The Breakdown - The Breakdown Weekly Recap | April 25

Episode Date: April 25, 2020

The full week's content in a single convenient long-run episode. Monday | Bearish or Bullish? What Oil, DeFi Hacks and Cash Hoarding Tell Us About Markets Tuesday | From Proof of Health to UBI: How Everything Changes Post COVID-19, Feat. Joe McCann Wednesday | The History of the Dollar System From Bretton Woods to QE Infinity, Feat. Luke Gromen Thursday | We Don’t Need Big Brother To Beat This Virus Friday | Why Bitcoin Is Freedom Money, Feat. Yan Pritzker

Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Saturday, April 25th. And just like every weekend, I am here bringing you a complete run of all this week's episode in one little file of. So you can listen all the way through.

and what I usually do is kind of give my sense of the week that was in the beginning of these episodes before turning it over to the actual episodes. But this week I just wanted to highlight, I think, one point of discussion that is going to be really significant and you're going to hear about a lot more, which is trying to pierce out or parcel out what is likely to happen regarding the dollar. So we're in a situation where historically we would have assumed that, this massive amount of money printing would produce inflation. In fact, that's what we thought going into 2008, 2009, with the relief around the great financial crisis, is that people assume there would be massive amounts of inflation. Now, over the last 10 years, we have seen inflation

in the context of asset prices, right? Stock prices, real estate, et cetera. But not so much when it comes to the actual dollar itself. Over this period of time, in fact, we've seen the development of modern monetary theory, MMT, which effectively says that there's almost an unlimited amount that a government can print if it's doing the right things with that money and remain solvent without creating an inflationary issue. Now, we are doing dramatically more than we did in 2008. If you listen to my episode actually from Wednesday with Luke Gromond and Tuesday with Joe McCann, you'll see just how much more intervention there is now and why, in some ways it's the inevitable endgame of what was started, not just in 2008, but even earlier.

So we're taking actions now that make the chancellor on the brink of a second bailout for banks from the original Genesis block of Bitcoin seem quaint, right? But at the same time, there is this countervailing force, which is that the U.S. dollar is stronger than ever in terms of the rest of the world, right? There is such a huge demand for U.S. dollars. so much so that we're even seeing incredible growth in USD stable coins, right? They're up to $9 billion in total circulating supply, a huge, huge increase on the year. This makes sense if you look at what's happening around the world.

In Lebanon, for example, you have the value of the local currency falling 50% against the dollar since October of 2019, right? And that story is repeated all over the place. So, again, on the one hand, you have the world clamoring for, dollars. And on the other hand, you have these potentially inflationary pressures in terms of mass money printing. And the reality is no one knows exactly how this is going to turn out. Airy Paul has a great threat on this this week, which I highly recommend. And I've retweeted and I'll share tomorrow on Long Green Sunday. But I think if I had one recommendation of something

to go out and spend some time learning about and thinking about, and certainly this is what I'm doing and trying to wrap my head around it, it's this issue. But with that, I'm going to kick it over to the episodes. On Monday, I looked at bullish or bearish, a bunch of different signals from different market actions. On Tuesday, we had Joe McCann talk about how this all plays out in Second Order Effects. On Wednesday, Luke Gromman does an amazing TLDR of the last seven years, or sorry, 70 years of economic history. On Thursday, I look at the contact tracing debate and whether we can deal with COVID-19 without surrendering huge amounts of civil liberties and what the state what the privacy conversation is. And finally, yesterday I had Jan Pritzker from Swan Bitcoin on

to talk about the birth of a Bitcoin-only startup movement and what it's like to start a startup in the context of a global pandemic. So I hope you guys are having a great weekend. I appreciate you hanging out and listening. So until Monday, be safe and take care of each other. Peace. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown.

It is Monday, April 20th, and I should probably make a 420 joke, but I don't have it in me. So today what we're going to do is we're going to look at a bunch of the conversations and happenings and news from this last weekend and put it into one of two categories. So this is a bullish versus bearish, what recent news should make us think about Bitcoin or crypto or the markets at large. basically I wanted to find a way to talk about recent news that wasn't just here's a thing that happened, but put it in some context. And the reason that I think this might be relevant right now is that we're in this very weird feeling in between moment where it seems like in certain contexts

this COVID-19 crisis has plateaued and maybe is on the way down from a health perspective, right? I think New York is the epicenter of this in the U.S. and we're seeing some progress there. now the question becomes how to open up intelligently, how fast different markets are going to recover, how long and how severe the knock-on effects are going to be. And so it's still, although we're hungry for the things around us to be better and back to some sense of normal, there's still a long way to go. And as we try to piece through that, there are real different indicators that can maybe help us understand where we are. Obviously, I'm going to focus a little bit more on the context of the Bitcoin and crypto markets being that this is the breakdown and that's kind of where

our focus is, but I'm not going to restrict it to that. With all that said, let's dive into bullish versus bearish. We're going to start with bearish, and we're going to start with probably the biggest conversation in the crypto world this weekend, which is the Deforce hack. So first, what happened, and then second, why is it Barish? Well, what happened? DeForce is a China-based DFI startup. They run a lending protocol called LendFME, and they had recently integrated in January with I'm BTC, which is an Ethereum token pegged one-to-one with Bitcoin. Well, that seems to have caused quite a problem. Over the weekend, $25 million that were locked up in LendFME through D-Force were exploited and basically gone almost immediately. So Mindao Yang, the CEO of D-Force, wrote

in the recap of this attack, we know that the hackers used a vulnerability with the combination of using ERC 777 tokens and Defy Smart contracts to execute a re-entrancy attack. The callback mechanism enabled the hacker to supply and withdraw ERC 777 tokens repeatedly before the balance was updated. So for those of you who are interested, there's a lot more that you can get into in terms of the specific way in which this was executed. But the key thing from a story story, standpoint, in terms of what happened is that a major defoy exploit that led to the loss of $25 million. Now, currently, they are, DeForce is talking with both the attacker as well as law enforcement.

So we'll see what happens, right? The story isn't exactly done, but that's the big banner headline, 25 million gone in a defy exploit. Why is this bearish? Well, I don't think this is super complicated, but let's get into the specifics. First, they had just received, DeForce had just received money from multi-coins. a $1.5 million round. It was announced excitedly, I think at the beginning of or middle of last week.

And so a lot of folks were talking about the rise of defy in Asia and why Asia was going to be an increasingly important market vis-a-vis defy. We've seen this in the context of USD-backed stable coins that have been hugely on the rise in Asia and around the world, really, as the world hungers for dollars in the wake of this COVID-19 crisis. So they had just received money. so this is a particularly bad time because it really slams the door in the face of that excitement. Second, this was not a platform that was without controversy already.

There had been accusations that the Deforce had outright stolen compounds code for Lendefme, right? The first iteration of their code. Now, I think that this is a little bit more complicated than it seems, if only because what it means to actually be open source and copy is, I think, a reasonable debate or discussion to have, but still, there are a lot of folks who are not the biggest fans of DeForce already because it was pretty clear that they had taken the first iteration of compounds code for this lending platform. You can discuss whether that's right or wrong in the context of open source, but it was a thing. So you have this exploit from a platform that

already has controversy around it. Third, this was apparently a known vulnerability, this IMBT hack, which had been used in other exploits and which had been discussed in an audit of uniswap by consensus last year. So that's really kind of rubbing salt in the wounds when it's one thing if there's new exploits, you know, unknown unknowns that happen, which still, by the way, hugely increased the risk profile of defy as a whole. But when it's a known potential exploit and it's not addressed, it just seems extra irresponsible. So that's a third part about why this is so bearish. Fourth is just the obvious one, which is what this does to the defy narrative, right? Defy had been surfing on a wave of excitement and look at all these things that it can do and,

you know, big interest rates for lending and holding your assets, locking up your assets, and then a huge vulnerability comes along. Now, this is a kind of still secondary platform relative to, I think, a lot of the main brands in the space so far, even though it was growing quickly. and so there are, there's countervailing forces, right? Like, at least this wasn't MakerDAO. Still, the biggest challenge that Defi has is for people to believe that it's not just going to be an endless series of exploits, that it's actually safe, and that it can be safe in a way that preserves decentralization.

And that's a very, very tough task. This sets that back. And I think it sets it back at a time when Defi really wanted to be pitching and articulating a narrative for itself in a post-COVID-19 world where people want a different type of larger financial system. It seems, frankly, that this just isn't ready for prime time, or at least this type of thing increases people's perception and belief that it isn't ready for prime time exactly at the time when it would be good to be ready to move in. So it's just bad timing, but I think highlights the risks and why Defi is still so nascent. I don't think it's the end of

defy by any stretch of the imagination, but it is a rough couple days. It's a rough exploit, and certainly the community is grappling with it now. That's our first bearish in Bullish versus bearish. It's hard to say. Let's move on. Next up, we have Bullish. Another widely chattered about bit of news was that the Renaissance Technologies, which is a hedge fund that manages something like $75 billion, a really a collection of funds that has $75 billion in total assets under management, has opened the door in a legal filing to investing in Bitcoin futures via the CME. Specifically, they are open to investing in Bitcoin futures via the CME through its $10 billion Medallion Fund, which is a smaller fund within the larger $75 billion.

Why is this bullish? Again, it's quite obvious in some ways, but one, just generally showing that there's more interest, right? When you see clear indications that a major institution, a major player from the traditional financial world is more interested in Bitcoin, that's a good thing, right? That gives more people permission because of signaling to actually go spend time figuring out what their feelings about Bitcoin are, right? So that's one. There's just a general positive impact when legacy players open the door to getting involved in Bitcoin. Second, this is a particularly well-timed bit of news

or announcement given that just this week, Renaissance was written up in the Wall Street Journal for how they are massively outperforming the markets right now. So on Friday, the Wall Street Journal reported that they had gained 24% year-to-date, even in the context of this massive market volatility, even in March, which was obviously just wild for everyone, they had grown 9.9%. And this is after fees, and they have very, very hefty fees. So this is actually looking like it might end up being one of this fund's best years. So the fact that this fund is making news on the one hand,

for its performance in a very difficult time, and at the same time as making news for opening the door to Bitcoin Futures is a bullish signal for Bitcoin, no doubt. All right, our next up is another bearish. We're going to talk about oil, and like I said, I'm focusing mostly on the Bitcoin in crypto context, but it's hard not to see everything as somewhat connected in this crazy moment. So what happened? The price for a barrel of crude to be delivered next month, so futures, fell 40% to $11 in Monday's trading, which is the lowest price in two decades. Now, it's no secret that oil has been just battered, and this was going on almost independently initially of coronavirus in the context of this kind of issue between the

Saudis and Russia in terms of production, but it's being exacerbated now by the huge demand shock of COVID-19, right? People just aren't using oil. They don't need oil. They don't need oil. We're not moving around. And so there's all this oil floating around in the markets because of this other thing going on. So you have a supply shock, a massive supply increase and a demand shock all at the same time. And it's creating just chaos in the oil markets from a financial standpoint. Why is this bearish?

What does this have to do with what we're spending our time on over here in Bitcoin and Crypto? Well, I think that part of it is just it's representative of a larger set of knock-on effects of COVID-19. that we're just beginning to see now. As much as markets are trying to remain calm and price in the idea that everything is fine, it seems to me that almost no one who's really paying close attention is really buying it.

It feels like this is the end of the beginning of coronavirus, not the beginning of the end. And those knock-on effects could be really significant. China is reporting fears around a potential food crisis. So it's not like this thing just goes away. It's not like we just kind of press a button and everything is back. And so in that context, there are a large set of actors for whom Bitcoin remains a risk on asset. You know, we've seen this over the last month and a half that when people had to flee to liquidity,

when people had to flee to cash, Bitcoin got caught up in that as well. And so while the rest of the market remains volatile or even goes back down again, Bitcoin is likely to remain suppressed as well. So in that way, this is bearish, right? the things that go on in the larger markets, which I'm using oil as kind of an example right now, do potentially have an impact on Bitcoin. Now, there's a whole bunch of caveats with the bearishness of this one. Cavieought one is that it's really all about your take in terms of your time preference as it relates to bearishness. Obviously, the short-term price of oil doesn't actually have anything to do with Bitcoin as an asset and the value proposition of Bitcoin as an

asset. So for those who are looking at this as a larger period of crisis, which frankly is what kind of Bitcoiners are pretty well suited to, it's a good buying time, right? If the price goes back down, they're going to see it as a good buying time. One of the things that last month's crash really showed us is where that bottom level of buyers of last resort, Hodlers of last resort exists, and it's pretty strong. That's part one of the caveats. Caviot two, to the extent that markets do continue to flail. And to the extent that the position of central banks is to intervene at all costs, to have unlimited cash, to have unlimited credit and lending facilities, it continues to make the intellectual point for Bitcoin, which really just keeps pushing this industry to new people,

right, from a narrative perspective. And in fact, that caveat number two perfectly brings us to our next bullish indicator, which is stimulus cash on Bitcoin. All right, stimulus. Stimulus. cash on Bitcoin. What happened and why is this bullish? So what happened? Coinbase noticed a spike in $1,200 deposits. So obviously last week, US citizens finally started to get their stimulus checks. And Brian Armstrong, the CEO of Coinbase, posted a picture of a chart, which showed basically the percentage of transactions on Coinbase that were exactly $1,200. They had been floating for a long time around 0.1%, right? That's their base level. And suddenly they spiked at the exact moment that these checks started to hit, 4x growth to 0.4%. So 0.4% of these transactions were exactly

$1,200. Now, CoinDesk and the block went out and talked to other exchanges. They talked to Binance, who seemed to confirm the same. This is a little anecdotal. There's a lot of information that we don't have or contexts that we don't exactly have. But still, I think it's, there's it's highly unlikely that this is a pure coincidence, right? When you see just how precisely this bounce lines up with the actual distribution of these $1,200 deposits. So why is this bullish? I don't really think I need to go that deep on that. Obviously, the fact that there are people who are taking and choosing to deploy this capital, this influx from the U.S. government into Bitcoin shows that there's a real strength at the like this base hodler market and potentially strength.

strengthen new people who want to come in. Obviously, there's a lot of folks for whom that $1,200 not only is not expendable on Bitcoin, but is barely going to be enough to cover what they have going on. But it is good to see that for those folks who don't need that money immediately, but who, because of the way that the stimulus worked still got it, are deploying it against this asset that we're so excited about. All right, one more round of Berish and one more bullish. So Berish first. Russian cash hoarding. This is a little bit of a weird. one, but bear with me for just a minute. So what happened? This was from a coin desk article that was relating something from B&N, Bloomberg. Basically, one trillion rubles were withdrawn in March from

ATMs and banks, which was more than all of 2019 in Russia. So basically, whereas the U.S., folks in the US as the coronavirus hit were hoarding toilet paper, Russians were actually hoarding cash. Now, why were Russians hoarding cash in the U.S.? I think you can debate a lot about different kind of psychologies, different banking infrastructure, different banking rules around taking out cash, different perceptions in media about what the impacts might be, yada, yada, yada. But the key point from a what happened standpoint is more was withdrawn in March than was withdrawn in all of 2019 in Russia. So why is this bearish? One of the subtext, one of the potential second order effects of coronavirus and this crisis is more and more incentive and more

justification for governments to eliminate cash entirely. So there's a lot of different pieces of that narrative, but the health impact is one of them that's been the most surprising, right? So, you know, if the coronavirus can live on cash, that's one thing. Even issues with technology as it exists now, where you have to press, you know, a pinpad or whatever as you're paying with your ATM, all of these things suggest for more digitization of money, which on the one hand brings with it a lot of benefits of convenience, but the biggest issue, of course, is privacy. We're dealing with so many new privacy issues or expanded privacy issues because of COVID-19. Right now in the U.S. we're having a national conversation about contact tracking and tracing that relates to how we manage a continued public

health threat. And that was a part of a conversation last week on the show as well. So this idea that folks in a country are withdrawing a huge amount of cash, I think is going to naturally make governments want to have more control over how cash is withdrawn. And if you do have a purely digital system or a massively primarily digital system, you can exert more control over the actual flow of cash, right, of money in ways that might not be great for individuals, even if they are justified on the basis of keeping the system running. So I think that this Russian cash hoarding is one tiny example of a much larger phenomenon that is bearish for those who think that privacy preserving cash is an important part of the

monetary ecosystem, which is that governments just have more incentive and more justification for trying to eliminate cash than at any time before. So that's our last bearish. Let's get to our last bullish. This is a fun one. This is a great story of community. Yesterday, Huddled American, who's a very vocal bitcoiner on crypto Twitter, on Bitcoin Twitter, wrote a thread that started, I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job.

The dollar buys a nickel's work. Banks are going bust. Shopkeepers keep a gun under the counter. And it goes on. And it's basically a big invocation to go sack stats. So later on in the thread, he says, I want you to sack sats. I don't want you to protest. I don't want you to riot.

I don't want to write your congressman because I wouldn't know what to tell you what to write. And it ends. But first, get out out of your chairs, open the windows, stick your head out and yell and say it. I'm stacking sats and I'm not going to take this anymore. And then he says, lull, I got bullish off my own tweet, had to do it. And he showed a purchase record of more BTC. So this is fun. This is very on brand.

This is part of what I think makes the Bitcoin or ecosystem so interesting. and so fun is that it has these voices who are unafraid of just being permables and screaming over and over and over for anyone who needs to be reminded of how big a base community there is. And when we're talking about trying to invent and frankly meme our way into a new way of looking at money, you actually kind of need those missionaries, right? That's just there's no way around it. So that was the original context. And then a person by the name or who goes by Atlas at Ancap Children wrote,

You can only respect when a man puts his money where his mouth is. I salute you, sir. And if minimum wage in my country wasn't 2,500 USD per year, I would be buying sats like a crazy person. I've been doing my part, though. I'm not all talk. It took me two months and it's almost nothing, but here's what I got. Greetings for Columbia. I will never let them steal my money again.

You inspire me, bro, for real. And he showed basically his Bitcoin account, which had the equivalent in USD of effectively 20 bucks. And so this is a person who's from Columbia, who's, you know, bought into this idea of Bitcoin. He wants a way to have his wealth in a place where it can't get stolen either literally or figuratively in the context of inflation. And so Hoddle American responded, send me an address. And here's what happened next. Hoddle said, boosted, good luck on your journey. You cannot sell the million stats. I just sent you for 10 years. That's our deal man to man. So basically, Haudill sent him a million sats. It's equivalent of about 70 bucks, US, and an interesting thing happened. Other bitcoinsers started to chime in. And all of a sudden, there were 50 people who had sent him a few sats and then 100 people who had sent him a few sats and then 150. And all of a sudden, it became this mission to get Atlas to be a full whole coiner. And when all was said and done, close to 200 people contributed across lightning and

other ways, and he became the world's newest hole coiner. What is cool about this? I mean, first, obviously, an individual's life changed, and I don't ever want to diminish that, right? It's so easy when we talk about big patterns and big trends to lose sight of individuals, but this is a person for whom arguably their life just changed in a meaningful way because of a random set of internet strangers and internet interactions. So that's one. Second, I love when you see Bitcoin Bitcoiners putting their money where their mouth is as a community, right? This is a group who are often unwilling to even be called a community. I think that most Bitcoiners would rather be seen as a set of people with a kind of a similar outlook who can come together when they need to,

to do things to influence the world, but also who operate in kind of their own spheres. And I love seeing that these moments where they actually do come together and they manifest a community, even if it's for just a short time. That's part two. Part three, individual matter. It matters when you have these stories. These are the things that change people's sense of the possible. People's sense of the possible is dictated by what they have seen, what they have experienced. When you have the example of this group of people who are interested in this different future of the world actually showing up and doing something, it's going to impact how people look at that group of people. Now, maybe it'll only be insiders who know this, but who cares? Right now,

it's okay for us to be focused on who we want to be as insiders, who we want to be as early adopters. That's going to set the tone for when new people come in. So I loved seeing this. I think it's an amazing community initiative that just kind of spontaneously happened. It's the type of thing that couldn't happen outside of the context of Bitcoin and the internet. So I love it. It's as bullish as you can get to me. All right, guys. So that is bullish versus bearish. A few different stories, a few different conversations from the weekend and where they leave us. Like I said at the beginning, I think we're in a weird in-between moment where there's going to be a lot of mixed signals for a while. There's going to be things getting better, things getting worse, things that

we didn't realize would be better, things that we didn't realize would be worse. And all we can do is we try to navigate it is just kind of come into it open and do our best to understand what the signals are telling us rather than trying to map it onto some pre-existing mental model. So that's what I'll be trying to do. I've got a bunch of great guests this week that will help us with that. So thanks for hanging out, as always, guys. And until tomorrow, be safe and take care of each other, all right? Peace. Welcome back to The Breakdown, an everyday analysis, breaking down the most important stories in Bitcoin, Crypto, and Beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Tuesday,

April 21st, and today we are continuing our exploration of what comes next. We've been in this crazy, liminal, in-between moment where it feels like the superstructure of the economy and society around us is shifting in ways that are both new, but also accelerated by virtue of the coronavirus and the shutdowns and the economic fallout from all of that. And I think we're now at a point where a lot of us are trying to make sense of what happens next. How do we understand the second, third, fourth order effects in a way that allows us to actively walk towards them or understand our place within them rather than just kind of letting them happen to us.

I think there's a real hunger to interact and act upon the future rather than just letting it act upon us as we have been acted upon by this COVID-19 crisis. So today my guest is Joe McCann. Joe is a really interesting, very diverse thinker. He's currently at Microsoft. He's spent years in the open source community, in technology communities, in the crypto communities. He's been a regular markets trader and a crypto trader. He's run crypto startups and fundraised in the venture capital market.

So really interesting and diverse perspective. But he recently published an essay called The New New World Order. And today we effectively go through a bunch of his arguments. This is an essay that was a way for him to explore. the second and third order effects. It starts with localism and the beginning of the end of globalization, leading into the roaring 20s of inflation as manufacturing comes back home and UBI becomes the backstop from the sticker shock of prices of goods inevitably rising in the U.S. We talk about how QE Infinity has expanded the wealth inequality gap and why it's created

nationalization by proxy. We talk finally about this idea. of national health care as national security and why microbes are this decades terrorists. We even get into proof of health and why a blockchain might be the right way to deal with proof of health, an inevitability he believes, given that we already have a world structured on proof of identity. It's just the next logical step. It's a fascinating conversation. It's a fascinating essay, and I really encourage you to read the whole piece. But for now, without any further ado, let's dive in to this conversation about the new, new world order. As always, long interviews are edited very, very lightly. So knowing that, let's dive in. All right,

we are here with Joe McCann. Joe, how's it going? Doing pretty good. How are you? I am well. Thank you so much for hanging out today. So as we were just talking about before, you wrote this awesome essay, you published this awesome essay over the weekend called the New New World Order. And, you know, we've been talking a lot about on the breakdown, this theme of second order effects and trying to wrap our heads around what the world post-COVID-19 looks like. And so that's where I want to kind of spend a bunch of our effort today. But before that, I wanted to just wonder if you would give everyone a sense of who you are, how you relate to the Bitcoin and Crypto World, what you spend your time on, just so they have context before we dive in. Yeah, sure. So I am professionally.

I've been a technologist and a trader for about 20 years. Currently at Microsoft in the cloud and AI division. But prior to that, most recently, actually, I was running quant trading at Passport Capital as a hedge fund in San Francisco exclusively for cryptocurrencies. Prior to that, I was a CEO and founder of an open source enterprise software company called Node. Source, which is the Node.js company. So my background is colorful. It's kind of all over the place.

But as it relates to crypto and my interest in it, as a trader on Wall Street back in, it was a while ago, 15 years or so ago, when I realized that trading was kind of moving all to machines and algorithmic trading for stocks and bond options, et cetera, it kind of took a lot of the, I'll say, the fun or competitive nature out of trading and just moved it towards software. And as crypto kind of bubbled up over the past 11 plus years, I saw kind of like a resurgence in trading, but also a huge sort of new paradigm shift around the innovation of trading, especially an asset that's 24-7, 365, has really no rules around it. And the data and information being all open, which is very different than Wall Street. So that's what kind of got me back into crypto more heavily. I read the Bitcoin white paper early on and kind of got it straight away from a technological standpoint and understood the power of how disruptive blockchain could and should be.

But I'm also a trader at heart. And back in 2010, 2011, there just wasn't, there was no real market opportunity from a trader standpoint. That has obviously completely changed today. And it's one of the reasons why I still still keep a pulse. on a lot of the trading activity around crypto. You know, it's interesting. So we're recording this on Monday.

Oil has hit $0 a barrel. And I was just joking on Twitter that it's the year of things that we never could have imagined being possible being possible. And I feel like it's one of those things that we couldn't have imagined possible is that every market in the world would all of a sudden look like crypto markets in terms of volatility and unpredictability. Yeah, it's interesting you say that because as a trader on the street many years ago, I traded on a desk where we were called volatility chasers.

We would basically chase or trade anything that was volatile. So we didn't even know what the company did. We just knew that the stock was up 10% pre-market or was down 20% pre-market or during, you know, something happened during the day or the Fed would announce their, you know, cutting interest rates or raising interest rate. and the markets would go crazy around 2.30 Eastern time and things got really volatile. But that has subsequently been sort of dampened for the past decade plus with the Fed's monetary policy of kind of, you know, keeping the volatility relatively, you know, subdued. And that has serious consequences.

It has what I call or what I think Teleb followers would call a tail risk event where you've kind of, You've pushed out this volatility, these little nix and cuts over the past 10 years to some massively explosive event where assets get repriced really quickly and volatility reenters the market. But as it relates to crypto and how things are all trading like crypto now, that's what's so interesting is that if you've been trading Bitcoin, especially or crypto in general, especially using any leverage, these 20, 30, 40 percent swings are just part of the deal. you just don't think to see that in the oil markets or in the bond market or the stock market,

not at the level that we've seen it over the past six weeks. And so frankly, I think it's actually given crypto traders an edge in trading some of these because the intestinal fortitude of managing positions with 20 to 30 percent swings or, you know, seeing oil quite literally print zero today is something that you could only imagine. in trading crypto. And I think it actually is a bit ironic that the volatility associated with trading Bitcoin right now is nothing in terms of trading some of these other sort of traditional or legacy assets. Perfect segue for getting into this. I think he touched on a bunch of the themes actually from

this piece. So the new, new world order. I guess let's start by what was the inspiration for actually writing this. I mean, it feels like a piece where you, just like needed to sit down and actually think through how all these second order effects were going to relate to one another. But what was the context for it, I guess, for you? Yeah, it's a great question. So I actually love writing. And I don't really get to do it enough for various reasons. You know, our attention spans tend to be, tend to be a little preoccupied these days. But I do really enjoy writing. And I think the thing that I was trying to, you know, I didn't expect it to kind of blow up the way it did. I just, I see patterns and have seen patterns for my entire life. For various reasons, whether it's, you know, living in a bunch of different locations around the world, experiencing different cultures, working in different professional settings, whatever these sort of experiences might be, you can start to sort of discern or distill patterns from stuff. And when you see these kind of giant macro secular paradigm shifting things happening,

vis-a-vis COVID, the global financial crisis, 9-11, you know, these kind of like cornerstone big moments in human history when they happen, what I look for are the things that I don't think other people are looking for. And that's where these kind of interesting patterns intersect. and potentially lead towards, you know, pretty dramatic changes, whether it's in terms of human behavior, you know, interesting new inventions or ideas or the fall of certain ideologies or the rise of other ones. That was really the impetus. It's like I just saw all of these kind of connecting points and had to find a way to weave it into something that made sense.

I did not expect it to be 7,000 words. And I actually kind of cut myself off. because I'm like, nobody's going to read this. This is 28 minutes long on medium. And it turns out there are people that will still read a long-form piece as long as it's got something compelling to say. Amen. You're talking to the guy whose newsletter is called Long Read Sunday. So I love it.

But what I want to do, I guess, is usually I would just jump around in the conversation. But I think let's start by actually going through in the first sequence, at least, the first couple bits that you put together, starting with local. That was your first section. And so you started with the beginning of the end of globalization has begun. And really, it's an interesting section that has a lot to do with this idea of financialization. So talk to me about financialization and how it relates to the beginning of the end of globalization. Yeah, great question.

So the term localism, I'm not by any main taking credit for it. I think it was surfacing around the internet recently, is, is, is not de-globalization, but it's kind of like an inversion of globalization. And so my claim or assertion here that the beginning of the end of globalization has begun is largely more along the lines of the pendulum is swinging away from globalization. So 40 years ago or over the past 40 years, and I use this 40 years, you know, duration throughout the piece because I think it's important in terms of how big changes take that are secular in nature and global, for that matter. Over the past 40 years, we've seen,

particularly in the United States, which, let's be clear, is the largest customer or the biggest market for anybody on the planet, we've seen the U.S. kind of dismantle and remove a lot of these international trade barriers, whether things through things like NAFTA or other policies that have been put in place to, you know, more or less look for cheaper means of production of goods and services and and create this sort of global market or globalized market, if you will. At the same time in the 1980s, we started to see an uptick in the fascination of financial engineering. There's a woman that wrote a book called Makers and Takers, which I recommend to people all the time. It spells out how the financialization of America has fundamentally changed.

corporate America and incentives around it. And I kind of dive into a couple of things in the piece that spell out why the dismantling of international trade barriers coupled with this financial engineering has created what I see as potentially devastating implications for U.S. trade and ultimately supply chain management, manufacturing, creation, and finally, innovation. And what is financial engineering? So I'll give you an example. There are all kinds of unique ways that a CFO at a Fortune 500 company can calculate their earnings or their revenue or do certain things to tweak, you know, capitalization rates or utilization rates and change the way that the numbers ultimately work out.

That's kind of like a tactical way of doing financial engineering. The other ways of doing financial engineering or the incentives around it are anything we can do to grow the stock price. And if you grow the stock price by doing things like laying off, you know, tens of thousands of workers or shuffling money around as opposed to investing in research and development or capital expenses, you can absolutely, in fact, increase the price of the stock, but you're not actually doing anything long term to build kind of an innovative or sustainable business. And I use GE and Jack Welch as an example, because the Wall Street's sort of media arm, whether it's Bloomberg, CNBC, Financial Times, Barron's and I'm not calling them out as bad actors, but this is the cohort of folks that dominate

financial news. They actually have held Jack Welch in such high esteem as this incredible CEO who created so much value for General Electric. And unfortunately, that's just simply not true. What he did is he created value for the shareholders. He caused GE's market cap to to swell to $400 billion. But the way he did that was not by investing in R&D or CAPEX. In fact, he reduced it. He also fired 112,000 employees within his first five years. And the majority of the market cap for GE actually came from its financial services

arm GE Capital, which I believe peaked in 2000 at making up something along the lines of $96 billion worth of their market cap. So the point that I'm trying to make is that folks like GE are now suffering because instead of focusing on the long term and investing for innovation and new capabilities, they decided to shuffle money around in this unique sort of financial wizardry, if you will, to prop up the share price. And that coupled with this kind of, uh, this move away from relying on cheap labor and services outside of the United States is one of the reasons why I lead into this thought of,

well, this is going to have to change. We're going to actually have to treat not only the impacts of things like share buybacks that artificially inflate the price of a stock, but also things like, hey, if we're reliant on our pharmaceuticals to come out of a place like, I don't know, China, that's probably a national. national security interest that we should actually look deeper into. So there's a bunch of stuff that's really interesting here. One is this theme, which is coming up more and more of a recognition of the stock market and stock prices as a political utility, right, as a political scoreboard more than as a measurement of expected future earnings from dividends or whatever else it might have once been. And the interesting thing about that is that I don't think that this recognition is necessarily

new, but you're starting to see the popular narrative. have specific boogeymen that can point to vis-a-vis financialization such as buybacks, right? The fact that buybacks are such a point of conversation as it relates to these bailouts, I think, validates your point that there's a shifting narrative here. Now, interestingly, the way that you kind of end this section has to do with this prediction around domestic manufacturing, which is something that I think a lot of folks are waking up to and having a conversation. And one of the things that's kind of fascinating to me about that is that it's largely bipartisan, right?

This awakening. Now, some people on both sides of the aisle have had this as a major hot point issue for a while. But for a lot of folks who are just kind of like run-of-the-mill, you know, haven't really thought about it before, the idea of domestic manufacturing and having control over at least key supply chains being an important issue is really on the rebound right now, probably with pretty big implications for how the next couple decades of American industry are designed. Yes, I mean, I completely agree. I think the interesting thing here is that on the one hand, you could say the right or the Republican Party or conservatives, whatever you want to call the right in the United States, they have been all about your sort of free markets, It's pro-capitalism, you know, whatever it is to basically get rich, right?

Make more money and if you work hard, you deserve to take more, and the government deserves to take less and all this good stuff. And on the left, you know, you've got this kind of like this idea that, well, if the people at the top are making so much money, it's difficult for working class Americans to actually also make money. So we need to have some level of fairness associated with the market that we're creating for employment. And the kind of sticking point for both of these that, oddly enough, is aligning these two very fractured political ideologies, is the idea that we no longer should be relying on, frankly, China or other countries to manufacture goods because they're cheap.

because it is now causing this sort of national security risk. I mean, the fact that we don't have, you know, cotton swabs of readily available or, you know, sort of gloves or in New York City, I saw something along the lines that the hospital workers were looking for rain ponchos for protective gear. I mean, this is wild to think that this is the case. But when you continue to abstract away domestic manufacturing for goods like that, and more importantly, the innovation around developing new, like kind of the modern assembly line,

we kind of put ourselves in this very weak position. And it is a bipartisan issue at this point to say that, hey, maybe we should decouple our dependency on China and do stuff more at home. You know, I think there's a guy named Matthew Stoller who's a staunch liberal Democrat who shares this view. And as I mentioned in the piece, Larry Cudlow, who was famously known for being a CNBC financial news pundit, is now one of Donald Trump's financial advisors, has also floated this idea of actually paying the moving costs for companies to leave China income home. So to your point, this is not an issue that folks in the United States political spectrum are wildly divided on it. If anything, it's a galvanizing kind of issue that I think will bring a lot more people together. Well, and interestingly, so two things. First, Japan in its stimulus package actually included incentives for companies to bring industry back home from China in the most recent kind of COVID-19 stimulus.

So that's an example, a template for that happening elsewhere around the world. But also, I don't know if you saw it yet, but Biden's first big, full-throated attack. on Trump since really consolidating this thing came out maybe yesterday or the day before. I saw it because Joe Scarborough had gone viral with a tweet saying it was the most devastating political ad he'd seen in, I don't know, a decade or something like that. And it's literally two minutes of Biden accusing Trump of being soft on China. So not only is this a thing where like there's not clear political lines the way you might have thought, but it's actually a race to see who can be the most kind of focused on this mega.

a threat. But of course, there are implications, right? This whole document effectively is an exploration of second order effects, which have third order effects. So the next part of this piece is effectively a third order effect of what it means to bring manufacturing home. And you call it the roaring 20s of inflation. That's correct. Yeah. So the the roaring 20s reference is hopefully if folks have studied U.S. history at all, a reference to the 20s in the 1900s when we had this kind of boom, economic boom, and it was post-World War I, and it was great time in America. I actually think that we will see as a result of domestic manufacturing a move back towards inflation. So again, over the past 40 years, the United States has seen a constant and steady

decline for the most part of inflation. And the Fed even for the past 20 plus years has had a quote, Fed inflation target that they tried to map to. It's typically around 2%. But we've seen even over the past decade, they've barely been able to produce inflation, mainly because of the monetary policies that they put in place around quantitative easing, et cetera. We can get to that later. So the challenge with bringing domestic manufacturing home is twofold.

One, assuming we can train. our workers quickly enough to adopt modern, you know, assembly line or assembly processes and train them how to use the robots and the machinery to actually manufacture goods at home. Well, we don't have the same environmental or labor laws that places like, you know, Southeast Asia, and particularly China actually has. So a worker in say, and I use this in the piece, in Shenzhen, is significantly cheaper than a worker in Columbus, Ohio. And so this cost ultimately would have to get passed onto the consumer, right? So imagine you try to build an iPhone in the United States.

An iPhone today retails for whatever $1,11, it would be significantly higher than that because we don't have, number one, the supply chain, efficiency associated with manufacturing an iPhone like they do in China. And two, most importantly, labor costs would be an order of magnitude higher. And I think that's the key thing that will change in this kind of new paradigm shift, if you will, as it relates to inflation. The belief that if we see, number one, national security issue around securing our supply chain and manufacturing at home, then two, we have to see inflation come back. It's, which is something. that the Fed has not been able to more or less create or manage over the past 10 to 20 years. So you have an interesting theory for how we deal with how we deal with this or an inevitable

call it fourth order outcome now at this point of a return of inflation, which is UBI. That's correct. So the the kind of fourth level of fact here of actually kind of moving domestic manufacturing home and then subsequently having inflation is, well, hey, man, I don't want to pay $7,000 for an iPhone or, you know, or $20 for, I don't know, like a box of Kleenex or whatever the product actually is, right? Because inflation raises the prices of goods. That's what inflation more or less is in a general sense. So if we have our economy, which is right now still the two-thirds of the economy of our GDP actually is based on consumer spending,

but the prices of goods become much more expensive. And you also have a rough economy from a job standpoint, 20% of folks, there's a 20% unemployment rate, I think, that will be published later this week. Those are the current estimates. Well, how do you prop that up? How do you get people to continue to buy stuff and consume stuff? And the only logical conclusion is universal basic income. And we've actually seen this already with these, quote, stimulus change. The $1,200 for the majority of Americans, how those have been doled out, and if they've even landed in people's accounts, is still a mystery to me.

But we basically had, you know, Republican talking points. And again, this is not, in my opinion, just specific to Republicans, there are also some Democrats that fit this bill, but primarily Republican talking points of, you know, anything associated with socialism is bad. We cannot have socialized anything. And then overnight, that just completely changed. And we went from socialism as bad to depositing money in people's literal checking accounts. I mean, this is a profound shift. And the reason that I think this is super important to recognize is that when you kick something off like this, there is no stopping it. It doesn't, there's no, from here on out, we have to have this.

and they may not call it universal basic income for political reasons, but that's more or less what this is, right? These stimulus checks are some form of income to enable folks to buy the goods and services, in theory, anyway, that are critical to living their life, which also continues to support a consumer-based economy. If you put this in motion, there's no stopping it. And in fact, we saw this already happen with the Fed's monetary policy, around quantitative easing. So quantitative easing is actually socialism for the rich. We saw this in

2008, the huge bank bailouts and the cheap money policy that was then put in place by Ben Bernanke is an example of socialism. It's just for the extremely wealthy. And so you didn't see sort of the rest of America sort of benefit from quantitative easing. And yet once quantitative it's getting kicked off, there's no stopping it. We've actually had to sort of inject it with steroids, if you will, which is what Jay Powell has done over the past few weeks with kind of propping up the markets, if you will. So the logical conclusion for UBI is once you kick it off, there is no stopping it. So QE, which started in 2008, leads to QE Infinity, universal basic income in 2020 leads to universal basecom in infinity from here on out.

So I think that the really interesting point that you make, which is a really key detail for tying QE and UBI together, is you have a line that says it would be political suicide for a politician to stop paying people to feed their families with their stimulus checks. And this, I think, is pointed because you could replace to stop paying, the section that, that reads people to feed their families with for a politician to stop or to allow companies

to go out of business that, you know, correct. Right. And I think that that's what we have seen, you know, this, the shift in the Overton window on what was simply expected from the government backstopping loss. I mean, this is what Chimoth has been screaming about on CNN. And, you know, there's more people, I think now at least, you know, I have been joking that FinTwit has been looking a lot more like Bitcoin Twitter lately, right, vis-a-vis the Fed. But I still think that this is a really important point that we're not just dealing with principles and morality. We're talking about systems of incentives and particularly the systems of incentives around political leaders who can basically,

like already the idea of summoning the political will and wherewithal and having built the political coalition that can withstand doing something like, like, like, letting a company go out of business, even an unpopular corporation, is hard to imagine for most current politicians. So the idea of doing that on the level of kind of individual citizens, once that becomes a thing that is normalized, is just hard to imagine, right? I completely agree. And I mean, I think one of the sort of the more, maybe less savory analogies is to use of like a drug dealer. You know, the second that you kind of offer something like this to someone, it's going to be very difficult to take it away from them going forward.

And I just can't imagine that, you know, with a very uncertain job market, at least in the short to intermediate term, a very uncertain kind of global political and economic outlook, I just can't imagine that politicians are going to take the stimulus checks away. I mean, what incentive do you get as a politician if you play this kind of game theory out? What do you get from doing that? Right? You've basically said, hey, we will do whatever it takes to bail out these corporations and these CEOs that are getting, you know, massive compensation package, by the way,

that are completely tied largely to the stock price. We're going to keep bailing those folks out. But, you know, the folks that are serving folks at diners and, yeah, they don't deserve any more money. It just seems completely assidine to think that a politician would actually take, number one, take that view and number two, execute on it. Well, this is the problem. We've created a situation just vis-a-vis corporate bailouts that it almost implicates this, right? Because people, I think, rightly are looking at the disparity in these two responses, right? You have a PPP program which ran out of money almost immediately, which was distributing up tens and 20s of millions of dollars to major franchises.

It was clearly distributed on the basis of who had the best banking relationships, right? And they're rightly frustrated. And so, of course, there's going to be this demand. It's going to be an extremely popular position to kind of try to equalize it. But they're not going to try to equalize it by doing less for the corporate sector. They're going to try to equalize it by doing more for everyone else. And I think that, you know, so one of the things. though I did want to get you to talk just a little bit more because this is a point that I think

is really important, especially for folks who are kind of new to the Bitcoin space and just coming into it. This idea of cantalone effects, the idea that this monetary stimulus has had the impact of artificially pushing people away from savings and into markets and has actually exacerbated inequality because this is a layer of the inequality conversation, the wealth Inequality Conversation in America that we don't usually get to. And because we don't usually get to it, I think it leads to the ideologue kind of fracturing, right? Where my friends, and I'm sure your friends who don't spend time with this, when they see, you know, people who have a billion dollars over here and them, they get frustrated. And so it becomes kind of reductive and reduced to

these simple things. Like, there should be no billionaires. We're really, we're talking about the inherent implications of monetary policy. So you got into this a little bit. You said the problem with artificially stimulating the economy by expanding the money supply is that savers can't save for retirement safely or with little to no risk. They must invest in risk your assets to get a return. So this is, I think, you know, the legacy of the last 10 years. I'd love you to just touch on that for a minute. Sure. Yeah. So it's a pretty straightforward concept that I think is intentionally hidden from most people. You know, no one asks a question, why does my savings account only give me 0.3% annual yield, right? I mean, why aren't we asking ourselves this question more

frequently? I'm parking money in this bank. They're going to, in theory, use it to lend to other people or other businesses or something, so I should get some sort of return on that. And because the Fed has created a monetary environment that, you know, for many years, and we're already back there now was lending money at zero percent, that dramatically increases not only the supply of money available, but it de-incentivizes, or disincentivizes, I should say, savers, because you can't make any money saving money. And so what's the purpose of money? Well, the purpose is then to spend it. And so you either spend it vis-a-vis a consumer or a business that's buying something that is then generating GDP for the economy. That's the kind of like furthest logical extension. Or you say,

okay, well, I can't just continue to constantly buy stuff. I have to, I have to get a return for my money somewhere. You invest in riskier assets because you have to generate some form of a return for, say, your retirement or, you know, the better sort of longer term standing of your finances. And where does that money flow? That money doesn't flow into safe investments. Treasury bonds are at record lows in terms of what you can get on them. I already mentioned the savings account. This then has money flow into what we call risk assets. So this stock market, venture capital. I mean, venture capitalists have raised records amount of capital every year, year over year for the past 10 years. Is that a coincidence with the amount of cheap liquidity flooding the global market today?

Probably not, right? Or excuse me, probably is probably not a coincidence, right? It's directly associated with it. So the idea that folks are investing in real estate, in venture capital, in startups, in stocks, in these other riskier assets, then creates a mispriced asset, right? And so stocks have been dramatically mispriced because people have no other option but to put money into the stock market. Houses have been mispriced because we've had nowhere else to park our wealth. Our belief is, I'm going to buy a home and in 10 years, five years, 20 years, whatever, it's going to be worth more money. It's operating as some sort of investment vehicle as opposed to a form of residence. All of this has risk baked into it in a way that most people don't see.

And so what we saw over the past six weeks and we haven't seen it yet with the housing market is a dramatic repricing of the stock market, which is and has been radically mispriced for the past 10 plus years. So that, that I think is the implication. But what we're seeing right now, right, is the Fed doing basically everything it can to prevent that from happening. And it seems like it's kind of working. I mean, what's your read on the markets right now with regard to that specific repricing question? Yeah. So this is what's, you know, super messed up about the way that the markets are now functioning.

In traditional, you know, capitalist views, if you will, the idea that a company, you know, gets hit on hard times or has a, hits a huge bump in the road or may have to go bankrupt or may have to restructure or something, this is part of. of how markets work. It's how it's supposed to work, free markets work. And the way that you can get a view into say the health or the long or short term

benefits of, say, owning a stock and a company is the stock price, right? And if the stock price is all of a sudden nose diving, well, it's not necessarily looking that great for the shareholders, but it's also not looking that great

for folks that are higher up the capital structure. So these are folks that actually own either preferred shares, not common stock, or they own corporate debt. For example, the majority of Fortune 500s have been more or less offering up bonds, corporate bonds, for the past many decades, but certainly heavily over the past few years, because interest rates have been so low that they'd be silly not to do these corporate issuances of bonds. But when bonds start to actually go down, then there's real panic and risk in the

market. And so what the Fed is doing, the Fed is by law is not allowed to buy stocks. It's not in their charter legally. However, what they can do is they can buy certain debt instruments. And they expanded the sort of spectrum of assets that they could buy, most recently, down to junk status bonds. And if you notice what has happened over the past few weeks with a lot of these sort of airline stocks and transport stocks like Ford, for example, et cetera, their stocks were taking a hit. Their corporate bonds were also starting to take a hit, which was implying a really bad, a really bad future setup for these companies. But the second that the Fed can actually buy these bonds, they act kind of like a floor to supporting the price. And so

if a corporate bondholder is no longer worried that the company is not going to go under because the Fed is there to kind of buy their bonds and support the price of bonds, well, then they can kind of relax a little bit. And that also then has a downstream effect on common shareholders. If the bondholders are less worried that the company is going to go under, then I should be less worried as a common shareholder and the common stock price then rifts higher. That's exactly what's happened since the May 23rd bottom when we started to see the Fed basically start buying up a lot of these corporate bonds and other forms of debt to prop these companies up. The problem with this is that everybody that's ever taken a finance course or has an MBA that has learned about how to

value public companies or companies in general, those are all useless now because you can no longer get accurate price discovery or make an accurate determination for what the value of a company is, when the federal government would just step up and save those companies from failing. So do you think, I mean, this is kind of your argument that we are effectively showing now the U.S.'s version of how it nationalizes companies and industries? Absolutely. I think that the key thing that dawned on me was we are now nationalized, by proxy. We're not actually going in and saying, we're just going to take this company over, kind of like how in France, I use the example of Air France, is a nationalized airline.

There is no, I mean, there's American Airlines, but they're a for-profit company, right? They're a publicly traded company. They're not owned by the United States. And how un-American is that, right? Could you imagine politicians today trying to tow the party line, whether the Democrats or Republicans, by going out and nationalizing companies? Unbelievable political risk associated with that. But we also can't just let those companies fail, right? There's too big of a risk to the broader economy. And frankly, even from Trump's perspective, his reelection chances go dramatically down if there's a recession in play. So this idea of propping up these companies via corporate bond buying and junk bond buying is not a direct nationalization, but it's a nationalization by proxy.

They're basically saying, hey, look, we are going to prop these companies up. We know that they're critical to the health of our economy and the functioning of our economy, et cetera, et cetera. but we're not going to do the socialism approach. We're not going to do the explicit nationalization approach. We're just going to do it by these corporate bond buying. So in my mind, you're still nationalizing the business, right? Like if United Airlines, for example, and I'm not picking on that, they're just using them as an example, if they all of a sudden have all of their flights

overnight for the next three months get canceled and no one is flying, as a private business, guess what happens? You go out of business. Like you go bankrupt. There is some sort of restructuring process that takes place. But if a government believes that, hey, you know what, it's pretty critical that we enable these airlines to keep this airline company to keep flying because we have, you know, national security reasons or it promotes train or whatever the thing, the reason might be.

Well, that government would step in and just nationalize the company and now it's a part of the federal government and then there's no sort of failure, if you will. The government is effectively propping it up and making sure that it still functions. That is exactly what's happening right now, except United Airlines is not owned by the federal government. It's still owned by its bondholders and shareholders, et cetera. And it doesn't have sort of some sort of regulations or restrictions associated with how they can conduct business or what they're going to do.

the government just wholeheartedly said, hey, we've got your back, right? It's not our, you know, we understand you didn't manage your company appropriately or you didn't plan for a raining day or you spent, you know, X number of billions of dollars in the past 10 years buying back your stock as opposed to, I don't know, investing in other areas where you could potentially weather this storm. We're just going to go ahead and prop you up. And to me, that is one of the most profound thing that things that's happening in plain sight that I don't think a lot of people are really paying attention to is that these industries are now coming with their hands out to the federal government, basically saying, we need $50 billion bailout. That's what we're opening with, right?

Now, imagine you were sitting at the negotiating table. Let's say you work in private equity and you're going to go negotiate a company that's failing. Are you just going to say, here's all the money and, you know, everything's good to go. No, you're going to, you're going to try to ask or take as much as you can from that business to make sure that this business recognizes who's actually in control here, who actually has the leverage. And that's not what's happening with these negotiations with these industries. The executives of these companies are telling the government what they need and the government's granting it to them. And to me, that's just not how capitalism works. That is in fact, nationalization.

A couple weeks ago on the show, Pomp was on, and he basically made the assertion that these companies think that the government is the stupidest guy in the room, and they're taking full advantage of it right now. It's the way he put it. The government thinks that they are the stupidest guy in the room? No, no, no, that these companies think that the government's, the stupidest investor in the room, right? The stupidest person that they could go to money.

They're not going and offering equity on the markets or trying to restructure. They're just going straight to the handout because they think they think they can get away with it effectively. Oh, absolutely. And I would be doing the same thing, right? If you know, so I had a startup where I raised money from venture capitalists and fundraising is a brutal experience. It is super hard and painful and all this stuff, right? If I could just go directly to a source and say, I need this amount of money and they're pretty much going to write me the check for it, I would be absolutely doing the same thing. But the, the question, The problem, though, again, and this is where we get into this kind of socialism for the rich,

eventually leads to socialism for all, is this is what the playbook was written in 2008 for how to do this type of thing. Because there was no playbook prior to this, right? Ben Bernanke and the Fed at that time had to figure out, and Hank Paulson had to figure out how they could, you know, prop up the financial system so it didn't completely collapse. And now we have that playbook. Now recall, General Motors received a bailout back in, I think, 2009. So industry leaders are looking at this going, hey, we know how this works. So why don't we just go do the same thing? As opposed to going to private equity or going to a sovereign wealth fund or going to some other form of investment dollars.

Warren Buffett famously executed one of the greatest trades over the past decade. And you'll have to fact check me on this. but I believe he cut a deal with Bank of America back in 2008. That was a $10 billion preferred stock investment, more or less. So I believe he got preferred shares with a bunch of other fancy Whizbang warrants that only Warren Buffett can put onto a deal. And he ultimately netted about $12 billion from that deal. Those are not happening right now.

And if you're the CEO of a company, why would you? Why wouldn't you just go directly to kind of the most, the dumbest, the most obvious investor in the room, which would be the U.S. government. So there's a ton more in this essay, the second order effects. You go into everything from working class divisions to vocational training thriving and the implication for universities to video as a new platform to global behavior changes. But since I've kept you for coming up on 45 minutes, it'll be an hour before we get through this anyways. I want to maybe kind of shift for just a few minutes and maybe by way of

of kind of wrapping up into this kind of this section, this three-part section you have on the idea of one, national health care as national security, two, the likelihood of us seeing proof of health, and three, this idea of trusting less than verifying and why proof of health might actually be a legitimate and real-world use case for blockchains. Yeah, that sounds great. As I was writing this, I was trying to think what is the kind of main key thing that I want people to take away from this? And it's hard because as you mentioned, I cover a lot of different topics and they do kind of intersect and wind together in some respects. But if there was one thing I want people to take away from this is that there is now an obvious reason for a national health care system in the United States. and that is because it is now a national security interest.

And the implementation of it is something that you had mentioned around this proof of health, and this is where blockchain can come in, et cetera, et cetera. But let's stop for a second and kind of discuss this national health care as national security concept that I'm asserting here. So for decades, the United States has become the most armed country in the world. We dwarf every other country in the terms of a number of handguns and rifles and assault weapons that citizens actually carry. In addition to that, we outspend every other country on defense except for China by an order of magnitude. And we do, I think about four or five X what China does on an annual basis.

So we are very capable of defending our citizens. yet somehow a microbe has brought the country to its needs. You can't shoot a virus. You can't drone bomb it. You can't torture it. You can't do any of these war-type tactics against a virus. And so how do we defend against the current virus and future viruses? My argument is that through universal immunity, I think we have to actually truly invest in

health care as almost national defense. You can see what happened after 9-11. We seriously over-indexed and caused two wars in two different countries that cost many people lives, not just Americans, but people all around the world, particularly the countries that they were being fought in, trillions of dollars of U.S. Treasury spent on these wars. But we really haven't had a terrorist attack on home soil since. Now we have this virus that has more or less attacked the United States. Are we going to allow that to happen again? Likely will see us over-indexing similar to what we did with 9-11 and creating bureaucracies and potential agencies like we created Homeland Security after 9-11. We passed the Patriot Act after 9-11. Something similar, a similar pattern will

likely surface for managing these microbes as the new terrorist, right? That's kind of the line that I use is that this decade's terrorists are, in fact, microbes, and how do we defend against that? Well, you have to have an immunity plan for your population. You have to have folks that can be alive, well, healthy, but also, once those folks are alive, well, and healthy, they can then go back into their communities, they can go back into stores, they can buy things, they can work, they can generate economic output, et cetera. But there's only one problem. How do we know that you're actually immune? How can we be sure that you are in fact carrying, you know, the antibodies or you've received the vaccine or something along these lines? And this is where I get

into this concept of proof of health or digital immunity, you're going to have to be able to not tell someone that you've had a vaccine or not show them a piece of paper that says, yeah, I've got the coronavirus vaccine and I'm good to go. There's going to have to be some way to prove it. And in my opinion, the only way to implement something like this is by leveraging a public blockchain. And I'm not going to pick some, you know, Bitcoin, Ethereum, doesn't matter. The idea that a decentralized system of record that is tamper-proof, that is globally redundant, that is fault-tolerant, that cannot be coerced by a nation state or a company or an individual, but also enables you to easily verify data that exists on this chain from basically

anywhere in the world is the only way I think that we can actually genuinely do this at a global scale. And I'll give you an example, right? So if let's say the United States determines, all right, we're going to create this kind of proof of health, digital passport, if you will, we're just going to run it on our, you know, Microsoft Azure Cloud, or we're going to run it in Amazon's AWS or our own data centers, et cetera, et cetera. Well, there's two problems with that. One, how do I go to Canada? How does a Canadian come to the United States or anybody for that matter? And then two, well, is the system that we're using in the United States similar to what people in

England are using? And is that different than people in South Africa? So you need this kind of universal agreed upon standard, which is non-trivial to pull off. Let's be very clear for how everyone is agreeing on how to validate a level of immunity or or healthness, if you will, of an individual. And so if you can get every leader in the world and they're kind of like, you know, top-tier health officials to agree on what the standard looks like

for proving your health, and they all successfully implement that standard, how can we trust each other? You can't. And I think for anybody that's been in Bitcoin or understanding decentralized or distributed system, or peer-to-peer systems, understands that one of the biggest value props that Bitcoin and or blockchain bring to, I would say, technology and humanity in general, is the minimization

on trust of people or institutions. We're seeing and have seen, and I've tweeted about this for quite some time now, a full breakdown of trust in our institutions. If you need any further proof, just look at what's happening with coronavirus. The breakdown in trusted institutions continues to erode, and there needs to be some way that we can all kind of trust each other without having to actually trust each other. And in my opinion, the only way to do that is to hash your information, store it on a chain, and have someone be able to actually verify against that. I'm open to other suggestions, but the idea that a diplomatic solution to trust, trusting data that's coming out of, say, Iran, North Korea, China, or even the United States,

depending on where you sit, is just crazy. You're not going to be able to actually trust this stuff going forward. And if we treat health care as strongly as we do national defense, well, you're going to have to believe that we're going to take every measure possible to make sure that, you know, folks from other countries that don't align with this aren't getting into our country and we create this sort of isolated or even more alienated global environment. So obviously there are so many changes here. I guess as you're sitting and thinking about this, as you reflect on it now, how much of this feels inevitable versus things that we still have

some ability to influence as regular people? And if there is any room for influence, what are the levers right now do you think to actually avoid outcomes that we've find undesirable. I mean, obviously, we didn't even get into the privacy implications of what you were just talking about because that's an entire additional podcast on its own, but that's a concern, right? Like, do you think these forces are beyond anyone's control or can they be shaped and if so, how? Yeah, it's a great question. I mean, what I was trying to do as I was writing this piece is, you know, not necessarily predict the future, but try to use pattern recognition. to help me think about how to shape the narrative of what the future could potentially look like.

And if we just look at something like 9-11 and what has transpired since then at the policy level, at the trade level, at the financial level, so many things have changed since then that are paradigmatic in nature. And with this shift around coronavirus, I see a similar pattern. Now, are we going to have a kind of health care defense organization? I mean, frankly, I hope so, because this is a serious problem that you cannot simply throw money at. You need to have a strategy and treat this as a bipartisan issue that everyone rallies behind

to be like, yes, we must defeat the microbe terrorist. Just like back in 2001, we had to defeat the terrorists. now it's let's defeat the virus. We need that kind of rallying cry. But what will I think, and unfortunately inevitably happen, is you will see a rise in encroaching on folks' privacy. You will see a rise in the surveillance state. But like, let's be clear, we're already there, right?

I mean, the fact that people would be concerned at this juncture about their privacy to help them actually be well. enough to go out in public just seems ridiculous to me. The surveillance that has been put in place, certainly in the United States, let alone in places like China over the past 20 years, is huge. And those implications we haven't entirely felt yet. But my belief is that if there's any way that we can potentially influence this, it's similar to what happened with Apple and Google when they partnered together to help, you know,

sort of pioneer or bootstrap this contact tracing capability within iPhones and Android devices. They put strong encryption at the foundational level and a level of sort of anonymity with understanding how to best serve the needs of contact tracing while also preserving privacy. So I think as more and more folks get familiar with the concept of the power, of strong encryption in cryptography, the power of trust minimized systems, hopefully we start to see sort of a sea change event with folks thinking more holistically about, well, am I just going to sign that sort of terms of service? Am I just going to allow this type of information out there? And if I am, what are in fact the ramifications of that?

This is why I think that these conversations are so important because ultimately, when citizens lose, it's often because they lose the narrative, right? They lose the ability to shape what the future is supposed to look like. And they kind of just go along with whatever is happening around them. And that's very easy to do, right? It's hard to be constantly cognizant and aware of everything. And one of the things that I love about this essay and about this sort of this type of thought process is walking through these implications. Again, to your point, it's not prediction so much as understanding rationally based on what stimuli and inputs we have now.

What would then happen? Well, what is then likely to happen from that? What is then likely to happen from that? And I think by giving people a sense and ability to walk through that theoretical, they can decide whether that is desirable to them or not. And if not, well, then begins, I guess, the long journey of figuring out what the hell to do about it. But that's kind of the journey of a lifetime, right? But, Joe, this is awesome. I really appreciate the chance of getting to dive into this with you.

I love how much thinking went into this. Yeah, really appreciate the time. Yeah, it's my pleasure. Thanks for having me. So I think a key thing to remember about this essay is this isn't exactly Joe making predictions so much as following a logical thought process, following a logical thought train

that allows him to kind of see if this happens, then this likely happens, then this likely happens, then this likely happens. And I think that that's a really useful mental model for looking at the world. But I would encourage everyone to go do their own versions of this thought progression around second order effects to figure out what comes out on the other side. Because the reality is, and I kind of alluded to this at the beginning of the intro of this conversation, we are currently acted upon by the world.

We are all kind of stuck in our houses and feel very little agency. But the future is to some extent what we make of it. We all have varying degrees of power to influence outcomes, and some things end up having the force of feeling like inevitability. But there's much more room to shape the future to have it be what we want it to be than I think we give ourselves credit for. So do the work to actually think through your own second, third order effects, what you believe will happen. And when you see something you don't like, fight against it in whatever way you have, using whatever levers of power you have. And then tell me about it on Twitter. I'm at NLW. Maybe we'll talk about it on the breakdown.

Thanks as always, guys, for listening. I really appreciate it. You can now subscribe via Twitter or get these podcasts via Twitter at Breakdown. NLW is the podcast handle. And for now, guys, be safe. And as always, take care of each other. Peace. Welcome back to The Breakdown, an everyday analysis,

breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by Coindesk. Welcome back to The Breakdown. It is Wednesday, April 22nd, and boy, oh boy, do we have a good one today. We are all of us living in fast forward right now. Things that we thought unthinkable just weeks or months ago are now normal and are now being preceded and followed by even more unimaginable things.

One of the goals of this show of the breakdown is to try to contest. textualize these incredibly fast-moving events, right, to help you place them in a framework that makes them make more sense, right? That isn't just random vagaries of the universe and the economy and all that sort of stuff. This requires having guests who can speak not only to Bitcoin and crypto, and not only to the larger markets in their current setup, but the larger historical context, including the key events that got us to where we are today. My guest absolutely crushes on that front. Luke Gromann is the founder of Forest from the Trees, which is a macro-thematic research firm. He has decades of experience in macro research. He has been featured on real vision,

on macro voices, basically everywhere you'd expect to hear really interesting, thoughtful, big-picture macro thinkers. And in this epic episode, we go deep and give you a serious 70-year context on the dollar system, the role of the Fed. Basically, everything that helps understand, helps explain how we got to where we are today and what might come next. So we go through the Bretton Woods system and the decision to have a U.S. global reserve currency system where the rest of the world's currencies were pegged to the dollar and the dollar was pegged to gold. We move on to the rise of the petro dollar in the 70s and why it was a product of losing or at that time feeling like we were losing

the Cold War. We talk about the financialization of commodities that starts in the 80s and proceeds all the way to now. We talk about the end of the Cold War and a shift in executive compensation rules under Clinton that led to some of the challenges that we're seeing now in terms of how Wall Street organizes itself. We talk about the export of Treasury bills as a business model first to Europe, then to China, and how that's shaped geopolitical realities. We talk about the fallout from 2008 and the intervention in the markets, not just in the context of domestic policy or the rise of Bitcoin, but in the context of what it's signaled to the rest of the world about how the U.S. was prioritizing its markets versus everywhere else. We talk about the end of global country's

willingness to buy treasury bills starting in 2014, and why that has gotten us to this moment where the Fed is the only sugar daddy left. This is an awesome episode and I know that it will be educational, informative, and helpful. So as always, long interviews are edited very, very lightly. So knowing that, let's dive in. All right, we are here with Luke Grumman. Luke, thank you so much for joining. Thanks for having me on today. I'm very excited to be here. Okay, great. So for those who aren't familiar with you, could you give us just a little bit about your background and kind of how you how you came to do what you're doing now and what it is that you're doing now. Absolutely. So I'm the founder and CEO of a macroeconomic and thematic research firm called

FFTT, which stands for forest for the trees. And that's really what we try to do is help people see the forest for the trees, as the old saying goes. My background is I spent nearly 20 years in investment research on the cell side, started off in equity research back in the mid-1990s, and then moved over to institutional equity sales. When I was in that seat, I was one of the founding editors of a product called the Herd in the Midwest at a firm I was at Midwest Research back in the late 90s. And Midwest research was known for very deep in the weeds, bottom-up fundamental research. We pioneered the use of surveys and that type of deep-in-the-weeds investment research.

What I has heard in the Midwest product that I found effectively aggregated, a lot of the research that we were doing from bottoms up perspective, married it with the top-down reading I was doing on my own, and it turned into being an extremely popular piece read throughout Wall Street, where I started sending it out to the clients I was calling on for the firm. Other salespeople began sending it out, and by the time a few years had passed thousands and thousands of people reading this, and so I just had, for whatever reason, a knack of being able to put pieces together

and used a bottoms up framework for coming to macro conclusions and thematic conclusions. And it was very, very popular with portfolio managers. And so, fast forward a couple years, myself, about 20 other partners founded a firm, another research firm, Cleveland Research Company, in mid-2006. And I reprised that role, writing a similar piece in addition to calling on clients for the firm. And then in the 2008-09 timeframe, that thematic and macro perspective was very helpful in terms of positioning clients of the firm properly for what happened. In the aftermath of that, the world became much more central bank and macro-driven. And I found myself spending more and more time doing macro and thematic type work.

And so came to 2013 and I approached my partners that I wanted to work full-time. on this macro thematic, going to stop calling on clients and focus on this. And they said that they would love to have me in that seat. I told them my one caveat was I wanted to have complete creative control to write whatever I wanted to write. Because I just felt like some of the trends we were seeing were, it would be very useful to have the ability to say what you wanted to say rather than having to couch it. And so from a marketing perspective, my partners had a hard time sort of figuring out how they would be. position that within the product offering just because they, you know, they were known for just their very deep in the weeds, bottoms up fundamental research, and they're still do a tremendous

job at that. And so we instead agreed to part ways amicably. I'm still friends with those guys, and I hung out my own shingle as FFTT in early 2014. And so we're going into our seventh year of business and we talk to and consult with provide investment research for both institutional, high net worth individual, individuals, hedge funds, et cetera. And we also have a retail product as well called tree rings that has become extremely popular since we rolled it out almost two years ago. This is a total aside. But one of the things I think about this all the time that's so interesting is how many folks in finance and in research particularly kind of almost preceded the trend towards these independent news sources, independent information sources,

independent analysis, right? Like substack and substaps subscriptions have become one of the biggest forces in media, right? Matt Tybee just left Rolling Stone to do his own, which makes total sense. And so many of the, I think the ancestors of that were actually these financial newsletters. They were often in a firm, and they have this trajectory. We just had Jared Dillion on last week who has been doing the Daily Dirtnap for 12 years and Ben Hunt and Epsilon theory have been on. And I think it's a, it's really interesting to see how, uh, how kind of finance and market knowledge got to this idea of wanting, wanting to kind of find signal through the noise and being willing to pay for kind of those voices independently before, before a lot of other

industries that I think are either getting there now or will in the future. Yeah, it is interesting. I've referred to it as the iTunesization of Wall Street research where in the old days you had to have a record label and an R&D guy. you know, or an A and R guy, excuse me, not an R&D guy, but A&R guy and all this stuff. And you had to buy the CD. And even if you didn't like 13 of the songs, you still, you know, if you like two of them, you had to buy the CD.

And now it's, you know, it's harder to sell a 13 song CD for full boat, but if you can write songs, you can find an audience and sort of the middleman has been taken out of that. So it's an interesting, it's an interesting observation. Yeah, well, I mean, it's great for independent content creators, too, because what it does is it allows for a kind of an ending to credentialism, right? One of the last credentials was the who's the one distributing this information to me. If that's just, well, it's more becomes whose information consistently provides me with value that then is reflected in the markets or in whatever kind of business I'm in. But that's total aside. So I won't hang here too long.

So where I wanted to start, we were just talking about this before. You know, there's a million different things we could get into. The context, I think, for listeners and why I was so excited to bring you on is I think so many folks, whether they're in Bitcoin and crypto or just in markets in general, are trying to wrap their heads around what feels like a radical set of changes that we're living through in real time, that we're witnessing in real time. And one of the things that I've been trying to do with the breakdown is bring people on who can provide context historical and contemporary to help people understand which of these things truly are new head spinning phenomenon versus things that are maybe accelerations of trends that we're

were going on before. And so maybe the way to start is the widest possible view. You had a tweet a couple weeks ago about the idea of the global economy set up as a company town. So maybe, you know, we don't have to even necessarily use that tweet, but I'd love to have just for our listeners some framework of how you view the economy in large kind of historical context. You know, are we coming to the end of a period that was kind of distinct? And if so, what was that period? Yeah, absolutely. I do think we're coming to the end of a period that was distinct. And that that tweet regarding the company town was the gist of it was effectively that since 1973, the U.S. dollars had a monopoly on oil pricing effectively. And so that we can call what the system was what we want, but it wasn't capitalism. That was effectively a company town. And so by way, a background company town was, you know, I think it was in the late 1800s typically. where you had one company and they hired everybody and you had a company store. And so you worked at the company and you got paid by the company and then you had to go to the

company store and pay whatever price the company store was, that's not really capitalism. And once you start having multiple choices of where you can work, where you can shop, et cetera, that's capitalism. And so my point in highlighting this was we've had this the most important resource, the master resource really is energy. And there's been a monopoly on energy and it's been enforced with financial sanctions, geopolitical wrangling at times violence. But it's been a system that worked. And so some people say, well, this has been a bad system or it's an unjust. We need to go back in time and understand why this system evolve. So if we go back to at the end of World War II at

Bretton Woods, there were two options. There was John Maynard Keynes proposed something called the bank or, which was a neutral settlement asset that floated in all currencies and would have basically prevented systemic deficits and surpluses from building up over time that we have since seen because we didn't go with the bank or we went with a proposal from the United States as voiced by Harry Dexter White, which was the dollar is the center of the system. The dollars paid the gold at $35 and pounds and everything else is then tied to the dollar. And it provided the U.S. what DeGault called exorbitant privilege. And that system worked at first. It came under stress because of the dollar pay and the U.S. is spending in Vietnam and the great society spending

by Johnson. By 1971, it was clear to everybody that the valuation, even though the U.S. had written the dollar down against gold from 35 to 42 announced in, I want to say 68, or 69, but at any rate, the system was strained. The peg was the weak length. Everybody knew the U.S. owed way more money than it could satisfy with the gold we had. And so our choices were, number one, devalue the dollar significantly against gold to basically take that gold backing up to a level requisite to reestablish confidence in the dollar and in the Brettonwood system, or close the gold window, default on the whole system, and move to something else. And we chose the ladder. Again, we can discuss, was that the right thing or not, but the key was we went,

we closed a gold window. So now you have a global reserve currency, the dollar, with effectively no backing. And so then we moved to this petro dollar system where what we effectively did was replace the gold backing of the dollar with oil backing. And to do that, you needed the price of oil to be higher to basically create more dollar liquidity to effectively increasingly, you know, to make oil big enough to back the dollar effectively. And again, here too, I don't moralize on why this happened or was it a good or bad thing. The reality is, in 1971, the United States was not exactly winning the Cold War. It was neck and neck.

And what this system allowed us to do was print dollars for oil, and while the Soviets had to actually lift oil out of the ground to achieve those same dollars. And so basically once the system got set up, once the Saudis sort of enforced this by saying they would only price their oil and dollars, we won the Cold War. It just hadn't been marked to market yet because we were printing money for oil and the Soviets had to dig it out or pump it out of the ground. The challenge in this is that it forces the U.S. to run these big deficits to basically hollow out our manufacturing to basically subjugate our middle and working classes. to run the deficits, to supply the dollars to supply the dollars to the world. Once we made the dollar, that part of the reserve currency. So from 71 to 89, this is a system, some people liked it, some people didn't, but there was a broader geopolitical context we needed to beat the Soviets in the Cold War. 89, we defeat the Soviets in the Cold War.

and at that moment in a perfect world, we have another monetary conference. We restructure things, but we didn't. We sort of took a unipolar moment in history of the U.S., and, you know, we continue this dynamic of running deficits and then having to find other nations to finance our deficits by basically buying our treasury bonds and otherwise invest in U.S. financial assets. And so, you know, We have NAFTA, which helps effectively another process of another step of outsourcing jobs to increase deficits, finance U.S. government spending. We get China into the WTO. And so we kept this process going so on and so for this period of time. I would say, you know, if we look back, the thing, you know, it wasn't like we could just spend willy-nilly.

and print money willy-nilly in the 70s. The overriding theme of this system, if you look at when we had oil backing the dollar, was you can see it. The dollar was basically managed to be as good as gold for oil. And when I say that, if you look back historically, right, so the dollar was as good as gold, then we removed the gold backing, replaced it with oil. But the dollar was still managed to be as good as gold for oil from, call it, 1973 to about 2003. And so, So when I say that, if you look at when for a 30-year period, the price of oil was between, you know, $15 and $25 a barrel most of the time, you know, at extremes, when it got to 30, the Fed would start raising rates. And when it got below 15, the Fed would be cutting rates aggressively. And so there was this management of the U.S. economy, which was the biggest economy, the biggest oil consumer, et cetera, to manage the dollar to be as good as gold. for oil. And that was a key tenet of this company town petro dollar system. Beginning in 2003, we began to stop doing this. You can see it in the chart where basically the price of oil

began getting away from us. It would have implied massive rate rates in the U.S. economy, which given how financialized we'd become, how indebted would have become, would have broken the economy. And so we just stopped doing it. Instead, we started doing some of these, you know, whether you look at NAFTA, but in particular post-O-1, get China into the WTO where suddenly we have this sort of captive financier where we offshore our factories to China. We run the deficits in China effectively, well, not effectively, they did take their treasury holdings from 60 billion in 01 up to 1.3 trillion in about 10 years later. And so this good as gold for oil system began to break down where basically you're sort of not keeping the dollar in a consistent range. You're not pegging the dollar, the dollar oil peg, if you will, began breaking down in 03, continue to break down through 08. And post-08, I think things got a little bit more hairy. And since then, we've been, you know, transitioning away.

So I think, you know, the one framework that I use is this, you know, this breakdown of the system that has, is well underway, we're decade plus into it of the good as gold for oil, the dollar being kept as good as gold for oil breaking down. And then the geopolitical in the last five to ten years, the geopolitical fallout of some of the decisions where we were, we made 20 years ago, for example, getting China into the WTO, which was, in my view, effectively an attempt to extend to the dollar system as structured post-71. In the last five to ten years, we've gotten in. into some of the bad fallout from that. And by that, I mean, we can now see it clear as day with the coronavirus crisis that, you know,

we're the most powerful country in the world, and we have a shortage of masks because we can't get enough of them from China. And this geopolitical reality of basically supply chain vulnerability, particularly as it relates to defense, but as we're seeing it, you know, written much more broadly here in the last, in the last month, pharmaceuticals, masks, equipment is sort of another framework we've used then, is in terms of this transition, is okay, we used to keep the dollar as good as gold for oil, we stopped, and we've seen a transition of that. And then more recently, the geopolitical pressures of the reality that our supply chains have become overwhelmingly dependent on another

nation that when we started was sort of a small emerging market competitor and is now, by everyone's account, an adversary of some or competitor or adversary of some description. So those are the two big frameworks. I apologize for kind of going on, but those are the two sort of big frameworks we look at. Yeah, no apologies necessary. I asked for the frameworks, and we got the TLDR on the monetary system and economic system for the last 70 years, which is exactly what I was going for. So it's interesting. So basically you kind of described a few different waves, right? You have a first wave post-Bretton Woods and kind of on the U.S. is the U.S. dollar is the reserve currency of the world backed by gold. You kind of shared this period where we have to make a transition based on our need for oil. But it's still within the context of the broader kind of an intentioned set of U.S. global objectives, right? It's not just foreign policy. It's right, what it looks like to live in a,

in a U.S.-led world or a world where the U.S. is trying to be the leader vis-a-vis the Soviet Union. Then there's this break in this moment where a lot of folks kind of point to, you know, some people have called 1890 is the year that ended the short 20th century. Hobbsbom called it that. You have Peter Zahann, who just wrote Disunited Nations, who was on the podcast a couple weeks ago, who talks about this being such an inflection point because basically you have Herbert Walker trying to rally for perhaps not that exact new Bretton Woods,

but a larger national conversation of what do we want the world to look like, right, going forward. And we elected Bill Clinton and understandably, right? People were tired of war. They wanted to focus on domestic issues. But because of that, we never had the conversation with ourselves about what is, how are we going to design the new American century? We even had, you know, think tanks. I feel like one of the last gasps of think tanks was people trying to design the new American century and never kind of ever having that influence again to actually be a real part of the politicalist.

So anyways, then you have what feels in a lot of ways like a slow calcification of the system where we do things kind of without intention per se or it's a short-term intention, right? It's based on what comes next, which leads us into kind of this is another another tweet. So what I'm trying to do here is drive us closer to the moment that we're living in now, right? And so you had another tweet from 2002 to 2014, the U.S. biggest export were treasuries, right? And then this shifted. And so, I guess talk just a little bit more about that period, this idea of treasuries being the biggest export and what that meant. I mean, you got into a little bit of it in that first answer. And then from there, kind of where I want to get to is effectively where the last year, what the signals we were getting from the last year before COVID-19 and then what COVID-19 and the crisis has done to kind of accelerate them. Sure. So let me frame on my thought process here. So the, you know, as we noted back, the way this system had worked was basically the world sends us stuff and we send them dollars and then they take the dollars and they buy treasury bonds and other financial assets and then that finances more purchases of their stuff. And it was basically a virtuous cycle of vendor financing is effectively what that was.

The amounts of vendor financing steadily rose. So we have a table that shows that from 1971 to 1985, the, you know, of the aggregate U.S. Treasury bonds issued in that 15-year span of time, foreign central banks bought about 15% of them and held them as their reserve asset, basically as their gold. And that ties into the keep in the dollar as good as gold for oil, because they're basically stockpiling the stuff like gold. From 86 to 02, they stockpiled, or they bought, excuse me, roughly 28 to 30 percent of all the

treasuries we issued. So there's now sterilizing almost a third. From 02 to 14, they bought 53%. So over half of the treasury bonds we issued, central banks were sterilizing as sort of, you know, their gold. and then the value of their cold started collapsing against oil right when we did that, shortly after that period in time. It's shortly in the beginning of that period of time, 0203. And then since 2014, they have stockpiled negative 4% of our total treasury bond issuance.

So they've begun dishearting and basically have stopped buying while our deficits have continued to rise faster. And so this was the hallmark of the system was, again, this vendor financing. You send us stuff. We send you our jobs and our factories. You send us stuff. We send you dollars. You send you buy our treasuries.

And then we repeat the whole process. In 3Q14, this began unwinding. And some of it was, I think a lot of it was a breakdown. of any number of things. The relative economic importance of the U.S. had been falling and continued to fall in terms of percentage of GDP. The importance of emerging markets,

in particular China, was rising at the same point. I think the bigger issues were ultimately tied to economic and geological reality. Oil was getting more expensive to pull out of the ground. The U.S. had showed, that in 08, they would no longer, with push came to shove, the U.S. could not and would not manage the dollar system to be as good as gold for oil. We showed in 2008 that if push comes to shove, we are going to print every dollar we need to to take care of the U.S. And that, I think,

was a wake-up moment. You know, in the immediate aftermath of the O8 crisis, the world worked together to try to get things stabilized. However, once you get to 2013, I think the particularly after we weaponized the SWIFS system in 2012 against Iran, where we basically weaponized the dollar against Iran, we did so against Russia and 1314 as well. Late 2013, China says it's no longer in our interest to grow our holdings of FX reserves anymore, which was basically we're going to stop buying treasuries. And some of that was economically related to them. They were having some issues. The dollar was getting stronger. Emerging markets were having some issues.

Some of that was, I think, just the implementation of a plan that probably started right after the crisis when they realized two things. Number one, when push comes to shove, the Americans will take care of the Americans first, which means they'll print whatever they need to print to cover their deficits. And number two, the U.S. baby boom generation means the U.S. is going to have to print $100 to $200 trillion in coming years and decades. And so we need to start transitioning to some sort of new monetary system. And in particular for China, I think the move was that the reason they stopped buying treasuries is if oil is still only priced only in dollars when we start printing the $100 trillion plus for baby boomer entitlements, et cetera, the price of oil for China is going to skyrocket in dollar terms.

They're going to run out of dollar reserves and have sort of a classic balance of payments crisis like we saw in Southeast Asia in the late 1990s, economy crashes, unemployment, social unrest, political discontent, all non-starters for the Chinese Communist Party. And so they began moving away from this company town model of dollar hegemony, dollar monopoly in commodity markets broadly, but energy markets specifically and started moving towards pricing energy in their own currency. The Europeans, you know, actually tried to do so, you know, 20, years ago, you know, Saddam Hussein switched his pricing of oil or 5% of the world oil market from dollars to euros in October of 2020, excuse me, October of 2000. That didn't work out well

for Saddam, ultimately, as we all know. So it's something that Europeans have been trying to work towards for decades. It's something the Chinese have been working towards. The Europeans have been joining them more recently getting much bolder in this. But I think this then takes us toward this new system where, you know, we stop keeping the dollar as good as gold for oil. Geopolitically, it's in the Chinese interest and the Europeans' interest to begin moving away from this dollar monopoly system. They start doing so. And it starts to be in the U.S.'s interest to begin bringing supply chains back. And so there's sort of this, everyone has the same, everyone has interests in moving in the same direction, but there are contrary interests in both.

I'm sure there's Chinese domestic political powers that want the mercantile and export model to continue. Here in the U.S., there are powers that like being able to print dollars for stuff. And, you know, sort of the neoliberal economic establishment thinks everything Trump and, etc. have done is a really bad idea. The, you know, they don't look at it too much from the geopolitical side. So you've started to see this movement post-08. So let me stop there. And then we, you know, remind me against sort of where you want to take that from there.

No, that's perfect. So I think one of the things that is really interesting, especially for folks, a lot of folks who are in the crypto and Bitcoin space, they, 08 is an important inflection point, right? Obviously, it's tied up in the mythos of Bitcoin, you know, chance are on the brink of a second bailout was built into the Genesis block, although I joked a couple weeks ago how quaint that that critique looks in the wake of the last few weeks. But the interesting addition, the framing that I think is really valuable that you added to that is the idea that there was a geopolitical ramification for 082 in terms of money printing being a signal that the U.S. as the steward

of the U.S. dollar was not something necessarily that people could count on anymore. And not having its own implications in terms of how things were shifting. So I guess let's bring it from, from 08, I guess, let's move up to what was happening over the last decade that, you know, again, we're kind of talking about the end of this era. We shifted to this mode. You kind of spoke about it from a geopolitical perspective. What about domestically, right? I know another theme of your tweets and your essays is kind of this idea that we've hyper-financialized commodities markets, that we've been hyper-financialized in just a variety of different products. Again, the intention here is we're all bringing this up to, you know, what we've seen in the last six weeks.

What was going on? What were the ramifications, the fallout of 08 on the domestic side in terms of the relationship between Fed and the economy, you know, that was happening simultaneous to these kind of geopolitical ramifications that you were just discussing? Yeah, so I think domestically you saw some of it was organic, some of it was chosen, going back to, you know, the things that Volker had to do. in the early 80s to defend the dollar effectively, taking rates to where he took rates to defended the dollar. The downside was it created this, between it and policies chosen, created this perfect storm of financialization, right? You start the cycle with rates at 15,

and you sort of roll down the curve for 30 years, and you drive a lot of financialization, the increased financialation of commodities, the increased financialization of interest rates, actually, you know, when you talk about interest rate fusion. When I say financialization, you're talking about just the proliferation of the amounts of futures, forwards, derivatives, just the aggregate leverage, you know, riding on, you know, sort of an increasingly small sliver of underlying, whether it's commodities, gold, interest, you know, interest rates. And then broadly speaking, when you go from 15% to 0% on rates, your, you know, perfect example is U.S. government debt was 30% when we started because at 15%

rates, you can't afford more than that. Well, at 0% rates, you know, we're at 120% moving higher rapidly because the interest expense doesn't kill you at all. It's pay as you go or same as cash. So the fact that rates have come down the way they have have also, expanded these levels of financialization. And so when you tie that into post-08, because the financial system had become such a big part of GDP, because we'd become so financially levered, because the derivative markets were so ridiculously large, hundreds of trillions of dollars, if not quadrillions, it basically forced the Fed to do what they had to do. They had to save the system. They had to print whatever it took to save the system because the alternative was simply a disorderly collapse of the

system, ATM stopped working, sort of all the worst parts of, you know, apocalyptic movies that we may have watched. And so they had to do that, but again, the flip side to that decision was this recognition that, as you put it, the U.S. was no longer going to, could no longer manage the dollar as a public utility as something that is a store, you know, managed to be as good as gold for oil, it had been, you know, from 1973 to 2003. And so the cracks emerged 03 to 08. 08 was when it was announced. That's it.

Where push comes to shove, you know, we're not going to do this anymore. And so you started to see movements away from that. So in early 2009, actually right away after we did the big QE, the head of the PBOC, wrote a white paper at the BIS. He said, listen, we need a new global currency system. And he specifically cited Keynes Bank Corp from the Bretton Woods conference saying the fact that the Brett, the choice we made at Bretton Woods has worked so poorly is a sign maybe we should have chosen that one. There's some merit to it. And they talked about a neutral, the Chinese talked about a neutral reserve asset.

The IMF and the World Bank in the intervening years of 2010, 2011 made references to that. 2014, the World Bank again. We get to 2014. Global Central Bank stopped growing their hold. of treasury bonds. And I think that represents a key moment of this quickening of a pace of this, of this process. Once global central banks stop sterilizing our deficits, the United States desperately needs to find, you know, for lack of a better word, a new sugar daddy, right? So the Europeans under Bretton Woods were the sugar daddy stockpile in the treasuries and

they sort of stopped and cashed it in for gold and they forced the changes in the 70s by doing So 1999, when they launched the Euro, beyond that, the Europeans effectively stopped buying nearly enough treasuries. U.S. needed to find a new sugar daddy. China. Get China into the WTO. Here, China, you take our factories, you take our jobs, you make us stuff. We'll send you dollars.

The vendor financing sort of virtuous cycle. That worked for a while. Post 14, at first 13, China says, we're done here. US needs to find a new sugar daddy. Problem is, is the size of our deficits and the prospective size of our deficits, there's no sugar daddy's big enough. theory, maybe Africa, but you would need Africa to run deficit or surplus against the U.S. to the tune of, you know, nowadays, anywhere from 400 to 500 billion a year.

There's just nothing we're buying from Africa that's big enough without weakening the dollar massively. So Africa is not a choice, you know, Mars, Jupiter, you know, maybe, but other than that, it really only left the U.S.'s own economy to finance its own deficits. and then once that, you know, that balance sheet got too full, the Fed with printed money. And so this 3Q14 was a huge moment. And we saw, you know, regulatory changes were made to the banking system, had to buy more treasuries, money market funds had to buy more treasuries in 14, 15.

Even Obamacare, when looked at through this lens, was effectively a program that pushed government's cost of health care onto U.S. consumers as a way of helping finance deficits. The Wall Street Journal actually wrote an article noting that, It helped reduce U.S. deficits, did Obamacare. But ultimately, you know, in 3Q16, the first symptom of U.S. balance sheet, U.S. private sector balance sheet running out of room was when U.S. deficits began to rise as a percent of GDP, which was the first symptom that, uh-oh,

we're starting to crowd ourselves out. 3Q18, FX hedge treasury yields went negative, and that means that basically the global private sector that was still held. finance U.S. deficits once the central banks left, suddenly that the bank balance, you know, basically when foreigners buy treasuries, they buy the treasury, they buy a hedge against the dollar, and then whatever net amount left over is their coupon. And in 3Q18, the cost of hedging U.S. dollar debt got so expensive that it went above the coupon. And so basically their choice was either don't hedge the dollar, which means I take the dollar risk. If the

dollar falls, I lose money, or lock in and take a negative rate on treasury debt, and some did that, or I start moving money out of dollars into other sovereign debt. And you saw the movements of German and Boone yields and JGB yields go negative. That was part of the reason that was happening was that wasn't an irrationality. That was a perfectly rational market reaction to FX hedge treasury yields going negative because as soon as that happened, the flip side of that was JGB yields after hedging for the yen or Boone yields after yielding for the euro were much more positive. And so you began seeing these fund flows happen in 3Q18. You go to early 2019 and you began seeing symptoms that the U.S.'s banking system was being, you know, was basically choking on too much

treasury supply. We get to the third quarter of last year when we had the repo rate spike where in timber repo rates puzzlingly spiked to 8 to 10%. So basically overnight interest rates in the United States went to 8 to 10. This was a critical, critical moment because this was now a moment that says, okay, we are absolutely out of balance sheet capacity because if you look at where the U.S. was issuing a lot of its debt in 2019, the U.S. issued about $11.5 trillion worth of treasury bonds on a gross basis, not a net basis, but a gross basis. But 72% of that issue, was taking place in six months or less. So it was in the money markets. And so the money markets break in September of last year, the Fed immediately has to come in and basically start growing their

balance sheet to pin those yields, to keep those yields low because the reality is 8 to 10% overnight rates would quickly translate into, you know, 10 to 12% mortgages and and the whole system would collapse. So they had to do that. That bought us some time. And then you fast forward to where we get to today, which is basically in the next crisis, the Fed's balance sheet was going to have to go vertical no matter what, because again, global central bank stopped buying, the global private sector was moving back from it. The U.S. private sector was not a balance sheet. Mars and Jupiter aren't buying treasuries, so it's only the Fed with printed money. And, you know, any crisis would have caused this. The COVID crisis was an absolute doozy. And important,

it wasn't just a financial crisis. This was not something the Fed could paper over. It was an exogenous shock that impacted real demand, real economy, real supply chain. So that's sort of the process that brings us to, brings us to here. Yeah, I think it's really interesting because, you know, this year has been so headspinning in so many ways that we forget that there was a real sense, even last year, that there were big seismic shifts happening, right? So you obviously saw that, I think the repo markets were a key one where a lot of the folks, in the crypto markets who maybe hadn't spent that much time thinking about Fed policy other than it kind of as a legacy of creating Bitcoin started to pay attention and say, hey, what's going on?

And maybe I should learn about this. But simultaneously in this space, people were, you know, the introduction of Libra was this very catalytic moment for people to have conversations about what the role of the dollar in the world was going to be long term, right? And what was interesting is that Libra did a couple things. First, it introduced this basket of currencies approach, right? It was actually similar to that kind of bank or idea, you know, that that was being reintroduced to the markets. And you had people like Rao Pahl who were calling that out as the most interesting part of the proposal. Now, you also had the U.S. Congress and the U.S. Senate immediately identifying as the most disturbing part of the proposal, right? And subsequently, we just learned last week that they have

ripped that out, right? So that's gone. But you then had China respond, right? And it super put, they slam the foot on the gas of their digital currency project, their DSEP, which were now, seeing, you know, the first kind of screenshots of the app that people are using it with. But then you also had this larger Overton window shift on the conversation about the role of the dollar. You had Mark Carney who, you know, in Jackson Hole proposes a synthetic hegemonic currency, right? Just bringing back the bank or with a much more laborious name. And so all of these things were brewing and then, boom, you know, COVID hits, right? So I guess, you know, we've all been watching this massive injection of capital into the markets and huge kind of U.S. intervention. Again, like I was joking

before, makes the chancellor on the brink of a second bailout look like nothing. Your argument, it's clear, is that whatever crisis would have produced some sort of similar response, right, just because there's no other place to go. But were you, have you been surprised about anything? What has been notable, I guess, about the way, either in terms of speed, aggressiveness, size, would surprise you, if anything, about this intervention that we've seen? You know, I think this size surprised me. You know, I gave an interview, I think, last year in the third quarter after the repo crisis. And I said, look, I think in a couple years, you could see the Fed's balance sheet at $10 trillion.

And, you know, maybe by, you know, late 21 or, you know, mid-22. And that seems adorably quaint now. And to be clear, some of that is a function of probably the majority of that's a function of just the severity of this crisis. I mean, there's no way, I mean, I just, I saw it as, and we had been doing our analysis based on just sort of a mild recession, here's what the deficit's going to do. And there's no, you know, it's all about the financing and there are no more sugar daddies. it's just the Fed. This means the Fed's balance sheet's going to have, you know, the U.S. deficit's going to go up by this percentage as it has traditionally, and the Fed's going to have to buy it all, and they're

probably going to have to buy some treasuries being sold by emerging markets, and maybe you see the Treasury markets sell off until the Fed buys those, but there was just no way of forecasting the 30, 40 percent drop in GDP that we've seen. And the degree of potential severe and sustained disruption of physical, you know, supply chains that we're seeing as a result of that. So that to me has been that to me has been been probably the biggest surprise. There's not a lot of other things that I that as I think about them that you could if you would have said to me before, hey, this is how it's going to go down where I would have said, whoa, you know, the thing I said whoa was first was when the Fed did

$625 billion in a week of growing their balance sheet. That to me was a whoa. My estimate had been for a long time that in the next recession, the Fed's going to have to go to somewhere between $250 billion and $350 billion a month in QE. And so they did a trillion six or whatever it was, $2 trillion in six weeks. That's been probably the biggest woe to me. And I think that's a nod to the severity of the crisis. You made a comparison to Japan, right? It took them a decade to do what we basically did in six weeks, right? Yep. So let's talk about, I guess, knock on effects or where we go from here. Because I think this is where people are starting to shift.

This thing has happened. You know, there's still furious debates about how to open the economy back up and when and all these sort of things. But, you know, we're going to get back moving again. But I'm really interested now. And I think a lot of people are trying to make sense of what changes because of this. How do you see the dollar coming out of this? Obviously, the dollar has been extremely strong.

And maybe we can incorporate this. the dollar as compared to other safe havens, you know, or other just kind of alternative assets in this context. Yeah, I think ultimately where we go from here is and what the dollar does as a result is a function, I think, of two things. Number one, how fast do we come back out of it to sort of normalized economic activity and what are the incremental hangover? effects. And then number two, what is the pace of the Fed response relative to number one? And what I mean by that is there was a great, there was a great article by Michael Everie at Rabobank that he submitted to zero hedge. I think it was last week regarding the euro dollar system. And, you know,

we didn't touch on the euro dollar system back through the history. It was sort of a natural, organic outgrowth of regulatory and the petro dollar from 70s, etc. The punchline is that every estimates, rival bank estimates, that it is now a 50, there's 57 trillion dollars in, the euro dollar system is 57 trillion dollars all in, which, you know, is, and, you know, by way of background, Eurodollar system is just dollar denominated loans and liabilities created by banks offshore, entities offshore, that cannot, create the dollar base money to cover those. So in other words, they're creating these dollar shorts offshore and only the Fed can create the base money to cover those shorts. And so you've got

this offshore $57 trillion shortage of dollars in extremists, in extremists, right? So when the economy is functioning normally, monetary velocities high, the dollars get created and particularly given the structure of the system where our job is to export these dollars for stuff. But, When the economy's working, okay, the system, the system sort of works. But when anything goes just a little wrong, this $57 trillion short begins to exert upward pressure on the dollar. And this is, you know, some of the thing, this is the dollar milkshake that Brent Johnson talks about. So all else equal, in just a modest slowdown, the dollar should rise as or until the Fed begins to, you know, sort of ameliorate that with, with dollar liquidity. in what we just experienced, you know, something we wrote about a month ago was that you had,

you, if you have open markets and closed stores and closed borders, you touch off a one-way doom loop trade. And by that, I mean, you've got this $57 trillion short and you've got no cash working to address that short. So basically, you're going to take every asset out there is going to be sold to try to generate cash. And so if we leave the economy closed, but the markets open, if the Fed doesn't do enough, then what you're going to see is basically a mad dash to sell everything for cash to try to avoid defaulting on these offshore dollar debts. And the flip side to that is that if we leave the

corollary is that if we leave the economy closed, as we leave the economy closed, the longer we leave it closed, the closer the Fed's balance sheet is going to have to move towards $57 trillion, towards them fully reserving the offshore dollar-denominated debt. Now, that's just the offshore side. The domestic side is another $47 trillion of non-financial debt. So in theory, if we left the economy closed for some period of time, and the question is, is that a year? Is it six months? Is it two years? Is it three months? I don't know. The leverage. in the system makes me think it's less. But the punchline is, is if the longer we lead the system effectively closed or it's not operating at full capacity, full monetary velocity, the closer the

Fed's balance sheet is going to have to approximate $57 trillion in offshore plus $47 trillion to basically create the debt to fully, the dollars to fully reserve that debt to make sure it doesn't default. So you're talking about $100 trillion, $104 trillion balance sheet, $100, $100,000. $114 trillion balance, no, 104, I did it right, $104 trillion balance sheet. And, you know, the fed's at, you know, six today, six and a half today. And so to me, where we're going, I think we can look at the last month and you say, okay, we need to figure out, number one, where is the economy at? Where are we in terms of reopening and do we revert in terms of cases, et cetera? But then number two, what's the Fed doing? Because what we saw was when the Fed began growing their balance sheet at a $35 trillion

annual rate, you know, citing that $625 billion weekly number that they did back in March, that the fact, when they were able to grow their balance sheet by 10% of US GDP in six weeks, risk assets went up. And that can ultimately basically cover the dollar short enough to allow, risk assets to rise. And that, those are the two key questions that to me. And that, you know, that kind of touches on a point that I made before about the importance of the stock market being a political utility. You know, we can, we can dive into some of that and go on from there. But those are the two things. It's, you know, when do we recover and what's the Fed doing? Yeah, I'd love to actually get into this idea of the stock market as a political utility.

Because I think one of the, one of the main things, again, that people are trying to rock this right now is trying to understand the how how possibly kind of asset prices could be rising while we're still in lockdown, right? And there's a lot of kind of just like common sense explanations for it. But I think it does touch on a larger dislocation or disconnect between the real economy and the kind of financial world, right, and markets. So I'd love, you, you spoke a little bit about that. You had a tweet kind of talking about how this has become more of a political utility. I'd love to talk about that and what the implications of that are, as, you know, we get to retirement with the boomers, right? Because there are these large,

you know, secular trends that have nothing to do with right now that are also, that we're always coming, kind of coming due. And I guess, you know, the question is, is, are we just kind of buying our way out of something that's going to be, you know, do again later, right? Right. You know, I think you have to look back in terms of the political, why we think these stock markets of political utility is, is the preponderance of the evidence suggests that it is. And the reason we say that is if you look back to 1995, President Clinton signed legislation that made cash compensation to executives over $1 million non-deductible to the company, but exempted incentive compensation, so stock-based comp.

And so naturally, what did everybody do? They started taking all their comp as incentive comp. And that's the moment where you really start to see, if you look at charts of where does wealth inequality in the U.S. really go off the reservation. and separate where does consumer spending and tax receipts start to lag the stock market as opposed to either have no relationship or lead? And that was sort of the genesis moment of that. And so what that sort of original sin, if you will, has driven has been a system where 5% of the taxpayers pay 60% of the individual tax receipts, 30% of the overall tax receipts.

Now, the top 5% of U.S. taxpayers, they're not collecting a cash hourly wage. They're getting paid some wage, and then they're collecting the vast majority of that individual income in stock options, restricted stock, incentive crop, et cetera. So that's part one, is number one, is, and ultimately, the tax receipts being so disproportionate to, you know, the percentage of taxpayers is, it carries on to consumption. And you can see that, for example, in IRS data where we've done work, it shows from the IRS data shows net capital gains plus taxable IRA distributions are about 200% of the annual growth in personal consumption expenditures within the United States,

which doesn't mean that people are selling stock to buy, boats, RVs, cars, health care, because PCE is a wide category. But what it means is that it's mathematically impossible for PCE to grow if asset prices aren't rising. It's just mathematically impossible. And so, and critically, those, the net capital gains and taxable IRA does not include that incentive comp from the executives because that's tax as ordinary income, not cap gains. So what this tells you is, and you can see in the chart, that ever since 1995, increasingly the stock market has become a leading indicator of recessions, which had kind of always been the case, but more importantly, tax receipts, which was not always the case, consumer spending, which was not always the case.

And I think this is understood at high levels, and you can see inferences of that from Ben Bernanke when he talked about the benefits of QE, one of the first things out of his mouth was, well, stock prices rose. And so if you understand that consumption's two-thirds of GDP and consumption can't rise unless stocks are rising, you sort of arrive at this place. where it's a political utility. The policy makers have as policy, they have to have as policy, again, because of decisions Clinton made 30 years ago, they have to get stocks up no matter what. And that then ties into your point of this mismatch where it's the same mismatch we have in

terms of the top 5% of taxpayers paying 60% of individual tax receipts. The same directional outcome is true in terms of the top 5% of asset holders in the U.S. own some similarly large disproportionate number of the assets. And they're all getting older by and large. And when they all turn to sell, there's in theory no buyer on the other side, or at least there is a buyer, but at a very wide bid-esque spread. And if we had, if we allowed capitalism to work, it would be a problem. But because the U.S. government can't fund itself without these asset prices rising, the US GDP cannot rise without asset prices rising, we're likely going to be continually stuck in sort of this stop start of asset prices down. Fed comes in with big amount of money,

and then asset prices go back up, and then Fed tries to pull back. And we're going to wash, rinse, repeat this with both shorter periods of time between the time of asset prices selling and the Fed responding, and with ever-increasing amounts of Fed responses until we get basically no response time between sell-offs and the Fed's balance sheet getting bigger and bigger and bigger. And this, again, is I'm not moralizing on whether it's right or wrong. I'm just saying that if we wanted to fix it, we would need an 83 DeLorean with a flux capacitor and we'd have to go back in time, you know, take that baby to 88 miles an hour and, you know, stop Clinton from signing that legislation.

And we probably should go back another 30 years and stop LBJ from, you know, going to Vietnam and doing guns and butter. And then really, it probably should go back and rethink it. think some of the Social Security stuff in terms of retirement ages, et cetera, back in, you know, in 37, 38 with FDR. So these are these are baked in the cake. And because we've made the decisions, particularly post-95 with Clinton, they have to get stocks up. And so they, they, we go from the Fed is targeting the economy to move the stock market. We have fully moved to the Fed is targeting the stock market to move the economy. Interesting. What do you think the impact is,

does this spill over into other aspects of life, right? So one of the arguments that some people have made is that, you know, if basically the widespread corporate bailouts, right, the expectation that the Fed or the government is going to backstop corporations is inevitably going to spill over into doing the same for citizens, right? With some form of UBI, whatever it's called to make it politically palatable. Do you think that that's another inevitability that we're, I mean, we're just moving into this kind of MMT UBI world?

I do. I do. And, you know, one of the things we've said in terms of the, you know, when you asked before about the implications domestically after 2008 was something we've been writing about for a long time and talking about with people was, you know, I'm based in Cleveland, Ohio. I went and saw the big short, the movie, in the theater. And it was fascinating the response from the audience here in Cleveland, Ohio, which was virulent, for lack of a better word. people were actually, because again, it was, it's, they were fancy words, et cetera. It was, it was, it was, it was, it was, the, the, the, the, there were key parts of it were fraud. I mean, in fact, Steve Eisman's character played by Carell and Steve Carell says, when did fraud become okay? When did it become, you know, when, when, that's not how we do things, but it was fraud. So the point is, is that the aftermath of 08, while I think policymakers were congratulating themselves on a job well done in terms of, you know,

of getting us back from the abyss. And to be clear, they had to do that. What they missed was the sort of latent political cost to the way they handled it. In other words, somebody had to go on the volcano. There had to be some more indictments. There had to be more people that were losing. Guys that did wrong had to lose.

You couldn't bail guys out at par and then not bail out the people. Because the way 08 was handled meant that it was politically, it made it politically impossible to ever reform entitlements in the United States, which needed to happen to avoid us getting to this spot where corporations, airlines, restaurants, and ultimately everybody gets bailed out. And so, again, we didn't do that for political reasons. It is what it is. And it's a story really as old as time in history. You had a bunch of oligarchs, for lack of a better word, in the financial industry that got into trouble, and they got bailed out, and there was not reforms of that system done. And so then when the next

crisis hits, now there's just no political ability to go to mom and pop and say, hey, I know, I know you need that $3,500 every month from Social Security to make ends meet, but we're going to need to cut that 40%. That's not going to happen. And so once you arrive at the conclusion that because of how they handled 08, that's not going to happen. It leads you, you know, once you eliminate the improbable, you know, all that, what you're left with, no matter how, you know, once you eliminate the impossible, no matter what you're left with, however improbables, is, must be the truth. And if it's impossible to reform these entitlements because of 08, I think it's,

we're rapidly moving towards this UBI helicopter money world going forward. How do you think about these kind of market alternatives like Bitcoin, and gold in that context? I think they, I like both of them a lot. And the reason I think about that is ties back to sort of my framework of where for a long time the dollar was kept as good as gold for oil. And that was that dollar system. And it created all these other dollar instruments, these dollar shorts because the,

the bedrock underpinning this $57 trillion monster in the offshore dollar markets was the dollar will be kept as good as gold for oil. And now it's not, you know, despite it's the contrary. And now it's definitively not. And so I think particularly in the aftermath of 08, you saw the central banks move first when they started buying gold again for the first time in 35 years. And then in 3Q14, they stopped buying treasuries altogether, but they kept buying gold. And they keep buying gold.

And so to me, this system, the way it has organically, shifted, it still needs some sort of neutral settlement asset. You cannot, you know, you cannot have a depleting asset like oil where the U.S. has the ability to basically print money for that oil in short, because energy, it's energy, right? Energy, there's no such thing as free energy anywhere in the world. And so it's a, and I have to give credit to that. I think to Josh Crum, who came up with that. I think it's a great concept, the way of explaining us. there is no such thing as a free energy machine in the world. And the dollar system has structured from 44 to 71 was a free energy machine in a way,

but it had that gold tie. So there was a, you know, there was a governor on it. Post 71, there was less of a governor on it, you know, but we still managed to keep the dollar as good as gold for oil. Post-O-3, it's gone into Lala land. And there's no governor on it. And so it naturally begins to push people back toward the market solution, which is you need a neutral settlement asset. You need a bank core.

And I think ultimately, I think gold and Bitcoin as neutral settlement assets for what I would say gold for the official sector and big institutions. And Bitcoin for the people, if you will, are these bank core solutions that allow you to, you know, to allow creditors to establish. this system because you in the system we're describing in a UBI world you cannot store your surplus wealth in the debt of another when that debt is just being created when that debt effectively becomes currency which is what what which is what we just described so I think gold and and Bitcoin do extremely well they've you know Bitcoin obviously done extraordinarily well gold's finally showing some legs in the last 12 months after a long period of time but I I I think they are likely to be two of the big

winners in terms of assets over the next five to 10 years. Speaking of oil, I just want to divert it to that for a second, because obviously for the last couple days, everyone has been looking at what's happening in oil. I mean, this is one of those economic moments where people who didn't know anything about that industry or that space before are racing to figure out who to follow on Twitter, what to read to catch up so they can possibly wrap their head around it. How do you read what's been going on with oil over the last, you know, a couple days? I think there's, you know, I think there's two things that the way I look at the world,

and I'm not the right guy to talk to in terms of the structure of the futures and stuff. But in terms of the lens we use and how we think about the world, I think there's two key takeaways. I think the first is the real obvious one, which is when you shut down a third of the economy or GDPs down a third, the infrastructure for the energy business is not structured to handle this, the storage, et cetera, et cetera. So it's a simple on one level of something happened that the economy's not structured to handle. The oil infrastructure is not structured to handle. The second thing within this is this fascinating dynamic of it going to negative $38 per barrel.

And that to me is, you know, again, within a few negative numbers, okay, how much does it actually take to take a barrel somewhere if you're out of storage. I can't imagine it's negative 35. It's probably some modest negative number. It takes a while to shut-in product. But what I think it speaks to, the second thing I think it speaks to is the degree of financialization that I was alluding to earlier, where suddenly you have these people that are betting on oil, that are involved in oil, that have no interest whatsoever in the oil business. And I think it's a very big hint at the degree to which the paper markets have overtaken the pricing discovery mechanism as a result of this hyper financialization that we've described that's taken place of the last 35, 40 years. And to the

extent that this shines a light on that, I think it could be a very important moment in terms of other markets that are financialized that way. Gold, for example, you have Jeff Gungluck saying yesterday, be careful with what you own, you know, paper gold and gold are not the same thing. And now, there have been a lot of people who have said that myself included for a long time, but it starts to take on different meaning when Jeff Goodluck's of the world begins saying those types of things, when you see some of the things developing in the paper gold markets that we've seen develop. And so I think it could be a bit of a watershed moment in terms of just this. this aha moment where people can no longer say, well, you're the paper physical thing, you know,

stop. It's not, it is a big deal. You can see it. And importantly, when you take a step back and say, well, why did this develop? The big, the financialization was allowed to grow to the size it was because it ultimately supported this dollar company town structure in the past. You have to be able to control pricing of the underlying in order to sort of keep that system together. It's really interesting. The company town analogy, I think, is really fascinating. I keep thinking about it, especially because one of the hallmarks of the company town before it was shut down and made illegal was Scrip, right?

Company Scrip, where they didn't pay you in the currency of the political jurisdiction. They paid you because it was the store. It didn't matter. You know, you could go use the shrewbucks, right, in the store. And you had Dave Portnoy a couple days ago, a couple weeks ago, I guess, screaming on Twitter about how the U.S. dollar was shrewbucks. I saw that, I laugh. Yeah, it's an interesting, interesting little antecedent to that analogy.

But listen, I've kept you for a really long time. I really appreciate your perspective, particularly I appreciate how dispassionate you can analyze these things, right? because I think it's so hard when you're watching these things, especially when there's big decisions you don't agree with or patterns that you want to kind of rip to the other direction to look at them and be able to kind of assess them as they are. But I like to close with kind of inward, we're in such turbulent times. What's the thing that's got kind of creating the most pessimism

or nervousness for you, you know, from a kind of structural economic standpoint? And what's your biggest source of optimism going into the future, going into the post-COVID-19 world? So my biggest source of concern or potential fear, and I say this as a father of three boys, you know, one who's 19 this year, one who's 17 this year, and one who's 14, is this is going to work out one of two ways. Increase this, the size and the fact that this crisis happened and the severity and the fact that it's a physical disruption crisis has basically pushed us that there's going to be

one or two outcomes. either they're going to do the right thing in terms of restructuring the system from a currency monetary system perspective or they're not. And if they don't, the system's likely to collapse in a very disorderly way. And if it does, you are likely to see all of the sort of worst parts of what that implies. You know, bank shutdowns, potential hyperinflations, supply chain interoperations, supply chain, eruptions that caused that hype. You know, you've got this very, very complex society all based on just in time, and that would all go away.

And so you'd be talking about shortages and bank problems, financial system collapse, potential armed conflicts. It's ugly. So I don't like to go there, but I'm not a Pollyanna. If they handle this poorly, we're, you know, we're not on the edge of the cliff yet, but we're moving towards the edge of the cliff. They need to do the right thing. the thing that gives me the most optimism is if they manage this, even mostly properly,

if they don't mostly well, I don't want to put them a position where they got to get everything right. They don't. They just got to get it mostly right. And we could have the biggest global economic boom since the immediate aftermath of World War II. Because when you look at what this system has wrought, has been this massive imbalance of, you know, The Chinese and foreigners do all the production and very little of the consumption, relatively speaking. And we do most of the consumption and very little of the production, relatively speaking. And if you start to rebalance those things and then also factor in the amount of infrastructure changes that would have to take place or could take place to

support those changes, you would be talking about just this incredible economic boom where you're basically reallocating resources to away from consistent 20 years of warfare, which is a horribly unproductive enterprise, except for a few, to things that start to have the same type of immediate payback, but then also have a positive R.O.I, whether you're talking about Belt and Road in Asia and across Eurasia, you could do a Belt and Road in the U.S. I mean, our infrastructure compared to a lot of places I go internationally is suboptimal, shall we say, and that's being kind. So there's this great opportunity if they get it mostly right, partially right, to have this global economic boom. And there'd be winners and losers relative

within that relative to where they sit now, but there'd be mostly winners because there's not that, there's not that many winners right now. And even those winners would still, they'd be fine. They'd do well. But again, if they don't manage it properly, you can get to a pretty scary place pretty quickly, especially now that we have these supply chain disruptions that have begun, that we're a month into. I think this is a, I agree that this is a potential source of optimism that this is causing a bit of a national wake-up call, national conversation on both sides of the aisle, right? People who are, you know, Republican, Democrat, and independent in between asking these major questions about how self-contained and, you know, our economy should be. And what are these real kind of serious issues that are, that relate to our lack of capacity, especially in the face of the fact that those, that lack of capacity seems entirely by choice and by design, right? It's not a lack of the stuff. It's not by a lack of the know-how. But it does take a redesign. But in that redesign, you know, you're talking about, you're talking about. retrofitting factories to build new things and fast turnaround machine shops that require new

types of knowledge and vocational training that picks up those skill sets that weren't there before that shifts people away from a university system that's already heaving. So you can tell this story. You can project this out in a way that leads to a lot more building of real things, you know? And so I'm kind of, I share that that optimism that that's a potential outcome. And I, you know, I think that for anyone who kind of shoves their nose in this, ultimately you have to be something of an optimist or else you just go crazy, right? You do. I mean, there's, there's, and there's, and there's, and you know, there's times where you go back and forth a bit and, and there, I don't know what the triggers are, but one way or another, you know, I, I would know the trigger when I see, right? It's like,

Maple Thorpe's art, right? I don't know what obscene is, but I know when I see it. I, I don't know what a, uh, something that would make me really go, oh God, we're beyond the point of return is, but I, I think I would know it when I see it. But like you said, you're starting to see, to me very encouraging, signs in terms of the political unity of, you know, just print the money. Let's print the money and let's bring the stuff back. You know, this, you know, something we said a couple weeks ago report was you're starting to see signs that as opposed to 71 up until just recently, the U.S. economy was basically about subjugating the U.S. middle and working classes to support this dollar system. It's just the way the world had to work. And in the last month, month and a half,

we've started to see signs that maybe we're going to start subjugating the dollar to support the middle and working classes in the broader U.S. economy. And there's, you know, it's a great thing for the U.S., but it's a great thing for the world as well. There's a lot of imbalances that have swung very, very far to one way that would start swinging back the other way, which would suggest very positive economic outcomes and very positive outcomes for a very extended period of time. You're basically talking about a 50-year pendulum that has gone from here to here that now starts coming back the other way. So there'd be a lot of open field running in front of that, possibly. Well, look, we could have a whole additional conversation about that. I'll have to have you back.

But for now, I really appreciate you taking so much time. I know the listeners will appreciate it too. Absolutely. Thank you so much for having me on, Nathan. It was great talking. And there you have it. Wow, 70 years of economic history, TLDR for you. Now, obviously, there's so much more to dive into on all of these topics

and a million different perspectives and a million different ways that people explain these phenomena. So you should take all of this as one person's informed, I think, extremely informed perspective. As I said in the interview, what I appreciate so much about how Luke comes at this is this dispassionate way that he tries to organize all the inputs, all of the evidence, to come out with just the way things are, right? He doesn't try to map it to some political theory or some wishful thinking explanation of the world. It's just for him, this is the set of inputs that created a set of outputs and it is where we are. And I think that's a good basis to talk about where we move next, right? To understand and appreciate how things have come to be where they are

and where the levers of change might be. So hopefully this was a helpful episode to you today, guys. Let me know. Hit me up at NLW on Twitter. And as always, thanks for listening. Until tomorrow, guys, be safe and take care of each other. Peace. Welcome back to The Breakdown. An everyday analysis. breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Thursday, April 23rd, and today we're going to be talking about a subject which is

high on many people's minds, not just in the Bitcoin and Crypto world, but beyond, but certainly has particular interest for this group of folks. We're going to be talking about privacy in the context of COVID-19. On Monday, the Times in the UK published an op-ed called We Need Big Brother to Beat This Virus. The subheader is, don't let the civil liberties lobby blind us to the fact that greater state surveillance, including ID cards, is required. So this is, of course, clickbait. The title is designed to get engagement, and engagement it got, including for me. I wrote, we really don't, though, with a screenshot of the piece, and it seems from the

response that I got to that tweet that this is something that a lot of people are thinking about. One of the great fears in really any time of extreme crisis is that centralized actors, governments, use that moment to consolidate more power. Some of this is necessary. There are extraordinary powers needed for extraordinary times. The problem is that states tend not to relinquish that power. No one tends to relinquish power easily once it has been claimed. In America, we've obviously seen this with the Patriot Act and how that kind of just became derogore normal policy rather than something that was for a specific moment in time in history. And people fear that that's what we might see again in this context, in the context of the

coronavirus crisis. Now, I don't really want to spend too much time on the Big Brother essay. I think, like I said, it was designed at least from the way. that it was presented to get clicks, to get people riled up, and it did. I do think the idea that there's some big powerful civil liberties lobby that we should call out is a little bit of a joke, but what I want to talk about is the actual questions of privacy in the context of reopening the economy, because that's really what this conversation is about. It's about contact tracing, which is a part of the strategy or a part of what would allow us to actually open up the economy.

and go back about our lives. So that's kind of what we're going to talk about today. So what is contact tracing? Contact tracing is a technique that is meant to help slow the rate of infection of a disease by giving people information that they might have been exposed so that they can self-quarantine, they can remove themselves from normal activities and actually stop the spread of a virus. Historically, the way that contact tracing has worked is through individual people, through people actually going out and interviewing people who have been diagnosed with a disease to determine who they've actually interacted with in a way that might bring that person into risk or into harm. They then follow those contacts to see who else they interacted with and so on and so forth.

So this is an extraordinarily labor-intensive effort historically. But what it allows for when done well is that if people find out that they've been potentially exposed, they can alter their behaviors in a way that matches that, and thus we reduce the overall spread of a disease. For those who have heard of contact tracing, it might be in the context of the 2014 Ebola outbreak in West Africa. The effort to use contact tracing to reduce the spread of that disease was one of the biggest efforts of its type in history, and then when it came to coming back to the U.S., some 29,000 people were actually monitored through a continent. contact tracing program as well. These are people who had been in Africa and came back to the U.S.

So that's contact tracing. The issue with it primarily has to do with just how much labor there is involved. It's a hugely laborious process, which would be especially difficult in the context of coronavirus, which has such a long incubation period. There can be no symptoms for two weeks before this thing shows up. So it makes it extremely difficult with an extremely long window for potentially having interacted with people. For that reason, a human-based, exclusively human-based contact tracing system seems very, very difficult to implement from a pure human resource standpoint. What's being debated now, then, is digital contact tracing. In other words, apps that would take advantage of smartphone beacons, which can ping off one another, to actually

create a record of who has been near other people that is automatic. The upshot of this is that it can happen all in the background and that it can do a much better job, frankly, than interviews would likely do of actually seeing people's daily interactions with one another. The downside is, of course, and this was what was intimated in that piece, why we need Big Brother, that there are serious privacy considerations around this type of data, around putting a huge amount of information about people's movements and who they've interacted with into a centralized server that is accessible and usable by governments, but also hackable. There's an issue here of, on the one hand, civil liberties and privacy, and on the other hand, health outcomes. So let's talk a little bit about the actors in the space right now, the main proposed ideas happening. What's the status of these contact tracing apps? Well, the biggest effort so far is a collaboration, actually, between Apple and Google.

And they've proposed what effectively amounts to a decentralized approach that it promises to protect users' privacy by giving the phones a fixed identifier a series of pseudonym. So basically, instead of having the phone identify itself as Nathaniel's phone or Joe's phone or Miranda's phone, it instead has a random identifier that changes every 10 minutes. Then if someone has actually been diagnosed with COVID-19, they effectively publish or unmask themselves and share a list of those pseudonyms. This all happens automatically, obviously, in the background. and your phone can tell you if you've been near someone that has been exposed. And of course, it won't tell them anything about who that was or how, right? So it's privacy preserving, at least this is the promise.

There is another effort going on in Europe that is called the pan-European privacy preserving proximity tracing system or PEPPT, which is just a delightful acronym. Theoretically, it is privacy preserving and decentralized as Apple's and Googles is, but actually there are some significant changes. Matthew Graham, who is notable for, among other reasons, for having worked on the original design of Zcash, wrote a essay in Slate about this, and he says that on closer examination,

the concrete proposals for PEPPT so far differ fundamentally from the decentralized approach. For one thing, where the decentralized approach is proposed to generate pseudonyms on your phone, the PEPPT protocols generate your pseudonyms on a centralized server. This server will be able to link each pseudonym back to your real identity. Worse, if you're diagnosed positive, your phone will not simply upload the list of its own pseudonyms. It will also upload the identifiers of every person you've come into contact with,

so the authorities can track them down and notify them directly. So this is a massively different system with a huge amount of additional data, personally identifiable data, by the way, and the state having access to all of that data. So these are really significant privacy implications that come with this. This is what Graham's point is in writing this essay. He says, these changes might seem small, but the privacy impact is huge. If adopted, a single government-run server will store a list that maps every pseudonym to its real user's identity.

If anyone were able to get a hold of this list, perhaps a spy agency or a hacker, they could use it to track you out in the real world. And for anyone unfortunate enough to be diagnosed with COVID-19, the hacker will also gain a complete list of all of their social, contacts. Graham also points out that beyond just the privacy implications, there's also potential for delays by doing this separate version of this. There's specific rules that have to be negotiated with Apple's iOS apps that prevent this sort of background broadcasting of beacons without authorization. So there's actual implications just in terms of the efficacy as well.

Now beyond just this separate build effort besides Apple and Google, you're also seeing governments in Europe put pressure on Apple and Google to ease privacy rules. So a headline from The Guardian yesterday, France urges Apple and Google to ease privacy rules on contact tracing. Government becomes first to call for invasive measures in effort to combat coronavirus. Alex Stamos had a really interesting comment about this. He said, referring to this article, this is the natural endpoint of an online privacy debate that has always been more about culture war and competition policy than actual imperial

empirical evidence of harm. The moment there is a need for a reasonable balance of equities, 10 years of European rhetoric just evaporates. Basically, he's pointing out that there's this hypocrisy where in the context of trivial advertising data, there's this Puritanism around data privacy in Europe, but then as soon as a crisis hits, they want to have access to this huge amount of information that is much more important in many ways. And I think it's a good point. So what do people in crypto think? this off by saying that this is an issue that is particularly close to home for a lot of the folks in this Bitcoin or world. And there are, as you would imagine, a variety of different opinions. Representing, I think, one extreme as it relates to the surveillance question is Alex Gladstein.

He is the chief strategy officer of the Human Rights Foundation and is in general, not just in this context, but in all things very, very against the growing surveillance state. He sees it as a major threat to human rights. On April 15th, he wrote a thread on the folly, this is his words, the folly of fighting COVID-19 with surveillance. Now, the thread is actually broken up into a number of different questions and sections. The first question that he asks is whether there is clear evidence that contact tracing is an essential part of fighting COVID-19. He says, we must grapple with the fact that the government that has the most intense citizen surveillance system in history, the Chinese Communist Party, couldn't, despite all the Orwellian tech in the world, prevent an outbreak, mass loss of life, and economic devastation.

In fact, the CCP knew about the danger of the COVID-19 outbreak in December, but instead of using its enormous surveillance capabilities to quash the virus, it decided to try and cover up the outbreak, sensor medical reports, and destroy evidence. What does that tell you? So that's kind of his first point, is that he's not sure that there's clear evidence. and there may even be some counter-narrative evidence around the efficacy and importance of this type of contact tracing in the context of coronavirus specifically. His second point has to do with the Google and Apple system.

His critiques basically have two parts. The first is that the privacy promises are just that, their promises, and they could be broken. The second is that once this tech exists, other people will interact with it. Apps will be built on top of it with government and corporate partners, and more and more information will be taken from citizens. Basically, it has its own life when it's out into the world. His third point is going after this question of, well, we're all being watched anyways, so who cares about giving them a little bit more information? And his rejoinder is basically, why would we increase the effectiveness and normalization of surveillance? Why wouldn't we actually use this as a moment to say we should have less, not more?

Finally, he uses the comparative historical example of 9-11 in the Patriot Act. He says, decisions made in the anxious months after helped massively erode the liberties of Americans and build a global surveillance state. And for what? Evidence that this has worked has been extremely thin and the system is absurdly expensive. Think of our societies a decade from now. Are we going to clamor for surveillance to fight every major crisis? for fighting the flu or any contagion?

You think that the Bluetooth tracking infrastructure planted by Apple and Google into all of our phones will go away? You don't think governments around the world will say, hey, this is actually really useful. Let's keep it. It gives us unprecedented power to track citizens. They will. They will never let a good crisis go to waste.

So before you get too excited about defeating COVID-19 with phone tracking and surveillance, ask yourself, do we need it? Will it work? What precedent does it set? What could go wrong? Do we really need a police state to fight the virus? Your future self says no, you don't.

So I think Alex is very, very good at laying out arguments in a way that gives you a chance to actually engage with them rather than just be kind of purely ideological. And not everyone agrees with his point. In fact, he's had a number of tete-a-tete's with Preston Byrne, who actually wrote about this as well. Preston-Borne is a lawyer at Anderson Kill, and he wrote an article that says, I'm a libertarian and I'm going to download Apple and Google's anti-COVID contact tracing app. He starts it off. He says, I don't like Apple. I don't like Google. I don't like Google. In my view, these companies have unfair and anti-competitive strangleholds over mobile app distribution. I don't like surveillance capitalism.

I don't like how these companies do business. Most of my professional acquaintances don't like any of it either. Neither should you. But we should all use this app anyways. He has four reasons why. So his first point is that it should be possible to design this system such that location data is not provided to anyone. Basically, there shouldn't be a technology hurdle there. Second is a legal argument.

He says, ever since Carpenter v. United States was decided, the government needs a search warrant before it can access cell phone location data from companies like Google and Apple. Nothing short of a ruling from SCOTUS overturning its own decision is going to change that. Third is the argument that Alex specifically pushes back on, which is that we're giving away so much data already. He says, for 99% of us, the data we are proposing to provide to Google and Apple's with this app already exists somewhere and can be obtained with a search warrant. And his fourth part is fourth, and most importantly, the American initiative is voluntary. So long as it's voluntary, I'm going to chip in. Now, this voluntary piece is actually hugely important.

This is something that Apple and Google have been intensely focused on. Ben Thompson, who writes the Daily Stratituary email, called this out on Tuesday, April 14th. He said, Apple and Google, who last Friday jointly announced new capabilities for contact tracing coronavirus carriers at scale, released a new statement yesterday clarifying that no government would tell them what to do. Specifically, governments will not be able to require their citizens to use it. A CNBC article about this put it this way. They said, the two companies have drawn a line in the sand in one area. Governments will not be able to require its citizens to use contact tracing software built with these APIs. Users will have to opt into the system. This is a point of contention because many estimate that for contact tracing apps

to be viable, to be useful to actually work, you have to have something like 60% of people actually using them. That's a huge effort to get voluntary download. So governments are, as you would imagine, wondering if they can just force people to. But Google and Apple, who are the ones who have this tech, are putting their foot down. Now, Ben Thompson takes this to an interesting place talking about the reality that tech companies effectively set the rules for their domains. It's an interesting moment for that. But this gets back to Preston's last and most important argument that it's voluntary and that makes all the difference. There are other folks in crypto who are actually trying to go even farther in terms of privacy preservation as it relates to

contact tracing. Enigma has just demoed an API called SafeTrace. They describe it, SafeTrace is an API which connects to a privacy-preserving storage and private computation service. This means that many different applications, such as a web application or a mobile application, can enable its users to submit encrypted user data via the SafeTrace API and receive results without ever revealing plaintext data to anyone, including the SafeTrace server operator or the application. Now, you can go check out all of the development updates from SafeTrace. There's a ton of information on it. There's video demos. It's something that they're actually working on, right? This is not just a theoretical paper. But I think that the key point is actually,

I'm just going to quote Torbert from Enigma, who wrote so much of what we're presented with is a false choice. We can protect public health and user privacy. And I think that's my key takeaway. This is a choice that we have. This is a conversation that we get to have as a society about where our priorities are. And I simply don't believe that any choice presented with we can do nothing else. There's the only way to do this. The only way to solve this issue is with Big Brother, is with surveillance. It's simply an unacceptable answer. But here's the good news.

And there actually is a bit of good news here. We are having, because of this crisis, a much larger conversation about the importance of privacy in our lives than we've had for a very long time. And people who care about privacy, the great lament is that people simply don't care. We are the classic aphorism of the frogs being boiled in the pot without even realizing what's happening when it comes to the privacy that we've given away, the data that we've given away. The reality is that this issue, while I don't think it's going to mainstream the issue of privacy and surveillance overnight, it is certainly increasing the profile and expanding the number of people who are actively thinking about this.

this. And I think that when it comes to issues of privacy and surveillance, it requires awareness on a much broader level. So I do think that the one positive outcome of this debate, of this conversation, is that we're having it and it's asking us or forcing us to ask larger questions about privacy and surveillance in general. All right, guys, that's what I got for you today. What do you think? Are you going to use the Apple, Google contact tracing app? Do you think contact tracing is going to be effective in this circumstance? Do you think there's a better solution? Do you think that an even more privacy preserving alternative needs to be proposed? Hit me up on Twitter at NLW. Let me know what you think. And as always, guys, thanks for listening.

And until tomorrow, be safe and take care of each other. Peace. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to the Breakdown. It's Friday, guys, April 24th, and today I am joined by Jan Pritzker. Jan was previously the CTO and co-founder of Reverb.com. He was the author.

He is the author of Inventing Bitcoin, which is all about the technology behind Bitcoin. And he is most recently and currently the CTO and co-founder, of Swan Bitcoin, which is a Bitcoin-only startup for on-ramping people into the Bitcoin world. This conversation is really about that emergence of a Bitcoin-only industry, how it came to be, why venture capital and just capital in general creates the industries around it based on what type of capital is available. We also talk a little bit about Jan's personal journey, immigrating from the Soviet Union, understanding and learning about capital controls.

We talk about how capital controls and freedom of money is such an important issue for so many places around the world. So this is a fun conversation to end the weekend, really, really focused on the Bitcoin ecosystem and the why of it from a founder of a company trying to build in the context of a huge crisis. I had a great time with this conversation. I know you'll enjoy it too. So let's dive in. One quick note, as with all of our long interviews, this is edited ever so lightly to preserve the natural flow of the conversation. All right, I am here with Jan Prisker, Jan. How are you doing? I'm great. Thanks for having me on.

So you are doing a crazy thing right now, just starting a Bitcoin business, but you're doing it in an extra crazy way or at least in an extra crazy time. For those who don't know, tell us a little bit about Swan and why you're launching now. though I guess you couldn't have known that this was coming down the pipe, right? Yeah, I don't know. I actually heard about the virus probably back in January. I've been listening to a lot of macro voices recently. For those of you don't know, it's a great podcast. It's not Bitcoin related.

It's just macroeconomics. But, you know, I kind of had a hint that this was coming, but, you know, nobody obviously knew the magnitude. Why am I doing Swan? What is Swan? Swan is a Bitcoin on-ramp. It's just a very simple way to buy Bitcoin. It starts with a connection to your bank account.

And then whether it's weekly, monthly, or every paycheck, and hopefully we'll have some daily buys coming soon. It'll just withdraw from your bank account, buy some Bitcoin for you. And then you can do an auto withdrawal to your Bitcoin wallet, or you can keep it with us in custody. And we actually use a licensed and regulated custodian on the background. So if you don't, if you're not ready to take custody of your own keys, that's fine. And if you are, great.

And we combine that with education. So a lot of our team are podcasters, authors, both in the team as well as the, advisory. Brady from citizen Bitcoin runs up our heads up our education. We also have folks like Stefan Lavera advising us, Samad Hotel, people who really care about, you know, what's the right way to do Bitcoin. And that's our mission is really just to be a really good Bitcoin on ramp, something that you can send your friends or loved ones to and you'll know that they'll be taken care of and that will hold their hand and we'll help them out. It's that simple. And the fees are very low, right? I think a lot of people in this industry, I mean, there's obviously a lot of

trading platforms out there. And if you're trading, that's one thing. But most people just want to save a little bit of Bitcoin. And for that, the fees tends to be quite high at a lot of these other places that are focused on being trading platforms. So we decided to focus on one thing and one thing only, recurring purchases and recurring withdrawals. And for that, we've been able to lower our fees tremendously. So that's kind of this one pitch before I get into Y. Yeah, I love it. I mean, I think there's a couple things that are interesting about it that maybe you can kind of incorporate into the Y. So one is there's an emergent trend of Bitcoin-only businesses, right, which is, I think, a product of a maturation of the space such that it is, you know, you actually have

the ability to start actually focusing. I feel like for a while there, you know, money and capital availability often leads what type of companies get built. And so if, you know, if all of the kind of startup capital is only available to companies, that are doing big kind of crypto things or trying to do no token projects, that's obviously what's going to kind of arise. And we're sufficiently past, I think, the first wave of VCs getting involved in, you know, 2016, 2017, to the point of actually having people who have capital,

who are interested in Bitcoin specifically in building this ecosystem and see the total addressable market of the Bitcoin ecosystem as more than enough to justify actual venture investment. So is that, is that? That's something you, I mean, obviously you guys are part of that. That's very well put. And, you know, my own history kind of mirrors that. And, you know, I first heard about Bitcoin in 2011 and didn't understand what it was.

I actually ended up buying some at $30 and then watched to go down at $2, which was absolutely devastating and sold out of the market because I didn't understand what I had got myself into. And I repeated that exercise in 2013 as well. It wasn't until 2016 that I actually finally got into Bitcoin proper. And when I say Bitcoin, obviously, you know, there was a lot of a lot of noise at that time. The Ethereum was looking. You had all that going on. And as a developer myself, somebody who has a lot of technical background. I spent the last 20 years building startups.

Coming out of that background, I looked at, you know, Ethereum and I looked at all these different projects that were developed at the time. And it looked very attractive. And I spent a lot of time researching that stuff. And it probably took me a year of studying the entire. crypto, blockchain, space to understand the difference between Bitcoin and these other things. And that difference is that Bitcoin is money. And that use case is the biggest total addressable market on the planet. That's every human being in one way or another interacts with money.

And money is one half of every transaction in the world pretty much. So at that point, I started to understand Bitcoin as money rather than Bitcoin as a technology. And I don't think that this thesis was obvious in 2016. I think a lot of VCs and Silicon Valley types really believed that this idea of blockchain technology, distributed computing, and myself included. You know, it took me a long time and I invested in some of these early ICOs. I didn't understand what they what they were trying to create and what sort of ramifications were. So in 2018, so in 2016, when I got into Bitcoin, I was, I was really still working at my full-time job. I was the CTO at reverb.com.

Reverb was a marketplace for musicians. We were selling guitars and drums and things like that. And it was a startup that I helped start in 2012. And 2018 rolled around. We were about 150 employees and doing about half a billion dollars of sales a year. And I felt that the company had been very, you know, had grown to a mature stage. and I could actually leave and do something else. And to me, what was the most important thing I could work on, right?

I wanted to do something that was important for the world. Up to that point, Reverb felt like it was very important. It was bringing music to people, and that's something I love very much. But what was the most important thing is money? And why? Why is money so important? Money is the root of all evil, but it's also the root of everything that really happens in this world. It's a root of freedom, in a sense, right?

If you don't have freedom of money, then you don't really have freedom of speech. You don't have really freedom of movement. All of these other freedoms come from your ability to spend money. And why do I say that? Well, if you live in an oppressive regime where the government won't let you do something, you can always bribe somebody. But you can only bribe somebody if you have money that is actually free and can move around.

And as we go to a digital world, we're losing that freedom very quickly. So after thinking about this for a long time and studying all the sort of Bitcoin podcasts and, you know, videos by Andreas Centinopoulos and reading tons of books. I just felt like the most important thing I could work on was Bitcoin. And that's really why I left Reverb in 2018 to pursue this. And again, it took me a while to really figure that out. And as I'm sure, it is taking other people in the space as well. But now I feel very, very confident that building a Bitcoin-only business is the way to go.

Because we are, you know, we're building an on-ramp to the future of money. That's really what it is. and nothing else is money except for Bitcoin, in my humble opinion. You know, it's interesting. So I was a similar kind of interaction or early interactions and flirtations with Bitcoin that led to later coming together with it. I was in San Francisco during this whole period. I advised a company that was going through why accommodated the same class as Coinbase

and remember when they got like their one Bitcoin or whatever on their little thumb drive or something like that that they all hand it out from Coinbase. And, you know, we even, the company that I was working on for a while taught other big brands about new technology, right? So it worked with Coca-Cola and Samsung and companies like this and told them which new tech they should be paying attention to and why. And we even made videos about blockchain and Bitcoin in like late 2014, early 2015. And it's interesting because I didn't really get into the space until later or after that. And it wasn't until I left San Francisco. And at the time, the narrative was so much about either the technology idea and some of the underlying blockchain things or just as a payment system, right?

It was coming up at the same time as like Square's first apps were being built, right? So Bitcoin was like another thing that you use for your investor meeting at Cuba Cafe in Palo Alto, you know? And that kind of framing was it wasn't sufficiently interesting for me personally to go down the rabbit hole, right? It didn't have that hook. And it wasn't until later that. I came at it from the standpoint of, again, as you put it, not as a, as a technology, but as a kind of actual disruptive, you know, sort of power systems changing force that got me really excited and back into the industry. And I think in some ways, again, so much goes back to

capital availability. And, you know, I think that in a lot of ways, the interest that venture capitalists had in all these different potential applications is, it's understandable both from an imagination standpoint and from an incentive standpoint. From an imagination standpoint, like frankly, disrupting and changing the way that we think about money fundamentally is somehow much more, much more almost insane, right? And high-minded that even than most VCs, right? You know, like most VCs, you find out that they're interested in disruption that's like a perfect patternicity to a trend that's already accelerated versus a thing that has, like, That's predictable destruction.

Yeah, they want de-risk disruption, right? Exactly. 100x gains, but they want them de-risked. Exactly, exactly. It's why it's often a very good model, at least from a getting funding standpoint, to be the second player in a new space that people have agreed is a really good space. But then from an incentive standpoint, too, obviously, you know,

one of the challenges always with Bitcoin is that you're not going to, you're like the gains from just holding Bitcoin are are likely going to be better at least for a long time in the history than just actually then then going out and building some company around it or something right now I think different people debate at where that might have shifted and what you know which which of these kind of investments would have been better but for a long period there certainly back in like you know 2015 2016 or whatever it just made sense for their models I mean they're a carry model right like they have to have they have to have a reason for them to be involved in the process versus just buying Bitcoin. Yeah, just buying Bitcoin is outright speculation,

which I don't think is a bad thing, but it is speculation, and that's a very, that leaves a bad taste in people's mouth because you're speculating on the future of money, and it's not something you can control. It doesn't give off dividends. You can't direct it in any way. And a lot of people were mistaken in those ideas when they looked at Bitcoin as such a, you know, as a startup and not as a, you know, as a living organism, if you will, that has a life of its own and the mind of its It moves in the direction that it wants to move in. And it does that because of the efforts of, you know, thousands of people all over the world, if not millions.

But, yeah, it's not a typical venture capital investment. So you try to invest in something else that is adjacent. And you're right that the availability of capital can be extremely disruptive. You know, look at what happened with Ethereum. That, you know, first, I know, I know, I know, I know Ethereum wasn't the first ICO, but essentially it was the first one that really caught everybody's attention outside of the, you know, crypto kind of inner circle. And all of a sudden it became a model for funding, right? And as it did that, and all of a sudden people

saw these crazy gains, well, you had people following VCs and, you know, token fund people into these projects that were just, you know, complete retail investors had no idea what they were doing, dumping billions of dollars into these projects. And that creates a very strong distortion in the market. Look at Ethereum, right? You have hundreds, if not thousands of projects that now have coffers worth tens, even hundreds of millions of dollars. In certain cases, we have projects that have billions of dollars in their coffers. Now, look at that as a traditional venture capitalist and say, okay, you know, there's a new startup.

Would I give it a billion dollars on day one? That's completely insane, right? That's just completely misaligns the incentives of that project. And yet in the crypto space, that's exactly what we saw. And so because of that, it created this massive distortion in all these other, you know, crypto networks where they were able to go out and fund other projects and then those projects funded other projects. They created an entire ecosystem that have almost no users where there's like an entire

ecosystem of companies that exists to support a user base of 100 people. And it's frankly very, I mean, it's sad in a way because all this capital is misallocated, in my opinion. And it will meet a very, very sad fate. But it will take like a decade to shake out just because of the amount of money that's actually floating around in there. So that's, you know, that's what happened. With Bitcoin, I see, you know, I grew up on the internet.

I got my first internet connection in 1993. I grew up with Linux. I installed my first Linux Slackware on floppy disks in 1995-96. And, you know, I saw that, that same ethos in Bitcoin. It's like very scrappy. People are just hacking on open source software. There's not a lot of money in it. Well, there's money in holding it, I suppose.

But if you go three or four years ago, it wasn't obvious that was the case. And a lot of people are just working on it as a passion project, just like they did on Linux. And now Linux powers, you know, I don't know what percentage, definitely more than half of the internet and what percentage of mobile phones. I see that same ethos in Bitcoin where people are building something that's much, much bigger than themselves. And it's not going to matter if there's funding or not. They're doing it because it's the most important thing they could be working on. And that's why people work on Bitcoin. So that's what drew me to Bitcoin overall as I started really digging and understanding who's involved and why are they doing the things they're doing.

Yeah, I remember going to like Apple enthusiast meetings with my dad in the late 80s. Like he was transitioning from his first career to learning how to program in like 85, 86, 87. And I was like three, four, five the next couple years. And he would go to these meetings and I would just kind of like sit around as they talked about their computers. And it does actually, I often have like these weird. moments where it feels similar to these like very impressionistic pictures of that in my head that I have from being a kid. You know, it's interesting though. As you're talking, I never really thought about it this way, but this idea of capital availability and what it does to particular

types of ecosystems is really interesting in the context of Bitcoin, especially in comparison to crypto, but even just Bitcoin on its own, because, you know, the model of the employee model of startups is, you know, reduce cash salary to where you'd be able to get, you know, on the open market in a comparative established business, but with equity upside, right? So you have some ownership of the upside potential of the business that you're building. And in a weird way, Bitcoin sort of functions as equity for the entire ecosystem of people building on Bitcoin, where if you're invested in this asset and you believe that it has four, five, 10, 100, 200x to grow from where it is, then you have this incentive to build out the capacity for it to grow,

for it to do new things. But it's like a pool of equity that you can keep growing and building and expanding on as well. So weird a little analogy. Yeah. I think that's absolutely right. It's very interesting because it's like the first successful way to fund open source development that doesn't involve a corporation coming in and basically hiring the open

source developers. Although that does happen as well in Bitcoin, obviously, you have bigger companies that hire open source, the higher Bitcoin developers that just still contribute to open source Bitcoin. You can be in some slum somewhere where you have basically. internet connection, you can be working on Bitcoin. And I think that's a very interesting phenomenon that's going to unite a lot of the world in ways that we haven't been able to do.

Because, you know, let's keep in mind that money does not really travel freely between borders. Like if I wanted to hire somebody in Afghanistan, I don't know how it paid them or in Iran, right? With Bitcoin, these things are possible. So it really does create this interesting incentive to build decentralized companies that are all over the world that have employees in the far reaches of the world that are just, you know, where the talent is and doesn't limit you to the United States anymore or, you know, if you will, European, you know, or Asian democracies or something like that. Yeah. Or like upworkers, right, that are kind of worked through that have a very specific set of constraints. Although, you know,

that's a great system, but it's not kind of a, you can't have an entire way of working mediated by a single, a single company. I say as we, as we, as we record this on Zoom. I mean, you use what you can, right? I mean, if Zoom is available and it's not censoring us, then that's fine. If it starts to do that, then we're going to have to look at some alternatives. But, you know, that's one of the things that actually drew me to Bitcoin initially is when I read this story about a startup in Afghanistan where they were teaching girls or young ladies to code and to earn Bitcoin.

Because apparently in Afghanistan, it's very difficult to get a bank account if you're a woman without like male supervision. So, you know, this is just literally freedom money for them. they're able to earn their own money that is theirs alone. It will never be touched by anybody. It will be in their head. They can walk out of the country and carry that wealth with them. That was a very powerful story for me because I actually come from, you know, the Soviet Union.

I immigrated to the United States in 1989 when I was a kid with my parents and my sister. So when we came to the U.S., we came with like, you know, four suitcases and $400. And I didn't know what the story was with our money. until recently after I got into Bitcoin and asked my parents what happened with our money when we left the Soviet Union. And I knew it was illegal to own U.S. dollars. I knew that foreign currencies were basically considered speculation. You couldn't own foreign currencies in the Soviet Union. And the reason for that was because the government had to have complete control of the economy.

They couldn't have a free-floating currency. They had their artificial currency rate that made the economy function because they fixed the prices of everything. So they wouldn't let us keep our money. they allowed us to exchange $100 per person of Soviet rubles to dollars when we left. And that really solidified for me this idea that Bitcoin is important because Bitcoin is designed to defeat this notion of capital controls, the ability for the government to tell you what can or cannot take with you if you have to leave or if you even have to send money abroad to your loved ones that are still in your former country after you have left.

I think this is a very underestimated feature of Bitcoin that a lot of them, Americans don't have, you know, a visceral grasp on. They may have read in the papers that there's the Venezuelan economy is crashing or they might think that's a one-off. They might not realize that half the world lives in some type of authoritarian environment or an environment with capital controls where people are literally unable to leave their country because they can't take their money with them. They would have to start completely from scratch. Or if they do get out, they have no way to send money back home. And Bitcoin literally exists to defeat that horrible and evil concepts. your money should be yours alone.

Money is freedom and the coin is freedom money. And that's why it's so important for us to be working on it. You know, it's interesting. I have a personal anecdote related to that as well, or that use case helping people understand. So my father-in-law is a dentist from upstate New York, built out his practice. In the 90s and early 2000s,

he started investing in real estate globally, which basically gave him an excuse to travel, fell in love with Argentina, has been going down to Buenos Aires, for 17, 18 years now, bought a house in Uruguay about 12 years ago. And he was, so, you know, I talked to him a lot about Bitcoin and this whole space. And it didn't really click for him until he was down in Argentina. This was probably like 18 months ago now, a year and a half ago, maybe. And all of a sudden, all the combios, all the places where you change money had Bitcoin. They

had the Bitcoin prices too. Oh, nice. And there was a window in Argentina. Argentina historically has had capital controls. President came in as a, you know, kind of economic reformer or whatever, got rid of some of those capital controls. And it obviously, you know, Argentina, the peso has lost a huge amount of its value. Something 40 or 50% of its value

over the last, you know, a couple years, which would have been for anyone who just has their money, like the normal people there, right? Like normal kind of middle class, white collar. Like Argentina is not like a, it's not a Venezuela type hyperinflationationary situation, right? and just half of your, the value of your money, gone, you know? Yeah.

And so he saw this and he was like, oh, okay, I get it. Like people want to get out of this local current. It's a way to opt out of the local monetary regime. Now, interestingly, you know, Argentina, I think is particularly interesting right now because you're seeing, we're in this really interesting moment where one of the byproducts of the COVID-19 economic crisis is this massive dollarization, this massive flood into dollars, right? You're seeing stable coins, which have risen a huge amount.

Like I was reading Circle, USDC, was up 65% in their supply from the beginning of March. Tether is over $7 billion now. The total market is over $9 billion. And it's very clearly not just people who, you know, not dry powder for crypto exchanges, basically, right? It's not people moving out of EOS so they can, you know, reinvest later or something like that. It's very clearly people who are entering the system, which is interesting. I think, you know, I don't think that a lot of us necessarily thought that demand for some synthetic version of dollars might be an on-ramp that would get people into this space. But I do think it is. And I think, frankly, the bridge from, you know,

holding Tether or USDC or one of these things to getting into Bitcoin is a lot lower than than kind of than we think. So that's been a really interesting kind of byproduct. But speaking of COVID, I wanted to ask you, how has it been starting a company in this time? Have you felt impacts? I mean, you know,

obviously there's the practical stuff of how you work. But, you know, I guess talk to me first, maybe about what you expected as you guys started to see this coming down the pipeline. Kind of what did you steal or steal yourself for or resolve? And then how is it actually played out? Yeah, so I mean, we started off as a full remote company. I actually have known Corey for probably about a year now. Corey Clipson and the other co-founder of Swan. Corey was formerly the founder of, we're not formally, but still is the founder of Give Bitcoin, which we essentially pivoted into Swan.

Give Bitcoin still exists as a separate product. And I was an advisor to give Bitcoin from the beginning and kind of was helping out until it became obvious that we should just partner up and do this thing, right? So as we kind of got into the idea of Swan, which is probably born towards the end of last year, I would want to say November, December. We, you know, we were already working remotely. We already had a couple of folks all over the world helping on this thing. We got a couple more people on board. And we built up a remote team. We were on Slack. We have people all over the United States.

We also have a designer who's in Germany, who just, you know, came out of the woodwork and said, his name is Yorne. He's great, great guy. He said he wanted to work on this concept. He was really excited about it. And we hired him. So we have this fully distributed team. We work on Slack. We have Zoom, all the usual suspects.

So as the crisis started nearing, it became obvious that this was happening. We were lucky enough to raise a little bit of seat capital early on. So we have enough money to kind of get us through this. We obviously, you know, continuing to do that as needed. But we cut some costs. We cut some frivolous costs right away. as we saw this thing coming, definitely preparing ourselves for the worst. But we believe that this is a business that is positioned perfectly. You know, this is the time, right? There's so many

factors that are coalescing. One, we have the collapse of the current financial system. I mean, I don't know if this is the final collapse. It's probably not. I'm sure we'll reinflate this bubble and be right back on track. It might take a few years. But in either case, this is a nice wake-up call for people to be reminded of, you know, what is, what is happening? Why, why, what's wrong with our money? Why are we suffering these problems? Why does nobody have any cash reserves? Why are we settled with all this debt? How do we run a society on this? A society that's so fragile that, like, a little bit of a shutdown, you know, it takes us out completely, right? We can't live in that kind of society. We need to have some antifragility. And I see it on Twitter every day. I see people

waking up to Bitcoin. So, and I'm talking about people from, you know, from traditional finance, hedge fund people, macro investors, your everyday people, my friends who have not been interested in Bitcoin for a few years now, I've just forgotten about it, or asking questions again. So I think we're positioned correctly, time-wise, we're at a point where Bitcoin is going to enter into public consciousness. We already saw I discussed in Congress last year, which was way earlier than I ever expected somebody in Congress to talk about Bitcoin. And, you know, I think we're positioned to take advantage of that. And of course, we have the halving coming up, which is going to be another event for the media to talk about, you know, a good educational point for people to start asking questions around.

What does it mean? What is it having? How does it impact, you know, the inflation of Bitcoin versus the inflation of other currencies? Because, you know, people don't understand inflation, generally speaking. They don't really think about it. They believe the numbers they've been fed by the government that we have 2% inflation. which is, of course, absurdly false. You look at the price of housing, education, the stock market.

Even goods, to some degree, have inflated really badly. So, you know, people are rising up to this, and I think we're positioned at the right place. And we just have to hunker down and survive and make sure that we can onboard people and give them the best experience possible. So I think we'll be okay. One of the interesting things that you guys are doing is it's almost kind of a, narrative positioning thing where you're really talking about savings and trying to have this concept of savings. It's very clear that that's intentional. Talk to me a little bit about how you think

about that, how you guys think about that. Yeah. So that's very, that's very a good observation. We got very much focus on saving. And the reason is we think that saving as a concept has really left the public consciousness, right? People don't really save. We have people who are either very, you know, on the low end of the scale, they're living paycheck to paycheck and they have nothing to save. On the high end of the scale, people are generally forced into very risky investments because yields are at historic lows. You can't like buy bonds and make anything on them. So you're going to be forced into investing into riskier and riskier assets, which of course causes asset bubbles, which we're seeing the result of that now.

You know, I remember just going to the COVID, right before the COVID crisis hit and Tesla was going from, you know, $400 to $900 in like a month. And I was looking at, and I was looking at that vertical chart saying this looks like Bitcoin 2017. This is not right. Something's not right with this market. There's people rushing into these risk assets that should have no business in them. We have people like trading on Robin Hood, right, for free. We have like Reddit communities like betting, insane amounts of money, they have no business doing. And we've created this culture. This is not a normal culture. This is a culture created by a money that inflates, a money that you can't save. So this is why we are taking on this massive challenge of creating new behaviors, right?

We could have launched another crypto exchange and capitalizing people's gambling behavior because that behavior already exists. But we don't think that's good for people. We don't want to capitalize on gambling behavior. We want to instill a new type of behavior, which is saving. Because when you have savings, then you're prepared for the future and you have optionality. At the end of the day, that's what Bitcoin is. It's optionality on making an investment or spending it into something else in the future at a time where it's going to be more worth it for you to spend that money than to keep it. People have no concept of this anymore. They have no concept of keeping a cash balance for the future, right? So that's why we talk about saving.

We want people to really think about it as a way to save their wealth for the future. I'm talking about not just for yourself. I'm talking about for your children and your grandchildren. I'm talking about multi-generational savings vehicles. And if there is something that is so important they need to spend your money on like a house or, you know, something like that, then go ahead and do that. But if you're, if it's a decision between buying, you know, a new pair of jeans or or stacking some stats, absolutely stack those sets and wait for the price to go up as other people wise up to the same idea. You know, it's interesting.

I think that there's, there's two, two kind of obviously interrelated things with this discussion that are important. One is, and you alluded to this, there are structural reasons that people get forced into speculative assets, right? because people have, I mean, you have a system that is predicated on continued growth of asset prices, basically, right? An entire generation of baby boomers who are, have built all of their plans around these investments spitting out the same rate of return forever. Yeah, right. Seven percent or something that's completely unreasonable as well. Yeah. And I know, I mean, I think all of us who have parents who are

older who like, you know, unless they're in a really good position, are looking at that with some amount of trepidation and stress. In fact, I tweeted something really simply about that a couple, I don't know, maybe a month ago now, and it had like a thousand retweets because everyone is scared for their parents, right? You know, at least we have more time to adapt to a different reality. So you have, on the one hand, just structurally the kind of the way that the setup of the economy forces people into this. But then you do have a narrative challenge too, right? You do have a marketing challenge where the fomo of losing out on kind of short-term opportunities in terms of the growth assets is marketed more and not not kind of necessarily.

I mean, sometimes intentionally, but even just in the way that media is structured, right, versus all the different ways to frame savings. And in fact, we don't really have a lexicon that makes that cool or sexy or anything, right? Like, you know, like the best thing that was like the last time there was ever something interesting around savings in my life, pre-Bitcoin in any way, was like when Key Bank offered like a dinosaur for a savings account when you were a kid. Like every time you make it a deposit or whatever. Yeah. But the challenge is that it just needs a different language.

And I think one of the potentially positive byproducts of COVID-19 is a shift in some people's sentiment about prioritization when it comes to, I think actually fragility and anti-fragility is, for many people, a more resonant language, right? Like, it's not that savings are cool. it's that having optionality on the future, having kind of preserving freedom, even as other people have their options shut down, is a really powerful thing. This is something that I see a lot of people who are actually having this conversation with themselves about the place of savings and kind of that in their lives.

I had this conversation with Jared Dillian even on the podcast last week, where he noticed he was just spending so much less on his credit. credit card and part just mandated by by by look what there's less things to spend money on right now. But but but also I think it's once people start to do that, it's a it becomes good. And also I mean, certainly for for people who are going into this and who don't have to feel the same sort of fear that a lot of other people are far, there's a lot of gratitude in that, you know? So I do think that it often takes these sort of moments of, uh, of huge crisis to to shift behaviors in any meaningful way. But it was a language that I noticed across all of, you know, how you position things that I think is important for.

Yeah. And, you know, I think it's almost like a humanitarian educational thing where we have to educate people on savings. And you're right that the virus does help you reframe that. And, you know, a lot of people have lost their jobs and they find themselves with no, no cushion to fall on. You know, and if you think $1,200 from the government is a cushion, I mean, that's a joke. You can't, you can't live on that. And I know it's tough. I know there are a lot of people living, paycheck. check that have a very hard time saving. But it is a cultural shift, and we're hoping that that cultural shift happens. I do think that it's, you know, obviously some of it's on us to be good at marketing that concept, but some of it's also on Bitcoin because as Bitcoin's number goes up, as they say,

right, the Bitcoin price will go up and that does attract people and does attract FOMO and does make people realize that had they had some Bitcoin, that they would have been a lot better off. And, you know, I like to say that there's Bitcoin in America, it's like almost like a luxury good. I don't think even the most hardcore bitcoins, maybe they think hyperinflation is coming tomorrow, but even myself, you know, I don't believe in that. I think America's got a long way to go to maintain this empire. We are in a unique position in that we do control pretty much the world's only true settlement currency, at least for now, and we have big guns to enforce that, and we have

sanctions to enforce that. Keep this empire going for a long time. It could be hundreds of years. And so for Americans having some Bitcoin, it's like, it's nice to have. I think it's becoming more and more important. But we have to not forget that all over the world, there are people that are literally living, you know, like for them, it's a life and death thing. They can't get out of their country if they don't have Bitcoin or they can't buy food if they don't have Bitcoin. These are things that are going to drive the adoption of Bitcoin and hire outside of America, regardless of what we believe or don't believe or how well we market Bitcoin. And that makes the price go up. And as the price goes up, you know, Bitcoin markets itself.

We just need to position ourselves as the simplest and easiest, you know, company to to onboard with so that people have an easy time and understand what they're getting into. How has, what's your perception of how, what COVID-19 has done for the Bitcoin narrative? I think it was, like the price, there was this early volatile period when Bitcoin was selling off. alongside everything else that everyone wanted to, there's a huge move to kind of dismiss the store of value digital gold narrative. But then simultaneously, a new meme emerged in terms of kind of money printing go burr, right? And the comparison of the halving coming right up or quantitative tightening

or quantitative hardening, as some people have been calling it now. Love that. Versus quantitative easing and unlimited money printing kind of gave it a new shape. But I guess have you been surprised at all about anything about how? how the narrative of Bitcoin has shifted, or even about how the asset itself has performed over the last six weeks to eight weeks. Yeah, I mean, I think there are fundamentals and there are short-term movements, right? So when people say a store of value, right, and then they dismiss it as soon, because they say, okay, Bitcoin lost 60% of its value or 80% of its value,

so that means it's not a store of value. I think those people are looking at short-term price moves and trying to draw an error from that that isn't really, I mean, that's not a reasonable thing to do, right? When we say store of value, gold, we call gold a store of value, real estate to some degrees of store of value, and an expensive painting, you know, a rare painting can be a store of value. All of these things have store of value properties. So store of value is a property.

It's not like, it doesn't mean the thing literally never goes down in price because that's impossible. If something can not go down in price, that means it's not a free market, right? and you're living in communist Russia and get that out of there. All prices fluctuate, right? When we say store of value, we're talking about how good is this thing at basically not being, you know, controlled by anybody because I know if I have a painting by Monet,

which of course I do not, I'm not that rich. But if I have a painting by Monet, I know that another painting by Monet will never be produced, right? And so it's a good store of value. Now, it might be maybe costs a million dollars today, maybe it costs $100 million tomorrow. maybe it costs, maybe it goes down by 50%. I don't know, but I know that this thing is rare and scarce

and that most likely I'll be able to sell it to somebody else for around the same amount of money, maybe more, maybe less. But we know that the US dollar isn't a, well, it is a store of value for a lot of the world, right? I mean, compared to Argentinian pesos or Venezuela and Bolivars, it's a great store value. So it's all a matter of perspective. So stores of value is a property.

It's not a thing you can dismiss just, because the price of something goes down. Otherwise, every currency in the world, including the US dollar, is not a store of value. Every object is not a store of value, right? So it's either a meaningless term or it means something, and to me it means a certain property, which is its inability to be artificially inflated, if you will.

So the other thing to remember is we are so early in Bitcoin, and so many people have forgotten this because the media keeps hammering us over the head with Bitcoin going to the moon or Bitcoin going to zero. And it's a false narrative. Bitcoin is a $150 billion market, I don't know, something like that. It's nothing. It's absolutely nothing.

It's so tiny on the financial, you know, the scale of the world's financial system. There's like $8 trillion with a gold alone. I mean, real estate, we're talking about hundreds of trillions of dollars of money floating around the world that's being used as store value. So Bitcoin is nothing. And so if you have $10 million in your pocket, you can move the price of Bitcoin. So why? why would you even look at shorts and price movements as anything but, you know, games? There are games of the market.

So I only look at the fundamentals and the fundamentals are unchanged. Bitcoin is continuing to follow its release schedule as is enforced by the consensus of the network. Every currency in the world is, as you said, it's going to quantitative easing, aka we're printing more of them. With Bitcoin, we are printing less of them. And, you know, unlike every other currency, Nobody can change that, right? Nobody can actually affect that release schedule.

That's fundamental breaks at the biggest lower value. And I fully expect that, you know, 50 years or 25 years from now, they will become more and more stable as markets get deeper and deeper and deeper. It's interesting. So Bloomberg just put out a report called, it's their crypto outlook, the Bitcoin maturation leap. And they kick it off. It's extremely bullish.

They kick it off. This just came out, I think, like a couple days ago. I just saw it on Twitter, but I haven't read it yet. Yeah, the first line is the stock market shakeout will temporarily drag on Bitcoin in our view, but with an outcome more reminiscent of golds after the 2008 financial crisis, which is where gold went down significantly, 30, 40 percent in the immediate months following, and then came up after it. Coming into existence in 2009, the firstborn crypto is faring relatively well,

down less than a quarter as much as the S&P 500 in 2020, despite being almost 5X as risky on a volatility-weighted basis. Bitcoin's 24-7 price transparency, the lack of limits, interruptions, or third-party oversight is an accomplishment for an asset just a decade old. This year marks a key test for Bitcoin's transition towards a quasi-currency like gold, and we expect it to pass. Unlike the stock markets reset, but similar to gold's Bitcoin has its shakeout, stabilizing the foundation and unprecedented global monetary stimulus and increasing adoption.

So it's like, I mean, again, this is, yeah, this is not a, this is not the report that, you know, you and I got together to write, you know. I love it. I think people are starting to understand in the mainstream that Bitcoin is that thing. And of course it's going to sell off. It's a small market. And, you know, if people are literally panicking and they're selling everything, they're hitting the sell button on everything they have, including Bitcoin, okay? Because as much as we want to talk about Bitcoin is money, it's still not that globally. It's still the US dollar. So if you have like, if you need to feed your kids, you're not going to feed them with Bitcoin, let's just be honest about that. Unless you're

like in Venezuela and you're smuggling food over the border with Bitcoin, that's, that's a special circumstance, but that's not the circumstance of the most of the world. We have to be realistic about that. So, of course, it's going to sell off. It's a risk asset. The majority of Bitcoin owners are Americans and they're going to sell it like a risk asset. So that's fine. But again, that's not what Bitcoin is fundamentally, just because it's being used that way and it's very nascent stages, just like if we go back to 2011 or something or 2013 where people thought the Bitcoin was for payments, it's very easy to look at a thing and mistake it for its current behavior and think it's that versus really, really understand the fundamentals.

I mean, even, obviously, I don't have the ability to time travel back to 2011 and read the white paper when I should have read it. But I think if you look at it, like, I'm a technology person. And then when I read that Bitcoin is scarce block space, I immediately understood, okay, it's not going to be good for micropayments. It's obvious that it's not good for micropayments. Can we build other layers on top of that that do micropayments? Yeah, of course.

I mean, that's lightning network and even centralized services. But it's money. It's not good for micropayments. So if you look at short-term behaviors, you're going to be misled. You have to look at fundamentals. You have to look at the structure of the thing, like the systemic structure of how it's built and what is it for. And then you see what the outcome is.

The outcome is it's the most scarce thing on the planet. And when everything else is abundant in terms of money, then you're going to try to get the thing that's scarce to protect your wealth. And that's an individual decision everybody makes for themselves at different times. So we're talking about fundamentals and the difference between fundamentals and short-term narratives. What do you think is the, how do you think about the having in that context, right? Because the debate obviously is constantly, the fun kind of internecine warfare in Bitcoin is the having priced in or not. And then, you know, you've got now you've got the people who are like, listen, guys, even if it's not priced in, you're likely not to see the impact for a while.

It's like, I feel like we're gearing up for this moment where it's like, everyone's going to come with their party. hats like they're waiting for a new year's countdown and then nothing's going to happen you know so how do you I mean again going back to the fundamentals like how do you guys think about the having over there what's the significance yeah it's you know you're right like first of all what is price that mean there's no way to actually prove or disprove this narrative because does that mean it has to go up on the day of the having or why it makes an amazing is why it makes it amazing social media feud right right it's so great it's absolutely no it's just it's there's no way to disprove but there's no way to really take a bet on it if you're not

willing to have a time horizon. And most Bitcoiners, their time horizon is so long that they're not going to bet on Bitcoin's price being a certain price on the day of the having, right? The way that I think about it is, look, I'm not an economist. I came into Bitcoin having almost zero knowledge of economics. And I actually think that's a good thing. I came in with the knowledge of how supply and demand works. And because of that, you know, when I read various economic ideas, both from, you know, the quote unquote Keynesian slash traditional economics world, as well as Austrian economics, became very clear to me that supply and demand is everything, okay?

It sets the price of all things, right? And we can wrap it in layers of complexity and pretend like it doesn't, like it changes, but it doesn't. Right. So the supply of Bitcoin is going to become more scarce, right? There's going to be less new bitcoins being minted into existence after the having. If the demand stays the same or goes up, that necessitates the price going up.

That's just how supply and demand works. Now, do we know that on the day of the having the demand for Bitcoin is going to be the same or more? We don't know that. Obviously, we don't know that. So there's no way to know what the price is going to be. However, I think we know that where Bitcoin is on its adoption cycle is very, very early. Again, despite all the media hype, there's something like half a percent of the world having any Bitcoin right now. Maybe with Americans, it's a higher percentage, but still not enough to matter.

Especially if you talk about people who have more than like $100 of Bitcoin. And especially if you talk about people who don't have, on Coinbase, who actually understood what they bought and have taken custody of it, right? Nobody has Bitcoin. That's the reality. So as the having happens, it's going to go into the papers, it'll be in all the media. Everybody's going to run out and they're going to start understanding what supply curves mean. They're going to start understanding what inflation means. And it may take a while for that to sink in. And when they do, they're going to also look around and realize that the Fed at that point printed 10 trillion or 20 trillion or 40 trillion to

support the entire world economy through this crisis. And they're going to draw their own conclusions. So, you know, do I think the price of Bitcoin is going up? Of course. I mean, that's, that's why I'm building a business in Bitcoin. But do I think it's going to go up on that day? I have no idea. There's absolutely no way to time or know about Bitcoin's short-term price movements. And that's silly to talk about. I mean, it makes for fun Twitter conversations, but it's silly. Yeah, I think, I think, you know, I'm a fan of, I'm a fan of contextualized, ridiculous debates on Twitter, right? Where you know that it's like, this is the way that we're passing time, you know? Yeah, for sure.

It's just a way to pass it time. Well, I've kept you here for almost an hour, but maybe as we wrap up, what have you seen, you know, this has been a hard time for everyone, I think, on some level, right? even if it's just the insecurity or worry for other people, you know. Have you seen anything over the last few weeks that has made you particularly optimistic for the future, whether it's in Bitcoin or beyond? I actually like that the virus has created this local movement almost. Like there's a bit of self-sufficiency, right? Like we have a garden.

We've always had a vegetable garden. My wife is really into it. And this year we're planting potatoes, for example. You know, now I don't know if I'm going to feed the entire neighborhood with that, but it's something. I think there's a movement back to self-sufficiency to being prepared. You know, I was never a prepper. I was, my wife thought I was crazy when, like, in February, I started saying, you know, we should probably buy some stuff. Like, people on Twitter are prepping.

And usually that's like a good signal that, like, the mainstream is going to start prepping a few weeks. And I was looked at, I was like, you know, I was looked at ridiculous. And now who's the one who's prepping? You know, she's just making crazy shopping with us all the time. So it's like people are thinking more about the future and more about their local communities. They're relying less on the big state, right? Like we know that the government, like the federal government, screw this one up major. And like, should we expect them to be our big daddy, our savior always?

Or should we have better local versions of these response systems that are, you know, that actually impact our local communities because I could care less about what's going on across the country. I care about what's happening in my house and my, in my local community. I'd rather pay more taxes locally than give all those that money to the federal government goes God knows where, right? I would like to see that happening and I think it will. I think people are realizing that they can't rely on central entities to do anything. At the same time, these central entities are coming in and trying to like print all this money and do all this helicopter money and trying to basically make themselves relevant, even though everybody knows or not.

So I hope that people are realizing the power of local community and, you know, the power of being prepared and having their own stash of savings, of freedom money, if you will, for a rainy day or, you know, if you need to leave the country, hopefully you don't. But who knows? You know, I think these are all positives of Corona that are helping people understand what's important and how they can be prepared for things like this in the future. But I want to give a warning to people. Like, people are getting so authoritarian in this crisis. They're getting so caught up and, you know, we should be policing this. We should be enforcing that. We should be

reporting our neighbors. Like, that's just a bad way to go. It's how it's how we lose our liberty and we're giving it away because we're scared of this invisible enemy. And it's, it's truly upsetting because this is how the United States turns into the Soviet Union. It's not because we elect Bernie. It's because we are going to voluntarily give away all these liberties. Let the government print as much money as they want. If we do that, it's game over. So we need to put a check on government, separate money in state, buy some Bitcoin.

That's my message. All right. Well, I'll make sure that the swan is linked. So if you want to go save your Bitcoin, you know where to go. Thanks so much for hanging out. Thanks. Oh, by the way, I just wanted to do one other swan shill, which is we're not just an on-ramp. We also have an educational component.

We have a blog at swanbitcoin.com slash signal, the swan signal. And we also do weekly shows on Twitter. You can find them at Twitter slash Swan Bitcoin. It's called Swan Signal Live. And we have all kinds of guests on there for macroeconomics. It's Bitcoin to, you name it. So if you're interested in that kind of stuff or you want to learn more, please do follow us on Twitter and find out more.

Thanks. Love it. Thanks, yeah. I'm recording this intro a day after my conversation with Jan, and I think the thing that sticks with me most about that conversation is this idea of Bitcoin as freedom money, something that for some people has the luxury of being a luxury asset, a speculative asset, whereas for others, it actually addresses a key question in human freedom, which is who controls money and who controls what you do with your money.

I think that there is such a different lived experience of Bitcoin all around the world. And it's important when we talk about this industry to understand that it may have very different contexts depending on where you are and depending on where you're sitting. That's going to do it for the breakdown this week. I hope you have enjoyed these episodes. I'll be back on Monday as usual. So until then, be safe and take care of each other, guys. Peace.