TFTC: A Bitcoin Podcast - #232: Treasuries, inflation, history lessons, and Bitcoin & energy with Lyn Alden

Episode Date: February 24, 2021

Join Marty as he sits down with Lyn Alden, Founder of Lyn Alden Investment Strategy, to discuss: - Current market environment - Commodities pumping - Rates jumping - Repo markets - Inflation - Historical inflationary event - Bitcoin + energy arbitrage - much more Follow Lyn on Twitter Check out Lyn's website Shoutout to this week's sponsors. Cash App. Start #stackingsats today. Use the promo code: "stackingsats" to receive $10 and contribute $10 to OWLS Lacrosse when you download the app. Lend at Hodl Hodl is a new non-custodial bitcoin backed lending platform, that allows peer to peer lending and borrowing between users, globally, anonymously & on your own terms. Create you offers & set your own terms on lend.hodlhodl.com

What is up, freaks? It's your boy Marty here to introduce this episode of Tales from the Crypt. I had the immense pleasure of sitting back down with Lynn Alden. She's incredible. I'm not going to ruin any of the episode. You guys are about to have a nice special treat. I really enjoyed this one. As always, this episode is brought to you by our good friends at the motherfucking Cash App! Cash App, so I want you to stack sats, send sats, receive sats, sell sats if you so please. we're saying sat sat sat sat sats because sats are the standard one bitcoin equals 100 million sats

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Well, on top of Cash, you can do both, either or, rolling it out. I've used it. It's pretty dope. Good for on-chain footprint as well. So if you haven't downloaded the Cash App yet, make sure you do so. Use the code stacking, because that's just S-T-A-C-K-I-N-G-S-A-T-S.

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we would really appreciate it. It goes a long way. We love you freaks. We want to make sure that people are getting quality Bitcoin information. As we roll into another bull market, we know there's a lot of scammers out there. And so the more ratings and reviews we get, the better visibility we get on these apps and the better information we like to think. people are getting at the end of the day so please help support tftc in that way if you

if you can we would we would really appreciate it and we love you guys enjoy you've had a dynamic where money's become freer than free when you talk about a fed just gone nuts all all the central banks going nuts So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor. I mean, that's part of the bull case for Bitcoin. If you're not paying attention, you probably should be.

What is up, freaks? Welcome back to Tales from the Crypt. It's your boy Marty Bent here. What day is it? I don't even remember what day it is, Lynn. I just told you I'm all discombobulated. I got up at 3.30 to catch a flight, missed the flight. I'm back in South Jersey. I'm supposed to be doing this from Florida, but it's Wednesday, I believe. Wednesday afternoon. How are you doing? I'm good. How are you? Doing well. We're sitting back down with Lynn Alden, second appearance on the show. Very excited to have you on today, considering the current conditions of the market,

market, the way the Fed's posturing around digital currencies, what the Treasury may have to do in the T-bill market, considering what's going on in the repo markets right now. We can talk a little bit about Bitcoin and energy, the 10-year yields going crazy, commodities are going crazy. Where should we start? on top of your mind of how we should start this conversation about everything that's going on? I think one of the biggest things that's kind of hitting markets now is that rise in the long-term

treasury rates. And it's actually, it's happening to a lot of sovereign bonds around the world where the long end of the curve is rising from very low levels, obviously. Many of them are quite low still by absolute standards, but that rate of change matters a lot. And so that's, if you look at, if you kind of think about how you value an equity, for example, If you're going on that old school value investing method, you estimate what you think the cash flows are going to be in the future, and that can include your growth estimate and things like that. And then you discount them to the present rate, and then you buy those discounted cash

flows. But that's obviously really sensitive to what discount rate you use. What is the time value of money? And because we hit an event horizon where we hit zero rates around the world and some places negative. There's really, you know, if you kind of do those models, there's almost no time value of money. And so that's resulted in a ton of speculation in these really high growth, unprofitable companies, because they're looking out 20 years and they're kind of hypothesizing right or wrong what their growth rates are going to be. And that, you know, they're maybe not

profitable now, maybe not profitable in five years, but sometime in the distant future, they'll be profitable, hopefully from their perspective. And so they're willing to pay up almost any amount of money for those. But as soon as you start to have rates rise, that actually brings back kind of reality about money actually has a time value. And so we're seeing kind of a hit to some of these really speculative stocks, whereas you see things like banks or energy stocks or kind of the value things, kind of the things that have underperformed over the past decade are doing okay in this environment. And we've seen some, it's kind of hit the gold market little bit it's you know it's probably impacting the bitcoin price a little bit it's kind of

trickling through multiple different asset classes yeah it's uh it's been interesting to watch this week particularly it seems like something i don't want to say it's broke but there's been some shift where where the 10 years specifically something i've been paying attention paying attention to this week and um i you wrote a thread earlier this week on the repo markets what's going on there and how the treasury may have to step in and it's not exactly the same situation as what happened in in the fall late summer of 2019 it's uh where where cash dried up and and the fed need to step in and provide liquidity for for margin trading essentially at the end of the day is what came to be known um but there was a story in zero hedge a couple weeks ago um basically saying hey

that there's another, I don't want to say incident, but there's something going on in the repo markets again. But the thread that you wrote on February 18th says it's not the same exact situation as it was in 2019. There's a little bit more nuance and the treasury may have to step in or the Fed to do an operation twist like a facility to switch out of durations

to provide liquidity. What's going on there? So it's actually funny because in some ways it's the opposite of what happened in late 2019. And it's also we have actually different things happening on the short end of the long end of the treasury curve. And so as we just talked about, the long end of the treasury curve is rising, you know, because, you know, inflation expectations are higher than the treasury rate. And so it's natural for the treasury rates to go up. But, of course, that causes some issues for a lot of highly leveraged sectors. But on the other end of the curve, if you look at T-bills, like three-month T-bills or one-year T-bills, it's interesting because those rates are going lower.

And there's actually a ton of demand relative to supply. And it's kind of an interesting phenomenon because over the past year, we've kind of done unprecedented monetary policy and fiscal policy. And so we've actually created a ton of base money as well as a ton of treasury bills. And sometimes you can get a mismatch between how much there is because banks and other institutions have to have to hold, you know, kind of safe collateral for some of their operations. And so if you if you go back to late 2019, I was very active on Twitter during that time because a lot of people misunderstood what was happening, where there are a couple of analysts, you know, like Luke Grohman and others. And I was kind of on onto this trail pretty early of kind of seeing what was happening. And basically, there was a mismatch between the amount of T-bills that were available compared to cash and bank reserves. And so basically, the Federal Reserve had to come in and begin expanding its balance sheet by basically buying T-bills.

And that's essentially how they fixed that problem. And ironically, in some ways, they have the opposite problem now where they have a ton of bank reserves relative to the amount of T-bills in the system. And that's actually because over the past year, the Treasury issued a ton of bonds, obviously, to fund a lot of stimulus, but they actually didn't spend all their stimulus left. They still have a significant chunk of their cash sitting at the Federal Reserve, basically as like they're – basically the government's giant checking account. And normally they keep that under about $400 billion, but they hit all-time record highs of something like $1.8 trillion. And now they're planning on drawing that down. So they're basically going to spend money without issuing T-bills because they already issued those T-bills long ago. And so you have all this kind of base money coming back into the system.

And those banks are supposed to buy T-bills with it. And there's just a finite amount of T-bills. What does this mean for inflation? Are we finally going to get that inflation in the consumer market that people have been talking about for so long? I think over the next couple of years, yeah. Yeah, this particular operation won't do it much because really it's mostly that they're just going to issue fewer bonds while continuing to spend pretty normally. The big thing to watch for inflation is going to be what happens with the upcoming fiscal spending, the $1.9 trillion stimulus, and then potentially another one later this year. Because if you go back to, say, 2008, 2009, that period, we saw a big expansion of the Federal Reserve balance sheet, but we didn't actually see a big expansion of the broad money supply.

because, you know, basically, you know, if you look at the fractional reserve system, there's base money and there's broad money. Of course, there's different ways to measure broad money. So, whereas base money is basically, you know, that includes currency and circulation and it includes deposits that banks have at the Fed. That's their reserve cash. That's basically like wholesale money. Whereas broad money includes currency and circulation, checking accounts, savings accounts,

things like that. That's what actually we have is like money. And in the United States, for example, broad money is about three or four times bigger than base money, depending on what time period you're looking at. And so back then, we had a rapid expansion in base money, but there's no way to get it into broad money because it only goes into broad money if banks lend it and basically multiply that money, or if the federal government runs massive deficits and has the Federal Reserve buy most of the bonds associated with that spending.

And back then, even though we had some fiscal spending, on the grand scheme of things, it actually wasn't enough to really kind of drive up money supply, broad money supply, whereas the stuff we've seen over the past year, that massively increased the broad money supply. We had a 25% increase in U.S. broad money supply over the past year, which is the biggest year-over-year increase we've seen since World War II. Yeah. it's it's very unnerving to a certain extent what's going on especially when you consider the the expansion of of the the fed's balance sheet in conjunction with what they're doing on the fiscal side now with this massive stimulus and i saw you tweet out a meme uh earlier today the the look back meme of uh people looking away from bitcoin and looking at copper um so is this Is this run in commodities that we've seen so far this year, sort of people attempting to front run this fiscal stimulus and assuming that it's going to lead to some growth in the economy or stoke some life into the economy?

Or are they expecting to go spend and build stuff? We've had a couple different things. I mean, we've had disruptions in supply chains, and so that drives up prices. We've had issues with labor, things like that. And so you get a push up in agricultural prices. And then just in general, when you have a lot of more money in the system, not just base money, but actually broad money in people's accounts, that results in more money chasing the same amount of goods roughly that was there before.

And then, for example, if you look at the copper market, you've had a couple of mines were shut down, partially from COVID, sometimes from protests, whatever the case may be, you have some supply disruptions. And it's interesting because that market was already getting pretty tight. And so if you look over the past decade, we've been in like a 12-year bear market in commodities, if you look at a broad commodity index. So, of course, energy has been a big part of that. We've had copper prices. A lot of these markets have been pretty weak, and that's because commodities tend to go in these really big cycles where you have high commodity prices that encourages a lot of production, and then something slows down.

Like last time it was China slowed down, and so you had all this oversupply of commodities, and you had a lot less demand than originally thought. And so it took a long time to work out that excess supply. And whereas if you look forward, you know, copper is actually pretty tight now, as are many other kind of critical elements. The one that's kind of in a somewhat structural oversupply has been the energy market. But even that, if you look, you know, there's been pretty big capex reductions over the past several years. And, you know, in particular, in 2020, there was a lot of capex destruction. And then so when you're seeing kind of a rebound in demand like we are now, there's actually some tightness there. yeah yeah i'm looking at the monthly copper chart right now it's reaching levels not seen

since 2013 right now yeah it's it's it's not pretty big and if you look up some of the copper stocks i mean they almost look like a like a mini bitcoin chart basically if you look at their performance in 2020 it just kind of if you look up like freeport mcmoran it just kind of spiked from i think the low in march was something like five bucks a share and now it's like in the upper 30s yeah bitcoin mining stock right so yeah pretty much yeah and then you look at lumber too it's interesting because lumber right like a bunch of people bought new homes or they were locked down and did uh did uh some remodeling in their homes to drive up demand even though people aren't working um that's another market that's pretty hot right now as well exactly yeah

price has pretty much doubled and it's it's at all-time highs yeah it's crazy uh is this what happens when you try to micromanage a complex system like a global economy well actually it shows it shows some of the the the fragility we build in because we've optimized all of our supply chains for like efficiency rather than resilience and so you know when you have kind of all semiconductors coming out of you know a couple countries uh or you have uh you know just copper only comes really from a handful of countries if you look at it you know especially in south america but a couple others and so when you have that kind of fragility uh that that's what happens And when you look at kind of supply chains of where we manufacture stuff versus where they're consumed, we've just really kind of over the past year really tested that level of globalization and fragility we've kind of built into everything.

Yeah, the fragility is rampant, systemic on us. I think back to Wall Street bets and that whole debacle earlier this year and going back to the collateral in the system. And I had a theory that that whole Wall Street bets, GameStop incident, whatever you want to call it, I keep saying incident, that seems to be the word of the podcast, sort of pulled forward some problems and laid bare some fragility in the clearing markets of how illiquid the collateral was to some extent, right? Yeah. And showing that people could be short more shares than, you know, shares exist. And it's almost like you have fractional reserve banking of shares. And so that's kind of the issue that popped up there. And, you know, and obviously just naturally like financial leverage in general adds fragility to the system. And so we've had, you know, over this past year, you know, part of the reason there's such these giant kind of responses from governments to the situation is that there's already so much leverage in the system that you'd have, you know, bankruptcies across the board if you had just things play out kind of natural supply and demand. Whereas if you would have had more resilience in the system, more savings, less debt, you could have had much more targeted assistance for some of this. Yeah. And we were reminded again last week with the rolling blackouts in the southwest part of the country, the fragility of those grid systems to a certain extent, the subsidizing of certain energy sources over others and the prioritization leading to a lack of needed capacity to serve the demand for heating homes in Texas and Oklahoma specifically. Yeah, it's been a wild week.

while it's a couple weeks here that's my question i've been following the fed since 2011 2012 not as not as aggressively as i did back then but it's always been the question lingering in my mind like how effective can they be as they they embark on these these bigger uh stimulus facilities and and so moving forward like how effective do you think the fed can be at controlling this? Does Jerome Powell have control over the situation in your mind? So they have certain tools left, but basically it's more in fiscal's court. It's more about what Congress does. And so a way I like to describe is that the Federal Reserve is pretty decent at putting the brakes on because if they just raise rates or let rates rise nationally,

that can kind of return some sanity to the market. On the other hand, if you're in a deflationary or disinflationary environment. There's not a ton that the Fed can do. Cutting rates, you know, only helps to a certain extent, especially if you start running into the zero bound. And at that point, we see, you know, it's more about fiscal, what they're going to do. You know, obviously handing out checks to people is more effective than the Fed, you know, deciding to buy more treasuries and just kind of, you know, increasing reserves in the system without increasing broad money supply. And so really, it's kind of at the point now where the Fed's job in a nutshell is to monetize what the fiscal authority is doing. And so there's really no

way that there's not enough private demand for those bonds out there. And so the Federal Reserve has to buy a significant percentage of their bonds. And I think the big questions now is what are they going to do with long end rates? And so if you look back to the 1940s, which was the only other time the US was in this fiscal situation with 100% debt to GDP, what the Federal Reserve did was they said, OK, we're going to buy a lot of the bonds and we're also going to cap not just the short end of the curve, but also the long end of the curve. And basically, you know, kind of what we see now is that there's you know, they're already kind of affecting the supply and demand of money. Right. So you're basically doing price manipulation of money. And back then they did it

of money and time. So they did the whole treasury curve and they basically submerged it below the inflation rate. And it's you know, it's one of those things where, you know, obviously that cause all sorts of problems. If you were holding bonds or cash, you pretty much got killed on a real basis. Even though you got all your money back, there was no nominal default. If you were holding bonds or cash in the 30s, you lost roughly a third of your purchasing power. And so I think we're in an environment now where because there's so much debt to GDP, they can't realistically raise rates. That's different from what made the 40s different from the 70s. And this environment is more like the 40s. And so they're going to have

kind of a tough time on their hands if we do get inflation because they pretty much have to let it run hot. And so that is really damaging to anyone holding cash or bonds and is beneficial for people holding hard assets, whether it's commodities or Bitcoin or high quality companies, things like that. Yeah. I mean, they front run this inflation pretty hard already posturing like, hey, we're going to try and overheat our typical target and overshoot the two percent historical target for inflation um they're going to try that and then jerome powell begging the fiscal side to get it together and like do you think the fiscal side is going to get it together they're wobbling over six hundred dollars for for a stimulus check right now so my my base case is yes but it is something

to watch because the you know the senate is is pretty tight and so you have uh you know 50 50 of them that caucus with the republicans 50 of them that caucus with the democrats and then you have Kamala Harris as the tiebreaker. And you have a couple of them like the one from West Virginia that is, you know, some of them are more moderate. And so they, you know, some of the Democrats can put the brakes on that. That's, you know, you need all 50 votes if they want to pass something because, you know, most Republicans will probably oppose it. So you either need to get all the Democrats or you need to get, you know, one or two or three Republicans to kind of sign off on it as well and so you know they're somewhat limited in what they can get through you can't just

push through anything they want they're definitely going to have to negotiate and kind of and kind of get something through and probably probably throw West Virginia kind of a you know something to grease the wheels a little bit I think but uh so my base case is they're going to pass something but uh you know there's definitely going to be some drama around it I think and there's it's not a guarantee they could run into hang-ups you know a lot of people thought they were going to passed something earlier, like when they were working on the second half of 2020 to pass those stimulus checks and other things like that, that ended up getting pushed pretty far back all the way to the end of December. And it's kind of surprising to a lot of people because people

thought that with the election cycle coming up, they would have passed something. But that was delayed longer than people would have expected. And it's always possible that something like that happens again. Yeah. And this is something I've been thinking about a lot lately. We talk about Right now, we're talking about the technical aspects of how inflation may present itself in the combination of what the Fed's doing with the fiscal side. Do you think about the social aspect a lot, like the fact that last year, people were openly questioning, if the Fed can print all this money, why are we paying taxes? People holding up U.S. dollars, they're printing so much money, is this even worth anything? And if the powers that be on Capitol Hill can't get their stuff together in a timely manner, do you see confidence waning to a point where the social aspect of how that

affects inflation or confidence in the dollar comes into play at all? Well, I think it showed people in some ways how arbitrary the system was. And one thing I've been just analyzing is the incentive structure. And so one of the reasons I expect inflation in the 2020s is because I don't think they're really going to stop the fiscal spending until it actually starts causing more acute fiscal inflationary problems. And so if you can basically print money and give it to people, and the ways you measure inflation are still low, then why wouldn't you do it again? So what would politicians be like? We're just going to stop now. We don't care about our reelection.

We don't care. We'll be fiscally cautious now, even though there's no downside. And so, of course, they're going to likely do it again and again and again until you have that more inflationary response. And so that's kind of the way I'm analyzing it, where basically there was all these inflationary concerns back a decade ago, and they never really materialized in the same way that people thought. I mean, obviously, we've had a run up in asset price and stuff, partially because of low interest rates. But you didn't see that really sharp increase in broad money supply. You didn't see that increase in, say, commodity prices. And so I think now people are saying, well, it didn't cause inflation last time.

Let's triple it. Let's quadruple it. Let's keep going. And so I do think that this time they're basically going to be, quote unquote, successful and they're going to find inflation finally. Yeah, it's crazy to me that this is their goal. So over the weekend, last weekend, I fell down a rabbit hole, people sharing excerpts some books basically documenting hyperinflationary instances throughout history, Weimar Republic

after World War I, Austria after World War I, all the way back to Diocletian in 300 AD in Rome, and then late 18th century France during the Third French Republic. And not everything that the US is doing right now is exactly what happened in each of those instances, And neither of those instances were identical to each other. And something that really interested me about your clubhouse debate slash conversation with Nick Carter, Luke Roman and Brent Johnson from a couple of weeks ago or last week, I forget exactly when it was, but the debate over whether or not hyperinflation could come to the U.S. because the US has the world reserve currency, that status makes it so we can stave off high rates of inflation. That just seems very hubristic to me. Does that argument hold any weight in your mind? In my view, not really. There are different components of it. And so I think one of the

biggest factors is what are your liabilities denominated in? And so that is probably the the more fundamental difference, uh, between normal inflation and hyperinflation, uh, which is that, you know, if you look at cases of hyperinflation, usually, you know, you have one or two things, often both, you have a major drop in production, uh, like a catastrophic one, like you lost a war or some, some like, you know, massive social policy, like, like Zimbabwe did with their, you know, the, how they organize their ownership of land and things like that. You can have, if you have a massive fall off in production, uh, you can have hyperinflation. And two is if you have asset – I mean, if you have liabilities denominated in a currency that your country can't print, then you're more likely to outright nominate default or hyperinflate.

And so, for example, if you have Argentina that has a lot of dollar-denominated debt, they can't print the dollars. Whereas if you look at, say, Japan has – most of their debt is denominated in yen. You have Europe. Most of it's denominated in euros. In the United States, most of it's denominated in dollars. They have a little bit more control. They're more monetary sovereign, and so they're less likely to experience outright hyperinflation because you have more diversified economies, you haven't lost a war, and you don't have this kind of foreign obligation. And so that's why outright hyperinflation hasn't been my base case, but you can still have pretty significant inflation even if you are a developed currency.

And one example I like to use is that during the whole 1920s, 30s, 40s period, when we had that kind of previous transition of world currencies, the British pound devalued more than the dollar. And so basically transitioning from being global reserve currency to kind of just being one of the major currencies, which is what they went through, that devalued their currency more than the upstart one, which was the United States back then. And so being the global reserve currency doesn't protect you necessarily from sharp devaluation. It doesn't guarantee you'll devalue less than others. It really comes down to a couple key variables. So one is the United States is running structural trade deficits and current account deficits, whereas if you look at Europe, China, and Japan, some of the other major currency blocks, they're running structural current account surpluses. And so all else being equal, the dollar has a lot more room to devalue than some of them. And the one thing that's really kind of holding it up is, you know, there's a lot of dollar

dominated debt around the world. And so like we mentioned with Argentina, a lot of these other countries have dollar based debts. And so that ironically represents a source of demand for dollars because they need dollars to service their debts. And so we have this kind of weird situation where there's a lot of kind of demand for dollars, some of it, some of it's natural, some of it's artificial from this leverage. and you know it's kind of one of those things where historically it's been it's been pretty

good for the United States because it kind of expands their their empire I guess you could call it but over over decades it's actually hurting the U.S. in many ways more than it's helping the U.S. because it although it gives them more global reach in that empire status it kind of it kind of hollows out the domestic manufacturing base because all of our exports are less competitive and things like that and so you know if you've you know if you work in technology or healthcare or government, you've done pretty well in this environment or finance. But if you make things, if you want to produce something like that, the United States has been one of the worst economies that you'd be in. You'd rather be in, even let alone emerging markets, but you'd rather

be in Japan or Europe, Germany or things like that, where they haven't had that kind of structural issue. And so overall, yeah, there's really no inherent defense that the global reserve currency gives you against devaluation, other than you have to keep monitoring the supply and demand of that currency. Yeah. We touched on this the first time you came on the Triffin dilemma and potentially running its course in the beginning of this decade. And so is that the goal? It's a fiscal stimulus to get as much money in fiscal and monetary stimulus, to get as much money into the markets, hoping that Americans will then go buy goods abroad and those countries will be able to service their US dollar denominated debt more. Is that a correct assumption there?

Well, I think there's kind of different mechanisms. So the Federal Reserve has swap lines that they can open with other countries. And so they did that back during the early part of 2020 when the pandemic hit. And so the express purpose there is to prevent dollar shortages internationally so that they can still service their debts. And the reason they have to do that is because the foreign sector overall has something like $13 trillion in debt denominated in dollars. And the funny thing is they're not even owed to the United States. They're owed to Europe. They're owed to Japan. They're owed – I mean, a small fraction are owned to the US. But so there's all these kind of – it's just they happen to be denominated in dollars regardless of who they're owed to. But on the other side of the coin, foreign markets have something like $42 trillion in U.S. dollar-denominated assets.

And so that includes U.S. stocks, U.S. bonds, U.S. real estate, things like that. And so if there's an environment where there's a dollar shortage, then some of those countries that have assets have to sell some of their assets. And so they say, OK, we'll sell treasuries. And that makes the treasury market go totally illiquid and yield spike. And then the Federal Reserve has to come in and they have to buy a lot of those treasuries as like the buyer of last resort. And then they also issue swap lines and stuff. And they say, OK, please stop selling our treasuries. Just here's – we'll loan you some dollars.

Just do what you got to do. And so they kind of cool that off. Now, the stimulus is another matter. I mean that's mostly targeted at Americans in general and basically trying to push solvency problems away. So if you have, for example, people had a lot of debts, then they lost their job, and then they can't service the debts. And if you had that happen on a wide enough scale, you'd have mass insolvency. You also have an issue with people unable to pay their rents. And then if they can't pay their rents, even if you do a moratorium and say, okay, you don't have to pay your rents, well, then the landlords are screwed because their revenue source is cut off, but they still owe their banks money.

and so one of the things the government can do is just come in and print money and give everyone checks and that kind of pushes that problem away uh but then you you risk inflation down the road because you've you've substantially increased the broad money supply that's why like over the weekend i was again doing that research on past hyperinflationary events like i couldn't stop thinking of weimar again they lost the war they didn't have the reserve currency but They locked down their economy when France occupied the Republic, demanding to get paid back the reparations they rode into something. Obviously, that's not happening here in America, but we locked down our economy. And back to Weimar, they forced everybody, or didn't force, they said, hey, don't go to work.

We're not paying these people back. We'll print money and put it in your bank account so you can live. It's not the exact same situation here, but it's very similar in the fact that it shut down large parts of the economy. Luckily, the fiscal side hasn't been able to give too much fiscal stimulus up to this point, but it looks like they're dead set on doing more. It just reminds me of that a lot. Again, not exactly the same, but very similar, very eerily similar. Yeah, it's a similar case. It's just more extreme.

And so the United States has had kind of a flat industrial production for a few decades now, going back to the Triffin dilemma. And so it's not as bad as losing a war, but it certainly kind of makes us exposed to supply chain issues. And so the Weimar Republic was a more extreme version of that, having lost World War I. And then two, it goes back to what your liabilities are denominated in, like I mentioned before, because in Weimar's case, they owe those war reparations. And so that basically represented liabilities that they could not print. And so they were kind of in that emerging market situation where they're more prone to hyperinflation. And so, yeah, I wouldn't just characterize this being anywhere near that extreme of a

case, but we do have certain elements. We have kind of certain elements that look like, I mean, the classic example I use is 1940s United States. We don't have to go foreign to kind of find a similar thing. You can go back to the 1940s and say, we're actually kind of like that in many ways. If you look at long-term charts of fiscal deficits and monetary policy and yield curve control and all these different things, almost every checkbox you can have looks like the 1940s, except in some ways slightly worse because back then we were running a structural

current account surplus. We were a creditor nation, meaning we owned more foreign assets than foreigners owned of our assets. Whereas now we're going through a very similar fiscal and monetary situation, except we're on the opposite side of that. So we're running a current account deficit, and we are a debtor nation. So foreigners own more American assets than Americans own foreign assets, which puts us on the opposite side of places like Japan or China or Taiwan and things like that. And so, you know, if we were to get, you know, kind of a widespread currency weakness among multiple currencies, the dollar could fall pretty significantly because in order to kind of bring that trade equilibrium back, that'd be a pretty significant devaluation. And we saw a taste of that in 2020. I mean, the dollar fell, you know, we printed more money than most other major currency blocks, and our dollar kind of fell by a corresponding amount compared to a basket of foreign currencies. and so if that if that rate differential were to continue uh especially given the fact that

the united states has structural deficits you could see another round of devaluation look at all right what did the dollar index fall to like 94 93 around there it actually touched down to the 89 level oh 89 it's at 90 right now i stopped paying attention to it at the wrong time damn it's at 90 right now it's insane it's uh and the i had to thank you for for stepping in after the the nick carter mike green debate and correcting mike that there actually was inflation in the 1940s and highlighting that um people often yeah people often forget that we always think of the 1970s as inflationary decade uh and because when one that's the most recent one and two uh you know when we think about the 1940s we think about you know bigger things

are happening we think about the war if someone has what was happening in the 1940s you say well world war ii is happening you say what was happening domestically you say i don't know building things for the war. And we think of like, you know, Rosie the Riveter and things like that. But, you know, few people would say what was happening in terms of what were stocks doing? What was inflation looking like? What were yields? Most people don't really focus on that decade, you know, for some of those details. But, you know, over the past century, we've had two inflationary decades, the 1940s and the 70s. And the base had very different response functions. So in the 1970s, the Federal Reserve came in and, you know, they slowly kept raising interest rates

and they couldn't really get ahead of it until Volcker came in and just had the guts to do it. Whereas 1940s, it was a different environment because in the 70s, they actually had low debt to GDP, both in the public sector

and the private sector. So Volcker could raise rates to 20% and it wouldn't cause mass insolvency because you had less leverage in the system. Whereas 1940s, the problem was that there was so much government debt that they basically had to keep yields low

to monetize it. And so they basically purposely let inflation run hot. And one of the differences was in the 1970s, you kind of had this like steady inflation. Like it wasn't, it wasn't kind of coming and going too quickly. I mean, you had, of course, ups and downs, but it was kind of a persistent phenomenon. Whereas 1940s, you actually had higher inflation spikes, but it was more transient. You'd have like a spike in like, say 1942. And, you know, we actually had like a year of year increase of like 20% on the CPI. And the next year it'd be like flat again. And the next year it'd be like 10%. And then it'd

be like flat again and then it'd be like up to like eight percent for like two years and then down again and so you had that kind of a choppier situation but by the end of the decade you had about as much inflation as the 1970s and the difference was they still held rates at basically zero should we consider you a historian or uh yeah your historical knowledge of all this stuff is extremely impressive it's uh it's insane what's going on yeah i'm finally pulled up the dixie chart here you're touchdown 89 approaching the lows of 2018 um it'll be interesting to see if we go below that right now we've been in somewhat of a consolidation and that's natural because you know we've had kind of a stabilization of the broad money supply you know we had the big

spike earlier in 2020 and since then we've kind of somewhat more stable and so it'll be interesting to see how it responds to the the tga drawdown that i mentioned so when the treasury uh basically spends money that it's not issuing bonds for because it already pre-issued those bonds, all else equal, that should be pretty decent for dollar liquidity and therefore dollar bearish. And if you do get another $2 trillion stimulus package that the Federal Reserve buys a lot of those bonds for, that should be somewhat dollar bearish. The $1 bullish variable is if we do start to see these longer duration rates continue to rise, that can stave off some of the devaluation. But then, of course, if that starts causing problems, if you start to see the housing market run into issues because mortgage rates are pushing up, and if you start to see the corporate debt markets get a little bit jittery, kind of like we saw back in Q4 2018, where the Fed was just saying, hey, we're on autopilot, we're going to keep tightening, we're going to keep doing something like that.

And you saw, you know, people often talk about the stock market falling 20%. But if you look behind the scenes, there's no junk bonds issued for six weeks in late 2018. And that's, you know, if you look at what was keeping Jerome Powell up at night, it wasn't the stock market falling 20%. It was a total freeze in the credit market. And so basically, they can afford to raise rates until it breaks something. And then that's when they have to make that choice between basically either breaking that

thing that's breaking or having the currency be the release valve. In the sense that they say, okay, we're going to lock yields low despite inflation, like they did in the 1940s. And then you have that release valve, but then it all gets kind of, the currency gets taken out to the woodshed. Yeah. Wasn't there, or not spasms, but like the CLO markets for the oil and gas industry specifically, shale last year, and a pretty rough go of it, especially after the crash in April and May. yeah definitely and and it was interesting because the federal reserve came in and basically bought corporate bonds which they're not really supposed to do but basically if you have the if you have the treasury and the fed working together i described it as like uh the nuclear keys like

if you watch a movie and like they're going to launch a nuke there's always like two generals that need to like put their key in to like you know they both have to do it and it's kind of like that like the the treasury has kind of legal limitations and the federal reserve has some legal limitations uh but if they work together they can pretty much do all these kind of all these other things i think they're more of a siamese twin than two individuals at this point they're sort of converged yeah pretty much and that's and if you go back the last time they were in the situation was 1940s uh they basically semi-merged back then and that's when you have the situation where they're working very closely together yeah and i mean and then you have janet yellen former

fed chairman as the treasury secretary um she she knows that game extremely well obviously probably very tight with jerome pal so they're probably going to work in unison for the duration of of at least her 10 years treasury secretary you'd have to imagine yeah we'd imagine and i mean they can always uh you know the eventually jerome pal's term is up and so if he doesn't play ball they have the option to potentially swap them out uh and so it's it's kind of a tricky environment, where, you know, the Federal Reserve, they're always in a situation where they want to be careful of the language they use around some of the actions that they're doing. But it's funny, because they're actually, if you look at their meeting minutes, they're actually pretty

blunt about their concerns and what they're doing. And so they're actually talking about Yod Kov control. And they're like, yeah, we did the 1940s. But you know, we don't really want to do that again, because we basically totally lost independence. And, you know, they actually, they published research papers on and stuff. And like, yeah, we, we really don't want to be there again. And so if you look at kind of the history back then, the Federal Reserve really wasn't thrilled about the fact that they were essentially captured by the Treasury for the better part of a decade and basically relegated to being the monetizer of deficits. They didn't really like that. And so they kind of see that coming down the pike again where they say, we might have to

do yield curve control, but we want to kind of push that off as long as possible because we basically lose control of our balance sheet size and we lose control of our independence if we basically have to use that to peg treasury rates. And so for right now, they're kind of trying to stand somewhat at arm's length where they're saying, okay, we're going to monetize a fixed amount per month, but we're not going to call it monetization. And we're just going to keep doing this thing. And we're going to hope that that's enough. And if something breaks and they might have to step in and do something that they would consider quite onerous, which would be something like formal yield curve control. Yeah. And again, with the context being different than the 1940s

in certain ways considering um our deficit like could they detach from each other if they if they come together in unison this time around it would be too hard yeah last time it took them literally a decade before they could split and he started to see things where after the war was over the federal reserve was like okay we can split now right and like the administration was like oh no not yet and so like they stay they kind of stayed tight at the hip longer than than the federal are wanted. And it wasn't really until you had another inflation spike in the really early 50s when they were like, OK, guys, we have to separate this. This is getting really bad. And so then they were able to kind of rotate out of that. But that was, in many ways,

the United States was in a really good situation because they were one of the last economies standing after the war. And they kind of were able to kind of, you know, if you look at the 1940s, I mean, that was just massive deficit spending. And they were able to shift into basically austerity. So they never paid down their federal debt, but they basically just held it flat for several years as nominal GDP continued to rise. And so you got the debt to GDP down that way after inflating a big chunk of it away in the 40s due to yield curve control. And so I think it'd be much harder to pivot from this point because now a lot of the deficits are coming from demographics, things like Social Security and Medicare that are longer lasting.

I mean, they're projected to be a problem throughout the next 15 years or so until we get past this demographics hump. And again, just being in a situation where we have a structural current account deficit. And so it's definitely, I think, a much harder thing for them to kind of separate from if they were to kind of join again. Yeah, I mean, the demographics situation is extremely scary. I saw you tweeting about it earlier this week as well. But I saw another stat today, like the average and median 401k balance across demographics, 22 to 25 average is four grand, 35 to 44 people who have a good amount of working left to do.

average 61 000 median 22 000 like the the uplift and the uptick in activities it's going to be needed from these younger demographics just doesn't seem like they have the the capital to do that if it's necessary and here's the dilemma from from the federal perspective if they if they let rates rise uh that would uh you know diminish stock valuations uh and uh that would you know that would cause all sorts of issues. And then a lot of those accounts would be even less funded. And if you look at, for example, pension fund liabilities, they are often very short on their liabilities.

And so they have these very optimistic projections on the returns they're going to get. Even if you look at it and say, okay, bond yields are 1.5% and stocks are in some ways the highest value they've ever been or nearly as highly valued as they've ever been. And so how exactly are you going to meet your historically average returns in an environment where most of these are presenting pretty low return projections? And so they're really in a tight spot because if they try to raise rates and they try to do all that, then they're going to in some ways have even more shortfalls that they probably end up monetizing. And so that's why I think the release valve most likely ends up being the currency rather than some of these other things.

Instead of kind of having large nominal cascading defaults, pretty much any fiat currency regime at the end of the day, when it comes down to that kind of collapse point, they print. And so that's why I think we're likely to see – basically, if you look at kind of the macro analysts that are always kind of debating with each other about inflation versus deflation, it really comes down to what the response function is going to be. Because we have so much debt, so much demographic issues, a lot of that is inherently deflationary. But if that kind of causes an outright collapse and the response function, like we saw last year, was, OK, we just print trillions of dollars then. And if that's not inflationary, we'll print another several trillion dollars. They'll keep printing likely until they get the inflation. And then the hard part is, what do they do at that point?

Because that's where I think you're more like the 1940s, where they pretty much have to let it run hot. And that's for an environment where I'd certainly want to be holding something more finite than dollars. Yeah. So this is a Bitcoin podcast. Let's get into Bitcoin. Is Bitcoin our way out here? I mean, I don't think you're starting to see it at the corporate level. All these CFOs putting Bitcoin on their balance sheets as a hedge against the inflation that we're talking about right now. you're seeing cities states start into posture like they want bitcoin to be integrated into

their operations to some capacity like is bitcoin a way out for uh individuals and then even at a larger scale like i was saying this last night on clubhouse during a conversation like in my mind like the fed should be like openly pushing people towards bitcoin is that actually may be the only way out that they have without social upheaval at this point. They're going to default via inflation. It's pretty much a foregone conclusion at this point. Yeah, I think it's one of the ways out. And I think, as Paul Tudor Jones said, it's arguably the fastest horse. And so I think that there are other things people can hold as well. We talked about copper, for example, and things like that, and holding things of value that can't be printed in general. But if you're looking at

you know, mature assets versus younger assets that are in their adoption curve, you benefit not just from the inflation, but also from the increased adoption, the network effects of the protocol. And so, you know, in that case, Bitcoin is not just an inflation play, but also, you know, the bet on the idea that it's going to continue on the path that it has, at least for the past, you know, 12 years, that's going to continue. And so if that ends up being the case, then obviously Bitcoin would be a much faster horse than gold or copper or other things like that. But overall, I think the general approach

is to have finite assets in general. And that means different things for different people. But I certainly think that Bitcoin's one of the key ones to have. And there's a couple of ways to play it because if you look at the corporate balance sheets, you have the Michael Saylors of the world that go all in.

And I think that's going to be pretty rare. But on the other hand, you have squares of the world that say, we're going to put 5% of our cash into Bitcoin so that if, let's say we have inflation, Bitcoin would probably moon, right? So that could go up 5x, 10x, and that can kind of offset the fact that our cash is kind of devaluing.

And so it ends up being kind of a wash or kind of a mild benefit. And so they're not too much worried about the price movements of Bitcoin. They're not kind of watching that all the time because worst case scenario, if they're wrong and Bitcoin doesn't take off, they've only risked 5% of their capital. On the other hand, if they do have that inflationary event, their balance sheet is protected by their relatively small Bitcoin position. And so I do think that's probably a way that a lot of corporations should play it

is by having at least a non-zero position. And so I wouldn't be surprised to see that pop up more, especially in some of these more tech-savvy companies. Yeah, it'll be interesting to see if that adoption helps shield Bitcoin from over-regulation or an outright ban, I think. That's an argument that I've used. A lot of people have said that if Bitcoin gets too big,

it's more likely to be banned. Whereas I've argued the opposite, that the bigger it gets, the harder it is to ban, because then you're going after the Stanley Druckenmiller's of the world. You're going after S&P 500 companies. You're going after basically the donor class, like have fun. So, you know, if Bitcoin was sub $100 billion and, you know, you could be like, oh, we have to be in this like Silk Road thing. And, you know, it's easier to do when it's small. But once it's so widely distributed that literally senators have it, like it's really hard at that point to say, oh, yeah. we're just this whole trillion dollar, maybe by that point, multi-trillion dollar project.

Yeah, we're just going to go ahead and try to shut that off. Good luck with the kind of pushback you're going to get from all levels of society at that point. Yeah. Right. And that's actually one thing I really appreciate about Paul Tudor Jones' description of Bitcoin. It wasn't when he made the fastest, worst comment. It was a couple of months later, but he says it's a bet on optimism too innovation which it honestly is particularly like some of the things that we've been talking about supply chain is something i think about a lot so what we're doing at great american mining actually building physical things that we're dropping off and oil fields that exist in the united states and then helping to secure those supply chains and integral businesses in

the energy sector here like i think they should just open it up and let people innovate and it could be actually an incredible safety net for the precarious situation we put ourselves in. Yeah, I think with the earliest use case of Bitcoin as a store of value, but I think as lightning continues to develop, you know, and as we see things like the Strike app and things like that, that can, you know, turn more and more into kind of a network for payments, even for people that aren't necessarily interested in paying in Bitcoin, they can just use Bitcoin as the intermediary, like Jack Mallers is doing it at Strike. And so I think that's certainly something to watch and then uh you know lately we've had a lot of you know the kind of the cycle of of uh

bitcoin criticism kind of goes around like you like it was famous like uh uh bitcoin dice like you have uh you know the tether fud and then you have uh so lately we've had the environmental uh kind and so yeah actually one one thing is because i'll share this with my audience as well like tell me what you're doing uh with the mining side uh with the um you know the energy because i think a lot of people have misunderstandings of how that energy works and as it regards to bitcoin yeah so what we're doing specifically a great american mining is we as a mining a bitcoin mining company we have a strong incentive to drive our cost of power production down as low as possible it just so happens the greatest opportunity that we've found uh to to drive that power cost

down very low um and that could help us achieve the scale we want to achieve is on oil and gas fields and at midstream collection sites where there's a ton of excess natural gas that's either being completely wasted or undervalued by the market compared to what it can be valued at if it was used to mine Bitcoin. And so like the main use case right now is just going to producers predominantly in North Dakota and the Bakken because their flaring restrictions are the strictest in the country and saying, hey, let's do an offtake agreement. We will help you reduce your flare we'll buy that gas from you you're going to take that previously uh that asset has previously been dragged on your balance sheet and we're going to pay you for it so you're going to

get some revenue and then we'll use that to mine bitcoin and we have a thesis at great american mining that these producers are going to come to learn like the the opportunity that exists by turning that gas into bitcoin so we say hey look we're doing this offtake agreement look how much money we're making in these containers that we're dropping off in your well pads like you should be participating in this. And so basically we're playing an energy arbitrage game where we need cheap energy. It's provided in abundance via gas that would otherwise be flared. And so that's what we're doing. We're trying to create an efficiency in that particular sector of the oil and gas industry, a very niche sector, the flaring aspect of their operations. And we think

it's like a beautiful way to, to solve that problem, uh, to, to secure supply chains. And actually like we, we are reducing methane emissions, but there's a good case to be made that adding this revenue stream in the form of Bitcoin mining, which is driven by completely different demand factors than gas sales. Um, and it's another service that's demanded 24, seven, three 65, adding blocks to the Bitcoin blockchain, like a, you create a new revenue industry. I'm going to completely adjust the opportunity costs in the field where maybe you don't build as many pipelines, maybe you don't drill as many wells, you just create more efficient drilling and delivery of these molecules to market. I think that's what a lot

of people are missing about Bitcoin and energy is that Bitcoin really kind of goes out to find energy that is not being used properly. And so the classic example was overbuilt dams in China. And so you have these periods during wet season where there's just too much electricity that's not really being consumed. And so mining rigs could, you know, be mobile and go to those places and basically, you know, absorb that waste, otherwise wasted energy and convert it to something useful. And you're basically doing the same thing with, you know, you know, the flaring issue and saying, OK, you have this issue. You have these little periods where you can't necessarily make economic use of that energy. And so we're going to come in and basically, you know, use that energy for something that that is mobile, that we can come to you. And I think it's not like every additional Bitcoin transaction results in more energy.

It's like, no, there's a set amount of energy that's being done based on the difficulty adjustment and based on the price and based on all that. There's that kind of underlying proof of work that's happening. And then any transactions we build on that network are essentially no additional marginal energy consumption, especially if you start using things like Lightning and you kind of batch multiple transactions into one major chain. But actually, it can be quite effective and efficient when you kind of look at the full scope of how it works. Yeah, it's extremely efficient. It's an extremely efficient settlement layer. people don't get batching transactions the fact that like yeah people say like oh my god you're sending a bitcoin transaction that's taking up like the energy of a whole city it's like what

are you even talking about people don't understand how energy is produced and delivered to market and how grids work and it's people number one arguing from ignorance and then number two like the other case is like moralizing energy consumption which is like one of the most perplexing things uh like why are you berating bitcoin miners for consuming energy they're paying a price for it and there's sure this is supposed to be a free market for energy if somebody's willing to pay for it nobody else is willing to go to these flares and and tell them to turn them off and give give us the gas to consume it like nobody else is doing that but bitcoin miners because arguably nobody else can everybody says well like like you can get more value out of that gas by running like

data centers but you really can't because the data centers would never go there because of reliability issues like if we have our generators go down and our bitcoin miners are down for an hour um that's okay the bitcoin network keeps going it doesn't disrupt the network at all relative like if it does at all maybe it slows down blocks by milliseconds for if our operations were to go down but uh like if you have an amazon web server out there and that goes down for an hour and you have like critical internet infrastructure and people's businesses going down like that's untenable um so this this process of proof of work mining to to uh secure the bitcoin network is probably one of the only use cases that that makes sense in these these flare

gas situations yeah it's the it's the most mobile demand source of energy pretty much and you know as you pointed out i mean if if you do have a disruption it really only affects you it affects your revenue rather than affecting someone else's uh you know their reliability of the network and so that's what makes it able to go to these rough situations and you know you can have a situation where 98 uptime is good enough it doesn't have to be 99.99 because you're not really affecting anyone else you're just kind of making as much use as you can out of that waste uh um product and i guess one thing i'd be curious on is are you seeing traction like you seeing growth or are you seeing like uh i don't know how long you've been doing it but what like have you

actually seeing that more and more producers are becoming aware of this and interested in it or you is it still kind of like falling on deaf ears i mean we're getting a lot more people reaching back to us after conversations from last year as the price of bitcoin's gone up i mean it's like anything in bitcoin like the search terms going up as the price goes up and the interest from the oil and gas market um is is very similar to see the price going up they remember oh the great american mining company was annoying us for our gas last year they still want it yeah i think interest is certainly increasing and what we found actually there's like a lot of very strong bitcoin advocates and a lot of these uh oil and gas companies throughout throughout the whole

supply chain they tend to actually be like mid-level managers or like vps and not at the executive um suite but the they get bitcoin they get the opportunity that exists but there is like teaching an old dog a new trick type of situation here but we've definitely been making significant leeway like we just tripled our capacity last week we're probably gonna uh triple it from here over the next couple months and then hopefully like 10 exit from there throughout the rest of the year um and yeah i mean the oil and gas industry is specifically the last 12 13 months it's had the shale industry has been wrecked by by what happened in with the man shock from the lockdowns and the global supply chains grinding to a halt uh the shale industry

arguably had some of the worst allocated capital they misallocated capital uh pretty significantly throughout the first two decades of the century and taking out huge like i used to work at a third-party valuation firm that we would we would uh give like third-party valuations for pe firms uh investing in mid-market companies specifically so like i i had some oil companies past my desk and doing and diving into their financials they were taking out 100 million dollars 17 percent pick loans and in 2012 projecting the price of a barrel of oil to be a hundred dollars like in the perpetuity. It was insane how capital is being misallocated there. And so I think the combination of what happened last year, the Bitcoin price going up and desperation to sort of right the way

and get on some sturdy legs is definitely increasing interest in what we're doing specifically. Yeah. The whole past decade for shale producers has been free cashflow negative. Over the course So like a full oil cycle, they never really made money. And now we're seeing drying up of investment capital because now you have one hand, I mean, investors are just tired of burning money. And then two, you have ESG mandates where, for example, some pension funds are saying we're not going to allocate to oil stocks anymore. And so we're just going to not have this kind of constant flow of money going towards that. And like, you know, whatever PE funds we're going to pick or whatever hedge funds we're going to invest in, we want to, you know, They have to report to us what their ESG requirements are, and so you can potentially have less big capital flows going to those companies.

And so rather than their business model being to basically just keep collecting capital and then drilling unprofitably, they have to figure out how to actually be profitable and have somewhat of a self-sustaining business that isn't always reliant on new capital coming in. So any sort of efficiency they can squeeze out from their operations is increasingly essential for them. yes and the esg narrative is growing strong and i think producers may have been just like trying to swat it away from their ear um for for a little bit there but now like there's been a material like effort to like all right let's let's let's be esg friendly here because we're not going to get any money uh we saw the new york department of finance come out earlier this year late last year and say they're not going to allow any companies domiciled in new york to to invest and these companies that aren't ESG friendly.

Yeah, I mean, the world's biggest sovereign wealth fund is Norway's. It's like a trillion dollars. And it was, I mean, I think it was originally called the oil fund. Like they got all their, you know, they basically collected money from their oil production, which was partially state owned. They put it into a giant sovereign wealth fund for their people. And now, you know, they're at the point where they're kind of divesting from oil and gas stocks because they want to have an ESG mandate.

And so it just really limits the amount of capital from multiple of these sources that keeps going to these projects. And so, yeah, I think something like converting what is normally a cost for them into something that generates a little bit of revenue, I don't see why any of them would turn that down. i mean it's not a little bit of revenue you made a gas to hash calculator and that compares the the opportunity cost of using your gas to mine bitcoin instead of sending it through a pipeline at henry hub prices multiples are with older generation miners too or 15 20 x and then you think and you take that to flared gas situations like they're literally spending money for this sometimes the producers don't believe it like it's way too good to be true like it doesn't

make sense to them are you finding are you finding issues sourcing equipment because you've had semiconductor shortages and things like that uh we haven't personally um we are cautiously optimistic that we won't run into problems uh again our our cost of power production is at such a point where we don't have to buy the newest generation hardware which is having the most significant supply uh crunch right now um we've we've been lucky that we've been able to source miners pretty easily relative to to a lot of the people with higher energy costs um just because we can we can use older models that that aren't as efficient but are still profitable at our cost of power production nice yeah i mean that's huge i don't see why they all wouldn't do that yeah

it's uh no i think i'm actually bullish on i think everybody's like poo-pooing the semiconductor market right now obviously it is in dire straits we see headlines like samsung building a fab in austin tsmc building one in arizona i think over the next five seven ten years um we'll see we'll see a boon of of chip fabs and chip production on north american soil i think there's even like rare earth mineral mines being found um in places like new mexico um that helps that situation as well and that's part of a big trend we're going to see it's just more and more kind of a country's trying to be as self-sufficient as possible and and not relying on on kind of these narrow bottlenecks we've seen around the world yeah i mean i mean we've been talking about the fragility

of the system whether it be financial or supply chain like it's like we need to like it's we need to do it okay there's no i think we've hit the pendulum has swung to one extreme and it needs to start swinging back to to an equilibrium um in some regards and that's how it's gone like that in history too i mean this isn't the first time we've had kind of peak globalization then kind of a concern is to pull it back we've had if you look back a century ago there were periods where we had you know it wasn't globalization in quite the same way as now but it was still globalization and then you start to have frictions from that and then you kind of pull back and it's another one of those big cycles that humans keep going through yeah so we humans we're we're

weird social rhythmic animals it's uh yeah inherently cyclical like everything else yeah we're the fourth turning generation it seems so yeah and thank god we have fourth turning money in bitcoin i'm like extremely optimistic i know a lot of people are going to listen to the first hour of this conversation first 45 minutes to be like oh god it seemed pretty terrible but thank god we have bitcoin like and i'm like i get excited to wake up and talk to producers and pitch this like it provides a very like all tutor jones said like an optimistic view of the future and um something like a space race or i won't say a nuclear arms race but like a space race to to sort of plant a flag at some point in the future and direct our society towards that

because there's a lot of work to be done there's a lot of flared gas out there there's a lot of strand of renewables. There's a lot of grid systems to secure. And this is just in the context of Bitcoin mining. When you take it to things like lightning, like you were discussing and the software side of things, there's even more massive opportunity. It's hard to fathom. Yeah. One argument I made the other month was that in many ways, the 2010s were kind of a depressionary environment. It's just that it was disguised by a lot of other factors like increasing technology and kind of the expansion of the base money we've seen. Whereas actually, if you look at, you know, GDP growth per capita and, you know, production growth, it was actually

a really, really weak decade. And we saw, you know, unfortunately, like increases in things like homelessness or increases in, in kind of deaths of despair, you saw kind of lower life expectancy. And, but, and so one argument I made is that in some ways it was kind of a mild depression. And it, but it's one of those things where if you were, if you were going to go through depression now versus depression a hundred years ago. Most people would rather go through depression now when you have technology that, that provides a lot more options to kind of move forward with that. And so I think that's the key thing to focus on is that if people kind of make use of whatever technology they can, uh, that's one way to soften the blow of some of

these, these big cyclical turnings is really kind of doubling down on, on innovation and technology and kind of using it for good rather than uh financializing it or things like that is kind of what can what can be most efficiently deployed uh in in solving problems free market creating a jobs program who would have thunk it uh it's uh they can't believe it in washington hopefully brad sherman gets chained to his desk and isn't allowed to fud bitcoin anymore because they need to get out of the way and just let us go build that's the thing too like again like going back to like the physical nature of what we're building it's being built on u.s soil we we have a warehouse in louisiana we build our pdus we build our containers we we get our fans from canada i

believe like it's a north american supply chain obviously we get the miners from china and other parts of the world but there is a significant amount of uh materials in our containers that we're building that are sourced in the united states and north america in general and hopefully over time the semiconductors will increasingly become you know more north american as well and and just those supply chains will hopefully become more distributed one one crazy stat is that you know pretty much all uh ram for example memory is is comes out of just just you know two countries there's really kind of three companies that are responsible for almost all ram worldwide and it's just it's you know interesting how kind of tight some of these bottlenecks are that people don't

realize yeah random access memories rest in peace daft punk um yeah yeah no it's insane it is it's hard to believe we let it get to this point but we're here what are we going to do mope or actually do something about it i hate the moping there's a lot of moping yeah i agree yeah i think uh let's be optimistic people like to paint bitcoiners as doomers we're not doomers we're just i just want to smack everybody in the face be like wake up we got a lot of work to do that's a good way to approach it right well lynn it's been a pleasure is there anything else uh we should chat about before we wrap up here i think that pretty much covers it i think this you know people think the 2020 was a crazy year but i think 2021 is another kind of

year for the record books because you know now we kind of had the the first part of the cycle now we're kind of watching what happens on the other end of that cycle so what happens when when things start reopening more, when you start to get those bond yields pushing back up, when you start to get maybe some of the effects of the broad money supply increase. And so seeing how different institutions kind of navigate that is going to be, you know, kind of, I think, a pretty interesting thing to watch and to see how, you know, I mean, see how Bitcoin goes, because it's, you know, it's still in the kind of the favorable part of its historical kind of four-year cycle. And, you know, it's kind of interesting to watch, you know, how high is it going to get?

and it's one of those things where it's you know it's a 12 year old experiment and so far it's gone like clockwork and so the key thing to watch is is it going to continue to to go on and you know what what are kind of the surprise buyers going to be like who's going to be the next corporation and maybe put some on their balance sheet and i think it's just kind of interesting really interesting year yeah and you consider the fact that all this is happening in the internet age and communications technology and how fast everything can spread the pace of change i mean this has been true all throughout history with technological advancement but the pace of change is insane yeah i mean it's something like the first is the fastest assets to hit a trillion

dollars right i mean it's faster than all the other major companies did and if you know some of that is uh i guess inflation adjusted so you know i i'm not sure if it's it probably might still be the fastest to hit a trillion dollars even if you account for inflation so it's kind It's kind of a powerful message. Yeah, this idea that time has come. It's a good idea, despite the fact that people think it has no use value. I would love for the people flooding Bitcoin's energy use from the argument that it provides no value to the world to go to Nigeria, tell the women of the end SARS movement that Bitcoin

has provided them no value, to go to Venezuela, to individuals who have used Bitcoin to remit money so they could buy medicine and tell them Bitcoin has no value. To go to Belarus where people have been protesting and needed to turn to Bitcoin to buy food and live life when their bank accounts got shut down, tell them it has no value. We'll get these no-coiners. We're going to get them. Good luck. Lynn, it's always a pleasure. Thank you for doing what you do and thank you for joining me this afternoon. Thanks for having me on. All right. Peace and love, freaks.