Open Book with Anthony Scaramucci - Oh, How Dimes Have Changed! Lyn Alden Talks All Things Money, Crypto & Investing

Episode Date: March 23, 2023

In this episode, Anthony talks with macroeconomist and investment strategist Lyn Alden about what we can learn from the history of money and why it’s so complex. Looking forward, they share their hopes for the future, discussing inflation, potential policy decisions and of course, cryptocurrencies.  Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Free of charge. BetMGM operates pursuant to an operating agreement with Eye Gaming Ontario. I'm Anthony Scaramucci and welcome. to open book, where I talk with some of the most interesting and brilliant minds in our world today. In this show, I'll bring on guests in business, politics, entertainment, and more to go deep into a piece of their work, whether it's a highly anticipated book, an in-depth feature story, or an opinion piece that has captured my attention. We'll dig into why it matters to you and how their work is shaping our future. On today's episode, I talk with Max

economist and investment strategist, Lynn Alden, a current medium of exchange in the form of coins and banknotes. That's the dictionary definition of money and what most of us today recognize it as. Yet, what humanity has defined as money has changed significantly over time. Lynn wrote a fantastic piece titled, What is Money Anyway? Which is a masterclass on the history of money our present day and where financial systems are heading. We discuss why money is so simple and yet so complex. What policies Lynn would put in place to save our current financial system? All things inflation, both past and present. And we look to the future with Bitcoin and cryptocurrencies.

So joining us now on Open Book is Lynn Alden. And as I was saying to you in the green room, I am a gushing fanboy over your work. I find your work to be fantastic. It's insightful. It's sometimes contrarian. It's sometimes conventional. But it's always objective and observational in a way that I think we can all learn something from. You wrote a fantastic piece titled, What is Money Anyway?

And I want to unpack that with you if that's okay today. It's a well-rounded explanation drawing from the past and the present, taking us into the future. Money is so simple. To me, it's a trust, obviously, but yet it's also so complex. You write about it beautifully. Let's start there. Why is that? Why is money so simple yet so complex, Lynn?

I think because it's one of those things where everybody knows money when they see it, right? And we all use money and it's like obvious. And I think a joke I've seen is that everybody knows what money is except for an economist, right? So it's like almost like something you can overthink and then you lose track of what it is. Whereas people on a regular basis, it's an emergent thing that happens independently throughout the world. But part of what makes it complex is that it changes over time. Right. So what we use this money 3,000 years ago is for the most part, it changed. over time. As technology improved, as cultures kind of met each other, generally the one with the stronger technology would dictate what money is. And then as we went into the telecommunications age, it kept changing again. And so it's one of those things where it's incredibly important for us to have and use good money. But we always have to be somewhat on our toes to keep track of changes that are happening so that we can make sure that we have money that is not being, say, debased in a way we don't understand. So you look back in ancient times, one of the biggest problems when cultures met each other, was that the one with the weaker technology could have their money debased

by the culture with the stronger technology. And it takes a while to realize that's happening. And so I think the same thing can happen in different forms in modern times. But ultimately, if I have this right, money is a trust between us, right? I have this piece of, we call it paper, but it's actually cloth. It's in my pocket. I can take it out here. I always call these Italian singles. See that I brought some props today, Lynn, okay? But you look at this. It's just a piece of linen. But yet, if I give this to the valet, he's very, very happy. But we know it's not worth anything other than the notion that we can give it to somebody who knows they can give it to somebody else for a good or service.

So it becomes this fungible commodity. But then we can lose confidence in it, right? There were these very same pieces of paper in the Weimar Republic. And over time, people said, okay, well, I don't like that anymore. Yeah, I think one good way of thinking of it is that it's a ledger, right? It's a ledger that we all agree to use or in some cases are forced to use, but it's a ledger that we're all using. And there's different types of ledgers throughout history.

So, for example, if you just have, if say you're two siblings, right, and you're keeping track of doing chores and someone, you know, wants to trade towards another person, that's basically a transfer of value that's just between these small groups. And we started going out to managing ledgers with bigger groups, generally need something that's more trackable and objective between you, right? And so for a while, commodity monies, you know, we don't think of them as less. ledgers, but in many ways they are, because we're basically letting nature dictate how scarce the underlying unit is. And whenever we physically trade commodities in the ledger, whether it's shells,

whether it's gold, whatever the case may be, we're basically updating this ledger, right? And so none of us can see the full ledger, but we know the properties roughly of how those units are made. We roughly know how scarce they are. And so we have this kind of ledger that that's happening between us, so no one can really cheat it. And in the modern form of the fee currencies, are basically entrusting the management of the ledger to the central bank, the commercial banking system and politicians because of the fiscal options that they have. And so what they're essentially doing is they're managing this ledger that we're using. And if they mismanage the ledger, right? So if they let money supply grow out of control, either through excessive bank lending or through excessive

monetized fiscal deficits, you know, then those papers that you're holding are getting devalued very quickly. And unless people are forced to, other parties cease to want to use that current. they cease to trust it, whereas if you have other areas like, say, Switzerland or historically the United States and some of these currencies that have been around longer, kind of the, you know, the cleanest dirty sheets and the hamper, right? Those have managed their money supply somewhat tighter than ones that have broken. And so it really comes down to what ledger are using and who can control the ledger, right? Is it something that nature controls? Is it something that government and central banks control? Or obviously in the case of something like Bitcoin,

that kind of reintroduces commodity money in ledger form in a way that nobody can control unless, of course, you can hard fork the rules. You can try to censor the ledger by gaining 51% mining market share. But essentially, you know, there's a cost to doing it similar to, say, making gold and other things like that rather than a centralized power. Okay, so it's very well said. You go into this in the article. I'm going to talk about a couple of periods of time.

I want you to address each one of them if you don't mind, and then we'll get to our current period. And so I think I have this right. It's roughly the 1700s to 1944. We have more or less the gold standard, although we both know that Franklin Roosevelt sort of unclipped us from that in 1933 because of the steep deflation that we were experiencing. But by and large, that held. And then in 1944, we developed the Bretton Wood system. We used a dollar as sort of the anchor to that system. that system was holding in place with the U.S. dollar or $35 per ounce of gold up until August of 1971, where Richard Nixon decided to unpeg it. Stocks and bonds down. Last time that happened, 1931. Two years later, we come off the gold standard.

1969, that happened again. Two years later, we had the Bretton Woods pin. So I want you to address those two periods, and I want you to talk about the cataclysms that are happening in the marketplace right now. is that part of this transitory period that we're experiencing? Yeah, so the gold standard and then the Bretton Woods system that followed it can basically be thought of as increasing centralized gold standards that were eventually then dropped from gold. And so if you go back far enough, you had something more like free banking, right?

So banks would have gold. They would issue bank notes that then could be received, you know, throughout the country. And it was constrained by how much gold they had, assuming that they were not committing like fraud. They could have more claims than gold, but it was not too much, right? because then they'd have like bank runs. And there were some unstable systems like in the United States because there's all sorts of reasons like they didn't allow like, you know, having like multiple branches and far away. So that created problems. Whereas other free banking systems like

in Canada and Scotland were more stable historically. So there's both successful and unsuccessful historical periods with that. Then when you moved into central banking, you basically have it. So the banks aren't managing their own underlying gold, right? It's all, you know, it's with the central bank. And then they're, they're reserved money. They're kind of based. player money is basically a ledger input on that central bank. Then you can get even more centralized where you then take the gold away from the central bank and you give it to like the treasury, the sovereign. And so now you just have ledgers built on ledgers and gold is no longer really a constraint for money supply growth. And then as you point out during the 1930s when they,

when they ended the redemption for gold for regular citizens and even banned ownership of it, which is pretty draconian. That basically made it so that, you know, there's no longer kind of an active market test whether money is getting out of check relative to the gold that it's supposed to be backed by, even though it still was backed by a devalued amount of gold. And then for quite a while, going into the Bretton Wood system, you had it so that gold was still redeemable for money for international creditors, right? So for the big entities that could really move markets, you still had that tether to gold. And during the Bretton Wood system, you know, instead of different currencies all kind of managing themselves to gold, they, you know, they made it's okay,

the United States was a dominant power emerging from War II. A lot of European countries even sent their gold to United States because they were worried about getting conquered and having their gold taken. But the U.S. had the most gold. They also custodyed a lot of gold. They had the biggest military. They had the most defensive position. They had the last economy standing. And they said, okay, what we're going to do is we're going to keep the dollar backed by gold, only redeemed to international creditors, like foreign central banks. And all the other currencies can peg themselves to the dollar. And the problem there is that you still had ongoing dollar creation. relative to the amount of gold we had. So over time, our gold stocks were drawing down while,

you know, our dollar claims were increasing. And then more and more countries saw, like, you know, I'd rather have the gold than the dollar because it's unstable. And so eventually we essentially defaulted on that because we just had way more dollars than we had gold to back up those dollars. And so the choice was either, you know, let it go all the way to zero and then default or cut it off earlier. So I like to say that that system really broke in the 60s, right? In 1971 is when we market to market. And so bringing that back to your recent point about stocks and bonds going down together, essentially when you have a highly indebted system that is hit by structural inflation, that's usually when you get these monetary kind of reset periods. And so, you know, in the 19,

20s and 30s, you had a ton of debt in the system. You had that wave of default. You actually had a more disinflationary type crash. And one way that they, that they quote unquote, fix the debt problem is they devalue the dollar relative to goals. So it helped increase the money supply. So you devalue the unit that all of that is denominated in, right? So that was one attempt there. And then in the 1960s and the 70s, it's not that we had super high official debt, the GDP ratio, but instead, as I pointed out, the problem was that we had too much debt relative to the gold we had. And so when that started a break, that, again, they devalued the dollar and they basically untethered that. And so what we're going through now is a somewhat similar situation. The exact form's always different,

but essentially the problem is that throughout the developed world and even some parts of the emerging world, there's too much debt relative to the economic output that supports that debt, which can work while you have structurally declining interest rates and disinflation and energy abundance, but you enter a world of more energy scarcity, more geopolitical, less globalization, more inflationary pressures, and then higher yields on those very high debt-to-GEP ratios. That's when you face significant currency devaluation risks, and I think that's the environment that we're going through now. I'm smiling because I find you to be one of the great truth tellers. There's a lot of obfuscation. There's a lot of people looking at the same data that

you're looking at and they try to pretend otherwise. But we're in a debt-laden society. Havoc has been been wreaked upon it as a result of the pandemic, exposing some of the monetary fractures and weaknesses in that society. And so there's a transition that's about to take place. Am I right in saying that? I mean, you're right about it. What is that transition? What is likely to happen as a result of everything that you're observing. So I think there's still obviously a lot of paths and speeds that can go, right? That's the trillion dollar question. But, you know, I like to learn a lot from that 1930s and 1940s period because there are a lot

of parallels, even though there are some differences. And so essentially, I think we're entering an environment. And this, I've been talking about this for a few years of yield curve management where, you know, central banks and sovereign bond issuers hold their sovereign bond yields below the prevailing inflation rate. And so it's basically a type of ongoing defamation. that's in real terms rather than nominal terms, because most countries will not default in a currency they can print. Instead, they'll dilute it. And we see Japan doing the most obvious case, where they're

just doing hard yield curve control, inflation's above their target, and they don't really, you know, they're just holding that down anyway because they have 250% sovereign debt to GDP. And so they have to keep their interest rates kind of manageable, their interest expense, manageable relative to their GDP. And then when you go out from there, you have, you know, Europe's doing something not quite as formal, but they have programs. in place to keep Italian debt from blowing out because they have 150% debt to GDP. We see now similar issues in the United Kingdom. Again, they have lower debt than Italy, but they have, you know, they have their own structural problems. They have their own energy shortages that are causing

high inflation. And so they've been doing interventions to stop their bond yields from blowing out in a disorderly way. And they also see, you know, some similar pressures in U.S. Treasuries. We've even had, you know, in some of the prior meeting minutes, going back to 2020, the Federal Reserve even discussed the possibility of yield to curb control. They explored it. They were paying attention to other nations doing it. And so this is something that it is on their radar in various ways to manage sovereign bond market liquidity and make sure yields stay at somewhat tenable levels. And so that's the basic outcome.

But I think longer term, when you go, you know, in the 1940s, a lot of that debt was war-related and, you know, using it to get new factories and get new things like that, which generally actually increase economic output and can be disinflationary once the inflation's over. The current inflation, a lot of it is due to under supply of energy as well as demographics issues, very top, heavy entitlement programs. And the problem is those don't have any near-term good solutions for them. And so the problem is the longer that financial oppression drags on, what are the market responses going to be? Are people going to pour into gold and Bitcoin at some point, especially when the Fed can no longer keep tightening the way that they have been? Or are they going to remain kind of

capture in that system? That's where a lot of the dynamics are unclear. We have to kind of navigate that I think as we go along and as we see more pieces of the puzzle kind of emerge. I find it fascinating. So I want to just test a few things on you and see if I've got any of this right. J.P. Morgan, you write about this. Gold is money. Everything else is credit. Is Bitcoin money? Because basically what it's, so it's a ledger that's scarce. It's credibly scarce. No one can unilaterally create more of it. And what it gives you is the option to self-custody value and to then transfer that value with no one's permission, unless, of course, someone can capture 51% of the, of the mining hash rate and then censor it. If you try to bring gold through an airport in large

amounts, good luck, but you know, you can memorize 12 words in your head, and you're basically bringing money in a decentralized cloud with you wherever you go, or you can, you know, sit where you are and send it over your computer or your phone to other people. And of course, that brings open all sorts of regulatory issues, but it's kind of depending on where you live, that, you know, that can sound not very important for someone with a pretty comfortable life. But for example, I've talked I've talked to people in kind of authoritarian regimes, right? They might be from different parts of the world where they have a lot less rights. Or maybe they're experiencing just constant high inflation. Unlike us in the in comfort countries that are only experiencing, you know, inflation pretty

recently, a lot of these people have been experiencing inflation for decades. And so things like Bitcoin or stable coins are more obvious to them. And so I definitely think it's a form of money. But like any other money, you have to test it over time to see what are its properties, are they durable, how hard is it? With Bitcoin, You have to do things like, you know, can anyone hack it? Can anyone break it? 13 years in counting, the answer is for the most part, no. There have been some bugs, but they've been non-critical. And so you have the lindy effect going on of how stable is this ledger. You also have the, you test in the game theory of it. Is it ever going to be captured by minors and censored or not? Right. So, so far again, 13 years in, the answer is no. Then you're also watching, is there any other better technology going to come along. A lot of them claim that they're better technology, but a lot of what they do is sacrifice some to give decentralization to get more throughput or more, more restativity, which might be useful for certain niche cases. Basically, those are tradeoffs. They're not superior technology, right? There are different things that the market has to then sort out. And so I think the longer it goes and the more we examine its properties, you know, the more quote unquote monetized it

becomes. So it starts as an experiment, a collectible, a novelty, and then it moves into something that, you know, actually has use cases for parts of the world and that more and more people do start to identify as money. And that's kind of a similar process to, in the past, when different civilizations to counter each other, and then they're kind of filling out, like, you know, we use different monies, which one is more reliable. I think we're going through a similar process when it comes to the dollar, gold, Bitcoin, other cryptos. The market is kind of feeling its way through this kind of complex question. Again, brilliant. I guess the only thing I would add to what you said in line with what Mr. Morgan was saying is that credit means there's a counterparty risk.

And Bitcoin, because of its decentralization, there's no counterparty. So it fortifies its position in your, in my mind, as it being money, and the reason why I'm long Bitcoin, want to test something else on you before I go deeper into your article. Maybe 10 years ago, Michael Milken, the junk bond king, founder of junk bonds, made a remark in the 80s. This was after Argentina had a debt default and they had to seek IMF relief. In 1982 was actually the start of this bull market, believe it or not. In 1982, when the Mexicans were defaulting and people thought that the market was going to go down as a result of that. But the market actually went up in August of 1982. I was getting ready to go to college. I just graduated from high school.

And the reason it went up is people knew that the U.S. government was going to step in and help the Mexicans. And Michael Milken made a remark. He said, all sovereigns, all sovereign debt eventually defaults. I asked them about that remark 20 plus years later. It's actually 30 years later in 2012, I said, Mr. Milken, I said, do you still believe that? He was hesitant to say so because the United States was pounding on sovereign debt. And what is our debt to GDP right now? Yeah, let's call it for the sake of this conversation, 125. We know as it trends towards 150, you get into this sort of mission critical warning lights on the central bank dashboard. Do all sovereign's default? Is the United States in risk of defaulting? Now, you'll, may

say, well, no, because we could print that trillion dollar coin and therefore not the fault, but then that wreaks havoc on the living standards of the average American. So where do you think we are? So I think the short answer is that they all do eventually default, but it can take different forms, right? So back in the gold standard era, it could take the form of depegging or reducing the peg of that currency to gold, right? So prior to the depegging, you had a contract, we paid papers back with your bonds that were worth a certain number of ounces of gold. And if you then change the contract. So you're still paid back the same number of papers, but those papers buy you less gold. That's a type of default. And then it's even more of a default if you don't get

any gold back, right? So those are types of defaults or restructurings. And then also if you have an environment where you hold interest rates below the inflation rate, that's another type of the fall. So for example, the 1940s, part of the United States funded World War II was, you know, the central bank, the Federal Reserve held industry rates at between zero and two point five percent, depending what part of the old curve you were talking about, while inflation averaged about 6% for the decade, and at one point hit a high of 19% year of year, and they're still capping those yields, much like Japan is doing currently, except Japan's currently doing with less inflation, but they're capping at even lower level, 0.25%. And so that's a type of ongoing default, because you're basically saying that we're guaranteeing to pay you

lower purchasing power going forward. You've given us 100 units of purchasing power, and in the future, we're going to pay you back that 100, or maybe even 1001, 1002, depending what industry rates are, but that's going to buy you, you know, 90 units of things or 80 units of things or 60 units of things, right? And so that that's another type of default. It is historically very, very rare for countries to nominally default in their own currency because the challenge there is that banks use those bonds as collateral. Insurance companies use those bonds as collateral. And so you can have a cascading liquidation of the whole deposit base if you were just to say, hey, we need to cancel half of our debt. There was a case in the late 90s of Russia defaulting on a portion of its own currency debt,

but that's kind of the only example I can think of. Normally, it's through those other methods where you break the gold peg, you break it in terms of inflation, but you don't default nominally. Now, if you go to emerging markets where some of their sovereign debt is in a currency they don't control, like dollars, for example, or in some cases, euros, they can and often do nominally default on their sovereign debt because it's often out of their hands, much like a corporation. If they don't print the underlying currency, then they're really no different than a corporation in that regard where sometimes the choice of defaulting is just completely out of their hands. But we're in trouble. Yeah, at least in terms of real purchasing power, I think of ongoing treasuries when looking out five, 10, 15 years.

Some of this sounds extreme, but you look back for the past decade, T bills spent the vast majority of the decade yielding below the inflation rate. So if you were in T bills, that was a type of sovereign debt that was getting just very slowly drip by drip inflated away. Now, it was still the case that long-duration tragedies were above the official inflation rate. Now, I would say it was below many other types of inflation. It was below asset price inflation, for example, but they were kind of treading water. And I think going forward, and now in a world of more energy shortages and kind of larger structural deficits and things like that, I think that they're going to continue and possibly in some cases, depending on the currency, accelerate, having trouble being good in purchasing power terms, which is an ongoing slow motion default on contract people that, you know, bought those bonds. Yeah, listen, if you have 8% inflation and you have $31 trillion of debt, you just erased $2.4 trillion of that debt. Now, you also took out your household savings and you took out people's living as well.

But you did erase because you monetize basically 8% of the debt that you're holding. It's important to talk about this because I want people to at least understand what we're facing. Okay, so now comes the hypothetical, which you don't have to answer, but I'm really hoping that you will. answer, Lynn. I'm now empowering you. I'm going to make you the secretary of the treasury and the Federal Reserve chairman. And you have all the data in front of you. You see what is going on, this slow motion car crash. And you're worried about the middle and the lower middle class consumer slash American. What policies would you put in place to try to save the system or to correct the excesses in the current system? So it's really good question because, so I think a lot of

the problems with our current system were started decades ago. I think that, say, lowering industry rates to 1% after the dot-com bubble blew up, which then encouraged all the debt growth in the housing market, which then led to the global financial crisis, those types of cycles have all over decades accumulated how we've gotten to this point. And then the same thing you can say for other countries. So the way I've described it is that at the current situation, there's really no good answers for those people in power, for the Treasury Secretary, for the chairman of the Fed. So we've often said that if I was ever in those positions, which I wouldn't be, but I would, I would resign. It's not a position I'd want to do because I'm just kind of, at that point, you know,

the Titanic hit the iceberg and now you get to be the captain, right? And so nobody wants that job. Now all you're doing there is damage control and mitigation. So I think essentially the way to think of it is navigating a technological transition from one type of monetary system to another type of monetary system. And at a time when that future monetary system is not even fully clear, right? So we have things, you know, gold is currently the current non-feat, you know, sovereign reserve asset globally. You also have up and coming contenders like Bitcoin. So the question is, how do you navigate it? You know, I would try to be as honest as they came with the public and say, here's the problem.

That's the part of the current problem is that these are all politicized roles. So you can never kind of come out and just say the blunt things as much as you'd maybe like to. It starts with kind of being open about it and saying, how are we going to transition going forward? I would look more towards building hard assets on the sovereign balance sheet. So at a time when this system breaks down, you're at a good position for the next system and then kind of doing damage control along the way. And so I think that's best of all bad outcomes. And I think it goes back to the question of it's like, what would you do if you're in

charge? I mean, I think the idea of having someone or a small group of people manage the price of money, right, at the root layer of the financial system, I think that's inherently not great long-term model, right? So if you ask most people, are you in favor price controls? If a certain thing goes up too much, should we just put, price controls on that. Should a central committee plan the price for that? So most of us in kind of more liberal economies would say, no, we think the market should set the prices for things. Whereas most of

us accept that, you know, pretty small group of people will set the whole price of money nationwide for kind of the core of the system. And then prices will emanate from that. In the very long term, I think that's an antiquated model, but it's the one we have now. And so I think it's about maybe recognizing that writing on the wall and then trying to steer that towards whatever the market, I think, is going to impose on us going forward. So two friends of mine, Nomi Prince, author, familiar, permanent distortion, how the financial markets abandoned the real economy forever, more or less in the camp of what you're discussing about the artificiality of rates and how those created incentives, as you're discussing in the

housing bubble or other areas of the market that dislocated. Another friend of mine, Noreal Rabini, is out with a book called Megatrends, 10 Dangerous trends that imperil our future, how to survive them. Let's put you now in the camp of you're on the lifeboat that Titanic has hit the iceberg. You're on the lifeboat. What do you recommend to people to survive the current debacle that we're facing? I think the main thing is to focus on scarcity. What is scarce versus what can be rapidly created more of? And you generally want to hold, you know, the former. What is valuable and what is scarce? And what is not in a bubble? What is not dramatically overvalued because you can have, you know, if a gold coin goes to a million dollars tomorrow,

you know, it could be scarce and desirable, but now it's just everybody's piled into it, so you don't necessarily want that. And so, you know, I've been looking at things like owning owning stakes in energy pipelines or energy producers, you know, certain types of real estate. I think there are a handful of commodity or in emerging markets that you can have some exposure to, I think non-zero positions in gold and Bitcoin and certain value stocks, you know, certain chemical producers, certain kind of these harder assets. type of businesses that have, you know, spent the last decade being underinvested in and that, you know, now going forward are, I think, entering more an investment cycle and that often are

often very cheap. You know, kind of a diverse base of assets like that is how you can get through this period. Then you also have to realize because we're still tied to the dollar and because that's still the master ledger that we're, you know, most of the world's connected to, you know, when they harden that, what they're essentially doing is they're hardening everyone's liabilities. So that's why we have so much correlation between assets recently. You know, most of it one way or another is denominated in dollars and even as dollar-based debts attached to it relative to more fluctuating cash flows. Basically, another protection against the volatility of some of those real assets is to own, again, a non-zero amount of cash so that you can then

rebalance into liquidations, cascading debt crises, things like that. When you start to see that they're pivoting it, then you can get back into some of those harder assets. And so I don't generally go one or the other. I don't go all cash and then all assets and all cash again. But I think by having a base that then you rebalance into or that you tilt in certain directions, I think is a way to get through this in a way that maintains, possibly grows your purchasing power while maybe minimizing the most extreme volatility that's possible. So, I mean, it's incredibly well said. It's very insightful. I want to talk a little bit about Bitcoin. And I want to talk about your opinion there. Does it replace some of the monetary system? Does it become a store of value? What did the inflation hedge

people, the people that got on television and said, well, Bitcoin is an inflation hedge. It's scarce. And as we get inflation, Bitcoin will go up and Bitcoin actually went down. Was that just related to over-leverage and mania? Give me your thoughts on Bitcoin as an inflation hedge and the future of Bitcoin. Yeah, it's a good set of question. So if you look at Bitcoin's price relative to global M2, so global broad money supply, denominated in dollars, right? So if you translate all the euros in the dollars, you translate all the yen in the dollars, all the you want, you know, currencies and dollars, what does the global monetary broad money supply worth, you know, track that year-of-year change? And you map that onto a Bitcoin price is actually a very strong correlation,

right? So when the money supply was soaring due to a combination of a weaker dollar and growth of all these currencies, Bitcoin did very well. And then we started to get that transfer into broad price inflation, right? So there's different types of inflation. There's monetary inflation, which is the actual inflation in the supply of units. And then, you know, it takes time to then trickle into price inflation. And so we actually started to get that price inflation. And we started to see the Fed and other central banks kind of panic and then start kind of on this like, you know, very aggressive hiking, a campaign, you know, shifting from quantitative ease into quantitative tightening, rapidly raising industry rates, you know, 75 basis points at a time

and in quick succession, you know, that as strengthened the dollar, pulled down the dollar denominated money supply and really kind of, like I said before, harden the liabilities that are connected to all these assets, which then in parts of the Bitcoin and crypto ecosystem, blew up some leverage, blew up some things like that, as well as, you know, what we've seen in the carnage and stock and bond markets. And so that's gone down. Now, if someone analyzes the situation and thinks that they can maintain that forever, right, if with this high of a debt level and this, you know, high of energy problems and structural problems, if they think that they can get to and then maintain structurally positive real yields, then I would say maybe the dollar is for you, long term.

On the other hand, if you analyze the macro situation and say, okay, they can do it temporarily, but, you know, I think that there's too much debt, too much inflation in the system that they're going to be unable to, you know, hold those rates above the inflation level for a long period of time, then, you know, especially when you start to see evidence that they're struggling. with that, like you've seen with England, for example, then you get those alternative assets, those scarce assets like Bitcoin, become a lot more attractive again. So I think that Bitcoin is a pretty good hedge against monetary inflation, but it's obviously does not line up very well at all with the lagging price inflation. So that's number one. And then number two, long term, I think it's still an open question of to what extent Bitcoin will be globally monetized. I think the underlying technology is there. I think it has the capability to be. It's got to go through this long period of testing and evaluation and attempted rivals and things

like that. And so we're 13 years into that. And so I think as we're 20, 30, 40 years into that, if that system is still around, if it's still operating as expected, if it's not been censored to the protocol layer, if there's no critical bugs, they're really kind of messed it up. If it still has structural adoption, then I do think it starts to become kind of this global sediment layer and global savings asset that anyone in the world had with an internet connection or in some cases, even without one, has access to. Well, I mean, that was the conclusion for me, the intellectual conclusion of your paper because you basically are telling us, which I believe, and Neil Ferguson wrote about this in the ascent of money, that what is money? It's a technology we're using

between each other so we don't have to barter. It's ultimately a ledger, but it's a trusted ledger. And what we know is that we're getting it from a third party because we don't trust each other. But that third party, unfortunately, has a tendency to weaken the money or to debase the money. But now all of a sudden, because of the realm of technology that we have on the planet it today. We can create a computerized mathematical system that frankly hardens that money and it makes it impossible because of the properties of decentralization not to be able to debase it, the result of which you've got everything there. Trust, decentralization, ledger, which ultimately is what money is. And so what you're basically saying is if Bitcoin lasts, it continues to stay in

its sturdy position of not being hacked and they continue to come up with ways to use it over the lightning network, et cetera, it'll become one of the foundational ways that we do business together. What did I get wrong? No, I think that's right. I think that's actually a good way to think of it is because it has, you know, it's an increasingly scarce asset. It's the most decentralized and secure of how we know to make a blockchain money. I think it's more like the question becomes what would make it not monetize? What could break the fact that it's been it's been monetizing for 13 years? So the question goes, what makes it not monetize for the next 13 years? And then the next 13 years after that. It's at the point where the de facto assumption is that this is a very

strong asset is something that is desirable enough that I think most people, if they fully understood it, would want to own some, right? It doesn't mean they want to put their entire net worth on this ledger, but they want to own some. They'd like the optionality that you get by having this global, permissionless, portable, open network money that is then more secure to 51% of tax and censorship things and security things than most of what else is out there. I think that, you know, that the market share of that continues to grow, and then as it grows, it has network effects, deeper liquidity in a similar way that the dollar, you know, it has that network effect. It has that liquidity. And I think the same thing can happen with Bitcoin over the long term, assuming it doesn't

run one of these tail risks that can somehow derail it from that kind of. Still early money. You're going back to the 1700s. And we could go back 5,000 years. 13 years is a short period of time for this type of technology. Are you writing a book, Lynn? I'm looking into that because I've written so many essays. I've written so many kind of long-form essays. Some of them We're almost like short books and of themselves. If you do decide to write a book, I hope you'll give me the heads up. I'd love to have you back, but we'll find a way to have you back if you're so inclined. And I'm very, very grateful to you.

The title of the article is fantastic piece. What is money anyway? I would encourage everybody to read it. It's easy to understand. Lynn does a wonderful job of breaking down complex issues and complex ideas. She doesn't simplify them because I think then you strain out the real meaning. She's actually doing a wonderful job of explaining complex issues in a way that most people can understand it. So thank you for joining an open book and thank you for being who you are.

Thanks for having me. Happy to be here. Well, I think the bottom line for me, and this is to provide some historical context, any time that we've been faced in our civilization with a better technology. So even though we have an installed footprint, there's just a better technology. Guess what? We end up using the better technology. So if you have a horse and carriage, but horses tire and they have to be fed and cared for,

but you've now developed this mechanical machine that uses gasoline that can move around the world more efficiently and doesn't tire, well, guess what happens? You replace the horse and carriage for the horseless carriage. The internet would be an example of that. If we can do our transactions over the internet and they will save us time and money, guess what happens? we do our transactions over the internet and time and money is saved. And so in my opinion, the blockchain and things related to cryptocurrencies is effectively

that. The blockchain put simply is a massive delayering mechanism. We will be using the rail system known as the blockchain to transfer value between ourselves without third parties. So just think of the magnitude of that. We don't trust each other. And at times we don't like each other. And so when we're transacting, we're always using a third party to validate and sanctify the transaction.

So if I'm buying your house, you're waiting for your bank to let you know that the money has been wired from my bank account to your bank account before you give me the deed to your house. But imagine a system where you have this openly transparent distributed ledger that is verified and codified by the blockchain. and a result of which you know the value is actually transferred and you're taking out middle men and women. Think of the cost savings. Think of the improvement. Think of the speed. We trade stocks now in the United States and perhaps around the world and we call it T plus two. That means we buy the stock today or sell the stock, but they do not settle for two days before they end up in my account. But over the blockchain, it could be T plus 10 minutes. And whether people like it or not or they like the change or not, change is coming. And this happens despite the resistance, despite the

installed base. One other quick example, when I was a kid, we used to log on to the internet using America online. There was a search engine called Lycos. There was another search engine called Ask Jeeves. There was something called Yahoo. In 1998, Google introduced a search mechanism that had a significantly faster algorithm and had a significantly wider and deeper search mechanism, a result of which, even though we had this other mechanism to search the internet, look at the market share of Google. People switched over to Google. And that's going to happen with the blockchain, whether people like it or not.

All right, let's talk about money, Mugasley. I know you love money. You think money grows on the tree in the backyard, though, right? Tell the truth. You want me to say, how are you? Go ahead. Go ahead. Yeah, sure. Money talks and shit walks.

Money talks and shit walks. Okay, so what does that mean to you? That means that you have to have a certain amount of money so that you can be comfortable in life, but you don't have to have so much money that other things come in picture that are not so good. Right. Everyone has floors, and sometimes you have a floor when you think of your money and you become selfish. Okay, but you don't like people that are too big for their britches with their money, though, either, though, right? Where they like show walks, right? Right.

Mm-hmm. No, you don't like showoffs. My father had many businesses when I was a kid growing up. We had a Model A for it with seal upholstery, and it had shades in it. And my friends and I used to go riding around in it. And when the guys used to see us, we would pull the shades down. And one day in front of the bank of North America, who made us get out of the car in front of all the guys.

And that embarrassed you, right? Of course. All right. So what do you think of Bitcoin? I think Bitcoin's going to take off one day, and everyone that's criticized and is going to be left in the dark. Okay, tell me why you think that? Because I don't think that you would say that it was going to take off periodically,

which is already starting to go up again, because I think you have a genius mind on business. All right, so you're betting on me, then you believe in me. Is that why? I believe in you. Okay. All right. Well, I appreciate it, Ma.

Thank you for joining the podcast. Okay, you like being on the podcast? Yeah, I think I'm doing okay, right? Yeah, no, everybody loves you, Ma. They don't want to hear from me. They want to hear from you. Ah, all right. That's great.

All right, I love you, Mom. Thank you, baby. All right, I'll talk to you later. I am Anthony Scaramucci, and that was Open Book. Thank you for listening. If you like what you hear, tell your friends, and make sure you hit follow or subscribe wherever you listen to your podcast. While you're there, please leave us a rating or review.

If you want to connect with me or chat more about the discussions, it's at Scaramucci on Twitter. or Instagram. You can also text me at plus one, 917, 909-29-29-9-6. I'd love to hear from you. I'll see you back here next week.