and discussions. But let me ask, Aaron, are you a – would you characterize yourself – as a crypto proselytizer or a crypto critic or something in between. We know Chris is a proselytizer. I just hear from all day long about, you know, crypto. And Ryan is a crypto critic. He's just dead set against it.

And you can see the differences in the way they're dressed. Look at the way, you know, Chris looks prosperous and doing well. Ryan, not so much. I'm not so sure. Going for comfort. Going for comfort. Yeah, but Chris, you know, he's definitely gold. Jet sets off to Italy.

That's what I'm saying. Yeah, no. Yeah. I'm surprised we don't see like, you know, is, uh, he's in his wine cellar, you know, they're in a bruce. So, yeah, yeah. But, Aaron, are you a, are you a crypto, uh, proselytizer or critic or somewhere in between just so we're going to level set?

Yeah, no, look, I'm, I think I'm somewhere in between. I think that there's, you know, crypto has become shorthand for accumulation of very different set of concepts which need to be disentangled, right? One is the creation of this new thing, which is a cryptocurrency, which is either a medium of exchange, a store of value, an ever-appreciating asset, a true bubble, right? lots of people will wonder and debate this. The second kind of question is the underlying technology that enabled it, blockchain, which may well be the single biggest advance in accounting since the advent of dual entry bookkeeping, which helps spark the Renaissance in not too far from where Chris is right now over 500 years ago.

Market finance and technology were too expensive. exciting for the audience, I'm happy to introduce accounting history. You know, the blockchain idea, I think, has a tremendous amount of application and the ability to handle and potentially move a wide variety of ledgers and record keeping, which are handled ridiculously inefficiently in our current system, witness land title and deed registration, which I know you'll appreciate, take an inordinate amount of research. resources out of housing and the general economy in recording title, insuring title, checking title, all of which produce seemingly very little real world benefit. I think title insurance

has the single lowest payout of any quote unquote insurance product at single digits. You know, car insurance is usually paid about 100% of their premiums back to their customers. I think title insurance is somewhere around 7%. And all of this could be done a lot more efficiently or effectively in this new blockchain technology. Whether that technology is ready to usher in an era of a new non-government-backed currency that simultaneously replaces state-back fiat currency as the dominant form of money in society will also representing and ever appreciating asset, new asset class for investors.

You know, I think there's a lot to unpack there. I doubt that the proselytizers will get every single thing right. But, you know, I was talking to my nephew about this who kept saying, you know, this is like what the internet was when you were my age, Uncle Aaron, and I'm reminded of kind of two different things, right? One is Netscape was a darling until it was worth nothing and Yahoo. The same. I'm also reminded that Amazon crashed from being worth $100 a share at the top of the peak to under $10 a share.

And if you bought at the top of the bubble in 2000 and held, you'd be mighty rich right now. And so, you know, there may be winners and losers and some things may permanently shake out. Well, there's a lot to unpack there. And I'm not sure I want to go down the blockchain route. You accept to say, and you'll go. the listener is going to get a sense of this pretty fast. I am a crypto, I wouldn't say critic, skeptic. I'm a skeptic, certainly with the current state of technology. And even on blockchain, I'm somewhat skeptical. You brought up title. And this is a bit of a sidebar.

We'll just explore it a little bit and then we'll come back. But on title insurance, title insurance seems like slam dunk. This should be on blockchain, right? Because you're just following the who owns this property over time and you wanted to be completely transparent, no questions asked, and you're right. I mean, it seems like a very expensive kind of insurance just to keep track of property rights, which by the way, property rights are incredibly critical to a well-functioning economy, so we've got to get this right. But why isn't title insurance on blockchain? Why isn't already? Why isn't someone disrupted that industry? I don't get it. I mean, look, look, it's giant red seeking that's already in that is well embedded. I mean, if you go to close and settle on your

house, the settlement attorney is probably making a majority of their profit on that transaction on what is optional owner's title insurance. Try declining it. I have in every one of my purchases. You'll watch the settlement person who one minute is plowing you with free candy and beverage flip out at you. First of all, offer you a deal where they cut the price significantly. You know, I mean, people need to walk into some of these negotiations like you're buying a car and have the same skepticism on a HUD-1 or formula about these fees as you do when a dealer shows you an invoice. And you need to step back and ask the question. Mark, why was I even sold title insurance on the fourth-floor condo of my unit that previously

had been an abandoned bottling factory? Well, I'll tell you, I was approached about, I don't know, two years ago by a group of young guys who were starting a company, the idea was title insurance on blockchain. I go, this is a great idea. It went nowhere. And I don't get it. I mean, because you're right,

you've got these entrenched interests that are making it more difficult. But if someone came out with a better mouse trap that was less expensive, much less expensive, and work better, why isn't that happen? How do you get it in the hands of borrowers? and buyers. I just put it on the internet and I say, hey, use this. This is better. I would think that'll be a win. No? You know, most people I don't think even are aware that they can decline owners title insurance at

settlement. You can't decline the lender's title insurance. And it is not made transparent to you at all. I mean, who here read every form at their closing? Chris did. I mean, is it humanly possible? Chris, how much of your life did you spend doing that? I'll tell you that the, uh, The other agents were not happy. I hope you brought a sleeping tent. No, but you're right. Even then, I did read quite a bit, but, you know, it's impossible. One point I would make, though, is, you know, for the U.S.,

at least we do have some competition when it comes to title insurance. It's actually some efficiency there. I think it even makes more sense outside the U.S., right? I take zero competition or efficiency. You can't walk into your settlement agent and bid off three different title insurers. Yeah. Well, okay. I think, evidently, though, it's really entrenched here. There's, you know, making a transaction is in the hands of this cabal.

Okay, we now have a second podcast. We need Aaron to come back for it. Only title insurance. We're going to focus on, or actually on closing costs in general. We've got to do that because that's a big deal. I agree with you. But I'm, you know, that I just, there might be something else going on here that's limiting the ability of blockchain to really take off. And that's just my broader point, that it's more than entrenched interest. But anyway, let's come back to crypto. And, you know, the point you made early on, and that is that, you know, it's a crypto currency. And a currency works. People want to hold that currency and use that currency for two primary reasons. One is it's a medium of exchange. I can take that,

whatever it is and translate that, you know, pay somebody with that currency and get something in return. So it's a medium of exchange. And it's also a store of value that, you know, if I get that currency, I know what it's going to be worth, roughly speaking, a week from now, a month from now, a year from now, you know, there's inflation and deflation depending on where you are, so forth and so on, but broadly speaking, you know what it's worth. And the fiat, so-called fiat currency, that's the dollar, the yen, the euro, that's fiat because it's the government of these current that are backing these currencies, people trust it, you know, and the currencies are stable, they're a reasonably good store of value. Let me give you a statistic. So to this,

to this point on medium of exchange and store of value, if I look at the, if I look at the the volatility of crypto prices. So if I just look at the ups and downs and all arounds, I mean, the technical definition is the standard deviation of price changes over some period of time. Let's take it over a year. For Bitcoin, which is the predominant crypto out there still, although not the best one, but the predominant one, the volatility is 75%. And we can discuss what that measurement is, but just four orders of magnitude. If I go look at the volatility of the value of the dollar, you know, on a broad trade weighted basis, it's 5%. Equity prices, stock market, which everyone, you know, thinks about as a volatile market to, you know, there's lots of risk there,

17%. This is over the last year, you know, gives you a concept. So it, given that volatility, how can crypto be a medium of exchange? How can it be a store of value? I don't get it. I mean, Am I talking to the choir here? I mean, is that right? So, you know, what's the counter? Mark, let me try to offer one more concept that you kind of danced around in these different discussions but didn't address, which is what is money, right? I think society has made a mistake in accepting a definition of money, which is a medium of

exchange. That's kind of constantly what you're referred to. If you look back, that really comes from John Locke, who's a really smart guy about a lot of things, but about money he was not. I think a better, smarter definition of money is money is something in which is a system of debits and credits in which you can have third party exchange without prior party consent. So let me unpack that for a little bit, right? A system of debits and credits we get, right? Everything you mentioned was a system of debits and credits. But what do I mean about without prior party consent, right? So Mark, let's assume that you and I trade each other

lunch. Our medium of exchange is lunches. You take me out to lunch. I take you out to lunch. That's a medium of exchange. I'm not trading my lunch, but okay, we'll go with it. No, go ahead. And I decide that I owe a debt to Ryan because we also have this exchange. I cannot say, Ryan, I'm going to square my debt to you by you taking Mark out to lunch, right, without your consent, right? Can I give Ryan a gold bar and gold shavings? Yes, right? Gold can function as money, and in point of fact, for a lot period of global history, it did. Because, right, it was a, in this way, crypto can function as money. It's a system of debits and credits that can be exchanged without prior party consent. But gold is an ineffective medium of exchange. If you've ever held a gold bar,

it's super heavy. Its value may move more or less than the dollar or stocks. It's not a question of its fluctuation. It's a question of how it physically transacts. In fact, one of the problems with Bitcoin as a medium of exchanges, it's actually kind of a little bit slow. in the current networking system. And in point of fact, the technology that we have that process is medium of exchange right now, speed is one of its top priorities as well as ease of use and acceptance, broad-based level of acceptance. Historically, governments issued money because only by support of the crown,

could you be positive of prior party agreement without past party consent? The government stands behind this. What crypto does is it offers the ability to have a ledger of debits and credits without government support and an ability to exchange that in prior situation, right? I can't offer you shares of my house because you're not positive that I own title to it. Right? If I tried to give you shares of stock for something I was buying in the store, Right? You say, well, how do I know that's real stock? Right.

And crypto offers that potential ability. But it has real limitations as a medium of exchange based on the speed of its processing in certain of those, the most common of which I think is blockchain. As a store of value, sure, it could be valuable. I believe over a long period of time, the fastest appreciating asset was Stradivarius violins. Is that right? You know, all sorts of things are given and assigned by society. Beanie babies. Yeah.

Remember Beanie babies? Yeah. My youngest daughter just found my old baseball cards when she went over to her grandmothers, right? Some of those things were going to be golden, right? I was going to be living off my Ken Griffey Jr. rookies. Right, exactly. So, you know, different assets go up and down. and we've had appreciation of a wide variety of assets over time.

Yeah, so what you're saying, my interpretation of what you're saying is crypto can be money. It's just not very good money. It's certainly not relative to the fiat money that we think about here in the United States because we have the U.S. dollar, which is a very stable currency, We all trusted it's been around a while. It's using all kinds of transactions. You know, we've got a Federal Reserve that's, you know, non-politicized.

They manage the value of the currency, you know, at least indirectly. And so we're all good. But I guess that then begs a question under what conditions would crypto become better money, given the inherent volatility, given what you pointed out, the transaction costs, given the slow processing, why would I go to Bitcoin versus dollar? Why would I do that? So let me also offer one more wrinkle in which how the government tilts the scale in favor of the U.S. dollar, which is tax treatment. When your dollar goes up in value, which is you said, you know, Mark, it may only have that 5% volatility, but that means it can go up in value. We don't pay any capital gains tax on that.

Nobody's right. The government decided back when I was in the Obama administration that crypto is an asset like all other assets and you pay capital gains tax. So even if you want to transact in your business and you want to accept crypto, buy and sell and buy your goods in crypto, take crypto from customers, you have to account for its change in value. And if it does appreciate, then you have to pay a tax on that, which imposes large record-keeping costs, right? What was your basis at receipt? What was your basis at expenditure? And also the question of, you know, which Bitcoin were you buying and selling when, right? We don't keep track of the serial numbers on our dollars for when they enter our account and depart on our account. But how would you account for what

your Bitcoin was when you took it as a store and a customer and went out? Now, you asked a different question. Why could it be? Well, international remittances are one good example, right? They're very, very, you know, the fee, and that was a part of Dodd-Frank, I'm very proud of Section 1073, which required disclosure of the cost of an international wire transfer, but often, you know, companies like Western Union, we're giving customers some not-so-great exchange rates and the total cost of sending money abroad, which is a, you know, multi-border. billion dollar a year industry. I believe it's more than 10% of the GDP of a country like El Salvador comes in the form of remittances of its foreign workers. I think the Philippines... I think it was 25%.

25%. 25%. Yeah. You know, it's a big deal in a lot of countries international flows of funds. And it's very expensive. The current system is set up on the idea that, you know, very wealthy people are going to wire large sums of money between their simple accounts in the U.S. and Europe and Japan. But, you know, if you want to send 300 bucks to your, you know, mom in the Philippines or El Salvador, you know, you're going to pay a lot. And that's why some companies, I think that was one of the big test cases for Facebook when they talked about their original proposal, Libra, which I believe is now DM. It's one of the big cases for ideas for a company known as Ripple, creating a different crypto called XRP to help banks facilitate this chain. But one of the issues that it becomes is

there is no global currency. And if you're going to exchange between countries, then the current system is ill-suited and expensive for lower dollar denominations, which in the aggregate are a lot of money. And there'd be reasons to think that you could go in and out of a third-party crypto in a better, cheaper way. And as El Salvador pointed out, well, if people are starting to transmit in this thing, why don't we just start accepting it? And El Salvador did that, not in Bitcoin, but in dollarizing their economy. El Salvador doesn't have its own currency to actually use as U.S. dollars. Several other countries do that around the world. So you're making a good point. You're saying, okay, I can't see it really given currency

of technology working in the developed world. But in economies like El Salvador, and we keep going back to El Salvador, because this week they announced the government of South Salvador announced that Bitcoin was legal tender. And they even installed some ATMs, I think, can get, you can use for getting Bitcoin, I guess. And so in those circumstances where you have economies where people don't trust their, the currency, or they don't, in the case of El Salvador, I think you mentioned this to me earlier, there, there. They're dollarized, so they don't even have their own currency. They use the dollar as their form of currency up until this week when they allowed for Bitcoin.

So in those cases, and of course, when you have an economy like that that relies very heavily on people remitting what they earn from overseas back to their family and friends in the home country, you've got these cross-border transactions where fiat money doesn't work all that well. It's very expensive. You know, you have to use, what's that firm? Western Union. Yeah, Western Union that it takes a pretty big Vig off the top, you know, for that. Then in those circumstances, okay, that works.

And also, I guess, suppose, in kind of nefarious transactions, where you want anonymity and, you know, I'm, you know, ransomware, that kind of thing, drug dealing, that kind of thing. It makes a lot of sense. Okay. So there are use cases for it. It's just hard to see the use case where it would displace the dollar or the yen or the euro or whatever, the wand or whatever. Okay. Okay, very good.

Here's the other thing I wanted to test out on you guys. This goes to the volatility. And again, that is kind of fundamentally why it's not good money. It's not going to displace dollar. is that it's inherently volatile because the supply of the currency of the crypto, let's take Bitcoin, is determined by an algorithm, determined by a formula, by a computer program, whereas the demand for that crypto, like any other source of type of money, goes up and down and all around, given circumstances.

So if that's the case, you have this inherent disconnect between. the supply of the crypto and the demand for the crypto and thus the volatility, even abstracting from the investment demand for it, the speculative demand for it. Does that resonate with you, Aaron, that argument? Well, I don't know if that's an, I mean, it's inherently deflationary in the sense of a finite amount. I'm not sure that makes it inherently volatile. You know, I think one of the thoughts I've had to be interested in others on this. But from my experience in financial crises, a financial crisis only occurs if there are two simultaneous issues. One is the fundamental mispricing of an asset.

And that asset can be anything. It can be the value of a subprime mortgage in the United States or a derivative of that. it can be the value of a tulip bulb in Holland. It can be the value of a click online, right? Remember when we were underwriting astronomical values on the basis of number of clicks because we didn't know how to measure this new technology. What is the value of web traffic? We couldn't quantify it. Those create asset bubbles. Asset bubbles can be created by anything often new technology that is difficult to figure out. Bubbles involve some level of of volatility on both the way up and down.

That doesn't necessarily mean that you're going to have a financial crisis. So I wonder if how much of the volatility here has to do with the kind of fundamental questioning of the value of the asset, as much as it does the nature of the asset being finite in amount. You don't need to have a finite amount, right? The reason there was a finite amount of Bitcoin at some level was this proof of concept as well as making sure, you know, the first concern about this was, what's to stop more of this from being released, right?

There are other protocols that you could make that would, you know, guarantee 2%, 3% a certain amount of additional release over time. There's a lot of flexibility with how you design this thing. The second issue was leverage, right? We didn't have a financial crisis with a dot-com bubble, which we lived through in our lifetime because people weren't really levered on stocks. Right. I'm frequently asked, could there be a financial crisis due to crypto?

And I was always saying, no, no, no, because I didn't see leverage. Then I saw, and this was a while ago, some of the big U.S. banks stopping allowing customers to buy crypto on credit cards. So what people were doing were they were creating new credit cards, getting a $10,000 limit in the mail, buying $10,000 worth of crypto. I had not heard that. They made profits. If it went down, they defaulted, right? And credit card lending, your loss given default can be very, very high, unlike, say, mortgage lending.

where, you know, even with the actual experience in the subprime crisis was not nearly the scale of loss given default, as some had predicted. What was it? Phoenix is up 30% right now, right? If I'd gotten Phoenix real estate at the peak of the bubble in 08 and held it, I'd be up right now. Is that right? Oh, by the way, as a quick caveat, that's 30% unlevered. If you only had 10% down, think about the return you just got. Anyway, this is why I think homeownership is, you know, the number one source of retirement wealth for people because of leverage.

Yeah. And you have huge leverage. Why do we frequently have financial crises derived from real estate? It's not the difficulty in measuring the value of the asset. It's the inherent leverage in real estate. And this is where some of the concern gets into crypto, particularly as it relates to these so-called stable coins. that promise a one-to-one return to a fiat.

And as Coinbase, which created a lot of news this week, you know, said, well, you know, we're going to offer a yield. Can I stop you for one second? Just one second. Just a level set for the listener that. So, okay, you have these cryptocurrencies, Bitcoin, Ethereum. They're highly volatile. It doesn't work very well as a medium of exchange because of the volatility.

and therefore the solution that has come to the fore is this thing called stable coin. And a good example, that would be, you might have heard of it, Tether. Tether is I think the largest stable coin. And essentially what that does is it fixed the value of the stable coin, tether, to a fiat currency, say the dollar. So in the case of tether, it's one for one. So I'll give you one buck for one, one state, one, one, uh, tether coin for one dollar and it's fixed. Okay. Go, go ahead. I just wanted to make that clear to everybody. So now there's, now there's a digital wallet, right? This is the other layer, right?

How do you hold crypto? Right? You have to hold it somewhere, right? You hold money in a wallet. So this is your digital wallet. Where do you hold your stocks and bonds in a brokerage account? Right. So there are these digital wallets, the largest of which is Coinbase. So I'm going to put my Bitcoin and Coinbase. I'm going to put my Ethereum. Mostly digital wallets then use a token or some other thing to guarantee that. And they said, well, you know, now we're going to give you a return. Keep your money with us.

And we're going to promise you that, you know, yours is stable. We'll give you a one-to-one return, but we'll offer you a little yield. This is not a new financial innovation. It's called a money market mutual fund. Exactly. Exactly. Right. And what does a money market mutual fund do with your money? It invests. What did they do in 2008? They invested in wonderful things like Lehman Brothers, short-term commercial paper and other debts. Money market mutual funds were not guaranteed by the government explicitly.

But when the financial crisis hit in 2008, the Treasury and the Federal Reserve bailed them out. When COVID hit in 2020, they got bailed out again. So, you know, raise your hand if you believe they're not backed by the federal government. You know, then the question is, well, what are they investing your money in and what transparency is required? And this is where you start to get into the opaqueness of the asset class, right? Money market mutual funds register with the Securities and Exchange Commission. They have disclosures and prospectuses that are supposed to tell investors what they invest in. I'm not, you know, I have my own criticisms of this whole nature and structure.

But you're seeing this occur in the crypto space, generally offering much greater yields than what you'd find today in money market mutual funds. And you wonder, where's that yield coming from? Yeah. So what you're saying is that stable coin, this one-for-one translation of a dollar fiat currency into a crypto, is no different than money market mutual funds where I take a dollar, put it to the fund, and they go out and invest it, and they guarantee, these are air quotes that no one can see, that I'm going to get my money back, then I'm not going to lose my money, which we know,

in fact, some folks would say going back to the financial crisis, that the thing that really set the world on fire was when that Franklin Money Market Mutual Fund, so-called broke the buck. They said, no, I'm not going to give you a dollar back. when everyone thought, oh, this was money good, I'm going to get my dollar back. That same kind of dynamic is now starting to develop in the crypto market with the stable coins. So we've not seen a run of a major stable coin yet. I can't tell you what they're invested in because it's not disclosed and one doesn't know, right? One can be highly critical of the fact that the Franklin

fund, as you described, broke the buck and gave investors back 98. sense and somehow the Treasury Department and the U.S. government said, well, those investors in that meet, you know, and mutual funds can't lose money. Last I saw, you know, the nature of investing is you can gain money or lose money. If you want to have stable money, put it in the bank account up to $250,000 or buy U.S. treasuries, right? I mean, part of the problem I think here is, you know, to some degree, the government expectations bailing out one asset class. I mean, Mark, you you Ryan, Chris, let me ask you, if Tether or somebody else broke the buck, hypothetically, one of these stable coins broke the buck, and then there was a run, right?

Because the first person to pull their money out gets it, right? Up until then there's either a pause in redemption, in which case there's going to be a time delay, because there are two elements. One is you can get the dollar back. The other is whenever you want. Yeah. And I can violate the contract to you in one of two ways, right? I can say, I'm not going to give you the full dollar.

Or I can say, oh, you know, you'll get the dollar. but it's three weeks from Wednesday because I got some issues here, right? Is the government going to bail out the crypto investors? No, the Fed will let it die. Oh, really? I'm not sure. The Fed would not bail out the crypto, no. So why not, Ryan?

I mean, what makes a money market mutual fund? Why if I have an ETF, an electronic traded fund, an I shares, a bond fund, right? What moral imperative did those guys get bailed out, but the crypto investor didn't? Well, I think the answer is maybe not now because it's not big enough. It's size, yeah. What about a year from now or two years from now when it's, you know, 300x what it is. But I object to size being the criteria here. In other words, what you're saying is the system is inherently rigged.

If enough really, really rich people are in an asset because that's where you get size, right? The only size of an asset class can come from a lot of money being in it. Then the really, really rich people will get bailed out by the government because if we let them suffer losses in their investments, it's bad. But if a lot of little guys lose money, they're not little guys anymore. They're crypto kings. What are you talking about little guys? Look at Chris over here. I'm not going to barrel them out.

No zero probability. I'm going to do that. Well, all right. I'm going to... Thank you, exactly, specifically to that. To visiprously to that. Okay, but that's an excellent point.

You make a great point. I know we're running out of time. And I do want to move on to spend a few minutes before we end the conversation on central bank digital currency, which is, you know, a cousin to all this other stuff

we've been talking about. So, and the idea there is that central banks, you know, the Federal Reserve Board or the European Central Bank or the Bank of China would directly engage with consumers and businesses and not go through the banking system. Right now, we have digital payments. It's all mostly digital now. I can't remember the last time I actually used a dollar bill with private financial institutions, JP Morgan, Chase, Wells Fargo, you know, those institutions. But this would change all that upend.

all that and the relationship would be between you and the central bank. Did I roughly explain that right? And Aaron, what do you think about that? So, you know, as if 17,576 possible three-letter acronyms wasn't enough, we have to move to four letters, Central Bank Digital Currency, DBDC, right? Now, I love using this acronym CBDC because we all use CBDC. It's our number one form of money in society. It's called commercial bank digital currency.

Oh, good point. And those are all the plastic cards we transact with. And this is something that I hope listeners spend a moment thinking about. When you hand down your credit or debit card, right, what you're handing is a piece of plastic linked to a bank account. Right? Either a debit card, a bank, or a credit card, which is really a loan from a bank. that's what a bank, that's what a credit card is, right? It's not a Marriott or a Southwest card, right? It's from Chase, from Citibank, from Bank of America, it's actually a bank. That is bank digital,

commercial bank, digital currency. It's what we use as money. There's a system of debits and credits. We all accept it, right? You know, there's a terminal that says that you're an authorized user, and we believe the money's in your account. And at a level, a couple of steps behind the curtain. The government does guarantee the functioning of the system and does guarantee the money in your bank account so that you leave it there. The question here is, is there a need or role for the central bank to offer its own digital currency that we can transact in instead of the commercial bank's digital currency? China is doing this. Now, China is doing this for a variety of reasons, one of which is it stopped using commercial bank digital currency.

People don't realize, but Chinese payments have been dominated by Allie Pay and WeChat Pay for quite a while. That's essentially Chinese Facebook and Chinese Amazon, who set up their own digital wallets, linked to a bank account possibly, probably on the back end, but then linked to a whole suite of other services, and everybody in China was using that ledger and that system of debits and credits, which had a very easy digital interface. And China didn't like that for whatever reason and started cracking down on it. I point out, they introduced the first rollout of central bank digital currency, the digital yuan and Shenzhen, which is the home of WeChat Pay. So imagine if the U.S. government wanted to compete with Amazon and rolled out a product and picked Seattle.

Right? I mean, we'll just try this city for a chance, right? Right. And as we all know, Jack Maher and the fate of Financial and Ali CEO, which is the home of Alley Pay, subject of great intervention by the Chinese government. So there's a global race in question about all these government central banks. Do they want to issue their own digital currency? In the U.S., do we want to rely on commercial bank or central bank? And if we move to central bank digital currency, what is the role of commercial bank digital currency in that world? And we have not really begun to address that.

Instead, what we've done is say, oh, well, China's doing this. So we got to do, and Facebook's doing this. So the government needs to do something. And by the way, I'm open-minded on it. Because as I've pointed out, commercial bank digital currency is really good for the rich. What do you get cashback or points every time you use your card? But you only get that because you qualify. If you're low income, it costs you money to make your money digital.

Try and buy a $100 prepaid card. Yeah. Western Union. Right. Western Union. Exactly. So we have a very, our payment system

is a giant reverse Robin Hood. And it showers benefits on the wealthy. You want to see the magnitude of your benefits. Go to the points guy.com. And that all comes out of somewhere and it comes out of people

with less money, paying cash and prepaid cards. One out of every 10 swipes at the register mark is a prepaid card. How many prepaid cards do we use on this podcast? Good point. Well, I think the solution is not central bank digital currency. You make a great point about the reverse Robinhood. The solution is to make the current payment system work better.

I mean, and there's no reason why it can't be made to work better. But the thing that really worries me about central bank digital currency, and it's very ironic that we're having this conversation in the same conversation with crypto, because crypto is fundamentally about decentralizing, right, taking the power away from government out there to the gazillions of people who are managing their own affairs, you know, peer-to-peer kind of transactions, not anyone controlling it. And here we are talking about central bank, digital currency, was the exact opposite. And this is why China's all over it, right, because they want complete control. And they're going to see every single transaction, be part of every single transaction.

and that makes me, I don't know, makes me a little nervous, you know, to go down that path. Well, there's a real tension, right, between anonymity in payments and information in payments. The information stream of your payments is worth a lot of money, right? There's a reason why you put in your loyalty number at the supermarket, right, to get all those little discounts, right? It's so they can track what you buy in the supermarket, right? whatever chain of grocery, whatever Safeway equivalent you have and you put in your little rewards number, now they can track so they can print on the advert. They can print in your

receipt, targeted advertisements, right? I mean, CVS kills thousands of forests to provide worthless paper to everyone, right? And we give up that information pretty willingly for, you know, I don't know what level of discounts we get. And then people get very squeamish about the government having this information. And there's a real push-pull tension in terms of how people say they value their privacy, how they act on it. Cash is an anonymous medium of exchange that's backed by the government. In today's society with concerns about money laundering,

if we hadn't invented cash, would people allow it? It's great for ransom. Hey, excuse my dog in the background. The listener of this podcast is, knows my dog quite well. He's increasingly senile. I love him to death, but he's on his own dynamic. Okay, we're running out of time.

And I want to end it this way. It is now, what is today? September 10th, 2021. We are now September 10th, 2013, 10 years from now. What is the world look like in terms of digital currency? okay and i'm going to erin i'm going with you last i'm going to go with chris first because he's the crypto king so what do you think the world looks like in terms of crypto in terms of in terms of stable coin in terms of central bank digital currency and obviously by then we're going to have a

whole new raft of you know three-letter acronyms and four-letter acronyms and all kinds of other stuff But what do you think the world looks like? What, you know, is crypto a winning currency? Is it a winning investment? Would you be investing in it now? Would you be, you know, thinking that that's going to be the future? That's kind of the frame. Is that reasonable?

Is that reasonable? What do you think, Chris? I think the world doesn't look all that different from today. So crypto still has a place, but it's still a relatively small share of hobbyists and speculators. I don't see it catching on in a major way. I also don't think that the Sun is not drank digital currency for the reasons that we went into catches.

Certainly in the U.S., now I think things are different across different parts of the world, but if we're focused on the U.S., I don't think by 2031 we're going down that path yet. I think there's more research, and there's certainly no first-mover advantage to the Fed. So I don't see any movement in that direction. And a stable coin, yeah, it's kind of the same.

I don't see a real movement in that direction either. I think it's a still relatively small component of the system. Okay. Just for context to the listener, the market value of crypto today, anyone want to guess what that is, all in, you know, roughly? Two trillion? Damn it. I can't pull anything over these guys. Two trillion dollars.

Okay. Now I'm going to really test you. So what is the value of the housing stock? Single family housing stock. This is all you, Chris. I want to say, I might be dated, I can't keep up with the 30% increases. It's about what, 2020?

No, no. No, it's close to 35, 40 trillion. Wow. Okay. I'm really behind. Guess what is the value of all public traded equity in the United States? $50 trillion, close to $50 trillion. Yeah. By the way, all the Treasury debt outstanding, $22 trillion. Just to give you context. So $2 trillion is a lot. Ryan, can you mute your next? But yeah, there you go. Sorry, because to the listener, he creates all these echoes. So we got to move in when he's not talking, when he's not talking. Anyway, that's very interesting. Okay. Ryan, you're up. What's the world look like in the world of digital currency 10 years from now?

I think it's going to go the way of Aaron and I's baseball cards. Really? Cool. Yeah, I'm very skeptical of. Yeah, I think people will figure out how new technology to mine these things more efficiently. Also, I'm a little concerned. You could get whales in the crypto industry where just like the market share is just like concentrated in a lot of people. Then, you know, I don't know.

I'm just really skeptical of this. When my students are trading or trying to like mine Bitcoin. during class, that raises a red flag to me. So I think it's going to be like my Bo Jackson rookie card. You know, it's not going to be worth much in 10 years. Okay. Hey, Aaron, are you guys, do you care what I think about this or should, no, you don't really care?

Definitely. Okay. Let me go, let me tell you what I think. And then we're going to end with Aaron because he's the guy who really counts here. You know, I think it's going to be a bigger deal than we think it's going to be. And the reason is it's going to look very, very different 10 years from now than it is today. But it's going to be a much bigger deal. And the reason is it's almost self-fulfilling.

So much money is going into it and you can make a lot of money that the best and brightest all over the planet are focused on how to make it work better. Like my nephew, I've got a nephew. I may have talked about him before another podcast. university pen uh you know got a at the same time an engine computer science degree with a degree from wharton you know at the same exact time while he's working on a startup company you got why combinator of money for that's the kind of guy this guy is you know a brilliant kid and he was traveling around the world not too long ago with this guy vitalic uh buterin who is kind of

the sort of the quasi founder of ethereum and they they say okay we're going to meet up in in and, you know, Puerto Rico, and they all go to Puerto Rico, and they hang out in Puerto Rico, and they, you know, instead of going to the beach, they stay in some dark hotel room and code all day long. And then they head off to the south of France, and then they head off to Manila, and this is the life they have. So if you've got the best, and this is the beauty of the capitalist system, if you can make money, we solve problems. So there are lots of technological problems with Bitcoin and Ethereum and stable coin and central bank turdictics. digital currency that we have today. But my guess is, unless this thing craters, you know,

soon, it's going to take on a life of its own. These problems are going to be solved. And we're going going to, it's going to be a bigger deal than we think. So maybe I'm not as a euro, I'm not as crypto skeptic as I thought I was. Are you invested in crypto? Do you own any? No. And that, you know, I'm getting very close. I am getting very close. Because the way I would view it is, It's a lottery ticket, you know? I mean, you know, put something in there, you lose the money, put something in there some small probability or some probability or some meaningful probability that's worth a lot more down the road.

So it's a kind of lottery ticket. So, Aaron, what do you think? So, Mark, I was on a conference this summer and bemoaning, you know, I started doing Bitcoin stuff seven, eight years ago. And I didn't put any money in. I was talking to one guy and he says, you know, Aaron, I purchased, I put one percent of my assets in crypto when I first learned about all this as schmuck insurance. And today it's 10% of my network. And I said, yes, and you're not a schmuck and I am. Right. So, you know, the, the, you know,

inherent wisdom of small amounts of diversification into things that may or may not, you know, have true home run potential. This is a good reminder. Look, in the next 10 years, I think there's going to be some sort of problem with some stable coin somewhere. There's going to be a run on the system. We've seen system structured like this before. I can't tell you when I was involved in Congress when we held hearings on predatory lending in 2001 and 2002. And the Democrats controlled the Senate briefly, and my boss was very concerned about predatory lending, and we were, you know, laughed out of the room. You know, there are never going to be any problems with these types of small mortgages, you know, to low-income customers. How could that possibly create a problem? You know, and that was

2002. And, you know, it had a lot of, a lot of room to run. And this is a global asset. One thing that I don't think we've fully talked about is like other assets, right? There's global demand for this. Good point. Good point. I mean, if you want to, we were talking about use cases, suppose you want to move money out of a capital control country, Russia, China, right? Suppose you want to move money out of a country somewhere else. You know, this is one way to do it. That is a very large demand among many countries around the world. So because this is a global asset, I think there's a lot more possible stake because everything else, you know, it's hard to find true global assets outside of commodities. And we don't invent new

commodities very often. I do think at some point there'll be a legislative crackdown. I think that will come after whatever scandal, implosion, failure of something occurs where a little person is hurt. I agree with Ryan that the government. government will not bail that little person out when they invested in crypto. I would point out that investors in crypto are much younger than investors in money market mutual funds, bond index funds, or any of the other supposedly non-guaranteed assets that have been bailed out repeatedly by the central bank. And there's one other correlation I put on with age, which is race. Younger people are by their nature a lot more diverse and have a much higher probability of being a minority.

One stat, maybe I'm giving up my stat for the next time, but the median age, I'm sorry, the modal age. Go back to statistics, mode being most common. The modal age for white Americans, 57. Huh. Do you know the modal age for African Americans in the U.S.? 37? 27. Was it really 27? Okay. Do you know the modal age for Latinos in the U.S.? 22. 11. Oh, wow. That is really interesting. The correlation of age and race is significant in society and the correlation, I believe, of the probability of being invested in crypto as a little

person is much higher the younger you are, right? I think we've all interacted with 25-year-olds who are in crypto far more frequently than we interact with 75-year-olds in crypto. So what are you saying, Aaron? I mean, 10 years from now, it's a bigger deal than today. It's an interesting question. I don't know. I mean, is it a bigger deal or not? I think between now and 10 years from now, it will have become a bigger deal. The bigger part of the global payment system. It'll have, yes. The global payment system doesn't work well. And there's, there's, there's a real value for a different type of global payment system, unless you kind of see

a Star Trek future where we have one United Earth, one United currency, and one United Central Bank, and maybe in the future, a United Federation of Planets. That's a great way to end. But they have replicators. You don't need currency. Oh, there you go. There you go. Aaron, this was fantastic.

I think, you know, you took a very difficult topic and made it very understandable and approachable. and I think you're going to be at least 51% right. So, you know, that's good too. No, only kidding. You're going to, you were fantastic. And you're definitely on the hook. We're getting you back on Dodd-Frank regulation and title insurance and everything housing-related. So please, you know, if you're up for it, we'd love to have you back.

Hey, guys, anything else before we call it a podcast? This has been a pretty action-packed one. Anything else? And thanks, Chris, for joining from a Brutzo. I know that was a, you know, a bit difficult. It's a little late there in the evening, but thank you so much for doing that. And listener, fair listener, you know, we want those ratings. So please, you know, give us a rating and go to economy.com inside economics and tell us what you want us to talk about. I've been getting a lot of good emails around that as well. So, you know, feel free to fire away. So with that, I will call it a podcast. Until next time, Thank you very much.