The Breakdown - Jim Bianco on Inflation, Recession and the Need to Reimagine the Economy for a New Era

Episode Date: July 23, 2022

This episode is sponsored by Nexo.io, Chainalysis and FTX US.   On today’s episode, NLW is joined by Jim Bianco, the president of Bianco Research. In this wide-ranging discussion, they talk about the bind the Federal Reserve finds itself in, the stickiness of inflation, structural economic changes post-coronavirus, and why crypto matters even when prices go down.    - Nexo is a security-first platform where you can buy, exchange and borrow against your crypto. The company safeguards your crypto by relying on five key fundamentals including real-time auditing and insurance on custodial assets. Learn more at nexo.io. - Chainalysis is the blockchain data platform. We provide data, software, services and research to government agencies, exchanges, financial institutions and insurance and cybersecurity companies. Our data powers investigation, compliance and market intelligence software that has been used to solve some of the world’s most high-profile criminal cases. For more information, visit www.chainalysis.com. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and nsubsidized gas on withdrawals. Sign up at FTX.US today. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Michele Musso and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsors is “The Now” by Aaron Sprinkle. Image credit: We Are/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.com, and Ft,x, and produced and distributed by CoinDes. What's going on, guys? It is Friday, July 22nd, and today, midsummer macro continues with the one and only Jim Bianco. Before we get into that, however, if you are enjoying the breakdown, please go subscribe. to it, give it a rating, give it a review, or if you want to dig deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Today, I am joined by someone that I've wanted to have on the show for quite some time.

Jim Bianco is the president of Bianco Research, which specializes in macroanalysis for institutional investors. More than that, he is just a super thoughtful, very individual thinker who's able to to tread easily from tradfi to crypto and back again in an incredibly coherent way. This episode looks at everything from the Fed and where we got to with inflation, to how politics is currently and likely to impact monetary policy to what all this crypto-contagion actually amounts to and why he still has such high conviction on the space. Overall, though, the theme that rings out resoundingly is a clarion call to recognize that we are simply not going back to the way things were before the pandemic.

This is at once obvious, but also, as Jim points out strangely, a point of contention. But for that, I will let Jim explain more. All right, Jim, welcome to the breakdown. It's great to have you here. Hey, thanks for having me, big fan of the show. Awesome. Well, you know, as we were just talking about before, as much as the crypto space and the traditional finance world has started to overlap,

There aren't too many folks who I think can really kind of flow between them. So I'm sure we're going to have a lot to talk about today. But where I wanted to start is, you know, I have this sense this week in particular. You know, you call it relief. I was calling it detente earlier. There's sort of a sense of calming, you know, both in crypto, I think in financial markets more broadly. And I kind of want to piece that out with you and ask, what do you think the Fed is thinking right now? What do you think markets are thinking right now, you know, if and how it might contradict the Fed. And where is sort of popular sentiment or media perception, you know, within all that? So I understand what you're saying about that there's a sense of calming in the market, but I would

say that it's more of a sense of hope. And the hope is that the inflation rate is done going up. It's peaked. And I might add, from a narrative perspective, those that are yelling that inflation is peaked are the same ones that were saying that it was transitory last year. And that is important to note, I'm not trying to pick on them, but there's a lot. There is been, and this gets to your question about the Fed, there has been this difficulty in understanding why we have inflation in the first place. Oh, we could say the words that there's a supply chain problem or that this is the reopening of the economy post-COVID. But if that was the case, it should have been easily identified, easily expected, and easily

measured. And none of that happened. This really took everybody by surprise. In fact, the day we're talking, there's some tweets out that exactly one year ago today was when Biden made his famous speech that no serious economist expects inflation in the next year, that all of the experts are telling us that the inflation rate is going to peak at the then level of 4% a year ago and it was going to turn around and start down. I say that because of where Chairman Paul is, you know, what is the one thing we understand is how little we understand about inflation a year later, and that that is really the biggest issue is why do we have this inflation? Where is it going to go? And the hope is, well, that's got to be it. We just hit 9.1% on the year-over-year

number ending in June. And we're going to hope that that's really where it is. And the markets are rebounding a little bit on the hope that we've maybe seen the high. So it's really interesting. The way that you frame, we're just hoping. We're just hoping. hoping. It's so high, it has to be the top. I think it is very reminiscent of the thinking that went into the, not the economic decision making around transitory inflation, but the political calculus, because the choice to label inflation transitory was not so much an economic decision, but a political one, right? It was kind of a bet that things resolve fast enough to not see sort of really bad impacts. And obviously, they just ran out of time for that to be the case.

Yeah, I think that there's two things. One, on Wall Street. Mean Revers, version is a very powerful drug on Wall Street, right? Show me a market that it's made some kind of a move. And the instant bet is, well, it's going to peak or it's going to bottom and it's going to reverse. So that's what you're seeing a lot of with this whole peaking argument and the hope is, wow, it's at a 40-year high. I got to bet it's going to go down. Although the peak crowd has been saying that for a long time. So that's nothing new. On the political side of it, I agree with you, but I'll also throw in another little issue that the Fed is still struggling with. In 2019, the Fed had this series of meetings called Fed listens, and it culminated in a big meeting in June of 2019 at the Chicago Fed.

It was broadcast on closed caption, and Bernanke was there, and Paul was there, and all the big poobas were there. And they were talking about at the time, this is pre-pandemic, about adopting a new framework in the framework was going to be, we're going to de-emphasize inflation, let the economy run hot, so that we could lower the unemployment rate and get the chronically unemployed back to work. That was their new framework. I'll be charitable about it. That might have been the proper policy to do in 2019. Then the pandemic hit.

They instituted that policy in August and September of 2020 after the pandemic. This was a new economy. and that running a hot of the economy, forcing the economy to go until we got the unemployment rate down, I think it bred the word transitory and bred too much stimulus, especially monetary stimulus, because the Fed was very, very slow in reacting to inflation and helping to give us the inflation rate that we have. But for those that are screaming, supply chain, supply chain, you know, Putin's Piceke, yeah, there's some of that. but let's keep in mind one thing. The Organization of Economic Cooperation and Development, OECD in Paris,

puts together harmonized statistics on developed countries. They have the core inflation rate in the United States is the highest in the developed world. Now, that's rare. The U.S. is the biggest developed country, and it's usually somewhere in the middle. We're never the low or the high. We have been the highest since March of 21.

That was the last stimulus check. Every country has the war. Every country has the Putin price hike, if you want to use that term. Every country is dealing with supply chain issues. But why do we have the highest inflation rate? Why isn't it France or Germany, Australia, or Japan, or New Zealand that has the highest inflation rate or Canada? It's because we stimulated more than anybody else, either through PPP loans, through

Stimmy checks, through Fed policy being so aggressive for the new framework, or through massive deficit spending, the combination of all of that has produced excess demand inflation more in the United States than anywhere else. So we've got more inflation than the rest of the world. Policy from the Fed can impact that. So I know when people say, well, the Fed's tightening, but they can't print ships. Yeah, but they can offset all that excess demand inflation. And I think that that's what their goal is. So this is super interesting. I mean, in some ways what you're saying, the charitable interpretation is, you know, look, they had just before the pandemic hit, before this totally phase shifting event happened, been really doubling down on their sort of dual mandate. And so

even if we're now kind of working backwards and saying this wasn't the right idea, it was what the political mandate for them was to some extent. So we can understand at least where it came from, even if we think that it wasn't the right decision and clearly has been borne out as incorrect in retrospect. Right. And it might have been the right decision in if the 2019 era had continued. But I think you're right to emphasize that the pandemic was a gigantic phase shift. This is a post-pandemic economy. And, you know, work from home, attitudes about how we live our lives. Things have changed and we're not going back to 2019. I know that a lot of commercial real estate guys want us to go back there because they're choking on a lot of office

real estate that's being unused. But this is a different world. So maybe if we had continued in that 2019 world, that would have been fine, but we didn't. We didn't continue in that world. We had a phase shifting event, and they used a last cycle prescription for the current cycle, and it just exacerbated the problems. It didn't help. In times like these, security of your assets should be your number one priority. If you want to offset risk as much as possible and still stay in crypto, you need a trusted partner by your side. Nexo is a security first company that manages risk by relying on mechanisms such as over-collateralization, real-time auditing, and insurance on custodial assets. Learn more about Nexo's reliable business model and start your

crypto journey at nexo.io. That's nexo.io. Eager to make more informed decisions around crypto, chainelysis is here to help. Chainalysis demystifies cryptocurrency by providing industry-leading compliance, market intelligence, and investigations support for all crypto assets. For organizations like Gemini, Crypto.com, and BlockFi. Gain unparalleled visibility and maximize your potential with the leading blockchain data platform by visiting us now at Chainalysis.com slash CoinDesk. The breakdown is sponsored by FTXUS. FtXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to

85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show. So given where we are now, what is your take on what matters most of them, right? Obviously, they are raising the specter of the 1970s every chance they get. Powell doesn't want to be Arthur Burns 2.0. How much do you think the Fed cares about asset prices? How much do you think they care about recession? How much do they care about unemployment rising? Is it market structure breaking that it would need them to reverse course? You know, this is another kind of point of contention within discourse, you know, in markets is how long the Fed can keep tightening like this. And there's a lot of debates on all sides of where.

they really are. Yeah, I'm in the camp that the Fed can be a lot more hawkish than people think. I'm going to use my words to explain this. The Fed does a triennial survey of consumer finances. And in the last one, they found that 40% of the American public has less than $1,000 of savings, and they rent. Those people have no assets. They don't have any equity in a home. So when an inflation rate shoots up to 9% year over a year, they just lose. And he's poor. And he's poor. pointed that out, maybe not the 40% number, but in their respect that the lower quintiles of the economy are really hurt by this inflation. You and I and everybody else, we own assets, we own our home. They're going up in price. They're offsetting some of this stuff as well. The other thing

that the chairman has pointed out, which I've really aped on to too, is that inflation impacts 100% of the population. It impacts Elon Musk. He's finding higher prices at SpaceX and Tesla. It It impacts people on public assistance. It impacts everybody in between. A recession historically does not impact 100% of the population. It impacts a certain segment of the population, those to lose their jobs. It impacts them badly, but it isn't as widespread. So we tend to forget how toxic an inflation of this level is. And I think that the chairman has been very clear that his goal is to break inflation. And if he has to break a couple of things along the way, name a recession, namely the financial markets, that's the price to pay to break inflation. Now, I've said that, the unemployment rate is still 3.6%. As we record, we had 370,000 jobs created in the month of June. We don't have that slowed down in jobs, at least not yet. Stock market, they use a term that tightening financial conditions. They want you to be poor. They want you to alter your spending habits and reduce your spending.

spending in order to rein in demand. So none of this is, I don't think, anywhere near what Wall Street calls the Fed put, that it's going to get bad enough that the Fed's going to say, we just can't fight the inflation thing anymore. It may get to that point, but we're not there yet. So for those that are arguing the Fed's almost done, the Fed is going to have to back off, the risk of a recession is so great, you forgot how bad inflation is. That is why the president's approval rating. The president's approval rating is now going back to George Bush during the financial crisis, worse than the worst of Trump, worse than the worst of Obama. And a lot of that is because of inflation. It is that bad. And so I think that we have to start, at least I do, from the perspective that this Fed is going

to be uber aggressive on inflation. Their credibility is at stake when it comes to inflation. and they'll do whatever they need to do to break inflation. And if there is some collateral damage, namely recession or further bear market in risk assets, then that's the price they're willing to pay at least now. Maybe if we go worse, then we can revisit that argument, but I don't think we're there yet. Yeah, I certainly find myself in that same camp of seeming to have more confidence in their ability to be hawkish than a lot of other market participants. Do you think that the midterm election cycle in the U.S. has any bearing on this,

particularly, you know, on the other side of it. Because it feels like things are pretty locked between now and then, right? The Biden administration is desperately trying to kind of re-narrativeize, get down inflation. They need to see, you know, a bunch of consecutive quarters that coming down, probably to have a lot of hope for Dems to hold onto their seats in a bunch of places. But A, do you think that that's sanguine analysis? And then B, on the other side, you know, depending on what you think happens, are there new types of political pressures that we're not seeing now because we're no longer in that election cycle?

there may be a shift in power, or is that sort of just something that's going to happen, but not really deterministic as relates to monetary policy? No, I think that the midterm is playing a big part of this. We have got an unusual circumstance. The Federal Reserve is supposed to be an independent board. And what are they supposed to protect against, right? We're supposed to prevent against profligate politicians that want to basically print money and spend like drunken sailors all the way into inflation. And that's why the Fed is supposed to be independent to basically, you know, to use the famous phrase, take away the punch bowl as the party keeps going. But welcome to 2022. We're in the opposite phrase where it seems like the administration is screaming at the Fed, you got to stop inflation.

You got to slam this economy so hard to bring down inflation. And the Fed is the one that's saying, wait a minute, wait a minute, wait a minute, we can't go that hard because it might actually wind up becoming worse than you think. So all of a sudden, we need the independent Fed to protect us from overly hawkish politicians, something we never thought we would see. President in June had the Federal Reserve chairman into the White House. He basically pointed at him and he said the job to rein in inflation is to falls to the Federal Reserve. And I won't stand in way of their political independence. And he basically said, Jay, make it go away. Another thing that their credibility is on the line. They have to make it go away. Otherwise, I think the institution itself is going to come under

fire, especially when we get to a post midterm election. If we take the consensus opinion, I have no reason to doubt it, that there will be at least one, if not both chambers flipping and will have a divided government. If we wind up having some kind of a severe recession in 23, the idea that we're going to have a broad agreement on let's just, you know, mail out more money and let's just deficit spend our way out of this, I think might find itself into a roadblock of divided government at that point. And it's going to become a little bit more difficult. So the Fed better get on the task of getting inflation down now before we get to that point where they might need to get the help of government's fiscal stimulus, if you will, because it might mean is forthcoming

under divided government in 2023 or 2024. This is sort of more on the positive side, I guess, if you're the Fed, that despite, you know, monetary policy during COVID being one of the culprits producing this inflation, slow response to this inflation in 2021, that there actually is the opportunity if they really keep their foot on the break, especially if political pressure starts to go the other direction, you know, for example, after the election, that it can be a credibility restoring moment in a way that they haven't had a chance to have for some time? Oh yeah, I think that they definitely could. If inflation peaks and does fall rapidly into 2023, they'll definitely start taking some boughs and, you know, victory

lapse for it. But first, it's got to do that. So I guess they're going to kind of hope on it. But I'll take the chairman at his word in that there is uncertainty about inflation now. they don't really understand it as much as they think. Look, I don't blame them. I don't think I understand it any better than they do. The differences is at least I'll go into the conversation saying this is a nebulous uncertain thing where they want into the conversation with the Bernanke idea that, well, we can measure this out to the fourth decimal place. And we could, you know, Bernanke was famous for saying around 2010, well, the inflation is something we can fix in 15 minutes. We could just raise rates and it'll go away. And that's, you know, definitely not been the case, as we found out over the last year or so, that they had that kind of understanding or that kind of set of tools to deal with inflation. So, yeah, I'll go into this. Yeah, that they should have been a little bit more respectful of inflation, and I think they are. So if it goes down, they'll try and take credit for it. But they're not at all sure, nor am I, nor should anybody else be, that the inflation rate will. Keep in mind, I've argued,

it isn't about where does inflation peak. It might have been 9.1%. I don't think it will. I think it's going to continue to maybe inch towards 10% later this fall. But even if I'm wrong and that it is what's 9.1%, the real question is when does it get under 5? When does it get under 4? That might not be towards the end of next year.

That might not still be more than a year away if then. And maybe sooner if we have a bad recession. Well, and this maybe gets to another piece of this. Obviously, we are very in the short-term kind of perspective on these questions right now because, again, everyone's speculating first about FOMC next week and then about September and then maybe about early 2020. That's kind of the field of view. But there's the longer-term question structurally, which is something you've tweeted about and kind of done threads on of the long-term policy has to be how high, you know, interest rates really can be in the context of the debt. So, you know,

How much are we post-COVID moving into a structurally different era? And if so, is it just monetary policy that's different or is it something else? No, I think that post-COVID is a structurally different era. And I think that the biggest problem with it is if I say it's a structurally different era, most people want to engage in a debate about that. Are you sure? Really why? Maybe it isn't.

Maybe we just have to wait. 2019 will return. 2019 is my shorthand for the pre-COVID world. will return. And the longer we take to understand that this is a different economy than we had even three years ago, the longer it's going to take to fix. Now, let me be clear on this. Different is not dystopian. I'm not suggesting this is worse. I'm saying it's different. And let me give you an example. Throughout human history, every time there's been a pandemic, coming out of that pandemic, human organization, attitudes, economic activity kind of takes a left turn or a right turn and goes off in a little different direction. I think this one is no different. I kind of alluded to it earlier. I think one of the big things that's happening now is work from home. Attitudes about work, attitudes about play, attitudes about how I want to do things in my life have changed. Changed. We're not going back. The work from home research done by Nick Bloom at Stanford University,

just put out a survey, 35% of the workforce is actively ignoring their mandates by their bosses to return to the office and daring them to fire them, betting that they won't. That would be unconscionable to think that people in 2019 would have said, well, the boss told me to do X, Y, or Z, but I'm just not going to do it. And if he wants to fire me, he can fire me, I mean, wholesale up and down the economy. So because this economy has changed, for instance, the one thing I've pointed out is a consumption basket has changed. We consume more things and we consume less services, not no services, less services. And you could see that in the durable goods, non-durable goods, and services consumption,

durable and non-durables are up a lot post-pandemic. Services are not up nearly as much. They're below the overall average. Why do we consume more things? Because we've got more free time on our hands. We're working from home or we're hybrid work. And because we consume more things, the supply is. chain's out of balance. How do we know the supply chain's out of balance? Let's look at Target and Walmart.

They've got both simultaneously a glut and an inventory problem. When Omnacron faded in the spring, the retailers led by Target and Walmart correctly said, everybody's going to rush back to this store. They did. What do we put on our shelves? Same things we put on our shelves in the same proportions of 2019. We didn't buy that stuff in the same proportions. So they've got too much of some stuff. They don't have enough of other things. And they're starting to try and figure it out. But the problem was for the two years after COVID until this spring, if you would have said, this is a different economy, people are going to have different attitudes, different tastes. We want to have a debate about it. We don't want to go about fixing it.

So I've argued things like the supply chain. The supply chains are going to fix itself. It isn't going to be a bullwhip effect that we have to just wait until it fixes itself. We have to recognize the post-pandemic economy. We have to start manufacturing different things in different proportions and chipping them in different ways. Then it fixes itself. but the more we say, no, we don't have to do any of that. Just wait.

It will fix itself. That's Wall Street's favors line. I suspect the supply chain will be fixed in six months. Why? Because a period of time will have passed and therefore it will go away. It will only get fixed when we realize we're in a post-pandemic economy. It's different, not dystopian, different. And we've got to go about readjusting the economy for that.

Until then, we're going to continue to have frictions. We're going to continue to have both gluts and shortages. we're going to continue to have more volatile cycles, higher inflation, and maybe shorter recoveries in more frequent recessions. Once we realize it's all different and we get about trying to go about fixing it, I think it'll be better. Quick analogy for you. A lot of people use the analogy of the 1940s. Coming off of World War II, you had two million people lose their jobs in one month in September of 45, the year that the war, the month of war ended. But the difference was those two million people that lost their jobs was celebrated. That was people in war production being laid off,

and we wanted that. And we instantly knew the next morning, the new world is going to be different. And let's go about restructuring the entire economy for something different. We're not there yet. We had 20 million people lose their jobs and we're still waiting for 2019 to return. We're not ready to say, this is a different economy. Let's get about restructuring for the new post-pandemic economy. super interesting i wonder to what extent covid proceeded through this process as so many things do now of some amount of broad unity and and sort of you know holding hands facing the challenge together and then very quickly denigrated into you know screaming and name calling around masks versus vaccines versus this thing and that thing and i wonder to what extent that divisiveness

for an extended period of time as people were frustrated with you know changes in their own personal lives led to some meaningful part of the population for very different reasons wanting to pretend as though that period had not happened and just try to get on with things, not necessarily realizing how much has shifted, you know? And it becomes easy kind of business rhetoric and political rhetoric to fall into that trap. Because I think that your point is completely right on and salient that once you start thinking about it as fundamentally shifted, I mean, the work from home debate, I think is great because it simply does not matter what percentage of people, I believe, are like, well, no,

offices are going to be a thing still. When you have this much of a critical mass of people who no longer accept that, they're going to dominate the way that businesses have to organize themselves or they're just completely not competing for that entire labor pool, you know, and it's just too big to be a small group. Exactly. And I think that, you know, that attitude about I want to get back on my life, you could see it no more than in travel. If you look at the breakdowns that American Express gives us, well, let me back up first of all.

If you look at the TGA, the Transportation Authority, they're saying that airport throughput, a number of people that go through the metal detectors and scanners at airport is about 95% of what it was pre-pandemic. And people say, see, the airport is back. Big difference, though, that business travel is about 60 or 70% of what it was pre-pandemic. There's a lot of people work from home. There's no one to go see. but leisure travel is like 130, 140%. So you go to the airport in a Tuesday afternoon.

You're going to see a lot of families with kids in the airport when in 2019, 2018, you didn't see them. You saw them on Fridays and Saturdays. Things are changing. Those people are, if you will, are militant. I'm going on vacation. I don't care what it costs. I don't care if my boss is upset that I'm not going to be in the office.

I'll bring my laptop. I'll do some work while I'm on vacation. That attitude is completely changed. Just like I was saying with the attitude about, my boss wants me in the office three days a week. I'm going to go to the office one day a week. And if he wants to fire me, he can fire me. Maybe a third of the population is operating under that attitude right now, according to work from home research. There has been a big change. So this is part of getting on with my life. And maybe it is almost like, I'm going to get on with my life, and I'm going to start to enjoy it a little bit more. I'm going to go on vacation, I'm going to work from home. I'm going to do things that I would never have thought of doing beforehand. And now we've got this friction between, the old world wanting to return back to some sense of normality in the new world saying, this is the normal that I want. And like I said, it's very different than the 40s because we knew that that had to change.

We're just not there to say, look, this has to change. We're still, you know, Stephen Ross, who owns the Miami Dolphins, who made his billions in Manhattan real estate just last week was saying, you watch in 2023, 2024, all the offices in Manhattan look like they were in 2019. Dave Solomon at Goldman Sachs has recently said something similar to that in the last few months. Yet surveys show only 8% of offices in Manhattan are full-time. The other 92% are either fully remote or hybrid. And to think that we're going back is not, remember, that's the biggest part of your day.

That is 40 hours a week. If you have a standard job from 8 to 5, you change that mix and that you're spending a couple of days home now. as opposed to every single day in the office. And the knock on effects in the economy are huge and profound, not including the attitude change that comes with it as well, too. I think the work from home stuff becomes very quickly when you start to squint at it, a case study for a lot of other things. Because the conversation is still in the binary,

it's going to be like this, you know, everyone working for home all the time, or it's going to be like, nope, it's, you know, that perspective that you just shared of, no, everything's going to go back to normal. there's no nuance, which is starting to be pretty clear if you look at the data. The older and farther into family life, people get them more that they don't want to work into offices. The younger people, like, you know, publication after publication shares these shocked headlines. The 20-somethings want to be in cities where other eligible mates are, you know, which is not surprising at all, right? Like,

they're still building community coming out of college and things like that. And it's actually sort of this interesting generational thing that's happening that is a whole different type of challenge for companies to think about it's not just like should we have a hybrid workforce where you get Tuesdays and Wednesdays in the office but then the rest aren't it's also just catering to different groups on a fundamental level within your company and that's the sort of granularity I think you could apply some of that thinking to you know supply chains like it's not just going to be one or the other it's going to actually be the companies that thrive are going to probably figure out how to serve different types of needs within the same organization right and you see that with a lot of the

narratives that I read about with work from home that they're they seem to be binary Everybody hates it. They're going back to the office. Everybody loves it. They're never going back to the office. Well, neither one of them is true. It's going to be somewhere in the middle. And we're not ready. As you pointed out, we're not ready to have that nuance. And again, you change, you change my work. You know, and how many days I'm at home versus how many days I'm in the office. What hours I work. Maybe I still give my boss, you know, or give my employer eight or nine hours a day. But maybe a couple of them are after dinner. And in the middle of the day, I go do some errands or work out or or long lunch with a friend or something like that, your lifestyle is going to dictate your purchases and it's going to dictate a lot of other things as well, too, as the retailers have found out. Put everything on the shelves like you had in 2019 and they're just not buying them in those proportions right now. So we need to have this conversation about what is this post-pandemic economy? And like I said, most people want to say, there is no post-pandemic economy. It's going back to 2019. Or there's

other people that are saying there is a post-pandemic economy. Everything's different. And We're just not ready to. It's not 1947. 1947, everybody knew 1994 was in the past. We were working on making, we were making planes. We were making tanks. We're not going back there. 100% of the population knew that. And they were figuring out where we were going. We're not quite there like they were in 1947 in terms of the mentality.

So why I understand the 40s overlay, it's right, but it's going to probably play out longer because we're just not ready to admit it. How much do you think there's a geopolitical dimension of this, too? Because it's not just sort of, you know, work habits in America that are shifting. There was this moment at the beginning of COVID where we're like, I guess we got to think about supply chains as in the context of national security. And then that conversation quickly dropped off, right? And it was sort of back to normal. But subsequently, we have Russia invading Ukraine. We have China, you know, with belligerent language, you know, even just today as we're recording around Nancy Pelosi visiting Taiwan, which is an unexpected.

but still, there's this whole set of kind of shifting tectonic plates of geopolitics that have dramatic impacts or ramifications for the economy as well. Yes, absolutely. Reshoring is the first thing we're trying to do strategic stuff that we rely on semiconductors from places like Taiwan, which are politically vulnerable or militarily vulnerable. We ought to start to rethink that. You know, our energy supply chain, we are relying on, you know, not so save reactors, whether it's in the Middle East or Venezuela and stuff to supply us with much needed energy,

we ought to start to rethink that. And then the environmental argument gets in the mixed with that too. So these are difficult questions to start answering. But yet this is the type of environment that we're in right now. And where are we going to go as an economy? And like I said, I think that the longer we talk about this, we have to understand that this means more economic volatility, more economic friction, which is higher inflation, which is shorter economic recovery cycles.

I've been one that argues if we're not in recession now, we might be very close to being recession merely two years after the last one. And that that might be closer to the norm going forward here than the exception. All of that is going to lead to more volatility in financial markets, much higher interest rates on a nominal basis longer term than we've had. And that is going to lead to other issues like the amount of debt service that the country has to pay. It's not a problem now because you only turn over about two or three percent of the debt every year. You got 30 trillion in debt and you maybe refinance about two of it a year. But you know, if you have higher rates for four, five or six years, it can then become very significant. And these are going to be the long-term

structural issues we're going to have to deal with that if we have a structurally more volatile economy, if we have more impediments that leads to higher interest rates, then all that debt that we accumulated during the period that economists called the Great Moderation from the 1980s to 2019, when inflation was low, economic volatility was low, and we could leverage ourselves through a lot of borrowing, is going to be problematic as we move forward from here. Well, speaking of volatility, perfect segue to crypto, of course. How do you see crypto's role in all this. I mean, you know, when you look at crypto, how much are you thinking about it in the context of these issues versus just observing a bunch of nascent, really interesting projects trying to compete

to be born and, you know, with a bunch of markets around them? So I do think that crypto plays a critical role in this. Let me start by mentioning, I like to look at market signals. So let me give you a couple of market signals here. Since 2007, the S&P has 11 sectors. The worst performing sector since 2007 has been the financials. Within the financials, the worst performing sector, barely broken even over the last 15 years, has been the banks. There's a market signal for you right now. I think that they're trying to tell us the current financial system, especially the banking system, I don't want to say it's broken. Let's just say fundamentally it is not the system that can meet the needs for a 21st century digital economy. It needs to change. It is incapable of

changing because it is so slow, it is so big, it is so bureaucratic, and it has this endless sign number of alphabet super regulators that have their vested interests tied up with them, the Fed, the FDIC, the OCC, just to name a few of them, that it's going to have to be disrupted. So I look at crypto and I say that crypto is the disruptive force that a digital economy, especially a post-pandemic economy needs, both in terms of payments. Look, I think the payment system, the current remittance system is actually an act of criminality. It is so slow, so expensive, so obtuse to use, that it almost defies belief that if anybody's had any experience trying to send money from one foreign country to another, from Germany to the U.S. You don't even

have to go with second or third world countries. It is just criminally obtuse, how difficult it is to use this system. Banking system is way too expensive for a lot of people. The ability to raise money to extract value from things is way too expensive. The Howie Test was made because of fruit trees in the 1940s out of Florida. And that's how we determine what a security is. Boy, if that doesn't tell you that that is a system that is just not designed for the 21st century and it needs to change. But yet, we're not ready to have that discussion. Tokonomics is an important part of being able to raise money.

look, my Twitter account, your YouTube account, we don't own it. YouTube and Twitter own it. We extract some rent out of it in the form of advertising, if that. And why can't we extract more monetary value out of it? Tokonomics offers a way to do that. The system of crypto, when I look at the banking system, whether you're talking about defy protocols, you're talking about the Lightning Network or strike, you're talking about ways to disrupt the system.

And when I look at it, I've been a big believer of, yeah, this is what this 21st century needs. We need a new system. And this looks more like what we need than what the current system is providing. I would add, it's hard for Americans to understand that because we are the reserve currency and we are the top of the dollar. I mean, I get people to say to me all the time, what do you mean it's hard to send money? I can just Venmo you with the money. Yeah, if you live in a third, if you live in a first world country and you have a lot

of money in the bank, and you're then escaping from fees, and you can afford a phone, and you can afford Venmo, and you can put all of these things together at once. System treats you just fine. You and the four or five other percent of the population that I've just described. The other 95 percent of the population is not there, and they fall further and further behind in this system, and that's why it needs to change. And what's very clear is the institutions that are supposed to change it, the IMF, the World Bank, the central.

banks, they're more interested in protecting their turf than they are in changing the system. So yeah, I've been a big fan of crypto because I see it as the disruptive force that the financial system needs. How much, if at all, does the fallout of this particular bear cycle, you know, some of these institutional failures within crypto, change that thesis, or is that just the normal shakeout of a new thing being born? I think it's more of part of the new thing that's being born. All new technologies come with massive,

hype, speculation, busts, and the like. About a month ago, I tweeted out a wonderful example. It came from the economist in, I think the Cato Institute, I might be wrong on that, but they pointed out that in 1895, almost one third of the companies on the London Stock Exchange had the name bicycle in it. Bicycles were the blockchain of 1895. If you took a shell company, which we would call a SPAC today, stuck the name bicycle on it, tripled in value. And they've hundreds of, of these bicycle shell companies were issued and floated on the London Stock Exchange, 1895, 1896, by 1900, half of them were out of business. Was that the end of the bicycle?

No, it was not the end of the bicycle. Economist magazine is once referred to the bicycle as the most underrated invention of all humankind because of the ability that it gives to people for either exercise or transportation or freedom. And that might not be wrong in terms of it, but it did come with massive hype and massive speculation. So did canals. So did railroads. So did the telephone. So did radio. So did television. So did mobile phones. So did the internet. This is not new that you get this massive hype and you get this massive speculation with a new technology. What might be new is the

ease to do it. Look, in 1895, not anybody can walk up to the London Stock Exchange and buy one of these bicycle companies that was floating. You needed to know that they existed in the first place. there was no internet. You needed to have some connections to find out a way to buy it. Today, all you need is basically a phone and electricity or an internet account, electricity, and you can figure out how to do it. So this is part of the shakeout. But keep in mind that that's not just to shrug your shoulders.

This is what happens. It's painful. It is very debilitating. It will not only take out all the levered players. The Celsius, the Digital Voyagers, you know, the three Aeros Capitals, they're all going away, but it could also take out unleveraged players like you and me along the way if we're not careful with how we play these spaces as well. So it is part of the process.

Doesn't mean that that process is going to be any less painful just because we say it's part of the process. Look at 2000. When the 2000 peak came, was at the end of the internet? The NASDAQ fell 85%. Amazon stock went from $100 to $6. was at the end of the idea that we were going to buy stuff online, Amazon stock turned around and went into over $3,000, almost $3,500 right after that. So no, it wasn't, but if you owned Amazon in 99 thinking that, you know, internet retailing

is going to be the next big thing. Two years later, you're holding a $6 stock. You had every right to consider whether or not you made an egregious mistake before it worked out. And crypto is going to be no different, at least in that perspective. Listen, Jim, I could talk to you all day about this stuff. I really appreciate your time and your thoughts here. I guess by way of wrapping up, the type of question that I love asking, what's something that you think not enough people are paying attention to? Could be crypto, could be traditional finance, but just something to leave as a little food for thought for folks as they head off the rest of their week. Wow, that's an interesting one. I mean, my gut reaction is to talk about something we talked about earlier, just to emphasize it. Things have changed post-pendendom. Do not mistake that for dystopian, but they have changed.

And we've got to start thinking about what the post-pandemic economy looks like. And within that change, what are going to be some of the needs? I think the new economy is going to be more digital. It's going to be less analog. And some kind of a digital payment system, some kind of a new digital financial system, is definitely going to be needed in that economy as well, too. So that is probably where I think we are. So when I hear my no-coiner trad-five friends go, serves your right, you know, crypto blew up,

you lost 80% of your money and the like. I'm like, yeah, well, that didn't fix the problems that we have with the current financial system. How are we going to go about fixing them? And we start needing to start to think about that. So, yeah, there is a post-pandemic world. And the more we start thinking about it and don't mistake that for dystopia. I know whenever I say that, people automatically think dark negative things. It doesn't have to be.

Awesome. Perfect note to end on. Thank you so much again for your time, and let's do this again. Thank you. Hey, guys, back to NLW here. I just wanted to say thank you one more time to my wonderful guest, Jim Bianco. Also a big thanks to my sponsors, nexo.io, chain alysis and FTX for supporting the show, and of course to you guys for listening.

Until tomorrow, be safe and take care of each other. Peace.