The Breakdown - A Coming Reckoning: Why The Fed Can't Outspend Deflation, feat. Jeff Booth

Episode Date: May 14, 2020

Two powerful and diametrically opposed forces are shaping the economy.  On the one hand is inflationary economic policy, which keeps the price of assets like real estate and stocks rising ever higher, but at the expense of savings as the value of currency depreciates.  On the other is technology-wrought deflation. As technology increases its capacity exponentially, it causes everything it touches to be less expensive.  Jeff Booth is the author of “The Price of Tomorrow: Why Deflation Is the Key to an Abundant Future.” In this conversation, he and NLW discuss: How today’s system came to be designed  Why policy makers are terrified of deflation  Why inflationary policy punishes savers and forces them into riskier markets  How policy that prioritizes asset holders over savers has significantly exacerbated inequality  Why each dollar of debt is producing less real economic growth than ever before  Why proposed “solutions” like MMT and UBI paper over the root causes of the problem

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Wednesday, May 13th, and today we are looking at an incredibly interesting challenge for the modern economy. two conflicting contradictory forces that are shaping the economy in two totally different directions and are increasingly at odds with one another. On the one hand, we have an inflationary economic policy that makes currency worth less over time but assets worth more, benefiting people who have the ability to invest in real estate and stocks and other financial assets over people who

save whose savings are inherently worth less over time. That's force one. Force 2 is the inevitably and inherently deflationary power of technology. As technology grows exponentially in terms of its capacity, its processing power, it drives prices down everywhere it touches. Think about phones which didn't even exist, cell phones and mobile phones, which didn't even exist a couple decades ago, that now give people more power than anyone had in the world, any leader had even just 20 or 30 years ago.

These things are now affordable by everyone, and if technology were allowed to wreak its havoc to have its way on every industry, it would have a similar deflationary force on all of the prices around us. These two forces are in huge contrast with one another, and they are headed into a collision course to the extent that they aren't already colliding. This is the subject of Jeff Booth's new book the price of tomorrow, why deflation is the key to an abundant future. Jeff is an incredibly experienced entrepreneur. He spent the last 20 years building companies like Build Direct, which grew to over a half billion in market cap through the dot-com meltdown, through the 2008 financial crisis. He is advisor to a huge number of companies. He sits on the board of a huge number of

companies. He's an investor in a huge number of companies. So he comes at this from a technologist and entrepreneurial background. My conversation with Jeff today is in some ways the crib notes to that book and to the argument that animates that book. It is an argument effectively that government policy of backstopping every part of the industry is not only not capitalism. It is putting us on a terrible, terrible collision course with revolution, social unrest, you name it. It is an inherently unsustainable scenario in which every new dollar of debt is producing less and less value, less and less real economic growth. We're experiencing diminishing marginal returns on how much debt can create growth, and eventually it just drives off a cliff. Now, underlying all that

is this incredible, unstoppable deflationary force of technology. And in Jeff's estimation, if we were to allow this force to do what it would, we might find ourselves in a scenario where, yes, people had less money. There were less jobs available. But people would be working less time to have the same benefit, the same quality of life, because prices would naturally come down on the things that we needed because of the deflationary force of technology. We would, in other words, not have the scorecard of our careers or our salaries that go with those careers or the price of the assets that we own, but instead we would have a quality of life equal to or exceeding what we have now without the fundamental chaos that might ensue when this musical chairs game ends.

This idea that inflationary economic policy is at odds and on a collision course with the inherent deflationary power of technology is an incredibly important topic, and Jeff is a wonderful guide to that. I hope you enjoy this conversation as much as I did. Now, one note, as always, with these types of long interviews, we edit it very, very lightly, so you experience the conversation almost exactly as it happened. All right, I am here with Jeff Booth, author of The Price of Tomorrow, Why Deflation is the key to an abundant future. Jeff, thanks so much for hanging out today. Thanks for having me. So I'm super excited about this conversation. I think that there's so many ideas contained in this book that are so different than the way that we look at

the world, that it's sort of a classic red pill for a lot of folks. I think that it's going to be a red pill for a lot of folks. But I want to, for listeners who haven't had the chance to dig into this yet, who haven't had the chance to read this, I want to take some time to really set this up, to set up some of the big ideas. And so let's start with kind of the terms and the stakes of this conversation about inflation and deflation. What does it mean that our economic policy is inflationary? And what does it mean that technology is deflationary?

Yeah. And most people have an emotional response to deflation. We were taught deflation is a bad thing through school. And we have our heads in the sand and say, okay, that has to be bad because we were taught that. It's not good or bad. Deflation is simply when goods and services go down and your money gets more valuable, and inflation is the opposite.

Your money gets less valuable, and goods and services get higher in price. And we've grown up in an inflationary environment. So it's all we know. So in an inflationary environment, I buy a house, I use dollars today, I use a deposit today, I borrow money for that house today. And then through inflation, it rises in price through my life. And I pay back the debt in cheaper dollars tomorrow because I make more all of my life through inflation. So the dollars that I borrowed today get paid back with cheaper dollars tomorrow. So for some asset classes, it works really well.

And in some asset classes, if you take leverage and you have an inflationary environment, it's a good thing. And those are opposite. So if you have savings in a deflationary environment, it's a good thing. So not good or bad, different, different winners and different losers on both sides of that coin. But we've grown up in an inflationary environment, and it's hard to question because the rules are upside down compared to the rules that we've grown up with in a deflationary environment. So that's kind of the inflationary side. And I think the point that's really salient here and to take away, and honestly, for those who are listening, they know my style, we're going to construct this whole argument, basically recreate the book in some ways here. The key part here is that it's neither good nor bad.

but there are tradeoffs, and there are different categories of winners and losers, not just in the context of people, but also in the context of asset classes. Certain types of economic behavior, namely savings, are disincentivized by an inflationary environment because the money that you're saving is worth less tomorrow than it is today, whereas investments in capital assets that can appreciate alongside the inflation can be valuable, right? What does it mean then, switching over to the deflationary side. What does it mean that technology is inherently deflationary? Well, so first, anybody who sees technology, and in fact, anything you use today, the monopolies are all created by that same kind of use of deflationary technology and deflation.

Google's free, right? All of the things that you use on it are free. Yes, they get advertising, but their benefit, creating a monopoly and an AI. monopoly on top of that free information for you is free whereas before you paid for that information and it destroyed countless businesses as it created a monopoly Amazon gets cheaper every year and then they add movies so and those are free and so your phone everything on your phone gets it gets better every year I don't buy a camera anymore I don't buy it a my guitar tuner anymore. There's a whole bunch of things today on my phone that I don't buy anymore,

and it gets more powerful every year. Technology does that. And so you get more for less on an exponential trend because it rides on Moore's Law. And even if you question that Moore's Law won't go on forever, it will feel like Moore's Law goes on forever because of what's coming next in AI or quantum computing and everything else. So we can expect into the distant future that we're going to get more and more for less and less using technology

is it becomes the backbone of everything. For those who haven't actually come up through technology, so your background, obviously, which I shared in the intro, is in the technology space. I spent 10 years in San Francisco, both starting companies and as a VC. For those who haven't or don't have that background, what is Moore's Law and what is the,

the cause of this kind of exponential growth. Is it about the cost of inputs or is it about the actual rate at which technology evolves? Yeah. So Moore's Law is the doubling of computer, the compute power every 18 months. And if you think about doubling and doubling and doubling every 18 months, I'll use an analog here that I've done to countless people all over. over the world and very rarely the people get the answer. If you fold a piece of paper on itself at 50 times,

and you can only fold it seven, but if you could fold it 50 times, how thick is the piece of paper? And if you ask that question to people, the average answer is about two inches. Very rarely will you get an answer that's higher than the roof or the ceiling. The answer to that question is the piece of paper would fold to the sun from the earth to the sun.

And if everybody got that answer, right, or if half the people got that answer, then you would think people understand exponential patterns, and this is no problem, at least enough people understand exponential patterns. Because nobody does, including me, what it says is human beings are really terrible of understanding exponential patterns.

And why that matters a lot is more, law is an exponential pattern. Again, even if you don't use more law, but you use it as a framework for what's happening in technology, you have an exponential pattern. If you equate those two things, we're on Fold 33. And Fold 33 would travel from, say, Boston to Detroit. But we're in a thick steps of technology doubling today. So in 18 months or two years, you're going to have another double. And while everybody's looking backwards at technology, they're looking backwards and, holy cow, where did self-driving cars come from? Where's AI going? They're looking backwards, looking forwards.

It's moving so much faster than anybody can even comprehend. And that doubling is a doubling of the deflationary impact to society across every industry. So if it took effectively central bank. all over the world through debt. And if it took $185 trillion of monetary easing over the last 20 years to produce $46 trillion of gain and GDP gain, so $4 for every $1 of GDP gain, you can tell it's not working. And it's not working because of the deflationary impact that's a bigger force today. That's looking backwards, looking forward.

There's nothing that central banks can do to stop it. So I'm going to come back to this point about the idea of using debt to produce growth, but I want to discuss what the natural path of technology deflation would do, holding aside inflationary economic policy. So you spoke of the examples that are really easy. Consumer, basically consumer technology examples, where the price of the iPhone is cheaper than it was before, and it wasn't even a thing that existed 14 or 15 years ago, right? We see it in the context of how much a TV is now versus what it was in the mid-90s.

We see it in the context of services, which are reducing the costs constantly. So those are kind of obvious examples, but, you know, for people who are sitting there thinking, well, sure, those are, you know, basically computing related things or, you know, how is this going to impact other industries or what would it do to other industries? How would technology be deflationary in an industry that isn't just kind of what we think of as consumer technology? Again, holding aside an inflationary economic policy propping up an old system. So it's going to be moving. I'm on boards of countless companies that are moving into everywhere.

So it is not just in consumer apps. AI is a backbone of everything. And the digital nature is moving into countless industries at light speed. So it's coming to a movie theater near you. It's coming everywhere. But more importantly, when you say asset classes, probably the one that would stand out is housing. Rents keep going up, houses prices go up.

You have to ask yourself, what would prices be of that if you didn't stimulate economies with $185 trillion of debt? You would have just seen the natural trend of prices falling, everywhere. So we fool ourselves into believing that some things always go up in price because some things are artificially inflated to go up in price.

So this is, I think, a key point from your book. You actually said this. We fool ourselves into believing that assets such as stocks or housing always go up over the long term because they always have, which I'm sure there's a name for that bias, right, or that logical fallacy. But But I don't know it. But let's talk about how we got here then. So what was the path? I mean, effectively what you're talking about with economic policy and inflationary economic policy is the idea of using debt to produce growth. When did this come about? What were the key inflection points, whether it's Bretton Woods or 1971 and leaving the gold standard or 2008? For those who are trying to kind of put this in historical context, you know, you said, always go up over the long

term because they always have. When did that always start? And what were the key points and the key decisions that got us here? That's a big question. So we might have to take a little bit of time to get. Yeah, exactly. Yeah, no worries. So, okay, I'll tie this back to John Maynard Keynes. A lot of people talk about negatively now and everything else. But I think his policies are being manipulated right now. And so he was, government should step in in soft times and then repay in good times. And he also believed, he wrote a article or wrote a paper in 1930 saying the economic, the economic possibilities of our grandchildren. And in it, he forecasted, I think it was a 13-hour work week today, where we are today.

looking at what was happening in the kind of eightfold or more that you'd have with technology from that time and saying what would that look like. And for a long time, we were actually tracking towards that. And we were tracking ironically until 1971. We had a 38-hour work week. And then after the U.S. went off the gold reserve, it started to change. Now you needed two incomes to support the same thing, and you started to get more and more further and further away from that ideal. So a very small percentage of the people live, they don't have to work. Their assets are so high, their revenue is so high from rent seeking on those assets, and they don't have to.

So a small portion of the population has had that because we've manipulated currency. so that some people are enjoying the games and most people are not. So that's really what's happened. And it's gotten worse every year since. So when you started it, it was a tiny little bit nobody would notice. Now where we are, it's a lot. And so in the last 20 years, $185 trillion of stimulation to produce $46 trillion of economic growth. And so you can see it really clearly.

By the way, that's pre-COVID. Imagine what it looks like now. Right. But it looks like, so now, if you just follow the technology doubling, and effectively the productivity gains doubling, that means you have to double the debt to remain even. And now you're getting to a debt level that is unsustainable. It's impossible to pay back.

And it's not necessarily the debt. It's debt that you can't pay back, so you have to do artificial bailouts and everything else of that. So you create a perverse incentive structure that creates the debt in the first place. So let's dig into this a little bit more and where incentives lead people. Maybe we could even use or bring in the idea of negative interest rates being floated right now as an extreme example that helps. example, yeah. Yeah. So let's talk about in a rational society, if you have negative interest rates,

what does it do in terms of pushing people into risk assets to look for yield? So let's start before negative interest rates, and then we can go there afterwards. But if you look at through the lens of what is happening right now, so all of the bailouts, and people are up in arms about the bailouts of the airlines, the oil patch, everything else. And effectively prior to this, you had almost free money, right? So savings are worth nothing. And as a CEO, are you going to keep savings if they're worth nothing? And the other CEOs are buying back stock and increasing stock price.

You're going to get fired, right? Because why would you keep money in cash? Cash is worthless. And the government is telling you money is worthless. Don't keep it in cash. And then an event like this happens because you're wired for perfection. You have so much debt leverage against this. Any outcome, you don't have the savings to do it,

but you were incented not to have the savings. So is all of society is incentive not to have the savings. And now you have your handout because now I'm going to fail. Sorry. And now you have your hand out because you don't have the savings to pay for a rainy day. Yeah. So this is, I mean, this is what people have been frustrated about is that you have all of these kind of corporate actors who have created basically no resilience in the system, incredibly fragile systems. But the argument, which I think you're making, which is that the system didn't incentivize them.

to do that. It created a scoring system in stock price, which actually led to the exact opposite type of conclusion. And what markets do is they get extremely efficient at doing the thing that the incentives lead to, right? Totally. Now take it one step further. The existing path, interest rates have to be negative to try to drive growth against a bigger force of technological of the inflation. They have to be negative. And then they have to be more negative and more negative. At what point did the incentives change society and the risk assets so much that it's just a lottery ticket? And what I would say is we're already way past that point. Effectively you have governments. You have Trump coming out today and saying we need to take our interest rates negative.

Yeah. What does it actually look like for people who are trying to just conceptually, this. And by the way, to be clear, you know, if the president tweeting about this wasn't enough of a sign, you're seeing extremely respected economists like Ken Rogoff who are writing essays about the need to take us into deep negative interest rates. So this is an idea that was previously sort of, you know, a non-starter, right? A sacred cow that has been slaughtered pretty aggressively. And you know, Nathaniel, you know from my book that I did a whole bunch of research on me here and the IMF had working papers going back years ago that what do we we might have to take a negative interest rates to negative six globally right that that to further next recession so

so when you have serious economists talking about this it don't doesn't it beg the question isn't it might it not be something else right how can we say we actually have an economy that functions in a world where you, where any savings, you're losing money on your savings. And it just forces you to go, okay, something else might be wrong here. Because we keep on building all of these new models and new everything else and more stimulus and more stimulus and more stimulus. Because we're missing the thing biting at our very nose, right? The thing biting at our very nose is there's nothing that they're going to do to stop

at technology technological deflation or the benefit of technological deflation is is too big a force for whatever they do so one of the one of the strange paradoxes of the modern time is this feeling on the one hand of that people have of feeling further behind and and and less less in control of our economic destinies than ever before, while at the same time having access to experiences and services and technologies that grandparents couldn't dream of, right? That the robber barons couldn't have possibly imagined could never have paid for. There's this weird paradox of the things we have around us and have access to with this sense of feeling farther and farther behind.

And part of that, I think, has to do with the exacerbation of inequality that comes from this sort of extreme focus on asset growth or asset price appreciation that is a byproduct of inflation. But I wonder if you could explain a little bit that force how the focus on inflation benefits asset prices and how the inflationary benefit to asset prices actually. exacerbates inequality. Yeah, so let's use it again

through this time right now. So the government is coming in and they're bailing out industry and they're bailing out. So let's use Zoom as an example. Zoom, 10 million users to 300 million users or participants in a month and a half in growth.

I suspect it's not going to go from 300 million participants back to 10 million after COVID. Would you agree with that? every one of those people that is on Zoom and every other video conferencing suite that has experienced the same growth is a person paying a percentage of rent to a commercial building. And if you allow what should happen to happen, that means commercial prices have to, commercial real estate has to fall precipitously. as do rents because supply and demand as more people get more work done for less and then over Zoom.

It might not go back. It might not stay at 300 million. It might go to 200 million. But that's a lot of people in commercial real estate that changes dramatically. And it's just one tiny industry that technology is impacting. So you have governments coming in and saying, don't worry, we're going to save. We're going to pay the rent for you. We're going to keep the prices high.

We're going to bail out the high leverage loans to the $2.3 trillion that is against commercial real estate. We're going to take it off the balance sheets of the banks and put it on the balance sheet of the Federal Reserve. And what that does is it stops prices from falling where they need to. And as a byproduct, there's a whole bunch of people left out of that gain because prices didn't fall. And those people's rent stays high or goes higher because of that artificial easing. And then the government has to go and bail them out through, let's call it basic income or something, to pay for artificially high prices that they created in the first place. So this is the interesting contrast, is that you have a scenario where technology is pushing the price of an equivalent or better life down, right,

in terms of an actual quality of life. But there are certain categories of things we need in life, namely places to live. Food, housing, education. And so all those things are rising in price because the stimulus dollar is going in it. So if you just looked at Maslow's hierarchy of needs and you said, why do people feel this way?

Because they're scared to death because they wonder how they're going to feed their families. And when they're going to feed their families, and when they're going to feel their families, they feel that way, you have the start of revolutions and you have political divides and you have, and so, and it's perfectly predictable because governments are creating it. It's actually, it's really interesting, too, speaking of things that are starts of revolutions, Preston Pish tweeted out a chart from the Federal Reserve a couple days ago, which was just a

change in financial assets since the 2007, 2009 recession by Income Group. And it's notable, right? You have the top 1% who have increased their financial assets by 125%. The 80 to 99% have gone up 75%. So, you know, three quarters more financial assets. And 60 to 80% have increased by almost 50% their financial assets, whereas the bottom 20% are down 30%. So you have the situation where, you know, even after,

2008, the actual, the bottom of society, the bottom tier of society from an income perspective is getting further and further behind. I mean, it's validating this sensibility that people have. And here's the, I'm one of the top, I'm in the 1%. I wrote the book because society doesn't work if a very few people have all the wealth and everybody else doesn't. The ones without come and take it back. Right. And, and, you know, You cannot run. If you just project this forward and you keep doing this and you're going to concentrate wealth into very few people's hands and everybody else is going to be have-nots,

capitalism doesn't work in that scenario. That's why I said. It's really predictable what happens next. So let's talk about that for a minute. What are the kind of keep the party going, keep the lights on types of solutions you're seeing? I know you write about a few in the book, such as modern monetary theory. Yeah, and all of them. I just think so negative interest rates to 6%, and then further, modern monetary theory,

all of these debt that can never be paid back. If you said before COVID, 250 trillion of debt to run an $80 trillion global economy. After COVID, what do you have? Is it going to be $350 trillion, $400 trillion? By the way, that's the known. That's not the stuff that's unfunded pensions and everything else. That's the absolute debt. So $350 trillion, $400 trillion globally to run a $60 trillion global economy?

At what point, at what number do you say, this doesn't make any sense anymore, and there's a reset? And things that don't change for a long time change overnight, right? And what's happened is all of that risk is moving into currency risk. Because when you don't trust the currencies, you don't trust somebody's ability to pay you back or they're going to manipulate the currency to pay you back. Trust breaks all at once. And so I hope that there's not a disorderly unwind. But all of the proposals on what you said,

MMT, negative interest rates, all of the ones that are pushing on a string to try to pretend we have growth in spite of a deflationary environment that is bigger than that, all of those will make disorderly unwind more likely. Support for this podcast and this message come from Eris X. With Eris X, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees

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Start your journey today at Stellar.org slash coin desk. Our final sponsor is Grayscale Digital Large Cap, In times like these, diversification is key. Consider gray scale digital large-cap fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's g-r-a-y-scale.co slash coin desk. Do you think that UBI falls into this as well, just kind of putting a Band-Aid on the scenario?

Yes. Yes, because if you just think about what UBI, how do you pay for UBI, right? If you run the models on the UBI, the times of population, the amount of money to be able to pay for that, and where does that money come from? So, UBI might be one of those things. There needs to be a social safety net to make the transition. There needs to be agreement by government, maybe I'll make the transition. But again, all of these solutions on the right hand,

so on typically the Republican side or on the Democrat side, and the further you go there, like the super right wing, super left wing, all of these solutions are being argued on top of an old system. And without either side saying, how are we going to ever pay this back? And if you can't pay back, just debt itself is disinflationary in itself because taxes have to go up a lot to be able to pay that.

So if you go to MMT and say, oh, we can just print as much money as we want and we don't have to pay it back, well, then why are we paying taxes? So why don't just keep on giving money away? Which is interesting because this is something that many Bitcoiners, certainly kind of those of a libertarian bent, have been saying for some time, but you're starting to hear actually echoed in the Twitter halls of the general proletariat, let's call it, right? Where these numbers that we're seeing are so extreme in terms of the amount of stimulus

coming out of seemingly nowhere that it's causing regular people even to ask that type of question too. And I think that's it. That's it. You'll get to, you get, and a lot of times you'll look at it in a country specific, but when you don't have something that you can have an exchange, rate that you can trust globally to a currency, then trade breaks down. So every country right now, the reason why Trump tweeted out, we need to take our negative interest rates, is he thinks that other people are using negative interest rates to compete with lower prices to be able to enable trade. That is not the key. And they might be. And he wants to get in front of it. But the whole point is all of that, every country is stuck in a loop, that they're trying to create more jobs

in an environment that's going to have less jobs. So I want to come back to the currency piece. Obviously, it's something that we talk about a lot here. But before that, just by way of understanding, so I imagine that there's some people who are thinking through this and trying to put on their contrarian hat, right, and trying to really think through the counter arguments to this, who are trying to kind of live in some of the way of this idea, well, you know, maybe the music never has to stop, right? And this game of musical chairs is just, it's just a fun party. And so I guess the question is, how do we see or how can

we understand the declining capacity of debt to create growth? You know, where does that show up? You know, you mentioned the statistics about how much debt it's taken to produce growth, but is it the case that that's actually the amount of debt to produce each new unit of growth is increasing? So how many years for your listeners? It's interesting. As I was writing the book, I was just thinking about it. In fact, some of these things just made me say, because I've been talking about this for 10 years and I said I just have to do something about it. But how many years do you need to hear central bankers saying we can't get inflation up?

to believe they can't. Every year they do more, more tax cuts, more this, more debt, more lower interest rates. Every year it takes more and they're getting less. The data is really clear. And it makes sense because it's on the exponential trend of technology inflation. It has to be more each year. So each year they're getting less return on the debt. And you used to be able to, let's say you needed a GDP gain and government would come in and say in a recession and they'd say, okay, let's build roads and bridges.

And why did that produce short-term jobs and longer-term GDP gain? So it might be a good use of debt to be able to produce longer-term GDP. is because you spent less time in the car, and so you had more productive time at the office. That's really why. Today, all the super highways are digital, right? And so I use Zoom as an example. There's not in Canada where I am.

There's not one extra job in Canada because of Zoom. It's borderless, right? And I was on a House of Commons call to our government, And we were using Zoom, right? There's not one extra job. The highways of the future are digital, and they take away that GDP game. The GDP game is in the technology, but it's not enough to offset what's coming out. It's interesting.

One of the things that as I was thinking about this conversation earlier today, I noticed Danielle DiMortino Booth, who was on the show a couple weeks ago, had posted a stat from Hosington National Management that Calcut. that in the decade from 2009 to 2019, China lost 38% of its growth generating capacity per dollar of debt created, basically. So each dollar of debt was producing almost 40% less growth than previously, which I think is reflective of this kind of idea that there's diminishing returns eventually that happen in this model. Yeah, so China is a really good example. I've spent a lot of time there throughout the years. And when I first went to Shanghai or Beijing, the road

system was terrible. And they built how fast they built cities and productive use of capital in new cities and new cities and new cities and new roads and new trains and everything else, productive use of capital. It drove a corresponding GDP game. But no country in the world has ever increased their debt to GDP faster than China. And that's the known. That's not the blackpools and everything else that's on off balance sheet. And what else are you going to build to drive the GDP game? So it's unproductive use of debt. And now you have, assuming you have to pay that debt back, it's a cost to, you're essentially

pulled forward a whole bunch of demand and you have to pay for that demand, which is deflationary in nature as well. So let's bring it back to the currency question. How does this become a currency problem? How does this turn into currency crises? So a currency, we've seen this. You could use Venezuela. You could use other countries that see this all the time.

At some point, if debt can't be repaid, then there's two ways to solve that. Increased taxes a whole bunch to be able to pay. pay that back and that has a cost of slowing down economy and a lot further and creating it's probably a massive depression. And just let's forget technology driving things cheaper all the time as well, but that would be one way. And over a long period of time, pay back that debt.

Get on side. Or essentially destroy your currency and have hyperinflation. and pay back the debt at Weimar Republic and Germany. And I don't think we've ever seen the world where we had a reserve currency like the U.S. were running 80% of world trade and every other currency trying to manipulate the currency on top of that currency as well. So it's hard to say kind of when this happens. But at some point, people are going to wake up and they're going to say this is never repayable.

and I'm not going to trust that currency anymore because I know the only way you're going to pay me back is by changing the underlying currency value. Well, it's interesting because it's almost like the first wave of this that we're seeing the destructive impact has to do with dollar strength compared to other currencies around the world. So I did an episode a couple weeks ago about Lebanon and the Lebanese pound has lost something like 60% of its value against the dollar. It's been pegged to the dollar officially at about 1,500 Lebanese pounds to the dollar ever since 1997. And that started to slip last year. And the problem is Lebanon imports basically everything, right?

So all of its debts are dollar-denominated, which is the story of basically the whole world at this point. And everything that it sells inside to consumers is paid by Lebanese pounds. So when that starts to break, it creates real challenges, right? Last fall, it was in the context of gas companies who, were trying to be able to buy gas from abroad with Lebanese pounds and they weren't able to. They just shut down and there were these huge lines and huge shortages and so on and so forth. So this has become now a major catastrophe there. And then we're not even talking hyperinflation.

We're just talking about 60% of people's value, you know, the value that they hold evaporated overnight, which can erase decades of savings, right? And it feeds back on itself because right now why the dollar is getting strong. is every country, every business in every country denominated by U.S. needs a currency right now as fast as possible. And so there's a supply of demand that is driving that currency, U.S. currency value up. It won't stay there over time. But for now, that's probably for the next six months. That's what happens with the U.S. currency.

But you're right. the impact to other nations who are trading partners who do provide GDP growth to the world and businesses in the U.S. Right. So them failing as a cascading effect across the world is a big deal. One of the points that you've made previously has to do with, you know, with some of these strategies, MMT, et cetera, or just kind of like, you know, just the continuation of the system as we have it, is that people will point to Japan and say, hey, look, it's kind of worked there

for them, right? But it's different when everyone is trying to do it at the same time. That's the big thing. If one country essentially and is allowed to do that for a long, time, does it. And in Japan, they owned the debt, right? So the holders of Japanese currency was mostly government and everything else. It wasn't foreign denominated where they had that problem. But one country could probably get away with it. With every country right now, essentially a bunch of the trade wars are about currency wars.

If every currency is playing the same manipulation game, at what point does the music stop? and somebody's left without a chair or everybody's left without a chair. Where does an asset like Bitcoin fit into this thesis for you? So I'm a really big believer on Bitcoin and from the fundamentals of what I think happens next and the game theory, everything else that happen. First, it's a network effect. It's built into code that more trust will end.

enable it. More people use it, more than wraps and trust will as a as a byproduct of that. This might not be popular with a bunch of the Bitcoin people, but it is how I feel. So if I could choose to have my Bitcoin go to zero and governments chose to have a Bitcoin-like equivalent so that we could transition to this in an orderly way, I would take that choice, because it meant society actually prevailed and you could make this transition hopefully peacefully. I don't think there's any chance of that.

So I think Bitcoin is going to, I think Bitcoin is going to dominate, but it's going to dominate because of, because countries cannot get together and do what and trust and develop a currency that has Bitcoin type equivalence. Each country is going to try to create their own currency to manipulate rules because we have a low trust environment right now. And so I don't think that that will happen. And as a byproduct of that, then Bitcoin is going to be very, very successful.

So it's interesting. You know, Keynes proposed something he called a bank or at Breton Woods, which would be this currency, which looked in retrospect a lot like the first proposal for Facebook's Libra when it came out, right? Separate from any one national sovereign currency. And he believed really strongly that the world's reserve currency shouldn't be the province of any one nation. But of course, the U.S. had just won World War II.

And that was we were the organizing factor. And what's more, it was the U.S. global. security guarantee that kind of made the system that would grow, you know, the globalization system that would grow from there work. And I think the problem is why I think most people who are economists and historians in particular share some of your skepticism is that the U.S. would have to believe it was somehow in its interest to also move the world off of the U.S. dollar system for any alternative that wasn't just a single country's reserve currency to work.

And that type of, it seems very difficult in the world that we have today to imagine a U.S. that would feel that way. Exactly. But if they don't and you accept the thesis, so what I talked about technological deflation and what governments are doing to try to stop it, it's going to happen anyways. It's just going to happen to Bitcoin. because it also creates an incentive for other governments to get together earlier, potentially buying Bitcoin in behind the scenes,

before a group of governments to send a say, okay, we're pegging to this because it has more security than the U.S. dollar. So it creates, by not doing it, it also creates an incentive for it to happen faster. So how do you see this playing? out when you see kind of Bitcoin emerging in this, is it through individuals opting out of their local monetary regimes and opting into Bitcoin for global trade? Is it companies who operate across borders in kind of this internet ether sphere using Bitcoin as the backing? Is it to your,

kind of what you were just intimating before right now, governments actually deciding to try to peg to Bitcoin in some way? Or some combination. Yeah, it's a combination. It starts with individuals, just like you have the community right now. And it moves up to higher and higher wealthy individuals, doing it as a store of value against what's happening, Paul Tudor Jones recently, which causes different on-wraps, a whole bunch of other hedge funds that have to do it now as well

to achieve beta. And so it starts in a whole raft of people start doing it. And it starts, what you mentioned, with Lebanon, the on-ramps in some of these countries, just like in Venezuela, are really strong because people know what's going to happen next. So people are storing the currency outside of the currency regime. And as more people do that, in Venezuela, if you had 5 million percent inflation in a year versus having Bitcoin, you did really well with Bitcoin. If you owned the best stock in the market in Venezuela, you were wiped out.

And so you could feed your family if you had Bitcoin. So the more that you have breakdown of other governments too and other currencies regimes, I think it's all bullish for Bitcoin. So I think it's a combination of all of the above. Let's shift gears maybe kind of as a way to think a little bit ponderously. in some ways. Your sense, which is one I share, is that it's unlikely that there's going to be any sort of easy unwinding, right? Or managed transition.

And it seems much more likely that we have a cataclysmic event when the music finally stops to use the metaphor that we keep coming back to. But let's hold that aside for a second. What would it look like for people's lives if deflation actually took hold? I mean, you talk about it being the key to an abundant future. What does that abundant future actually look like? Or what could it look like? Well, and you could start to see it now through your phone. I'm sure nobody wants to give up their phone.

You said it was only invented 13 years ago, right? And think about the power you have it. You have more power than most presidents had 20 years ago in your phone. all the information of the world sitting there. You have every app in the world that's all effectively free. And I'm sure you don't want to give it up, right? What if that was everywhere? What if that looked like that you could actually spend less time working

and more time having the benefits of technology doing the job for you? I think you could have a whole renaissance of time. Like, if you just actually poke on what we're just talking about right now, what is the most valuable thing in your life? And it's really your time. Where does that time go? What is that? And do you want to work 80 hours a week to say one day I'm going to spend some time with my family? Does that seem like a rational decision? You're doing that because you're trying to work harder to be able to gain more money so you can spend more time on a on a treadmill that's getting further and further away from most people.

If you reverse that and you said, we're going to just let this happen. Yes, there's a transition. Debt has to, we have to somehow figure out how to do the debt. But it means you would have way more time and you'd have the same, and you'd have an increasing benefit. You'd have the same lifestyle as today.

More savings, more, and cost would be coming out of society. Cost would be coming out all the time. because technology does the job better than people. Well, and it's interesting, too, because, you know, in some ways, these are arguments that are similar to many thoughtful proponents of UBI, right? Part of the argument is if people were unburdened of certain time commitments,

they would produce things of meaning. They would live more meaningful lives. They would create more value, not necessarily just, in terms of buying more things, but in terms of the lived experience of the people they interact with, be it their families and communities. And again, I'm not necessary, it's, there has to be a social safety net to get people across the, this cat.

Right. So UBI might be the best, best one. It's just, it, it's a terrible idea if it's bolted on top of existing monetary policy. Well, it's interesting. It feels to me in some ways like, and, you know, maybe some proponents of UBI will listen to this and can follow up, you know, on Twitter or whatever. But it feels in some ways like you're coming, the argument that you're making for abundance in the context of deflation is trying to come to the same conclusion, this idea that the ever-increasing workweek doesn't legitimate human society or individual pursuits. that we could redesign or reimagine society to not have that requirement in it if we let the system just change a little. It's just that you are actually kind of dealing with the superstructure

change that you see as necessary as compared to, again, bolting on this cash flow for people so they can buy those still ever-increasing assets like houses that just keep going up in price forever. Here's what I see as an entrepreneur and I see it in every just different company and I see it from, and I study this extensively. Even in a crisis like this, there's a lot of companies that the sky is falling, everything has changed, and they forecast it forward, their existing business forward, and there's no way that it'll ever make sense. And so they're hoping for a miracle.

And entrepreneurs say, okay, where is this going? They see a different world, and they, from a first principles basis, and they say, okay, this doesn't make sense over here, but how do we change this to be able to make a lot of sense? And how do we capitalize on where the trend is going and everything else? And so Kodak, inventing the digital camera, they invented, Steve Sasson, invented the digital camera at Kodak and tried twice through his executives to say, here's where this is going. Kodak protected their film to business and drove it off a cliff. Blockbuster had 9,000 stores,

it was the number one movie rental place and didn't buy Netflix for $50 million and instead added candy aisles to their stores because people want candy and popcorn when they rent their movie. And both of those examples are because executives, and you have to assume those companies are filled with really great executives. It's not a bunch of dummies. It's just in retrospect, they didn't see how fast technology was moving, and they missed how fast that changes their entire business.

If you zoom out and use that analog or those analogs in what's happening today, the global economic system doesn't see how fast technology is moving, and they're adding candy aisles to their stores. And they're going to drive it off a cliff. That's what's happening. So the superstructure that we're talking about is it's easy to see in businesses. We study this in businesses all the time, right? Because you're looking at case studies and why didn't these people see this? But it's normal for people not to see it because they're so married to the existing structure that they're trying to protect it at all costs.

They're not asking with a beginner's mindset. Why does it look like this? and how do we build it differently? They're saying it's always look like this. How do we protect it? It's interesting. I mean, this kind of idea of being stuck inside the system because we all experience it day and day out.

It reminds me actually of David Foster Wallace's commencement speech at Kenyon College in 2005, which was later branded This is Water. And the aphorism that he talks about is fish swimming through the water, two young fish and old fish swims by and he says, good morning, boys, the water's beautiful. And they look at each other after he's passed and he says, what the hell is water? And his point, he's talking about something a little bit different. He's talking about kind of the idea of having a choice about what we think about and how we engage with people and how we engage with the world around us.

But to some extent, a lot of what you're talking about is these assumptions of normalcy that aren't actually normal as much as just the byproducts of specific decisions that we've made or been complicit in making. Yeah, exactly. I'm part of a bunch of these policy decisions. I see it all the time. When I say policy decisions, I've been asked by different governments to make recommendations right now on what's happening.

But I see the same thing across the same thing that you see typically from CEOs and business married to their existing business. And so governments all over the world right now, here is what they're asking, right? And Fed policy, how do we get full employment, Phillips Curve, how do we get full employment and drive inflation? And every economy globally is trying to do the exact same thing. In a pretty obvious world where we are not going to have net new job creation globally, we're going to have job destruction because of where technology is and what's moving.

And essentially what they're doing is saying, we're going to do this at all costs, at cost to society, at cost to monetary easing, it costs to our currency, whatever it takes to drive full employment. Sometimes asking a better question allows people to imagine a different answer. And what if the answer, what if we asked a question, how could we design, designed society so you didn't need as many jobs. I think this is really fascinating and it gets at, you know, we have so many hurdles to this conversation.

One of them is how people feel okay, like how we tell a different story. We've told an up by, you know, your bootstraps value of hard work story for so long, especially in America. It's so embedded in the cultural psyche, the narrative. And even you see it metastasized and manifest in different ways now. We have battles over hustle porn, right? And the idea of how much you're supposed to work, you know, in times of crisis or whatever. It feels to me like we've got this entire economic question that is, it feels insurmountable.

But then on top of that, a total reimagination of the social contract and what it means and what is required of any individual to be a full contributing member of state. society. That's what makes it so hard. And you know because you read the book. I spend an extensive amount of time on the things we think we know versus the things we know and how far we'll go to defend the previous reality at all logic and anything else. Logic doesn't change people's mind. They will look for something that confirms their bias. And so I spent a bunch of time in the book because it is the thing that's actually preventing this. It's the same thing that prevents it in a lot of the companies

because they don't want to accept a new reality. They'll look for information that matches the previous beliefs. And today you can find a lot of information anywhere that matches your belief. It takes a lot of honest looking to be able to keep and to look at the information that you would not agree with and try to see it from that point of view to really practice kind of first principles and look deeper. But that's hard to do.

It's really hard for people to do. It is really hard. As funny, as laughing as you're speaking, because part of when Paul Tudor Jones made his case for Bitcoin last week, he talked about how you kind of have to be dispassionate because often the markets are at odds with your priors, right? And if you're kind of left just sticking to your guns, I think there's a larger lesson there. But as you, I mean, you know, you've been living in this for a long time.

You've living in this set of thoughts. You've been, you know, you shared this book. What is, there's plenty of cause for pessimism. I think we've talked through a lot of that and the stress there. What, if anything, is a source of optimism for you right now? So I've met so many brilliant people through. the writing of this book. I'm going to back up as that. I don't care about one book sale. I don't make money from the books or anything that's the way. You don't write something like this to make

money. In fact, before I wrote it, I had a conversation with my wife that went something like this. You know that we're the one percenters and I'm going up against everyone else in this class and the entire economic system that I have to say. And what that might do is because this could look really bad. It could show it could show up negative and everybody could take it out of you and you could be the fool and it could hurt my own businesses as a result. I had to be comfortable with that before writing it. And so that was a real conversation. and put my family through it to do everything else before writing it. But I also went through the kind of logic.

I said, I can't not say something. I cannot be, I have to do this. So we made a decision together that I would do this. And what I would say on the good side, I've been blown away by how many great people I've met through this experience. I've been I've been blown away. It actually, it's reaffirming all of what I believe. There's just really great people in the world and they're looking for a hopeful message to hang on to.

And they're fed a bill of goods today that is dividing them further and further and further. So it's been super powerful. And if there's more and more talk about what we're talking about, hey, and I will take this. I could be wrong. I would rather, I don't think I am, but I will debate that in a whole bunch of areas, but in a dispassionate debate to try to get to the right answer. And what I've found through a whole bunch of people I've met through this,

year one, this conversation. I wouldn't have met you otherwise. Preston's another, Pomp's another, like some of the just unbelievable people. too many to list here on your show that I've met because of this and that they're all taking this message forward. And if enough of them do, we'll design a better future. I think it's a great point to end on. We do ourselves a huge disservice when we assume that what people know and understand about the world is complete and impossible to change, rather than giving them the benefit to actually have conversations that allow them to look at things differently, right, regardless of whatever perspective or background they come from.

I think we get too easily caught in our bubbles of whatever it's useful for someone to organize us into rather than being kind of treated as vessels of knowledge and information and interest and ambition and hope and dreams that are trying to progress and make sense of a confused. using and changing world. Exactly. Jeff, thank you so much for your time today. I will make sure to link to the book for everyone who hasn't read it. I highly recommend it. And yeah, I appreciate you being here and continuing to share this, both the challenging and the hopeful side of this message.

It's been awesome. Thanks, Nathaniel. Reflecting on this conversation with Jeff and on the book as a whole, one of the biggest challenges, it seems to me, isn't just the finding political will to actually make such catastrophic or huge changes, things that have such deleterious impact in the short term, even if they're better in the long run. That all on its own would be a challenge worthy of better than the leaders that we have now. There is another challenge inherent in this whole situation, which has to do with our own self-image. It is nearly impossible to imagine

a wide-scale society shift right now, at least in America, where working professionals could get comfortable with the idea that they were just as valuable working only 13 or 15 hours a week as they were with their current 70 or 80-hour weeks. We take pride in these measures of inputs of our time, of how much we work, how hard we work, how hard we hustle. In fact, you're seeing at least some backlash around this with people calling it hustle porn, but still, these are incredibly ingrained ideas, and the idea of disentangling our self-worth and our ego from our career seems to me to be as much of a challenge in some ways as finding the political will to make these shifts. I think the good thing is that's a part of this change, this

inevitable change, it feels like in some way, that we can at least exert some control over. We can start to think more broadly, more holistically about what it means to be a a person on earth, what it means to be a person in society, and to find value in ourselves, in our peers, in ways that aren't simply reflected by the way that we input into a system, which is in some ways bankrupt, even though it's still chugging along. So something to think about for sure as you go about your day. And as always, I appreciate you listening. I appreciate you hang out. I appreciate you trying to figure out what tomorrow looks like with me here at the breakdown. So until tomorrow, guys, be safe and take care of each other. Peace.

Thank you.