TFTC: A Bitcoin Podcast - Tales from the Crypt #99: Raoul Pal

Episode Date: September 18, 2019

Join Marty as he sits down with Raoul Pal, Founder of Real Vision and Global Macro Investor, to discuss: - Repo markets - The state of the global financial system - Demographics - Behavioral Economics - Tokenizing income streams - much more Follow Raoul on Twitter: https://twitter.com/RaoulGMI Check out Real Vision: https://www.realvision.com/ Shoutout to this week's sponsor, Cash App. Cash App. Head over to the App Store or Google Play Store, download cash.app and start #stackingsats today. Use the promo code: "stackingsats" to receive $5 and contribute $5 to OWLS Lacrosse you download the app. Subscribe to our YouTube channel: https://www.youtube.com/channel/UCtdbWsnfA08KhSUO4amVLaQ?view_as=subscriber Contribute to the show: https://tftc.io/contribute/

Well, hey there, freaks. It's your boy Marty here to introduce this flash episode with Raoul Pal from Real Vision and the Global Macro Investor. Raoul and I actually sat down this morning to talk about what's going on in the markets this week, particularly around the repo rates, the Fed's reaction to those rates in about an hour from this ad recording right now, and the future of the financial system as we seem to be heading into another crisis. This episode of Tales from the Crypt is brought to you by the Cash App. You freaks already know all about them and if you don't let me tell you about them the cash app is allowing you to stack sats uh so you can buy and sell bitcoin on the cash app you can send bitcoin

from the cash app to a personal wallet from a personal wallet to the cash app and then on top of that you get the ability to use the cash app in other places with their boost program so you get a specialized debit card uh you get to put your signature on a bitcoin symbol lightning whatever you see fit and then you go to partner merchants whether it be whole foods chick-fil-a door dash local coffee shops and you save money when you shop with your boost card with your boost enabled use the code stacking sats that's one word s-t-a-c-k-i-n-g-s-a-t-s you're going to get five dollars then five dollars is going to go to alves lacrosse charity very near and dear to our heart again if you haven't downloaded it yet you're in the u.s you're looking to buy bitcoin

What the hell are you waiting for? Use the code STACKINGSATS. Download the Cash App from your local app store today. Hope you freaks enjoy this episode with Raoul. I know I sure did. Tales from the Crypt. What is up, freaks? Welcome back to Tales from the Crypt. It's your boy Marty Bent here on a Wednesday morning. This might be the earliest we've ever recorded. Actually, it's the second earliest we've ever recorded. We're here at 9 a.m. Got a very special guest. He's only got an hour, so we're going to jump right into it. I'd like to introduce you, Freaks, to the founder of Real Vision and global macro investor, Raoul Pal.

Hey, Marty. Welcome to the podcast. Thank you. Good to be here. Well, thank you for coming by. It's a very prescient week to have you in the studio. Here to get your Bitcoin thoughts. The way we usually start this podcast is how you got into Bitcoin, but I think this week in particular, we can sort of get to that later considering what's going on in the markets right now. Yesterday, I believe overnight, Sunday into Monday,

we had the effective Fed funds rate go out of whack. Yesterday, the Fed had to come out and do an emergency repo operation. I believe they bought, what, $53 billion worth of debt. And today, they have to do another one. So it's just... Excuse me, I'm nervous right now. I don't know why. It seems that there's a liquidity crunch going on

in the global macro sort of environment may be hitting ahead. What are your thoughts? Yeah, it's a complicated situation. If we go back to the big picture, what's going on, if we focus in on the micro now, we'll miss what's really going on.

What's really going on is something that, and this will loop back to Libra, we'll come to later, what Mark Carney's telling you, the ECB are telling you, and you're hearing from the BIS, the Bank of International Settlements, is that there is a problem with the dollar as a global reserve currency. And the problem is, is debt, which we all kind of know about. There's too

much debt in the world and too much of it's in US dollars. So the BIS claim it's about 13 trillion of it. Okay, that's 13 trillion, sorry, of US dollar debt held by foreigners offshore. So that is the largest essential short position of US dollars there is in history so therefore US money markets have a big impact around the world but then what happened is as the US dollar was relatively weak and people borrowed a shit ton of dollars the regulations changed under what's known as Basel 3 and also Dodd-Frank and those two regulatory changes essentially meant a dollar in london was not the same as the dollar in new york which had never happened before so the euro dollar market which is the offshore borrowing of dollars based on libor now suddenly wasn't really

fungible so that meant that all of these banks didn't have access to a large pool of capital which is the u.s capital and so suddenly they've got 13 trillion dollars and there's not enough capital around cut to the european banks also having their own problems so they've got banking problems as do the japanese banks and so before you know it there's not enough dollars in the global system then quantitative tightening comes along and it sucks out a ton more of these dollars and now the whole world's scrambling so guess what the dollar goes higher over the last few years so 2014 all this process started that issue is what you're seeing today is the money markets are kind of broken

because there's too much demand for dollars and then with regulatory changes there's a whole bunch of issues and it's really complex and I don't even understand all the complexities of what is driving the repo markets and everything else but essentially it's to do with now the lifting of the debt ceiling

so this is a big change anything what it's telling you is any change to the money markets suddenly breaks everything so the change was the treasury had been funding the government from its treasury general account, its banking account, essentially,

because of the debt ceiling. So the treasury is basically lending the government. So it now needs to replenish its supplies. So it has to issue a whole ton, about 250 billion of new debt. But the government also wants to increase their spending. So they've got a bunch of debt to do, and they're behind on the debt payments that they have.

So there's 600 billion of new debt to be issued between now and the end of the year. That is basically sucking money out of the system because the Treasury or the Federal Reserve are essentially issuing bonds and taking dollars in return. So what's happened is this started this week and there were some other issues to do with corporate tax payments and stuff. But basically the issue is it's the oh shit moment

that 600 billion dollars, and we've only just started the first time money came out everyone's like it's impossible to get funding yeah so uh basically liquidity crunch right exactly what does i mean and they knew it was coming but they don't know what to do about it but what does that say after was it so you said they started tightening late 2014 2015 after a massive expansion of the monetary base and debt in the world what does it say that only five years later we're we're hitting these hiccups again Well, it tells you that rates are now permanently low. There is nothing we can do about it without blowing up the system.

I mean, the Japanese never managed to raise rates meaningfully. I think they managed half a percent at one point. That's it. The Europeans have not managed to raise rates at all. Because what happens if you think about it logically, think about the behavior of if rates stay low for a reasonable period of time, all of us change our mortgages, you get new lending at new low rates, etc. So you've now reset generally having more debt at a lower rate. and corporations in this part of the cycle not households as much corporates were the big part

of this so they doubled their entire debt exposure since the peak of 2008 so they went absolutely on an orgy of debt and they use a lot of that debt to do stock buybacks too correct yeah which is a very unproductive use of a ton of debt so you've got this very unproductive debt struck at low rates huge amounts so as rates started tightening it became impossible because suddenly nobody could pay it back it's like i was speaking to a family office client of mine and he had talked about his interest payments on he kind of renegotiated all the leverage they've got within his family office and he said his interest payments have gone up 80 percent oh my crap and because he'd taken a lot of leverage out because rates are low everyone says free money so free money means if you can

most of us can't but if you can borrow as much money as you can well guess what rates go up suddenly you've got a big problem and that's what's happening with the whole world with this 13 trillion dollars they borrowed so much money more money than has ever happened before at record low rates so as soon as the quantitative tightening came out even rates didn't go up that much at rates of change it went up a lot but just the funding disappeared from the markets and now they can't get it back yeah and it's uh it'll be interesting to see what chairman powell does today and that's uh what a lot of people are speculating it's expected there's gonna be what a 25-bit cut and people are wondering after yesterday having to do an emergency repo and

another one today and there's a whole bunch of people know a lot more about this than me but basically there's a number of steps the federal gonna try and of which the people i really trust on this say none of them will work because the issue is far too big because don't forget as i said this is the first part of the actual issuance of treasuries we've barely done anything it's like 40 billion have been done and this is what's happened we've broken it already and we've need to get through 600 billion so i don't know what they're going to have to do but the general consensus is the money markets are basically pricing out that 25 basis point cut immediately so it's like the fed are pushing against a string so what they're going to have

to do is cut faster they're going to try reverse repropriation special things all this kind of funky stuff what they actually do is cut rates fast and they're going to have to go back to yeah because all this repo stuff's basically qe without calling it qe correct but they have to go back to qe yeah that's how screwed the whole thing is well is it broken beyond belief and that's what well that's what so this is what mark carney said i mean jackson hole the central bank summit right this is where the central bank's supposed to be protecting themselves and their own and he stands up and says by the way that libra thing was very interesting we need to move away from a dollar standard and something in this is the answer not necessarily libra but something

in this because he knows and explained that we can't continue with this dollar-based system yes that's the question on my mind do they see it as a better technology or a uh a lifeboat to to get away from the problems that the central central banking systems created i don't know if that matters everybody knows we're gonna have to go to something new i mean i mean the whole you know the rise of bitcoin has been that right many people understood it there's the other guys who with the gold guys right they also understand it because people realize look we've got to a point where something has to change you can either go back to the gold ways or you can go forward to new technology in a different solution maybe it's both and you know i you know i don't worry about

that and that's not an argument i want to get into really but the point being is that something and the libra idea was very interesting because it let the central bank still have their own currencies but it formed this kind of ultimate stable coin because it had dollars as well as the other currencies normally it's everything versus a dollar yeah so they'd be catering to that basket almost their policy now but what was more interesting to me is okay that's a status quo because you've just got your swiss francs and your yen and your pounds and your dollars and everything in that basket but once you do that because you've got dollars and all the other currencies you kind of offset the dollar because everything's always against the dollar so this

means it should go up and down with global money supply okay so that's a whole massive change it looks now more like bitcoin right so it's a money supply driven instrument but the question is now you're on digital rails so you're not on the kind of fiat system you still are but you're one step into the digital world so then to be able to build off that the whole digital world that we we're seeing coming with bitcoin and ethereum and all the other parts of the system being put together it feels like it gets around the problem that that everybody said about bitcoin was that you can't pay your taxes in it well they're just giving you the ability to do that they're giving you the on-ramp and off-ramp interesting do you think uh libra launches do you think i mean the

ecb came out last last month or last week excuse me and said well what's clear what i said is the moment i saw libra and it was like oh this piece of shit blah blah no no this is so disruptive because private companies can issue essentially sovereign money. And it's something that hasn't existed for, what, five decades? Private currencies are maybe longer than that. And I believe a lot of Bitcoiners believe that central bankers, in particular, the last three or four decades have probably gotten complacent. And so the emergence of Bitcoin and now Libra, I think Libra,

for some reason they reacted to Libra more threatened by Libra than they were by Bitcoin because what can you do about Bitcoin the decentralized nature of it Libra is centralized by nature but it's a different beast, it's nothing to do with Bitcoin it's just the new digital future

of digitalization of everything what worried them is if you give somebody the power, so if you think of it, break it down what is it, it ends up being Facebook running an enormous money market and fixed income fund right it's basically a mutual fund it's basically a mutual fund right and it's the shares in that mutual fund essentially but how powerful are they then they become the world's largest buyer of sovereign debts and so you know it becomes a very complicated

world now the point being is if facebook can do it anybody can do it it's only got a world where you've got numerous stable coins so then i could choose a stable coin that doesn't have swiss francs because i don't believe in the swiss franc and you can have one that doesn't have that or i can have one that includes bitcoin or i can and before you know it right we don't have a benchmark standard of anything any longer which is interesting because it kind of suggests in a potential future that bitcoin becomes that standard it can't yet because it still needs to get to its market cap and stabilization phase and we've got a long way for that to go we do well that's the other question like how how so that's i guess two schools of thought that you can go down is bitcoin will

act as sort of like this this pressure valve this release valve whereas things are going bad in the traditional uh financial markets people slowly transition the bitcoin at one point uh that'll hit a head a tipping point if you will and uh many people or not many people a lot of money will rush into bitcoin um money over people uh and bitcoin will have not overnight success but success in a five to ten year period or is it something that plays out over decades and you have these transitionary sort of corporate coins or stable coins you know i don't know i think it's happening faster than we think and i think i've been thinking this through recently i think there's an extraordinary situation in bitcoin bitcoin particularly where the market is essentially

everybody is short upside so in options terms everyone's short gamma to the upside what that means is the more it rises the more people have to buy because everyone's so underweighted because if it is truly a probability on a future system then everyone's massively underweight where they need to be so natural price rises will have these bubble phases because it forces people to have to have more of a stake so we're already starting to see institutions taking small stakes we've seen the hedge funds were a bit earlier and we've seen the private guys before that and then retail before that's a retail led thing but really the whole system is structurally massively underweight if it is going to play a large part of the future of the financial system and that's why it has this

ridiculous exponential price rises um which is super interesting that's it's just the price rises in particular just like naturally uh captivating you can't you can't look away well no well i think somebody points out that no asset in history has ever performed as well as bitcoin has yeah well that's i mean again this is what makes me sort of partial towards the the idea that bitcoin may be uh may happen faster than people realize like i do think like you said it's it's one of the the fastest appreciating assets the history has ever seen like what if this is truly a once in multi-millennia multi-millennia excuse me uh like generational wealth accumulation opportunity look none of us know the answer but we've all we get a sense and

And what gives me a lot of credibility in this, and maybe wrongly so, is the amount of intellectual capital involved in this is extraordinary. I've literally never seen anything like it. Yes, we saw a lot of, you know, interesting people go over to technology and stuff like that. You know, there's been some people in biotech. And, you know, there's been a lot of, you know, intellectual capital has risen versus, let's say, the salesman that was the riser the last previous 50 years. but the amount of people involved in this and the speed of which they're moving across to this so in my macro world it started i think dan moorhead was the first right dan is a famous macro guy you know he's a emerging market currencies and bond trader you know and before you know it he

goes off and starts pantera he starts a hedge fund and then decides no there's a better bet it's all about one thing which is cryptocurrencies okay so that was like everyone was like i don't know what he's thinking of and then the next guy to go was novo and novo was like fuck this i'm out of i'm out of macro land and i think this is the big opportunity okay so people stop paying attention there was a couple of friends of mine and um they're quite well known the bitcoin space um emil woods and chad cascarilla um who started it bit and a number of things they were very early in this whole thing they were running a hedge fund um i knew them well they were running a hedge fund ex goldman guys next minute shut down the hedge fund all crypto i'm

like okay wow then um i think it's probably mark yusko um and and now dan tapiero and what it what it's telling and john burbank i mean these are serious people and what it's telling me is that they're looking at the entire pool of macro opportunities in the future i in their career lifetimes and they're suggesting the bitcoin it's upside exceeds all of the potential opportunity sets from all of macro added together that's what they're telling you and that's an extraordinary statement from guys who understand what a macro bet is they're taking one macro bet so this is it everything on this and these are guys that have made made off with big bets in the past too and so that's the one as you were saying there's a lot of intellectual capital

in bitcoin and one thing as a bitcoiner uh particularly uh coming from a finance background we've been waiting for the macro crowd to like get their eyes on this and i can see that there's a bit of like finally we've been like in people's mentions on twitter like hey you should be pay attention to this what do you think about bitcoin see i think the macro crowd got it a long time ago so almost all of the macro funds that i knew owned bitcoin over the last three years personally but they couldn't do it for their funds then slowly they did some for the funds but now what's happening is people are actually just leaving their entire existing businesses and going to crypto so that's an even bigger thing they've been involved in they saw it a

long time ago you know when i wrote the article back in 2013 about um why bitcoin if you used a valuation of of gold with the above grind supply and underground supply and then applied that to bitcoin it should be worth a million dollars gold equivalent um and that got circulated around a lot and that point a lot of people in macro land because obviously a lot of people were clients of mine and friends of mine started getting into the whole thing well that's like i'm fast because you see what the infrastructure and the markets that were built in the 80s 90s and 2000s uh I don't want to say I necessarily want to bring all the financialization to Bitcoin, but Bitcoin does need liquidity pools at the end of the day.

It doesn't need market structure at the end of the day. So that's the one thing that excites me the most, getting these eyes from the traditional finance sector on Bitcoin, because particularly around futures contracts, right? Like we need markets. I think this would be incredible for a traditional macro guy just to sort of approach futures markets in a completely different perspective

because in Bitcoin you have to think of future, like hash rate and future difficulty and stuff like that. And you can create mining futures and stuff like that. And there's still so many markets to be developed. But are you not going to end up creating the same mess that we created in the first place with derivatives on top of derivatives? That's my fear is...

Well, that's the fear, but at the end of the day, it's the beauty of Bitcoin, right? You can verify that those assets have the collateral, right? That's right. And so that's another... Like, how would you see a new financial system growing in parallel with the decaying financial system that we have today? And I would imagine that an asset, a digital asset, as collateral, as universal collateral, is probably the first step, correct? The problem is of Bitcoin currently being a collateral instrument is it's too volatile.

So what haircut do I give you on your Bitcoin? Well, if it goes up and down 80% over a six-month period, I'm not going to lend you any money against it. Very limited amounts. So you need some stability to get leverage. So it needs to still change. And I still think the problem is it's so early in its journey because if it is fully accepted, then maybe it's the $100 trillion market cap.

So we're so far away from that that you're never going to be able to use it as collateral yet. But I do think that it can eventually be the architecture architecture for the collateralization of the global system because then all collateral is recorded and Then you can build whatever you want on top of it That and then it's just it seems like it would just make international trade better. Yes yeah, just the I don't want to say a metric system, but you have a a Sole currency that you can

Settle between across the world correct, but it can't get there yet because it's got to go it's got to get to its full market cap really yes um and we're so far away from that so in the meantime we can see the change is the the interim change is going to be a stable coin it's coming who it's going to be is it going to be an imf stable coin or a world bank stable i don't know but you know that the moment we start that we've basically started the process yeah well it feels like the process has already started right yeah like you were saying mark carney earlier that's right so that's a huge change nobody in bitcoin ever believe that right well that's what i'm trying to get at like

the gravity of not just bitcoin but the gravity of the the the situation we find ourselves in in the monetary system and banking system in particular like how fickle of a situation is it in your mind well look i mean the history of money is this right the history of money is these catastrophic changes of system so the last time we really went through the last two times we went through one was the abandoning of the gold standard in in the 70s the other one prior to that was the abandoning of the gold standard in the 30s 30s is very similar to now so what happened is one country after the other left the gold standard because they couldn't afford it and capital was fleeing so it was kind of um the uk had a huge devaluation france a huge

devaluation a bunch of country after country after country after country was devaluing and what happened was the u.s dollar got too strong which is what's happening now because essentially the u.s sucked in all the world's capital which is happening now and that was part of that was the huge rise in the stock market that happened as well and then the massive deflation so the rates of return were still higher in the US and so what it did is sucking all the capital in the US had to basically de-peg and they then eventually did re-peg again but that was a huge break to the system but this time around because of the amount of derivatives and leverage and all the other complications that we've got we kind of know that what are we going to de-peg from now you know

you have to figure something out that doesn't I know the world particularly the gold crowd believes that the answer is going to be hyperinflation if you listen to what Mark Carney says they know that they need to make a change earlier as opposed to later because you can't let

the fiat system totally collapse because the world ends a lot of people and I probably fall into this bucket as well believe that just have the Japanification of the world where you sort of stagnant markets for for five to ten years or something i think that's still possible right because that's a demographic issue more than anything else yeah um you know if you look at

every market that's got the demographic issues one after the other depending how old they are the market went down and never came back up again so it happened to japan first then it happened to europe the last one left standing is the u.s and the u.s is now going to peak retirement so the chances are the next time around the next recession which i think we're walking right into i think the next recession the stock market doesn't recover because the natural buyer of the stock market and this is a part of the bitcoin story in this the natural buyer of the stock market would be the baby boomer but they've all retired so they're natural sellers and the millennials don't want to own stocks and they're too expensive yeah we don't have any money

for that don't they no so if you have less money and you have stocks with the expected future return over the next 10 years of negative and you have expected 10-year return on bonds as zero or negative same with credit so you're a 28 year old and you don't have any savings because you've got a bunch of student debt but you can cobble together 10 grand and you can put in a you know a grand a grand a month or five hundred dollars a month you can save if you stuck it in bitcoin your potential upside is enormous in comparison so it answers the question of low savings but a need for future retirement income because of the expected return is so vast compared to anything else wow this this is blasphemy this is blasphemy coming from uh somebody from the

i don't say the mainstream but somebody uh from the traditional bitcoin is is for criminals and drug users what uh how could it be a retirement fund for millennials is it is it mature enough is it safe enough so look so if you go back to the last time somebody got given a set of cards like this and i think the bitcoin card is actually a better one the last time people got given a set cars like this was the baby boomers in 1982 they had interest rates at 18 on 10-year bonds or 30 year bonds 18 interest rates and they had stocks with a p of seven that was a once in a generation opportunity and once in multi-generations because the gen x's i never had that in my lifetime so i've never had that opportunity but they got it and

they've followed that wave all the way to the top now the problem is they're gonna have to unwind that wave but the the millennials are big and the and gen um z is being given potentially a bigger opportunity but they've got less money because they because you guys have all come in with debts well um the baby boomers didn't start with debt they were debt free when they started because the credit boom started later the credit boom started really kind of mid 80s yeah no i mean yeah you're talking to somebody with student loan debt here and that is crazy how i don't know just so i i'm 28 i am that person you described so it's it's like and seeing my cohort like it is fascinating how and i'm just thinking back to my life but i know everybody

my age went through this so like you got to go to like high school was four years of picking year college and where you're going to go and working towards that and we've as a generation for like socially forced into this debt um at the end of the day everybody has a personal decision to make whether or not they want to take the debt but i feel like we felt compelled and now we're sitting here like what the what the fuck like 10 years out or six years out of college what happened is is you misunderstood the future expected return so what your cost versus the upside so you took a risk reward bet and everyone got the wrong bet yeah well that's the thing like as a 17 year old 16 year old making decisions for the rest of your life you don't understand

those costs no and that's one of the reasons why they'll they're going to have to have a debt jubilee i don't know how they can do it for all the student stuff but you can't screw an entire generation of people who had no understanding what risk they're taking or what bet it is they're taking because all anybody tells you is you must have a degree or you must do this yeah but the problem is if you devalue the currency which is the piece of paper you get at the end of it which is what's really happened then what actually happens is only the people at stanford harvard mit get all jobs yeah so but you've all paid thinking you've got the same expected return as a guy going to mit you haven't no and it's i don't want to say it's nefarious but you

the fed likes to say there's no inflation but then you look at uh You look at university costs, health care, housing. Well, look at inflation. So the inflation is demographics only. So if you look at the actual cost of a pair of jeans or whatever, right? If you would buy a pair of Levi's now and look at Levi's 30 years ago and Levi's 20 years... You know, basically, they've probably gone down in price. Or they're about flat.

I mean, they haven't moved a lot. And there's a lot. Tons of stuff haven't moved. And this is the big fight that the inflationistas have with the deflation people. Well, I believe more in deflation overall because there's a whole set of things that haven't risen that much in price. Obviously, even the 1% rise compounds over time, so it starts looking big. But when you look at the demographics, so if you think of what happened, the highest

inflation rate was for the super rich back in the mid-2000s because all these Russians came on and these Chinese and these Indians, right? We had the largest number of new rich people we had seen since the Industrial Revolution. And those guys all went out and bought houses in London, art. Vancouver, New York. Yeah. Vancouver, New York, art, and just modern design furniture. Those things went ridiculous.

I mean, the price of art, wine, all this crazy stuff, right? because that was their inflation because they were out-competing each other for a limited supply of goods. That's true inflation, demand-driven inflation. Healthcare, same. That was demand-driven from an aging population. They had to get in because the government couldn't supply it,

so there wasn't enough supply, but there was enormous demand because you've got this aging population, everyone's thinking, and an incredibly unhealthy population in the US. Incredibly unhealthy. So you've got a huge problem. So that was a no-brainer

that that was going to cause massive problems. is not going to go away and the millennials well they were going to cause a massive bubble in the because there was too many young people all needing to go to college of course price of colleges were going to go up so it's not you know it's not the federal reserve it's your parents fault well then i want to put it on the federal reserve but the government like the government should not have been given out uh like what they believe the federal government has issued 1.2 trillion worth of federal student loans here in the u.s okay so then take that away here's an argument is then so the government is now going to take away your opportunity of going to college

that's the other way of spinning it you see so it's very it's between a rock and a hard place my guess is they didn't have a clue what they were doing they thought they were helping people and they created a massive mess yeah yeah you know because they don't have a free education system in the u.s well and that was more of the problem and and going back to your point of the rate of return on your degree and you have most people going getting english degrees and communications degrees and not denigrating people will go do that but it's the the industry that you're going to get into after you graduate is not going to produce the salary that's going to pay back that loan and um now yeah it is who to blame who to blame and it no it is maybe we're

all at fault here right you had the decision to sign the loan uh the government probably should i don't i don't know as you said i think you rightly said people too young to make that decision um and i think the government thought they were doing good giving people more access to education without realizing what they did is destroy their future expected returns because they have to pay back all this debt i mean well so i think so here's something broader i think that much of the system of debt is going to disappear what do you mean by that because of the digitization this whole and it doesn't have to be bitcoin at this point all the kind of crypto tokenization of everything means that in the future you are able to sell off parts of your

expected future income streams to raise the money so what you're not doing is having to you're basically it's like a it's like selling equity in yourself as opposed to debt yeah well the uh the brooklyn nets player just did that um the brooklyn nets player just issued i believe 35 million dollar uh security token offering on his future revenues so it seems like it's starting yeah i mean david bowie started this whole thing when he issued bowie bonds which was when did he issue i've never heard of bowie bonds 1994 something like that talk about a prescient uh human he called the internet in like 2001 yeah extraordinary man right so he started selling his future royalty rights via a bond but but now you've got to the point where

you can tokenize it so it becomes really interesting for people because also once you start tokenizing everything so let's the things like a corporation we gotta uh we gotta make it clear for the freaks out there we're not talking about like ico tokens we're talking about security tokens in particular correct and we don't even know what format that's going to be right it's going to be some form of fractional ownership call it that as a simple way yeah it's not uh individual blockchains giving no revenue to to users or whatever exactly yeah so the idea is that if you've got fractional ownership of anything then everything that we understand from even financial markets has changed so a corporation so even the word corporate it means

they're creating a kind of entity that has the same kind of legal standing as a person. That's the whole idea of a corporation. But with tokenization, you don't actually need a corporation. Because let's say you're Exxon, you've got thousands of revenue streams, income streams, cost streams, all of that can be separately monetized, securitized, tokenized. And people can as well. as you said the nets player could be your career as a as a 28 year old i may just think your future expected value is higher than you want to than you do now and you want to take some money by

selling some of it maybe i could short you and buy your friend because i think he's a bit smarter than you what it means is what we know as financial markets are going to change massively what does this do for psychology that's uh do we want that is it more is it a more efficient market is it more well if it's not

debt I mean yeah are you I don't know yeah there's a lot philosophical

because I was thinking actually it's some form of slavery too but so is debt so I don't really know yeah

is it is it different but I do know it's going to offer different opportunity sets and that I'm not sure

that people will think of debt will not be the maybe the main instrument maybe the demand for debt

disappears yeah maybe well it's like thinking of this conversation it's like what is the the bigger total addressable market so is that that market for security uh securitized income or the market for reserve money right and then if the market for well the reserve money is only the basis by which everything else is formed from yes so it has the securitized market has to be larger it will always be larger okay really because it's built on top of it so if you think of that architecture we talked about right now it looks well right now it's fiat currency let's say for argument's sake and we don't know so nobody's making a prediction here but let's say it moves

to one of these stable coins private sector stable coins or a world bank stable coin meanwhile bitcoin and various other components of the digital system start building up to where they're going so then you're now running a dual system after that we'll find that more and more things will start getting built on this architecture and then let's say this the tokenization that I'm talking about this securities tokenization um that gets built on which part of that infrastructure I'm not I'm not I don't know but I'm guessing bitcoin yeah that's I mean we I we probably can't even fathom how uh things are going to be and that's the point when I had that conversation with Dan Tapiero people have no clue and any of us who think we do are lying

it's completely new it's a massive it's an invention of which nobody really understands the full implications uh a lot of smart too many smart people in the space have too many big opinions of which they need to have a little bit of humility to understand that they really don't know where this is going um huge parts of this are going to fail huge parts of this are going to be massive successes that we didn't even see coming i mean nobody saw smart contracts coming when it first started or maybe some people did but most people didn't and some people didn't see something else happening or the libra thing who knows well so that's i'm what someone consider a bitcoin a bitcoiner i don't want to say bitcoin maximus uh a bitcoinist or it's like all this like smart

contracts bitcoin has had smart contracts since the beginning like a bitcoin address is essentially a smart contract right and it's especially a multi-sig um and so that's where so i'm under the belief that bitcoin will be basically the tcp ip layer of this this economy of value this digital economy of value right and um it's and i'm more also more partial to the belief that in the future like like bitcoin is trying to push us more towards a conservative equity-based economy where you lower your time preference and accumulate capital to build bigger grander projects over time instead of uh maybe issuing debt on your future income and stuff like that do you are you partial towards that sort of austrian view of lowering time preference and

maybe getting away from the society conspicuous consumption that we find ourselves in today i think goes in phases i think just goes in phases because of the beast that it was built from was a financial crisis you know that's why the austrian economics has kind of affiliated itself with it along with the libertarian movements a lot of things affiliated along with it that are not really necessarily part of it and there'll be an ebb and a flow of that you know there may be an Austrian school of economics now but I actually think the rise of behavioral economics is much bigger and I've been a kind of pseudo Austrian business cycle economist but I think behavioral economics is much larger and probably much closer to the truth

because once you have massive data sets there's a lot goes on and you know people like Facebook again have been mind-blowing and their ability to understand how behavioral economics can be applied to large-scale corporations so let's jump more into behavioral economics what's the synopsis of the behavioral view well the behavioral view is and again I'm no expert on it but I observe it and let me put it in a way that's behavioral economics is understanding that there are incentives based systems which humans operate and it came from a guy called Skinner. Skinner did experiments with animals and managed to figure out that certain

stimuli would create certain outcomes. And then when it was applied to humans and it realized it was the same thing. Generally positive stimulus worked better than negative stimulus, but you can have negative stimulus and it will work too. Once you understand that, you understand that you can change human behavior or influence human behavior. Or you can also understand human behavior because once you understand that there's usually an incentive based system somewhere inherent in a structure bitcoin's a fantastic incentive based system which is why it works so well but um so what is interesting about it is behavioral economics was useful for advertising at first and marketing clickbait well even before then right ogilvy

and advertising the most famous book about advertising is basically behavioral economics it's psychology it's where psychology meets economics meets science okay great because psychology there's a load of kind of claptrap with it but this is basically data-driven psychology okay that and economics so that's fine but then the big change was computing power and data so once you've got the internet you can collect vast amounts of data so now i can really understand what's going on i don't have to build a mathematical model to understand i can actually watch it in real time yeah it's crazy uh stat that was thrown at me earlier this year that the internet records more history in one day than was ever recorded from 4000 BC to 2000 or something like that

which is insane it's ridiculous but then there was a really fantastic many people haven't seen there's a documentary called The Secrets of Silicon Valley by the BBC it's a two-part documentary series and it goes into everything from the from how what happened over the election I know that's a very contentious thing but what happened over the election and just super fascinating but really interestingly within that there is talking to

a bunch of people who said back in and I don't know the year I'm going to guess 2014 there's a guy called Daniel Kahneman

Daniel Kahneman is considered the founding father along with Richard Tala and a few others of behavioral economics as economics as a study

as opposed to behavioral sciences and he had a meeting with i think it was zuckerberg i think it was it might have been reid hoffman it might have been um jeff bezos was there um sergey was there from google so all of the all of the new digital businesses from silicon valley went and i believe for a week with canada who explained to them the power of behavioral economics how they could they have so much data their ability to

affect people's behavior and that's when suddenly facebook started developing the emoticons and so it wasn't just a thumbs up thumbs down smiles and because yes because they knew how human behavior how you can prompt human behavior to create expected outcomes and you can measure those outcomes and then tweak them that's the behavioral science part of it that you can apply not only to corporations much like libra facebook is coming up with libra but that whole idea is not just necessarily applicable to a corporation it's applicable to everything oh it's scary right very because uh it's very scary and very good also well bitcoiners today they uh are very very privacy conscious too so a lot of the big movement they see in the bitcoin world is is self-sovereign

data so so hosting your own hardware and holding your data on your on your own node so that these corporations can't can't use it uh against you in this in this some would some would say against you because the logical conclusion is not good yeah right on on route can you can you create a better economy by applying behavioral economics yes but look what china's doing they're using exactly they're using behavioral economics essentially to control the masses because you know propaganda was an early form of behavioral economics so that surveillance state and the ability to nudge people by saying you don't get any social points for this and that i mean whether we like it or not it's coming so the so the sovereignty issue

is a big deal um your personal sovereignty i don't think it's possible and i live on a small island of 140 people in the caribbean so i'm about as close to that as possible but i still don't think it's possible uh i i agree with you i think it's hard to get away from all these cameras that have been erected but i do think we should fight for it right um and i think that's what draws people to bitcoin is bitcoin's transparency like it's and these technologies are inevitable but if they are transparent you know you're not getting uh well when you lower the chance of manipulation you're giving yourself a fighting chance in this whole thing and i think that is the the key part of bitcoin is the there are some abilities to

manipulate it but generally overall because of its nature and the more adoption it gets the lower the chance of manipulation so that is supremely powerful yeah and it's um i'm trying to think of the quote that somebody uh actually read a paper from 2018 that somebody wrote on bitcoin over the weekend and there's two latin quotes and bitcoin basically takes us from authority uh authority via like dick dick tot via the government telling you what is what is true and then uh authority via truth is what bitcoin is because you can verify let's say being verifiable is the big thing like you can't verify exactly what the government's doing the whole world has to move towards verification fast right so the the problem is is phase one of social media which

now is going to be part of our lives because it's part of human behavior now and also the gamification of the world all of this stuff going on you need a layer of verification because the societal problems that it's causing so I think it's important now I know that Tim Berners-Lee has been working on a newer version of the internet which basically has verification built in clearly blockchain has some abilities to do that too and there's a number of different ways of doing it but having your own personal owned immutable id essentially that you own your rights to is powerful because you can then monetize yourself should you want to exactly you know it's very interesting india had a great example of this and most of the bitcoin community

don't even know because they didn't like it because it wasn't a bitcoin or blockchain solution but they did something extraordinary they digitized the entire financial system in one go Nobody's ever done anything like this before on that scale. They basically gave 1.2 billion people a digital wallet. Biometrics is involved too, right? Yeah, so it's a biometric system. So it's fingerprint retina scan. That gives you the access to what is your ability to make bank payments.

So their payment system is one of the fastest digital payment systems on earth. It's not using blockchain technology, and it's not using Bitcoin. It's not using any of that infrastructure. Is it as secure as everything else? Probably not. But fascinated to see what they've just done. So now I can go in India with a fingerprint and buy a pint of milk. That's just blown past everybody in the world in one go.

Then, not only that, but my fingerprint now gets me into what's known as IndiaStack. And IndiaStack allows me to have all my KYC documents about me. now this is centralized there can be a decentralized version to come so again i'm not saying this is the perfect solution but this is where the world is going so in india i can go and open a mobile phone account which normally is a total ball like because you need to get all the paperwork and all of this no one fingerprint it's all in my file and so i give them the rights to it they say fine that's it so you can open bank accounts immediately transfer stuff get insurance it changes everything so all these indians in rural communities all of that it will eventually change everything for

everybody giving them huge access. Obviously, governments can now have a tighter grip on taxes, but I'm sorry you can't have a country and expect to have roads and everything else without people paying taxes. You just triggered libertarians out there. I know.

We'll build the roads. I live in a country with no taxes, but they still have to charge some tax, which is import duties. There's no capital gains tax, income tax, sales. There's just nothing apart from import duties. Do you guys have roads? yeah because we have to you know it's charged by import duties yeah yeah um uh no it's um

well that's again but that's it's scary right because you can go back to china like what if in the future if you start jaywalking uh modi stops letting you buy milk or something like that or they want to be drinking milk over there um yes but yes exactly it can stop you get getting alcohol on a friday night yes i'm sorry you've not been you've not earned your points this week yeah which is perfect behavioral economics but jesus christ is that's not a good thing now but and i don't know i mean we what's weird is even the sci-fi people everybody they've seen this coming for the last hundred years and it's like we can't avoid it it's like a fly around a moth to a flame right we just cannot avoid the inevitable it's like the rise of the

robots i mean you know it's all coming and we kind of all know where it's going and there's nothing we're gonna do about it yeah it's uh it's inevitable it makes you think you're living in a simulation sometimes yeah i agree it um no but it's i am a romantic and i like to think that bitcoin provides an opportunity to to get away from that dystopian but that's what first got me into it yeah was that that thinking i saw what the financial crisis and all of the i just thought there needs to be something that gets you out of some of this yeah that you can sidestep it you can avoid it and you can record had a recorded ownership of stuff because that was a big problem solved but i think the problem is bigger than bitcoin can solve because the digitalization

of everything comes with the fact that everybody can be controlled that but i mean i also believe the the tumult in this transition that we find ourselves in presents a grand opportunity too because i'm under the belief that people don't understand what money is people don't understand would find like we were talking about how a 17 year old taking on a loan for college you don't understand what that is and that's the beauty of bitcoin at least for me uh in the last six years i've been diving down this rabbit hole is how much it's taught me and how much i've learned about how the world works and the problem with bitcoin i think dan tapiero said is if you give somebody a piece of gold and so this is money you can exchange it for this

they understand it very quickly with bitcoin the more you look at it the more complex it is yeah more questions you have yeah i mean it's it's literally one of the most complicated things any of us have ever had to deal with so we've all had to get up a knowledge curve of which it's still exponential because the actual developments are exponential as well so it is super difficult so you can't explain to somebody oh this is money and this is a new architecture for the financial system and this may be the trusted ownership of everything and it may be verification of everything you can't say that to somebody because they look at you and think you're mad because you start as again dan tapiero said you sound like a religious fanatic right

yeah it's uh very religious undertones with bitcoin uh the the there is because it's all about salvation right yeah that's the that's the issue with the message and bitcoin is a terrible message messaging problem is it getting better do you think what what would your message i think it's starting to feel if i look at twitter as my you know thing i think it's starting to feel more inclusive less aggressive um there's a bit more humility around there's a bit more so inclusiveness and understanding that people don't know everything there was an extraordinary arrogance from people who knew little but because they knew a bit of code now it made them think that they had a right to tell everybody else that they were idiots it was a there was a terrible

thing it's still far too tribal yeah the bitcoin maximalist the bitcoinist i mean it is like the life of brian i mean the monty python film we're the judean people's front with the people's front of judea it's ridiculous it is ethereum oh we don't like the new ethereum people you're all idiots you get grow up there is a world of which all of this will exist and it cannot be driven on tribalism or you're going to create exactly the kind of systems you're trying to avoid that is not libertarianism it's the opposite of libertarianism is to create tribalism now i think and what a lot of people don't realize there's billions of people behind this too a lot of voices are going to get drowned out but yes um not to call it tribalism but i do think

there is beauty in the meritocratic process that unfolds in Bitcoin that I haven't seen in other areas as well. I totally agree. The organic nature of what's going on is truly extraordinary, which is why it's so difficult to pin down. Right.

Because there is no direction. It is the direction of... It's amorphous. It's an organism. It's an ant colony. Yeah. It's an ant colony, and that's extraordinary.

Well, that's Ralph Merkle, the founder of the Merkle tree, inventor of the Merkle tree. Inventor? Discoverer? It's Matt, So I guess the discoverer of the Merkle tree. Now, he had this beautiful comment that Bitcoin is a living organism.

It replicates itself on people's software around the world. It updates itself every 10 minutes, and it can't die. If you have nodes go down in one half of the world, they're still running on the other, and it's still living and replicating itself on computer after computer. And again, a digital living organism is... Is that not terrifying? Yeah. If you take it not from Bitcoin, which is benign.

Yeah, well, that's a... But a non-benign digital living organism is exactly what we fear. Well, it has, when you think about it, when you get really trippy with it, really heady, if you smoke a joint, think about it. Bitcoin has contracted us out, humans out. Bitcoin has found a way, software, this code,

has found a way to force us humans to do stuff via capital expenditure to get miners and nodes to plug it in to make sure that it survives, right? At the end of the day. it's like dogs control the world we're just their servants this code has contracted us out to make sure that we run computations that make sure

it lives you could think of it that way as you say if it's an organism that is what it is and as you look at as I said dogs this symbiotic relationship dogs are extraordinary the reason they survive so well as a species is because they basically

hoodwinked humans into saying well feed us feed us yeah so dogs don't have to hunt any longer so they got food and shelter what a fantastic relationship for for that but yes i mean there's there's many of these kind of um these kind of organisms that have that kind of is it parasitic symbiotic symbol yeah i'm not sure actually there's many there's many forms of it uh correct yeah you have a symbiotic parasitic relationship but true is that any different to a computer virus i don't know i don't know we shall find out just tomorrow that's another that's another huge theme of this podcast is that we were born in generation gen x boomers gen x millennial z

half the half and the the latter end of the boomers through us we're born at this inflection point where the world technology information is changing at such a pace that like we as a species have never experienced before like we have never experienced this pace of change we we did a fantastic documentary series on real vision called a world on a brink it was a five parts each part was an hour long um by a friend of mine called d smith and basically it was about change and the unparalleled process of change that's going on because don't forget while we're having this demographic bust the entire what i refer to as the monsoon region if you look at all the countries surrounding india mainly all the islamic nations have had a massive baby boom

absolute extraordinary baby boom um and we've got so that that shift of demographics is unparalleled in human history we've got that we've got the technology shifts going on we've got um the shifts in medicines and um um and the the threats that come with that as well the the quantum changes in so many things have literally never happened before and it's almost impossible for us to deal with if you even look how social media is completely token over our life you want to look at a something like a virus that took over and is now indestructible it's that well and something with externalities that you can foresee coming i mean i don't want to get depressing here but like studies have come out 10 social media is what 10 years old facebook was

2008 2007 unbelievable i've never seen anything but we got to be careful with the kids right because it's like studies are coming out the kids that get on social media earlier are not developing socially well enough or self-harming and depressed. No, and you can measure it on brainwaves and MRI scans and they've got developmental changes. May not be delays,

but they're going to be different human beings to us. And that is an extraordinary thing to admit that we've managed to do without knowing what any of the knock-on effects are. But then, as I said, partly if all of those guys from Silicon Valley had sat down with Daniel Kahneman and had talked about how to affect people

and how to use it, they are complicit as well right yeah they are complicit they can they can't go we didn't know yeah you did you just didn't think through all the knock-on effects but you knew exactly what you were doing that you were stepping down that route yeah no are things happening too quickly like does this drive the world mad the way like the pace of change i think all of us feel it right you can see it in the in in in voter behavior i mean around the world this thrashing against populism the desire for something of the past right so donald trump boris johnson a lot of these guys are looking back i want the days of the past something i understand because i don't

understand now that's really being driven by the last hurrah of the baby boomers who are struggling with the amount of change um me as a gen x in the middle we've kind of used to part amounts of change it's not that shocking and the millennial generation saw some change which is you know the the financial crisis and the kind of this is why it's this whole thing is such a big thing

for the millennial generation but Gen Z they weren't known as any of this stuff you know they live in the digital world you know they're on TikTok all day

yeah and they live in the digital world they're on Fortnite and they're playing Fortnite with their friends and they don't see a difference between the digital world

and the real world and as I talk about you know we may buy a a shirt from a name brand and we'll pay maybe 20 times over

the price of the cotton and the manufacturing because we want to be associated with the socioeconomic benefits of that brand, right? So it's the stupid tribalism of humans. But, and that's ridiculous. But most of us can't understand why kids want to buy a new sword

for 10 grand on Fortnite. And a skin. A skin, it's the same thing, right? Because they live there, it has status. And if they have socioeconomic status there, because they're humans, we do these ridiculous things, they're going to do it.

So that tells you that anything digital has a value because if people spend more time living in the digital world, then it's a real thing. It sounds pretty bullish for Bitcoin. Well, it does, right? But it does overall because they will intuitively understand.

They won't have to go through that crisis of confidence of, oh my God, but it's just a formula. How can this be anything? They're like, whatever. That and the thought of going to a bank branch and actually speaking to a teller would terrify a Gen Zer, I believe.

Yeah. although you know i must remember you know it was actually quite nice when you walk into the bank say mr pal how are you hey listen can you do me a favor i just want to do this your human interaction is actually what makes right i mean this is actually a real point is we don't have enough human interaction right and they again with mri scans and psychological studies show that humans with less human interaction with each other have massive um psychological problems and health problems because people

don't do it I mean they say they're now coming around to the one of the reasons that Spain for example is now projected to be the longest

living country in the world after Japan and all the Mediterranean belt is not only just food it's because they have human interaction

people are out at 11am drinking beers talking with each other it's exactly right it's exactly that and on Sunday the whole family

extended family and your friends all go and have paella and eat for 5 hours and get together we don't do any of that shit

Americans are in the mall on a sunday my my wife and i actually got married in spain so we spent like uh in ronda oh lovely because i lived in spain for 10 years yeah we uh down in andalusia and um but we we stayed for 15 days and like by the 15th day i was like i i could i don't want to leave like just waking up doing siesta and cappuccino and a croissant in the square everybody's just hanging out smoking cigarettes reading it was awesome the best yeah and you're like what the hell do these people do and that's why they're they're immortal right they live forever because they've got vitamin d they've got um non-processed food diet they're generally active because they all go for

a walk um and they're social creatures but we're taking all of those things away currently in society um you know we've got terrible diet okay there is a groundswell of movement against that too but there's a terrible diet by the you know by the food companies being forced down the food chain you know people don't get out anymore people don't interact with each other anymore on a human level you know because they look at children um and children who don't who aren't touched um have massive um developmental delays so humans actually require physical touch and so they've they've you know they've studied kids who've not come into contact with humans um or abuse kids whatever in a different number of different ways and you can find in animals too

so if you take and you these are the problems you see in zoos and you see it if you don't allow um the young to have physical interaction they actually start becoming ill yeah don't end it on this note but we only have an hour um no and i like uh i do i went down the very dark rabbit let's end it on an optimistic no i am optimistic that people are starting to realize this at least I think they are I do think that yeah and again I don't want to counterbalance it with a negative point is I don't know what we can do about it but I think it's important that we do I think is your point you know and that and this is part of the why the philosophy of bitcoin is appealing to many people and that's why I saw it in the first place thinking look

there is different ways of doing things and maybe you can take one thing on at a time and you don't have to think of the whole change of society I do think there's a book by Neil how called the fourth turning that i think um anybody's interested in this whole thing needs to read that book yes i think he's right and i think that's part of the zeitgeist as well that we're all picking up is this bitcoin thing this all of these things we're talking to feel like we're getting to the point of the fourth turning yeah we need your help uh convincing ben hunt that bitcoin is good too he came on here and told me uh we're all gonna get shot in the streets for what was his reason he doesn't think that governments will let bitcoin happen

I would argue they can't do anything otherwise. Well, okay. What happens if Bitcoin doesn't allow governments to happen? That's, we're going to end it there. There's the mic drop. I'm going to posit that question too. What happens if Bitcoin doesn't let the governments happen? Raoul, it's been an immense pleasure.

Thank you for coming through. I really enjoyed it. Really good. A bit dark, but super interesting. I think the freak's going to love it. Again, thank you. I hope you enjoy the rest of your day it's a beautiful day

it's gorgeous though yeah gorgeous day in New York let's go get some vitamin D yeah peace and love freaks bye