On The Brink with Castle Island - Lyn Alden on debt, the dollar, and Bitcoin (EP.96)

Episode Date: June 29, 2020

We host Lyn Alden, equity research and investment strategist focusing on global macro and commodities, to talk about the debt overhang, the effect of the dollar as the reserve currency, QE, the likelihood of inflation, and the prospects for Bitcoin.  In this episode:  How the Bretton Woods system broke down and gave way to the Nixon shock The genesis of the petrodollar system with Saudi Arabia Alternatives to the dollar reserve that were mooted prior to Bretton Woods II Why the dollar reserve system has begun to impose a cost on americans rather than being a net benefit How the US became a debtor nation and what that means for the middle class Why the US dollar can't find a natural equilibrium The relationship between dollar strength and emerging markets Why the US government is caught between remaining strategic power through dollar centrality versus re-onshoring supply chains Can the world transition past a dollar standard? Why global commodities being priced in a single currency is a historical aberration Why calling QE simply an asset swap isn't a complete description Why our monetary situation bears resemblance to the 1940s The Fed's changing inflation target Why QE in 2008-14 was largely noninflationary and why this time might be different Lyn's view on Bitcoin and how it fits into her macro thesis Lyn's major concerns about Bitcoin

What's up, everyone? Welcome back to On the Brink with Castle Island. I'm Nick Carter. We have an awesome episode for you today with Lynn Alden, who is one of my favorite global macro analysts. The post on her website, Lynn Alden.com, make for essential reading for anybody trying to understand our current monetary circumstance, in particular her posts on the current debt overhang and her simple language explainers of modern monetary theory and what QE actually entails have been incredibly useful in my own understanding. I've been reading her work for a while, but I actually didn't realize that she had a fairly well-developed opinion of Bitcoin, so we had to have her on the show.

I'll link two of her recent articles in the show notes here. They make for great companion reading to this podcast. Without further ado, let's jump right into it. Here's Lynn Alden. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac,

the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars, and all of a sudden people start to worry. of this worry, we have something called a Bitcoin. Bitcoin. Lynn Alden is an equity research strategist and macro commentator publishing at Lynn Alden.com. Lynn, thanks so much for coming on the show. Hey, thanks for having me. So you came on my radar recently. You've been writing some pretty amazing content covering

QE, MMT, inflation, all these pretty thorny topics that are normally discussed, you know, I mean, pretty arcane jargon, and you do a pretty amazing job of laying it out in simple terms, which is very useful to me and I think many others, especially because I think maybe the kind of jargon employed is sort of a form of gatekeeping to keep regular folks from learning about how these things work. Is that kind of your impression? I think so. I mean, central banks often use very challenging language when describing their programs. and then financial professionals also, I think, like to overcomplicate some of the subjects they talk about. And I agree they can serve as it from gatekeeping. So coming from kind of a blended engineering and finance background, I like to kind of take it a step back and to say, okay, let's focus on what the core parts here are.

Like what is kind of the layman's view of how this works and where is money flowing from and two? Yeah. And, you know, even the most discussed topic, quantitative easing, is a euphemism, which doesn't really mean anything, I think that is deliberate as well to euphemize the notion of, you know, money printing. Yeah, definitely. As if it's like a kind of a profane thing, you know, we can't admit that we're printing money,

so we had to invent a new word for it. Yeah, yeah, because the whole money system relies on confidence, right? Because it's not scarce. It's not backed by anything. So they have to kind of shroud it in language of, you know, that we know what we're doing. this is, you know, this is easing. It's quantitative easing.

Like, whatever you want to phrase it as instead of just, hey, you know, this is like a currency system that we can print as much as we want. We can decide the quantity of it. We can kind of give it to who we want. We can swap it for different assets. We can do all sorts of financial engineering. You know, that doesn't come off very well. So they say, okay, you know, we're going to do some quantitative easing to address liquidity

in the markets. And, you can phrase it in all sorts of ways to sound more benign. And even liquidity is. is kind of amorphously used. You know, it's not sort of well defined when it's used in these contexts. To me, liquidity is like a very sort of straightforward mechanical thing. It's like, what is the market impact of a trade. But that's not what central bankers mean when they talk about liquidity either.

Yeah, when they talk about liquidity, it's more about abundance of money in the system. Like just so that anyone needs to borrow can borrow. There's no kind of tightness in markets. There's, you know, no, no like wide bid ask. spreads in key markets, you know, back in March, for example, when we had that giant sell-off, even the Treasury market, which is normally one of the deepest and most liquid markets out there, became illiquid and basically ceased to function effectively. So when they're providing liquidity, on one hand, it's what traders would think of as liquidity in terms of, you know, how much volume

is present, what are the bid-ask spreads. But then they also basically mean access to capital and how much dollars are basically flowing around the system. So I wanted to start with this great primer that you wrote on QE, MMT, and inflation. And I'll obviously post the links in the show notes here. So you kind of build up the way that government borrowing works from the simplest model to all the way through to MMT. And I think this makes sense because if you try and ascertain what MMT means, I think it kind of requires this build up. So let's start with the simplest model. You talk about a closed loop system where the government borrows from the economy. This is where you talk about how debt is money that we owe to ourselves, which is kind of a favorite phrase of Paul Krugman. So what does that mean exactly debt is money that

we owe to ourselves? Yeah. So this article came about because a lot of people describe QE as just, you know, moving reserves around and having no impact on the economy or the stock market. Right. that's how they want to phrase it. So I, you know, I view it differently and I wanted to express how. So instead of just jumping into that, I wanted to go back to the foundation and provide kind of, as you described, like working up to that level and working up to the next level of MMT and to say, okay, what is kind of the control group? Like what does a simple system look like?

And then how can we kind of go through the stages and get to what QE is doing to that, to that system and what would MMT do to that system? So starting with the first. model, it's, it's, that can be thought of as debt to go to ourselves, which is, you know, we have an economy. It's a, it's a, you know, a complex system of different transactions that are happening. And then the, the government is, you know, an add-on to that system, which is they can extract taxes from it, which is involuntary extraction. And then they can spend those, that money back into the system. So they can, for example, you know, take a piece of everyone's paycheck, take some of the corporate taxes, and then use that to fund the military, fund health care systems, fund all sorts of social programs, fund infrastructure, whatever they want to do, whatever voters agree that they, you know, support.

But then in addition to that, they can also do voluntary extraction, which is they borrow money from the public and give them treasuries that, you know, historically pay interest rates. and then so they can basically pull forward extra capital from the future and then deploy that into the present. So that model is a simple model because it's very old. It can work with a fiat currency system like we have now or it can even work with a hard money system like gold, for example. Because there's kind of a, if you think of it in terms of physics, like nothing is really created or destroyed in this model. So they extract units of currency from the system, which could be dollars, could be, could be gold, whatever you're doing in your hypothetical system, and then they're basically redeploying that back into the economy.

So when it's described as the federal debt is debt we owe to ourselves, you know, it's debt that is the government has that is mostly owed to Americans in that system. Now, it's a little bit disingenuous to say we owe to ourselves because, no, it's owed to specific people and specific institutions that own those treasuries. We don't all own it equally. We don't all, you know, so we all kind of, as taxpayers, we, We are liable for those debts, and not just taxpayers, but also holders of cash and currency, you know, if that gets inflated away.

But then a specific set of individuals and institutions are the ones that own that debt. The framing of us owning it to ourselves sort of implies that we can cancel that debt as if we're just crossing off, you know, the denominator on the numerator. But that is not sort of a frictionless transaction, you know, the entities in society that, are creditors and debtors are, you know, heterogeneous. And canceling debt is a pretty, I don't know, disruptive thing to do. Yeah, because people that own the treasuries, you know, people and institutions that own them, they, they lent money with the assumption that we pay back, you know, in real terms with some positive interest. You know, we've kind of stretched that a little bit in recent years because some sovereign bonds have, you know, traded at negative nominal yields. But, you know,

historically, institutions either have to use treasuries as collateral or they choose to for lack of other alternatives or as perceived safety. And historically, it paid positive real yields for many decades. So they could also get a real return from a very safe investment. So when we talk about debt, we order ourselves that, you know, there's specific individuals and institutions that own that debt and they expect to be paid back, you know, in real terms. And I guess the other side of is that, you know, someone's debt is someone else's assets. And if you are canceling debt, you're destroying someone's asset.

Yes. Which is politically questionable, I guess. And so moving on into the second model you build up here, then you build in the notion of the government borrowing from abroad. And this is where we're getting to actually questions about the composition of that debt, because the U.S. is now effectively a debtor nation. But a significant fraction of our debt now is held abroad, not by Americans. Yeah, so some countries, you know, if they've already kind of got as much capital as they can from their domestic system, right? Because if they're borrowing, if they're issuing treasuries and borrowing capital from the domestic economy, there's only so much that they can borrow before we start to crowd out, you know, the system and prevent other sorts of, you know,

potentially more productive lending. So many emerging markets, for example, turn to foreign lenders because emerging markets often often, don't have a very large capital base, you know, a lot of wealth in their own countries, so they can get, you know, loans from richer countries to develop their infrastructure, develop their education systems, things like that, which some countries use very well and end up getting, you know, more than that money's worth, and they're able to kind of develop a trade surplus and then pay that debt back, whereas other countries, you know, kind of squander it. Most developed countries don't do a lot of external financing because they don't

really need to. The U.S. is kind of a unique case because we have the global reserve currency, which means that we pay, we have all these kind of sustained trade deficits. So we consume more than we produce. So we send out more dollars every year to the world with the kind of understanding that a lot of those dollars get reinvested into treasuries and into other U.S. assets. So the U.S. borrows from foreigners, even though those borrowings are in dollars. So at the current time, foreigners own about $7 trillion in U.S. Treasuries, which, you know, before COVID-19, you know, the debt was in the low $20 trillion range, you know, $23 trillion or so, and it's already spiked up to $26 trillion. And foreigners own about, you know, $7 trillion of that, which is steadily increased over the long term. Like back in the 1980s, you know, foreigners held about, you know, a much smaller share of our debt than they currently hold today.

That's gone up pretty dramatically over time. And so this kind of transaction whereby the U.S. runs trade deficits, foreigners take those dollars and then kind of deploy them right back into treasuries again. Was this a system that just happened to develop contingently, or was it something that was planned? for? That was more planned for. So prior to the early 1970s, there were other systems in place. So for example, back after, you know, in the early 20th century, most currency were backed by precious metals, right?

So the US, for example, lent to the war effort for World War I and then, you know, in World War II. And we became a credit donation, meaning that we owned more foreign assets. than foreigners owned of our assets. And then after World War II, there was the Bretton Wood system, which was that the dollar was backed by gold, and most other currencies were pegged to the dollar. Because, and that made sense, you know, in a way,

because the US had most of the gold at the time. And then, oh, but that system started to break down because the US was running pretty significant trade deficits, and so we were basically sending our gold out to the rest of the world. Our gold stock was diminishing. And in the early 1970s, they severed that tie. So the dollar was no longer backed by gold.

And basically, all currencies became somewhat free floating. So during the 1970s inflation period, one deal that they did was Saudi Arabia was they basically said, okay, you know, we'll provide, you know, military protection as needed. And all you guys have to do is just all the profits you get from, you know, oil sales, only price your oil on dollars. and then for all of your surpluses, go ahead and just reinvest them in the treasuries. And so we've had a standard for the past, you know, almost 50 years where almost all oil globally is priced in dollars. So even if, you know, Europe buys oil from the Middle East, it's priced in dollars. So all over the world, there's kind of this natural demand for dollars. And countries have to hold treasuries and make sure they have dollar exposure because,

you know, oil and most commodities are internationally priced in dollars. And, you know, that had a pretty intentional design early on. And there were some proponents that wanted a more balanced system. Like there were some people that wanted, you know, instead of the dollar being the primary reserve currency, they wanted a basket of currencies, kind of being, you know, put together into a unit. And then that being the global reserve currency. But that solution didn't really win out.

And instead the dollar, dollar became the, you know, know the global reserve currency. I guess that was the Bankor idea or the SDR idea. Yes. Yeah, kind of what could have been, I guess. And so this kind of this second Bretton Woods approach

or this kind of Nixon era novel approach meant that the US could issue almost unlimited amounts of debt, I guess, to foreigners. Yeah, essentially. It allowed the US to basically print money to buy hard goods like commodities and oil and other assets. And that worked pretty well because, you know, at first, Europe and the Middle East would take a lot of dollars and reinvest those in the treasuries.

And then during the rise of Japan, they became a very large, you know, supplier of our goods. And they committed a ton of, a ton of dollars reinvested in the treasuries. And then over the past 20 years, it's been China as kind of the leading driver of, you know, we're running trade deficits with them. and then they collected all these dollars and invested them into treasuries. So the interesting thing, though, is that kind of recently we've seen this narrative emerge that being the issuer of the global reserve currency is actually not a privilege. You know, there's that famous expression about the exorbitant privilege,

but in fact, it's actually, it imposes a big cost on the U.S. and on U.S. households, and it's really not working in our favor anymore. So can you sort of get into that? and explain how exactly it's sort of damaging to Americans? Sure. And that's actually the criticism that some of the people had at the time, you know, when they proposed the more neutral system, which is, you know, in order to run the world reserve currency, there has to be enough of those currency units out in the world. For example, if there's not enough dollars in the global system,

then it can't be the case that all countries use dollars to buy oil, right? That's why we can't use, say, the Swiss franc as a global reserve currency, because it's just, it's not a big enough economy. It's not a big enough money base. And it's not a big enough system for the whole world to use. So after World War II, in the 1970s, the U.S. was by far the biggest economy, so it was large enough that the whole world could basically use those currency for, you know, a lot of international trade and commodity pricing. But it comes at the cost that in order to have the world reserve currency, you pretty much have to run structural trade deficits because, and it's self-reinforcing, right? So having the global reserve currency gives your currency extra layers of demand, right? Because all countries need some dollars.

And that extra demand makes it so that we have higher import power than we otherwise would. But it also makes our exports less competitive. So that kind of leads us to have a structural trade deficit. and that's how we get the dollars overseas. And so ever since the 1970s when we adopted the system, we've shifted more and more from being a creditor nation to a debtor nation. So I mentioned before that after World War I and World War II, the US was the world's largest creditor nation,

meaning that we owned more foreign assets than foreigners owned of our assets. But as we've had these structural trade deficits, we've gradually lost that. So by 1985, we switched over to becoming debtor nation, meaning that foreign owners owned more of our assets than we own of their assets. And at the time, it was a very mild switch. It was, you know, it's not a big deal. But by, you know, 2008, the global financial crisis, our net international investment position, which is the difference between how much, you know, we own a foreign assets

compared to how much American assets they own was about negative 10% of our GDP, which was, you know, starting to get pretty big. But in the, in the, you know, 10 to 12 years since then, it's, continue to deteriorate because we continue to run very large trade deficits. So at the current time, foreigners own 40 trillion U.S. assets and Americans own 29 trillion foreign assets. So that's about $11 trillion in net deficit, which is over 50% of U.S. GDP. So foreigners have a very large stake in U.S. assets. And if you look over the long term, you know, back in the 1970s, manufacturing was you know nearly 30 percent of us GDP but because we've had these uh very strong

demand for our dollar we've had a very high value currency we've gradually you know shifted our supply chains overseas because our supply chain is not re-efficient and we have to run these large trade deficits so over time that gradually diminished and now only about 11 percent of us GDP is manufacturing and if we look at the industrial sector more broadly right so in a The economy generally consists of industrial services and agriculture. And the U.S. industrial sector percentage of GDP is less than 20%. It's about 19% or so, which is roughly tied with France as being very, very low among developed markets.

The world average is about 30% of GDP comes from the industrial sector. For Europe as a whole, it's about 25%. For Japan, it's 30%. For some markets that are very export-led, it's higher than that. 30%, but the US is about 19%, which is very low. So we're very reliant on imports. We don't have very competitive export markets. And a lot of this is due to having the global reserve currency.

So at first, it might have been in a privilege in the sense that it makes our currency very strong and it elevates our standard of living. But the cost we paid is that we basically had to export our supply chains. And this has been a pretty significant hit to, you know, a lot of the blue-collar workforce, a lot of the manufacturing workforce, and has made us very reliant on our trade partners. So, for example, in this COVID-19 crisis, we collectively realize that we don't really produce masks. We have to ask China for masks, for example. And so we have a lot of vulnerabilities, and we're also seeing, you know, kind of a lot of wealth concentration, a lot of

other political problems leading to populism, because we've exported a lot of the manufacturing jobs and the industrial jobs that many of our developed peers still have. Yeah, I think that is pretty much the crux of the analysis right there. And I find this view pretty persuasive. You know, a lot of Bitcoiners like to point to 1971 and point to a lot of charts that show inequality rising after that and things starting to go wrong, basically. But it's not just because, you know, we entered this new era of fiat currency, you know, truly untethered fiat currency.

In your argument, it's more due to these structural trade deficits and the strength of the dollar and the fact that that led to the offshoring of supply chains and hollowing out the middle class. Yeah, it's a little bit of both. So when we untethered it, it meant that the central banks had more control over monetary policy. So we've had this more inflationary environment worldwide, including the U.S. But at the same time, the U.S. has kind of had, you know, in the early decades, more of the benefits from this, whereas in the past couple of decades, we've had more of the drawbacks.

So, for example, Japan and Germany are some of the world's largest creditor nations now. They're the ones that have far more assets than, you know, of foreign markets than foreigners own of their assets. And they maintain very strong export markets. So, for example, you know, we drive German cars, whereas Germans don't really drive. American cars. Same thing's true for Japan for the most part and other products as well because those countries don't have the problem where their currency is overvalued, right? So most currencies over time generally find equilibrium. So if the currency gets too strong relative to other currencies, next time they have a recession, usually what happens is their currency weakens and it makes

their import power less and it strengthens their export competitiveness. And it, And that kind of helps the currency find a base and they start kind of rebuilding from there. But because the U.S. is the global reserve currency, it never really gets a chance to fall back down to what you could call fair value, which is having kind of a balanced trade situation. So we have this kind of artificial extra demand for our currency because it's the only currency you can use to buy oil pretty much globally. You know, is there an argument to be made that effectively the U.S. should have issued more dollars to counteract this force and sort of return the dollar to its fair? value? Well, I think that's, you know, we've had kind of three major dollar cycles since this 1971 system started. And by a dollar cycle, I mean that the dollar, you know, can strengthen or weaken relative to other currencies. So the first big dollar spike happened in the mid-1980s.

And the second big spike happened in the late 1990s and early 2000s. And then the third dollar spike has happened currently over the past five years. And every time you have one of these big dollar spikes, it causes several problems. One is several emerging markets usually break because, you know, they're very reliant on foreign borrowing. And a lot of it is dollars. So they have dollar dominated debts, but a lot of their revenue is coming in local currencies. And so that means if the dollar strengthens relative to their currency, you know, they basically are getting quantitative tightening during a recession, right? Because their debts are getting, you know, harder to pay back and relative to their incomes.

And so whenever we have these dollar spikes, we have, you know, in the 1980s, it was the Latin America crisis. In the late 1990s, it was the Asian financial crisis and the Russian default. And then more recently in the past five years, we've had issues with Argentina, Turkey, Lebanon, Chile, and then just broadly, you know, much of the world has been kind of really constrained by this strong dollar period. But in my view, it's not really about, it's not that you want a currency that's artificially weak or artificially strong. It's that in this current Fiat system, you want a currency that's kind of at equilibrium, right?

So you want one that allows your exports to be competitive so you're not continuously running trade deficits. But then you also don't want to artificially weaken your currency and lead to inflation. And so one of the biggest bottlenecks of this whole thing is that, you know, the dollar is the only currency used for, you know, most companies. commodity pricing, which puts a lot of emphasis on the importance of the dollar. And as such, foreign countries have built up a lot of dollar-denominated debt. And all of that debt kind of leads to natural dollar demand for that fiat because, you know, the BIS estimates that, you know, dollar-divided debt outside of the U.S. is about $12 or $13 trillion. And that means that they need dollars to service those debts. So the system kind of self-perpetuates because, and it, so that's

kind of the problem they find themselves in is that the highest dollar it slows down foreign growth but then also it makes it so that you know the u.s just continues to you know export our supply chains and continues to have trouble you know particularly in the blue blue collar job market yeah i think that's very evident today and you know the chickens have finally come home to roost on that front um you know the just fundamentally inequality in the u.s has risen dramatically since the 70s And we've also seen the economy become more financialized, like the financial sector has grown significantly as well. Yeah. Which my guess is that's also related.

And it's kind of funny because, you know, we both work in the financial sector. So sort of indirectly beneficiaries of this, but that's just the reality of the U.S. today. Yep. What are the prospects in terms of kind of dealing with a situation? it seems like this dollar system is very sticky, both for the kind of the reflexive reasons you mentioned, and then also because being at the nexus of all finance globally gives the U.S. significant strategic discretion in terms of sanctions

and effectively being able to permission what kind of financial activity is permitted on a global basis. So even if it's not good for the middle class per se, It might be the case that our government still has an interest in this system. It gives them lots of leverage there. Yeah, I think at the current time, the U.S. government kind of wants to have its cake and eat it too. So, for example, they want to have the global reserve currency. They want to be able to weaponize the dollar.

They want to have kind of the central role in the world. But we also now have a political will to want to try to bring jobs home and try to bring supply chains home, right? And those are generally mutually exclusive goals. So we're kind of in that really challenging. transition phase at the moment where we're trying to do the best of both worlds and currently the dollar side's winning but the the bringing jobs back and having a strong blue-collar labor market is is really losing out but we're starting to see that kind of turn around in the form of you know I think

that plays a background role in some of these civil unrest we've been seeing and some of the rise of populism that we've had in this country how does one resolve this system how do you you know, bring a new reserve currency to bear. It seems like when those transitions have occurred historically, there's always been some sort of massive geopolitical event, which was the trigger for that. I mean, is it possible to have sort of a peaceful transition there? I mean, I don't even see what plausible alternatives exist. Oh, it's possible. This is the question of will they do it. So, for example, back in the 1970s, the U.S. was a much larger share of global GDP. We were something like, you know, 30% or 40% or so of world GDP.

And that has generally shrunken over time as the rest of the world has, you know, because a lot of the world at the time, you know, Europe was, you know, still recovering from the wars and, you know, same with Japan. And so as Europe and Japan kind of strengthened and then as you've had China, you know, really grow out of emerging market status and we've had other emerging markets continue to kind of grow up from a very small base, the U.S. share of world GDP has, declined. So now depending on how you measure it, we're a little bit over 20% of world GDP in nominal terms or as low as 15% of GDP in purchasing power parity terms. And also we used to be the world largest commodity importer. So in some way it made sense to have commodities priced in dollars when America was the primary importer of them. But now China is the largest commodity consumer importer and yet they're still priced in dollars. So we're not even the largest customer for a lot of, you know, our partners anymore, but we still have them

price it in dollars. And the challenge I mentioned before is that, you know, the same reason we can't use Swiss francs as the global reserve currency is just that Switzerland's not big enough. Well, now it's the case that even the U.S. is no longer big enough, right? It's hard to have a global reserve currency when your country is only 15 to 22 percent, depending on how you measure it, of the global GDP. But that leads to the fact that there's no country that's big. enough. So China's not big enough. Europe's not big enough. There's no country big enough to have one country to rule them all, basically. And in addition, what we've seen to happen to the U.S., you know, I don't think most countries want to have that situation. They don't want to have

so that they have to run persistent trade deficits in order to have this, you know, quote, exorbitant privilege. So one of the easy solutions for a more peaceful transition is basically to have a multipolar world. So instead of the whole world, all pricing commodities, and, you know, especially oil in dollars, you could have, for example, Europe be able to buy oil in euros. You could have Japan and China be able to buy oil in their currencies. And we've already seen kind of efforts here. So we've had some de-dollarization. We've had Russia express an interest in wanting to be able to price their oil in euros.

We've had, you know, China, you know, set up some exchanges to be able to try to get more commodity pricing in their currency. We've seen even things like Russia, you know, pricing arms deals to India in rubles, their currency. So we've seen kind of a little bit of an increase in the diversification that currency is used in international trade. So going forward, if they want to have a more peaceful kind of transition from this, it would basically be a multi-world, a multi-currency oil pricing world where there's not any one currency that, that kind of rules all, but that we have more regional, regional currencies that are used. So we have, you know, the dollar, the euro, the yuan, the yen, things like that that kind of collectively are the World Reserve currency rather than just one currency.

But because the global share of GDP has the kind of genie coefficient has declined, the, there's no, you know, single dominant power and the U.S. is, dachar has declined, there can't really be a single global reserve currency anymore. It's too difficult. Yes. Is there enough, is there a case to be made for resuming the kind of theorizing around the bank core, for instance? Yeah, they have that currently as the SDR, right? So that's basically a basket of, you know, multiple major currencies. And, you know, that's, that's technically in use, but it doesn't have a very large market share. And we've had some central bankers like Mark Carney come out and say that we need to move towards, you know, kind of a modern SDR, like, you know, almost like a stable coin version of the SDR.

So one option is basically to have kind of a prepackaged unit where you say, okay, oil price can happen in SDR coins, right? So, you know, that would include dollars. It would include euro, include yen, you know, all these different major currencies. And we also saw that almost happened with the Libra, right? So that was kind of a modern bank or as well. Yeah, that's the whole premise of the Libra as kind of currently designed. Yeah. So I think there are kind of two major ways to think about it. One is that you could simply have, you know, you don't necessarily need that.

You could just have that Europe is able to buy oil in euros and you could have China to buy oil in Yuan and, you know, maybe Japan as well. And then you could have kind of just, you know, you know, call it three to five currencies that are kind of, you know, collectively reserve currencies. Or you could have kind of a more organized effort to try to have a package version of that in one kind of a stable coin solution. But that seems, you know, in this kind of, as we kind of have this almost like a technological and economic cold war forming between China and the U.S., that sort of kind of package solution might be more challenging. So we might just have a more

multi-polar world. Yeah, I don't know what the political will is to generate a, you know, a settlement and currency system, which kind of co-mingles the yuan and the dollar. Yeah. It seems like a bad time to try that. You know, it's interesting, though, because if you look historically, like we've sort of, unless I'm getting this wrong, we've sort of always had a reserve currency, like before the dollar we had the pound, and then at various times, like, I think France and Portugal,

and Spain sort of issued reserve currencies, although I guess things are pretty different. So would this be really a historical aberration if we had a kind of a multipolar approach? Not necessarily because back then, essentially the reserve currency was gold, right? So even though there were like quote unquote reserve currencies, like such as the British pound or all the predecessors, they never had a complete global lock on a company. commodity pricing in their reserve currency. So I'd actually say the abnormal situation is to have a world where every country worldwide prices, oil and commodities just in one currency.

That's kind of the odd ball out. Whereas we've had these periods of time where one country's currency becomes internationally accepted, right? Especially not necessarily worldwide, right? Because the world was smaller and less connected back then. But it was definitely kind of had these. very large regions encompassing a large portion of the world where it was widely viewed as money. But this is kind of a situation where we literally have a hard lock on commodity pricing.

And that's been historically atypical. Okay. So because the U.S. as an empire achieved kind of size, which was sort of hitherto had not been seen, maybe with the exception of the British Empire, that's what gave rise to this abnormality. But the base case is not actually that kind of extremely unipolar model. Yeah, this is the first time we've had, you know, one is it's the first time where the entire world's been on a fiat currency system. Right. So that's also kind of an anomaly. And then within that anomaly, we've had one, one currency be so dominant that it forces all countries to basically price oil and most other commodities predominantly in that currency. So this has actually been a very long interlude. We were meant to be a talk.

about QE, but we got slightly off track, although that was an excellent interlude. So just to close the loop on that, so you wrote this article because you kind of disagreed with the characterization of QE as a mere asset swap, and you talk about the government borrowing from a void. So what is kind of your response to people that say QE is simply an asset swap? And it's not really the creation of new money. Sure. So to recap, you know, from prior to the interlude, the first model of government financing is that they can borrow, you know, currency from their domestic population and then redeploy that in the economy. And the second model is that in addition to that model, they can go and borrow from international lenders and then use that capital to also redeploy into their economy. Now, a problem is what happens if you run out of both domestic and foreign borrowers, but you still have to borrow money. So what they can do is, is that basically QE. So the central bank creates dollars, right, and then uses those dollars to buy treasuries, but they do so through the primary dealer bank. So they don't do to law,

they can't buy directly, but they essentially, that's where the treasuries wind up. So it's an asset swap from the bank's perspective because, you know, they buy treasuries from the treasury, and then they sell to the central bank for dollars. However, those dollars were created out of thin air, right? So the Federal Reserve just is able to basically digitally create dollars and then do an asset swap to get, you know, those treasuries off the books. So what that means is that instead of extracting dollars from the economy in the form of issuing treasuries and then redeploying those dollars elsewhere in the economy,

they're extracting dollars from a void of new dollars, right? They're just kind of pulling dollars out of thin air and then, you know, invest in those back into the economy. So that's what we call debt monetization where, you know, our, our treasuries are basically just an account of how much debt we've monetized rather than kind of a, you know, a set of money that we owe to real investors. So it's an addition of money to the system. Even though it involves an asset swap, the key thing is that before the asset swap occurs, those dollars are just created out of thin air. So it's a net add to the system. And unlike the first two systems that, you know, it's a closed system, meaning you can do it with the,

you can do it with gold. In this QE system, it's specifically a fiat currency thing, where you can only do it when you have the ability to basically create currency out of thin air. And even though quantitative easing is a new term, you know, this has been done before. So for example, in World War II, that was the only other time in history

where federal debt as a percentage of GDP got over 100%. And, you know, they basically had to peg the treasury yields at low levels. and the way they did that was the Federal Reserve created dollars and then bought treasuries as needed. So this is actually, you know, kind of a, you know, it's not a new phenomenon. It's just a new name for that phenomenon of debt monetization, essentially. Yeah, so that was actually one of the most interesting kind of insights you had in that article, I thought. So you kind of make this parallel to the 30s and the 40s with the 2010s being the 30s and the 2020s being the 40s. So can you just,

Recap what happened in the 30s that led to this debt overhang and then how it was actually managed in the 40s Sure, yeah, so in 1929, of course we had the stock bubble. We had also we had a private debt bubble. So total debt as a percentage of GDP in the United States reached very high levels and most of that was private debt. So the federal government was very lean back then. There was not a lot of federal debt as a percentage of GDP, but private debt got very high and During the 1930s, when that all kind of unwound, they basically dealt with that debt partially through defaults and everything, but they also devalued the currency, right? So the dollar used to be worth about 1.20th of an ounce of gold,

but then they depegged it and repegged it to 1.35th of an ounce of gold. So they devalued the dollar. That helped kind of allow the government to print a ton of money. Basically, when you have a debt to GDP, you can fix it by either reducing debts or increasing nominal GDP, which, can be as simple as devaluing the currency, right? So it kind of screws over the debtors, but it, you know, it, quote, fixes the debt to GDP problem. So we had this private deleveraging throughout the 1930s. But it was not, even though they devalued the currency significantly,

it was not very inflationary because all of this debt restructuring and debt defaults and private deleveraging was very deflationary. And so that was offset by a more inflationary currency devaluation, but it pretty much balanced out. We didn't have very spectacular inflation. Now, by the time the 1940s came, the private debt bubble had been worked out. But due to World War II, the federal government had very high deficits and subsequently got very high debts. So we, as I mentioned before, we got up to over 100% of federal debt to GDP. And unlike the 1930s, this ended up being very inflationary because, you know, there were shortages of commodities. There was very, very high fiscal deficits. I mean, they approached 20, 30 percent of GDP or more. And so what they did was the

federal government, I mean, the Federal Reserve, they created all dollars as needed to buy treasuries. And what they did was they did formal yield curve control. So they locked the treasury yields at 2.5% or below. And the way they're able to do that was they said, okay, whenever the yields go above this level, we'll just buy treasuries as many as needed to hold that yield at 2.5% or below. So during the 1940s, inflation at times spiked into the double digits, but they still held the treasury yield at 2.5%. So over the course of the 1940s, it was a pretty inflationary decade. And treasuries lost, even though they made money anomaly, treasuries lost money on a real basis. So their purchasing power underperform the inflation rate, underperformed many of the

their asset classes because it was essentially inflated away with yield curve control. Yeah, so the holders of those treasuries got crushed in real terms. Yeah, they lost about 30% of their purchasing power over the course of a decade in real terms, which means they had a consistently negative real return. But this was the government strategy to reduce the size of the debt in real terms? Yeah, because they basically, you know, their nominal GDP went up in an inflationary environment, whereas the debt was fixed. They weren't inflation hedged.

So that was basically inflating away a large portion of the debt. And if you fast forward that to now, we had similar kind of a long-term debt cycle. So we had very high private debt to GDP in 2006, 2007, 2008. And that all unfolded in the global financial crisis. And the federal government at the time had kind of moderate debt level, so they had about 65% of GDP federal debt, but that quickly ballooned up to over 100% of debt,

over 100% of GDP in order to basically bail out the private sector. And then so the 2010s end up not being very inflationary because we had a very large private deleveraging, especially in the household sector. And so a lot of that QE was offset by de-leveraging, and also because most of that QE just recapitalized banks, because it didn't really get to the public very much. So in the 2020s, we went into this crisis with federal debt to GDP of over 100%,

and then we're already over 120% because we're running deficits that rival World War II in terms of deficits as a percent of GDP. We're probably going to be over 20% this year. So we're potentially setting up a decade that looks a lot more like the 1940s in the sense that we have very high federal debts, very high federal deficits. and potentially a more inflationary environment than we saw in the 2010s. So the analogy is quite exquisite because if I'm getting this right, so you had in the prior decade, you had a private debt kind of bubble or crisis.

And then in a sense, the government sort of assumed that debt load. And they ran high deficits and kind of assumed a high level of debt structurally. and it was that assumption, which was what led to the kind of subsequent inflation, well, it hasn't happened yet, at least, in our situation, but that's what led to the inflation in the 40s because they had to reduce kind of the load of that debt. Yeah, because basically as an axiom, sovereign debt rarely defaults. You know, the U.S. has never really nominally defaulted on debt. So the way that these long-term debt cycles play out is that, you know,

we have kind of a private debt, you know, collapse at some point. then a lot of that kind of ends up on the federal balance sheet one way or the other. You know, the currency can absorb some of it and other parts of it can end up on the federal balance sheet. And then when that gets very high, that's when they basically have to turn to debt monetization and yield curve control to try to inflate the debt away. And it's interesting that, you know, in 2019, the Federal Reserve already began talking about doing yield curve control again.

So the similarities to the 1940s already began to show up. But then when COVID-19 happened and we had. these 20% deficits as a percentage of GDP, the comparison became more complete because we had a skyrocketing federal debt and federal deficits at a time when we've already had this kind of of malaise over the course of the 2010s. And so going forward, we have very high federal deficits as far as I can see most likely. And they're going to control yields as needed, which probably includes locking them below the inflation rate in the years ahead. So I guess the challenge is, though, that in, you know, maybe in somewhat similar situations,

we actually haven't seen inflation manifest at all. So is it the government's challenge now to bring about inflation to kind of reduce the size of their federal debt? Yeah, the Federal Reserve actually has inflation targets. So they have an official 2% inflation target per year. And it's funny because they've shown disappointment that they haven't really been able to, you know, consistently reach that level, which is a funny way to think about it, because they're basically saying that, you know, we're failing to devalue the currency as fast as we'd like to. But so, yeah, from their perspective, and they've also shifted it over time. So they used to have a 2% inflation target, which kind of was interpreted more like a ceiling, right? Like, you don't want

inflation to get much over 2%. But now they have a, uh, a sense. metric target. So if you're below 2% for several years, like say we're 1% or 1.5% inflation, then the Federal Reserve says, okay, we can go up to 2 and a half or 3% for a while to make up for the fact that we were under 2% for a while. So they're kind of willing to let it run hot and to keep interest rates below the inflation rate in order to kind of work off some of this debt. But they're often careful in how they describe it, right? So they never say we want to inflate the debt away. But they say, hey, we want to do yield care control to kind of manage interest. rates and we want to have this inflation target. And so they kind of put it in language that,

you know, doesn't fully spell it out, but that it's there if you read the meeting minutes and you read their press releases. So that's interesting. I mean, so could it be the case that the new target ends up actually being higher than 2% in order to manage this like very high federal debt that, you know, we're going to have to reckon with? Places like Japan, they haven't been able to meet their target. So is it the case that we'll have kind of a more inflationary model of issuance here? Yeah, so it's unlikely that they're going to switch their official target because going over 2% is, you know, kind of unseemly. But they have a couple different ways that they can effectively get higher rates. So they can, first of all, they use kind of an adjusted inflation model. So they exclude

kind of food and energy from that model. So they can have a situation where you know, the target that they're looking at is maybe at 2%. And then if you include food and energy, it's, you know, 3%. Right. And then in addition, they can let it run hot. So they can say, okay, our target is 2%. It's currently running at, you know, 2.7%, let's say, in the future. And that doesn't even include food and energy.

So it's, you know, if you include that, maybe it's 3.7%. Right. So they have different ways to kind of have a higher actual inflation level than kind of is on paper so they can, you know, they can have, you know, kind of moderate single-digit inflation if that's their target. But so far, it has been challenging to bring it around, and that's because, you know, there's so many deflationary forces, such as high debt levels, technological advancement, wealth concentration, all these forces have made it so that, you know, most consumers don't have more money in their hands. They're not getting higher wages, so they can't pay higher prices for

things. In addition, we've had all this offshoring, right? So it's, you know, our phones are as cheap as they are because most of the assembly and everything happens overseas, right? So if we had to make our own products, a lot of the things we pay for would be a lot more expensive. So we've had all these deflationary forces. And with Japan, it's even more so because they have shrinking demographics, right? So they have a declining population. They have a very age population. And unlike the United States, they're the world's largest credit. nation now. So they have, you know, they have more foreign assets than foreigners own of their assets, and they have positive current account balance. So they have more money flowing into their country

every year, whereas the, you know, the United States, because we're still running trade deficits, we have more money flowing outside of the country every year. So we're more, you know, our yields tend to be a little bit higher and our inflation rates tend to be a little bit higher. I guess there's a case to be made here that the way that issuance is occurring could take place in kind of a more sense in terms of getting into the real economy. You know, let's say if there's political pressure in the U.S. to continue these kind of direct stimulus programs and these kind of small business loan programs, is that something that you anticipate happening, kind of more inflationary issuance?

Yes, and that's kind of a key difference between the QE that happened in 2008. So, you know, the several rounds of QE from 2008 to 2014, Most of that just went to, so, you know, before 2008, banks went into that crisis with about 3% cash as a percentage of assets. So they were very leveraged. They didn't have almost any cash on hand. And those rounds of QE basically recapitalized banks. So the Federal Reserve bought mortgage-backed securities and treasuries from the banks and basically filled them up with cash levels. So after the first round of QE in 2008, they brought banks up to 8% cash levels as a percentage of assets.

and after their third round of QE in 2014, they brought banks up to about 15% cash levels as a percentage of assets. And so most of that just went to recapitalize banks. They didn't really get out to the public. So that's why it was money printing, but it wasn't really all that inflationary. It just offset some of the deflationary forces that were happening.

So instead of getting negative inflation, we just had low inflation. Going forward, if you look at broad money supply, that's going up very rapidly. And if you look at personal income, it actually went up in April instead of down, as we'd expect in this very difficult economic environment. And that's because a lot of this QE is basically buying treasuries to fund, you know, this $2.7 trillion in fiscal stimulus that they passed so far. So they did a $2 trillion stimulus, and then they had another $500 billion stimulus or so. And from the political discussions that are happening, it looks like we're going to get another fiscal stimulus later this year, which is probably going to be around a trillion dollars or more.

So, and I think in the years ahead, if you look after the global financial crisis, it took several years of very high deficits in order for them to kind of get back to break even. And, you know, I don't think this is going to be the last year of very large deficits. We went into this issue with, you know, back in 2019, the federal government already had deficits of 5% of GDP and rising. So this, you know, this year we're blowing out to 20%. But then going forward, even if they start shrinking that down, right, we're potentially going to see, you know, 10% of GDP deficits for several years. And a lot of this is going kind of directly to the people and to businesses rather than just going to recapitalize banks. So you've, you know, stated that you are in this context, potentially more inflationary context going forward. you've indicated that, you know, you have a positive view of gold.

Obviously, it makes sense. You've also started talking about Bitcoin more recently. Obviously, you wanted to get into that. You know, you actually, you know, kind of initiated coverage on Bitcoin in 2017, so to speak, which was a really interesting piece. You know, you talked about different models of evaluation for cryptocurrency. And you've recently, you know, said some positive things about it. So I just wanted to, you know, ask how you think Bitcoin fits into this and, you know, what it offers right now, even though it's still, you know, pretty immature overall.

Sure. So when I kind of have an outlook for the 2020s, my base case is a somewhat more stagnationary environment. So the federal government's going to be running very large deficits and they're going to be monetizing a large portion of those deficits. So it's a lot of new money creation. And we're also kind of at the bottom of a commodity cycle. So, you know, for several years, gold and silver, underperformed, you know, especially silver, but then especially some of the base commodities like copper oil, you know, just different kind of metals and stuff are all very cheap. And their producers are also very cheap. So, you know, I have a pretty constructive outlook on most commodities throughout the 2020s.

And so Bitcoin fits into that in the sense of being a sense. scarce asset in a world that, you know, whereas currency units are multiplying dramatically, right? So the broad money supply is up like something like 25% year over a year in the U.S. so far. You know, it's 25% higher than it was a year ago, which is massive. Whereas Bitcoin has, you know, a fixed base of how many Bitcoin will exist. And it has, you know, a cycle where supply becomes, you know, smaller and smaller over time rather than larger and larger. And when I initiated coverage on Bitcoin in 2017, I did so because that was during the big run-up in cryptocurrencies. And so of course I got a ton of emails from people asking me to look into it.

And when I looked at it, Bitcoin was a little bit under 7,000. And, you know, so I kind of analyzed it based on a couple different, you know, ways to look at it. I was like, okay, are we going to consider this a medium of exchange or are we going to consider it a store of value. So I kind of just valued it using a couple different models. And I concluded that if we look at it from a medium of exchange perspective, it's very expensive. So it's pricing a lot of future usage. So that kind of put me off a little bit. And then from a store of value perspective, it was more attractively priced at the time. But the caveat that I had was that we were seeing a lot of other coins come along, right? So Bitcoin's percentage of global cryptocurrencies was decreasing at the time. And so I said,

okay, so other commodities like gold, silver, copper, they're all scarce and they're also all chemically unique, right? So in addition to having a finite amount of each commodity, there's a finite number of commodities and each one is inherently unique and elemental. Whereas cryptocurrencies, even though each cryptocurrency is scarce depending on its protocol. Anyone can create a cryptocurrency. There's thousands of them. And so I said, okay, what if this whole space just becomes so diluted, right? We also at the time had, you know, hard forks from Bitcoin.

So at the time, I said, okay, I'm not really bullish on this sector. You know, I'm not going to call it a bubble, but I'm also just not going to invest at the current time. and so I had kind of a neutral to slightly bearish outlook. But then over the past two and a half years, right? So Bitcoin, of course, had that wild ride. So since I initiated coverage under 7,000, it went on to spike for the rest of the year and go up to 20,000. Then it fell really hard to like, you know, what is it, under 4,000.

Then it had a recovery to like 12,000. Then early this year, when we had that liquidity, you know, crisis in the markets, Bitcoin fell again to, I think, under 4,000. And then in April of this year, I was looking at it again. And I've been monitoring all the long, but I kind of, my interest increased in April. And it was just under 7,000 again. So it kind of did this giant round trip to where I analyzed it back in 2017. But this time, a couple of things kind of made a more bullish case for me.

One is that Bitcoin's market share of all cryptocurrencies has increased since my initial coverage. So it kind of, it showed that it had a pretty strong. network effect, right? So it continues to, you know, in a world where there's, you know, countless cryptocurrencies, Bitcoin continues to remain very dominant and it continues to have a very strong network effect, showing that even though many other cryptocurrencies can come along, Bitcoin is proving to be a truly scarce asset because it continues to have very strong demand while, of course, the protocol limits the number of coins that can exist. And then in addition, we had the, you know, kind of the ideal timing of a halving cycle happening while we had this very large macro environment

that was resulting in a lot of currency expansion. So going forward, I view Bitcoin as a fairly small market cap. When you look at, if you compare it to say gold or, you know, even to silver, it's a fairly small market cap. So there's a potential lot of room for it to run if we get, you know, a more stagnationary environment and if people continue to be very interested in the in the bitcoin protocol are there catalysts that or changes that you'd like to see um to kind of improve bitcoin standing in your mind is there are there developments that you're kind of waiting on like for instance you know the development of more kind of peer-to-peer bitcoin markets and come in countries globally that might have weak currencies or sort of technological developments.

or is the asset just sort of a suitable in a suitable shape right now? It's just a function of interest. I consider it suitable at the current time. So back in my initial analysis, I was kind of wavering between looking at as a medium exchange or a store of value. So in 2020, I'm primarily valuing it in terms of store of value because its usage as a medium exchange is not really taken off. But due to the reasons I mentioned, I view it store of value as the case for that

has increased because, you know, despite the rise of other cryptocurrencies, Bitcoin has maintained very strong market share and it continues to, you know, I like how its protocol works with the halving cycle and, you know, difficulty adjustments. So I think it's in pretty good place when analyzing it has a store of value. So I often ask myself, okay, what if, you know, we roughly know that that gold's global market cap, if you want to call it, that is somewhere between like $8 and $10 trillion. So if we want to, we want to, we want to, we want to, we want to, we want to, we say, okay, could Bitcoin become 5% of gold's market cap? Could it become 10% of gold's market cap?

So if you start from say, okay, right now, Bitcoin is a very small market cap compared to other monetary assets like gold. What if it just gains a little bit, right? So that kind of upside is pretty big, even if you're just only viewing it from a store of value perspective. So mainly what I'm watching for is, you know, attempts by governments to ban it or eliminate it, you know, like Russia has kind of made some moves lately.

So I look out for developments like that, but for the most part, I consider it in a pretty good place at the moment as kind of a scarce asset in a world where currencies are increasingly abundant. Yeah, and I guess gold, you know, did have that kind of 5,000-year head start. Or I don't know how many years it was, but it's a lot in terms of being, you know, it's a culturally important asset. There's a very strong culture of retail. household ownership of gold, especially outside the U.S.

You know, it served as the reserve currency for, you know, centuries. So it's not, you know, I think it would be odd to expect Bitcoin to surpass it, you know, in short order, although it's kind of come an impressive way just in a single decade. Yeah, I start with pretty conservative assumptions. So, you know, if we say gold is a 10 trillion market cap, you know, which is, you know, roughly what it is, if Bitcoin reaches 5% of that, right, that's, you know, that's a $500 billion market cap. If it reaches 10% of that, it's a trillion dollar market cap. So for me, it's not, you know, will it surpass gold? It's, it's can it achieve five or 10% as much as gold?

And even if it does those pretty low bars, that's a lot of potential upside, especially because, you know, in the next, you know, call it 10 year over the course this decade, I expect the price of gold in dollar terms to continue to increase. So if Bitcoin can kind of even gradually extend market share relative to gold, even if it remains much smaller than gold, it can still have plenty of upside. So you said the things that you're monitoring are the kind of the governmental response. I guess it would be cause for optimism. if they simply banned it within their borders and didn't try and interfere with a protocol.

Although, you know, because then it just becomes effectively a black market commodity. Yes. Within the borders, in many cases, places where Bitcoin is banned, it still circulates. Yes. So, but my concern would be if it gets banned

in some of the very large markets like Europe and the United States, that could potentially hamper demand a little bit. You know, it's hard to judge that. it could you know there are cases where that could increase demand right because people you know if they move to ban it then that probably in an environment where something's going very wrong with the underlying currency itself right so that even might be more of a signal that they want to get out of the currency but overall it's kind of like as long as the kind of the current state can continue where people can you know have different ways to purchase it if it becomes kind of more and more mainstream to have a

small percentage of it in your portfolio has, you know, a diversified asset. I think that's a pretty good environment for it, considering that it's a scarce asset. It's a pretty small market cap in the grand scheme of things. And we're entering an environment of, you know, competitive currency devaluation, debt monetization, and that sort of thing. And does your case for Bitcoin require the failure of sovereign currencies? I mean, we're seeing it play out not just in Venezuela, but in places like Argentina where they defaulted in May, I believe, and Lebanon, which is kind of having an ongoing currency crisis. Is that a requirement or is it just a requirement that, you know, the major sovereigns engage in devaluation? Yeah, it's not really, it's not a requirement.

So Bitcoin obviously can do well in outright currency failures, but even just an environment of negative real yields, Bitcoin becomes attractive because, you know, if you look at, the price of gold over the long term in year-over-year percent change terms, it tends to mirror the real interest rate, right? So if you have an inflationary environment, but if the central bank raises interest rates very sharply, like Paul Volcker did in the 1980s, to quell inflation, that creates a very high-yielding environment.

So treasuries pay more than the inflation rate, and you get a real return from holding treasuries or holding cash in the bank. So when we have a high real-yield environment, that tends to be bad for monetary assets, don't pay a yield like gold or in modern terms Bitcoin. But when we have an environment where sovereign bonds yield less than the underlying inflation rate, the case for holding them or for holding cash in the bank becomes a lot more diminished because you're not getting a real return. You're just getting, you're just kind of treading water

with inflation and even then you're not really doing that. So these more scarce yieldless assets like gold and Bitcoin and silver, they become more attractive in an environment of, you know, pretty significant debt monetization, currency devaluation, negative real yields, whether or not it turned into some sort of broader crisis. Well, Lynn, this has been an absolute education. I thank you very much for coming on. Where can people follow you and follow your work? Sure. So my primary website is Lynn Alden.com. I do free articles and also have an investment research service. And then on Twitter, I'm pretty active and I'm at Lynn Alden Contact.

Well, thanks so much. Welcome to the Bitcoin community. We're very happy to have you. And thanks for coming on the show. Yep. Thanks for everyone.