The Breakdown - The Breakdown Weekly Recap | May 23 2020

Episode Date: May 23, 2020

The complete week's shows in one convenient episode Monday | Economic Freedom in the World After Capital, feat. Albert Wenger Tuesday | Lessons from the Financial History of Pandemics, feat. Jamie Catherwood Wednesday | Why a Strong Dollar Is Bad for the US and Bad for the World, feat. Lyn Alden Thursday | ‘Dismantle the Euro to Save Europe’ Feat. Tuomas Malinen Friday | The Shadow of Satoshi’s Ghost: Why Bitcoin Mythology Matters

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, May 23rd, and as every Saturday, I am bringing you the complete run of shows from this week, all in one convenient episode. By way of intro this week, I don't have too much to say, mostly because I'm hoping that

you're all out enjoying your friends and family in a loosened restriction environment. And maybe that's the tone or tenor from this week. We are seeing an increasing opening back up and business and normal life resuming at least on some level, even though there are these still big structural changes. And right now, I don't feel is the time to try to kind of get gotchas by saying it's too soon or too not. I think for me at least it's time to be hopeful that we've sufficiently flatten the curve, that the businesses can really do what they need to do, so we're not just kind of pushing everyone onto the government dole for forever and ever, amen. But when it comes to the breakdown, we had an awesome week of interviews. It was a very interview heavy week, as some weeks are.

We kicked it off with Albert Wagner from Union Square Ventures on Monday, discussing the world after capital and what it means to design for a new knowledge era. On Tuesday, Jamie Catherwood, who works at O'Shaughnessy Asset Management, but who's better known as the Twitter finance history guy, joined to talk about the history of pandemics from a financial perspective and what we might learn from that history. On Wednesday, I had Lynn Alden join. Lynn is a FinTwit rock star. She's an incredibly astute and eloquent observer of the U.S. dollar and global trade. And she, really broke down why the U.S. dollar may not be serving either the U.S. or the world as the world's reserve currency anymore. On Thursday, I had Tuolmus Malinen come on to explain what's going on

in Europe with the euro in the eurozone more broadly and talk about why he believes that to save Europe we may have to allow the euro to go by the wayside, which is a really interesting position. Finally, on Friday, I wrapped it up with a look at the mythology behind Bitcoin, inspired by the movement of a set of tokens, coins that were mine just a month after Bitcoin went live in February of 2009. That happened on Wednesday, and I basically make an argument that the mythology of Bitcoin is part of what creates such a strong community at the core of it, which is part of what makes it a more de-risked, highly resilient asset that numerous people and numerous types of institutions are coming into now. So anyways, guys, that is the rundown. I hope you enjoy this week.

I've got some more great guests next week and we'll be talking about a bunch of different things. So anyways, I hope that wherever you are, you're enjoying your friends and family and having a great weekend. Thanks as always for listening. And until we speak again, be safe and take care of each other. Peace.

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For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y scale.co slash CoinDesk. Welcome back to the breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and grayscale digital large-cap fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Monday, May 18th, and today we have a really awesome show to kick off your week. I'm joined by Albert Venger, who is a partner at Union Square Ventures in New York City. Albert is a prolific thinker and writer and kind of profiler of our world in the moment that we're living through and how it transitions to something different.

A couple years ago, he started a project called World After Capital, which is effectively a book that he's publishing online as he writes it. And really the central thesis of this book is that we're moving from the industrial age to a knowledge age, and that there are significant transitions that will inherently come with that, and we would do better as a society to be intentional about them. Now, the context of the coronavirus crisis in terms of both the health implications, but also the economic dimensions, have really accelerated a number of those trends. And you'll recognize, if you're a regular listener to the breakdown, a lot of the themes that we've covered in the past few weeks. We talk about this idea of technology

as an inherently deflationary force and why that runs up against the existing power structure. We talk about what it looks like to have human attention be focused not just on what Albert calls the job loop. I spend my time earning income so that I can consume things that may or may not be relevant to me, which describes 90% of our lives, and instead is focused on other pursuits and is enabled by things that have had the Overton window on them shifted through this crisis, such as universal basic income. So we talk a lot about these big ideas and what I think amounts is really a conversation that looks at the possibilities for a differently organized world, what it would take from a political perspective, what it would take from an individual

psychology perspective, and what it would take from the standpoint of developing a new social contract. I hope you enjoy this conversation. I know I did. And one last note, as always, when I do these long interviews, we edited only very mildly to keep the tone of the conversation as close to as it really was. Let's dive in. All right, Albert, so good to be with you this morning. How are you doing? Doing very well. The sun is shining, which always is a good start for the day. Yeah, we were just talking about how maybe in New York we've finally kind of broken through the 70s barrier, but it looks a little cold out there today. Indeed. I wanted to start. There's a huge number of things to talk about. You're a prolific writer, thinker, commentator, but I want to start with a concept that you've clearly taken time to

bring together, which is this idea of a world after capital. You basically are writing live a book that you're kind of sharing bit by bit, showing its evolutions and changes online. What is the core idea of world after capital? The core idea is that the expiration date of the industrial age has expired probably some 20 years ago, and yet we are acting as if we were still in it, when in fact we need to invent a new age, which in the book I call the knowledge age. And the reason the book is called World After Capital is because it has sort of a big historical thesis,

which is that human affairs are kind of determined by binding constraints. and that what technology does is it shifts what the binding constraint is. And when one of those big shifts occurs, that's when we need to change pretty much everything about how we live. We've done that twice already. We went from being foragers, we went to the agrarian age, we went from the agrarian age to the best way. So the premise is that capital, by which I mean physical capital, isn't the thing that fears anymore. We can build entire cities very rapidly as the Chinese have am. Chinese have amply demonstrated. That's not the scarce thing anymore. Instead, the scarce thing

is human attention. Yeah, so this is a, this feels like the crux of it to me. So I want to read a line that I think really sum this up. We've become overly reliant on the market for allocation, especially the allocation of human attention. This is deeply problematic because prices do not and cannot exist for crucial needs, such as pandemic preparedness and finding purpose in life. So I'd love you to dig into this a little bit more in terms of, it sounds like effectively, it's not even so much a critique of markets per se as they're organized. It's more a recognition of where they end in terms of our ability to organize human experience. I should put out, I wrote that line several years ago. Yeah, exactly. As well in advance of the current pandemic. Yeah,

I mean, my day job is, I'm a partner at UNISGovint. I'm a partner at UNISGroventure. in New York. So I very much believe in markets. I very much believe in capitalism as a model too, except we have to understand its limitations. It's been very, very good at some things. In fact, it's been exceptionally good. The fact that we can record this podcast over the internet, yeah, I have small earbuds in my head that communicate wirelessly with my computer. I mean, all of this stuff is fantastical at a certain level. If you showed any of this to anybody, from the agrarian age, they would think it's magic. So it's very good.

The market and market-based models are very, very good at something. And then they're terrible at others. And I think we need to use this crisis to really reevaluate and understand what of the many things markets are good at and what they're really bad at. And in order for markets to be able to operate, the most important thing is they have to be prices. And for prices to exist, you need to have supply and demand.

And they need to be, you know, fairly broadly spread so you can have sensible prices that are being for us. And it turns out that there's just a lot of things for which that condition isn't met. And some of those things, as we have made so much material progress, as we've made so much progress as capital, it has become, I don't want to say abundant, because it's not a lot of, bonded, but it becomes sufficient, the thing that we really need to worry about the allocation of is human attention, right? And so there, it turns out, for most of the really important things, the price mechanism doesn't work.

And the two examples from the quote, pandemic preparedness, let's talk about that. The last major pandemic was about 100 years ago. So there is no price mechanism to prepare for something that happens every 100 years or so that spends multiple generations. no clear source of demand. A generation that has not had a pandemic, like two or three generations, or two or three generations, it's not going to go, oh, yes, we should, you know, we demand in the market that, you know, ventilators are being stockpiled somewhere. There's no demand for this. This is something that requires a non-market-based solution.

You know, this particular pandemic is in my mind, especially a good example of how poor this works. We had two prior coronavirus pandemics, but not pandemic, outbreaks. The first one was SARS, roughly 20 years ago. And then the second one was nurse, roughly 10 years ago. So we basically had two warning shots. And still, there wasn't a demand mechanism. People still weren't like, oh, my God, I am going to, you know, demand ventilators that ventilators get built ahead of time.

I'm going to demand that there's going to be massive research into coronavirus so that we really can sequence them, that we can try many different vaccines, that we have a whole vaccine apparatus set up so that when the next one comes, we're prepared. There is no market for this. And then the second part of this quote was about individual purpose. If you think about why there's no market for that, it's just a market of want, you know, your individual purpose.

There's no supply and demand here. So if you somehow wait for some price signal to say, to say you should be paying attention to this question of what your purpose is, you will get to the end of your life and realize that you didn't spend any time on it. So it's particularly interesting in the context of right now. I was reflecting on the fact the other day on Twitter that we have this uncomfortable moment inside economic crises where we realized that recovery means convincing people to buy a bunch of stuff that they probably didn't need or wasn't good for them. And it was an article about grocery

stores and how they're struggling to get people to buy things like potato chips or something like that. And it reminded me of a piece that you wrote last week about a chance to kind of reevaluate priorities. And in some ways, I wonder how you think about this question of, you know, basically does this inability to allocate attention? or price attention in some way change, or does it bring up structural questions re-evaluating the consumption basis of the economy? No, absolutely.

So in the book, I talk about two loops. The one I call the job loop, the other I call the knowledge loop. The job loop is where most human attention today is stuck. And the job loop is where you go and have a paid job, and then you take that money and you spend it on stuff, which is goods and services produced by, other people who also have a paid job.

And I would argue that the bulk of human attention is stuck on this. What I mean by that is, if you think about how much attention, human attention is in that system versus human attention being on things like pandemic preparedness, on things like dealing with the climate crisis, on just spending time with friends and family, if you just, you know, people look at their own lives. We spend most of our waking hours instead of that job loop. So this is where a lot of the attention is trapped. And there are two sides.

One is the jobs, and it's the consumption side. And I think one problem that economics has is that over the last, you know, especially increasingly, I would say starting in the 70s, but even before that, it basically, wound up equating wants and needs there was no dividing line between the two and so and there was also this idea that people somehow have a stable kind of utility across things that can't be manipulated from the outside through advertising so global advertising industry is north of a trillion dollars

annually that's a trillion dollars being spent on telling people what they should want. And so this idea that all of economic growth is necessarily good growth because, well, if people are buying it, that means they want it. And if they want it, it means they're going to be better off after they purchase it, because otherwise, why would they purchase it? That is built on a fairly, not on a solid foundation, but rather on Crixet. And it's built on this idea that somehow people have.

this sort of utility function that can't be easily manipulated from the outside. And I think what we know to be true today, though, is that we do absolutely have certain deeply built-in needs. But then on top of those needs, you can sort of manipulate those needs, and a lot of advertising engages in exactly this. It manipulates our deeper needs into making us think that we want certain things. even though all the psychological research shows that those things aren't in fact related to important things like life satisfaction. And so people wind up consuming a lot of things because the message that was conveyed to them was that this would address one of their more basic needs, for instance, the need for recognition when, in fact, all it does is give them to part with money that they could spend otherwise. Yeah, it's interesting.

I feel like I was reviewing a lot of the work that you've produced over the last, you know, months and years, really, as we're preparing for this. And I feel like there's this kind of twin common threads. On the one hand, there is this reflection upon a kind of deeply personal reflection upon the purpose of life, right? Value in life, meaning in life, and working to restructure someone's personal economic endeavors or just the way that they exist in the world from that basis kind of ground up, right? But then on the other hand, there's this compliment, which is an exploration of what the social contract should be going forward. And I feel like, so the social contract is obviously this concept from the Enlightenment, that there is a relationship between individuals and government and that for individuals to give up any of their sort of natural rights or just the way that they would be in the world without government. There's a reason. There's a payoff.

There's tradeoffs that we're making. and a lot of then the next 150 years of debate among philosophers and political scientists was, well, what's the appropriate tradeoff and how does that work? And in some ways, it feels like we've kind of just been graced or given down this, handed down this social contract or expectations of social contract without a reboot, without a re-evaluation. And a lot of what I get in looking through your works is almost trying to provoke a discussion about what the relationship between individuals and government. and just the societies that they live in should be. Absolutely. I think if we go a step back and look at the huge technological breakthroughs that we've had in the past,

each one of them, and there really only been two today, has caused us to completely reshaped society. So when we invented agriculture, which was roughly 10,000 years ago, It was a series of interlocking invention. We figured out how to put seats in the ground, irrigate them, domesticate animals, and so forth. And we went from the forereto societies to the agrarian societies. And we changed literally everything. We went from the migratory to being sedentary,

we went from these flat tribal societies, to these incredible hierarchical agrarian societies. We went from being basically being permissible. We went to being monogamous-ish. We went from having animistic realism, to having phaistic religion. So really completely dramatic change of just about everything. And then a couple hundred years ago,

we had enlightenment, and with it, we started building steam engines, electric engines and so forth, and we figured out chemistry and mining, and we wound up changing just about everything again. So this time we went from living in the country to living in the city. We went from living in extended families to living in nuclear family.

A no family. We went from a lot of commons to private property, including private intellectual property. And we went from great chain of being theologies where the religion says, look, I'm going to tell you how to be the best possible farmer, but you're never going to be a noble person because noble people are born that way, right?

We went from that to the product and work ethic. The harder you work, the better off you'll be. It doesn't matter where you start. So we have changed every. everything twice already. And digital technology that feels that, you know, the unions were investors invest in and the field that has now given us blockchain and cryptocurrencies, digital technology is as

profound in addition as industrial technology was. And so it would be silly to think that the change in society should be incremental. The change in society needs to be dramatic and systemic. And when you get the dramatic and systemic change, you also need a new social contract. Just like we needed a new social contract when we went from the agrarian age, where, you know, much of society was basically you are protected by some, you know, king or some other sort of, you know, and the trade of was used to of, you know, produce wealth in that direction, but you're being protected from invading hordes. We went from that to a completely different social contract that was based on facilitating work and facilitating the creation of capital.

And now we need a new social contract that's going to facilitate the creation of knowledge, which is ultimately the thing that we all need, that makes us uniquely human. Humans are the only species on this planet that have knowledge, and we're also uniquely dependent on knowledge. It's only through more knowledge, for example, that we can fight this to death. So this concept of knowledge, I think, brings me to another point of yours, which I think is worth spending some time on. You talk a lot in the book about the idea of technology as inherently deflationary, and deflationary being something that is a force for driving price downs, right? So remove the kind of economist four-letter wordness of deflation, just the simple fact of the matter is that technology inherently drives prices down. Just last week, we had Jeff Booth on the show who

wrote a book called The Price of Tomorrow, which is basically an argument that two forces are at war with each other in some ways in our society, or at least in our economic policy, which is inflationary economic policy on the one hand that tries to keep the price of certain types of assets high and technology deflation on the other. And it was interesting to me because three of the examples that you mentioned, you talk about real estate, education, and health care, are some of the things that have, you've seen a price increase in, relatively speaking, despite the fact that technology should be absolutely,

I mean, totally changing the cost structure in every way for these things. So tell me a little bit about how you think about this, this technology as a deflationary force and maybe speak specifically to these categories. Yeah, so there's a great chart where you can see what's happened to prices over the last few decades.

And in that chart, you can see pretty much everything getting cheaper, except for those three areas, housing, education, and healthcare. And each of those are areas that have huge structural impediments. Let me talk about housing first. So there's also a chart that basically shows that by 2050, everybody will live in cities. And that chart is, of course, an extrapolation of current trends where people have been moving to cities.

But it's all extrapolations without thinking about the underlying reasons for this. The reason people move to cities isn't because everybody alone living in a city. I have many people come and visit us in New York. Like, how can you live here? It's like loud. It's, you know, there's pollution that can't get sleep. The streets are kind of dirty and so forth. So the reason this trend exists is because that's where people can live,

economically viable life. So if we had some alternative to that, whether that's in the form of universal basic income, or we see today for people of pensioners or people who can do remote work, designers, writers, and so forth, many of them choose not to live in the countryside. So I think our view of why housing has gotten more expensive has been very skewed by this drive-tores urbanization,

which in part is directly related to the currently in-place social conflict. Education is another field where I think we are in a way at a maximum of the price development of the old system and the old system has had a huge amount of inertia built into it. What do I mean by that? This education system we have today is fundamentally an industrial age system that was created over the last 200 years and it has many industrial age components and it's starting with through 12, for example, much of K through 12 is aimed at instilling discipline in children.

Number one, and much of it is also aimed at babysitting children while their parents work. And we're seeing, now that kids are, you know, because of the virus, are forced to do homeschooling. We're seeing sort of the breakdown of that. But schools don't have an incentive to avail themselves of things like duolingo or conical. Academy or Skillshare or, you know, Quislet, many of these are USV portfolio companies, but there's also many other things, YouTube. Like, there's an extraordinary amount of free educational videos

on YouTube, but schools don't have an incentive to avail themselves of that because they are built in a model that's an industrial age model. So I believe that with digital technologies, we can create incredible bespoke learning environment for anybody in the world. at zero marginal cost, meaning the marginal learner or the marginal hour of learning will be free. And you'll basically, if we get this right, be able to learn anything you want to,

find a community of other people who want to learn this, so you're not alone, and be able to do that essentially for free. And now healthcare, healthcare too, has huge structural impediment, especially in the United States, where we've created the system of payers and healthcare providers, all of which are for-profit, all of which are in pharmaceutical companies, all of which don't, at their heart, have an incentive to keep you healthy in the first place. They keep you healthy, they wouldn't be making money. If they could give you a one-time drug that cures something,

they wouldn't be able to sell you something that you have to take for the rest of your life. So the incentives are completely wrong in terms of how to use technology to radically drive down. But here too, I think we're seeing early green shoots. And, you know, the human toll of this virus is obviously massive. But it has tremendously accelerated distance learning. It has tremendously accelerated telehealth. And so I do think these are areas where we will see prices and costs coming down substantially over the coming years. So what do you think, I mean, in these areas, and the answer might be different for different.

areas, but what do you think the real ultimate catalysts of change are? Is it consumer demand? Is it structural misalignment in the economy? So, for example, education, right? This is one where people are so overly burdened with student debt for, you know, jobs that don't necessarily demonstrate ROI, that perhaps that's one where you have the right sort of, you know, skills training and at liaise and all these different systems that it just becomes un-economical and consumer demand just forces people to shift their model. It could also be something else. I mean, healthcare, it feels like a different trap. I guess what, you know, across these areas, what's the catalyst for change? Because it's hard to imagine in some of these areas a radical shift from

here to where it feels like they should naturally rest. Well, this is all bound up. These are all facets. All of these are interlocking parts of the industrial age. The reason these shifts of getting from one age to the next are so hard is because we are not talking about changing education while keeping everything else constant. We're not talking about changing healthcare or the cost of real estate while keeping everything else constant. We're talking about changing everything. And let's face it, Politicians don't like to talk about that. Politicians like to talk about being incremental, about making small changes. Obama was an incrementalist.

His economic policy advisors were all incrementalists. They were all people who believe that you make a little tweak over here, maybe a little job-skilling program, and then you fiddle with the interest rate a little bit, and all will be well. And the reality is not all as well, and not all has been well for several decades. and we see this when we look at the income and wealth distribution and we see that this late stage past expiration date, industrial age, has been working for fewer and fewer people. It's been working incredibly well for those people, but the number of people from whom it's

been working has been small and smaller. And so the problem with anything, any system that's past expiration date is that the longer you artificially prop it up, the bigger the eventual whole. will be. And so you can think of this as suppressed volatility. When you suppress volatility artificially, then eventually you've built up so much force that you'll have a categorizing change. And the change from the agrarian age to the industrial age was absolutely horrendous. It first was a series of revolutions, but ultimately we did not get into the industrial age until the end of World War II. The two

World Wars were really would destroy the power base of the agrarian age. So the power base of the agrarian age was the control of land. And all across Europe, for example, the people in power were the land in aristocracy. And that was not destroyed that power base until after World War II effectively. So I believe that at present course in speed, I don't see enough of a function to get us to the degree of change that we need, barring events such as a global pandemic. And of course, the other big one is the climate crisis, which in terms of its scale, will make this pandemic seem like a stroll in the park.

Do you think that it's, is your sense that it's going to take such huge cataclysmic external events because there's a power shift that's needed and for people to be willing to shift the power structure in such a radical way, it's going to take that sort of catalyst? Well, that was the story of going from the agrarian age to the industrial age, right? So the people who were empowered towards the end of the aggrarion age where the people controlled land. And when they saw what industry could do,

they didn't go, oh, here comes the industrial age, let's come up with a new social contract. They were like, oh, it's great. we can have tanks and battleships so we can have more land. And I think a little bit of, you know, it's not exactly the same as Mark Twain says history doesn't repeat, but it rhymes. Today we see everything through the lens of capital. It's again why the book is called World After Capital is because capital has worked so well for us for quite a long period of time. It's been our ability to make factories, to build roads, to construct homes.

that has produced much of the material progress that we've made. And so it's been a lens that's been a very powerful lens. But we see everything through capital now. And so when we see what digital technology can do, we're not going, oh, we should usher in the knowledge age. Instead, we go, oh, how can we, you know, create more capital? How can we carry more financial capital? Because this is another big confusion in the world at the moment.

financial capital is an important intermediate stage, but none of us, you know, eats gold bars or drives around in dollar mills. Like financial capitalists in the immediate stage, what we care about is physical capital. So I do think that today a lot of power in the world is concentrated in the interests of capital. And those interests are not properly aligned with what we should be doing with the capabilities. of social technology. And so as a result, they've been pursuing these incremental policies, and that's why we wind up with Trump. That's why we wind up with Brexit. And we need to face the fact that we need more systemic change rather than incremental policy. So on that front of systemic change, I almost want to ask, how do you worry that the critics of the system,

that we live in now are still trapped in the same old way of thinking and just proposing the inverse. And I'm thinking about, you know, it didn't come to pass, but the Bernie v. Trump battle that we almost had in terms of the kind of democratic socialist critique of the power structure, rather than something that's kind of a radical reimagination, right? It's, I mean, you know, even the idea, let's just take free college. Well, that presumes that college is, four-year college is still the right mechanism, you know? And so I worry sometimes that, you know, the world really needs good critics and good critique, not just the alternative, you know, and sometimes the critique is of the system as a whole.

I think that's spot on. And Susan and I were supporters of Andrew Yang for that reason. There's a lot of thinking about a return to the past on all current major political sides. So, you know, if Trump talks about making America great again, and there's some idea of going back to a hypothetical, probably 1950s era America, that's a similar type of nostalgia in many people on the left that want to go back to Democratic socialism that I associate with Europe in the 1980s, 70s, 80s, 80s. And I don't think either one of those shows a natural patch forward. A big reason for writing world-debted capital is that I believe there is this sort of narrative vacuum, that we haven't tried to explore what a new social contract might look like, what a new system might look like. And because we've created this narrative vacuum, we've allowed it to exist.

And as we all know, nature, of course, a vacuum. It gets filled with these narratives that are about going back to a path. Because it's way easier to come up with that narrative than it is to do the hard work of trying to envision the news. Now, I don't pretend to know exactly what the knowledge page ought to look like. So instead, what the book talks about is how to create policies that would free up human attention. So that human attention could be directing towards inventing new things. And in particular, I always care about inventing new knowledge. I have a very broad definition of knowledge.

It's not just scientific knowledge, but it also includes the arts. I sort of think of that as sort of a logical, interesting bifurcation where science is the thing that allows us to live, and art is the thing that we live for. It's sort of the motivation and the other is the means. And so I talked specifically about increasing what I call economic freedom, which is some form of universal basic income. We talk about increasing informational freedom, which is we're surrounded by, supercomputers every one of us carries one around with us but we don't really have the means to properly program these is that we're largely being programmed by a few corporations around the world and then psychological freedom which is some notion of

how do you what do you do yourself so that your brain which is really completely maladaptive for the information environment that we now live in so that your brain can continue to function properly that's some form of mindfulness practice so I talk about these three big pillars as pillars that we need so that we can take attention out of that job loop and put it into this knowledge loop that will hopefully let us create the new system. What exactly that system looks like? I think we need lots and lots of experiments to find what works, just like we needed lots of experiments to get to the industrial age.

Let's not forget that we tried massively different experiments between planned economies and market economies. Really interesting. One of my favorite lines ever written is this from this poem by Annie Dillard called. And the first line is, there were no formerly heroic times. There were no formerly heroic times. There were no formerly pure generations. And it's just the best single line critique of kind of the golden age fallacy.

So I want to talk about this idea of economic freedom, the first of the three freedoms you mentioned, and UBI. Obviously, universal basic income and that whole concept has had a major shift in the Overton window in the past two months, within weeks, really, of Yang dropping out, interestingly enough. Talk to me, I guess, about what you think, what is the biggest driver, the biggest motivation for some form of a universal basic income? And then I want to talk about the critiques, because I think that the critiques of the UBI concept are interesting and range from really easily dismissible in my mind to ones that I think are more interesting. So, but let's talk first about the motivation.

What is the, what is the argument for UBI? Well, so just so everybody's on the same page, the idea of UBI is that everybody gets a certain amount of money, call it every month, and people debate how much it should be. I think it could be at the less $800 a month. And everybody just gets it automatically. No questions asked and no conditions attached. Now, I think the fundamental argument is, for it is that we want more automation.

So some people frame it as a fear of automation, but I think we want automation. The reason you and I can have this conversation right now is because we're not working in the fields, and the reason we're not working in the fields is because we've largely automated agriculture. If you go back to 1780, roughly 80% of all work, all,

human attention, if you so want, was stuck in just feeding the remaining 20% who were the people who were the artists and administrators and so forth. Today, that's gone down to sub-5%. So that is what we can do with automation. Now, I believe that we should be automating a lot more things. And in order to get to that automation, we need to free people up so that they don't need to sell their labor at super low prices. So the incentive to invent a toilet cleaning robot, which is a very difficult problem from our robotics perspective, is quite low when the alternative is to pay somebody

minimum wage and when minimum wage is $7.50 or their amount an hour. So I believe that we want UBI so that we can have more automation and so we can free up more human attention. If it works well, I envision that 50 years, 100 years into the knowledge age, we'll look back at this age today. We'll look back at 2020 and say, wow, in 2020, 80 plus percent of human attention was stuck in this job loop. Like every morning, they rushed off, went to work, you know, some of them had to work

at night, you know, there's all this time spent in this economic activity, and so little was spent on art and so little was spent on science. you know, they had to do all of this just so that a few people could be artists, and so a few people could be scientists. And now, look what's happened, that's gone from 80% to whatever, 20%, 10%. All right, so I'm not suggesting that jobs somehow need to go away. I'm just saying, I think we can do with a lot less of it, just like we're doing with a lot less agriculture today.

And so that, to me, is sort of a fundamental reason to want to have UBI. it's in order to free people to be free about how they allocate their time. Another way I've sometimes described it because of venture capitalists, it's a little bit like seed money for everybody. A fairly little known fact because most tech entrepreneurs just think about tech. And tech seems to have this boom of entrepreneurship. But entrepreneurship in the U.S. has actually been declining and been declining substantially when you include small businesses. Very few people are opening like a new hair salon or a new daycare center. from their death. Why? Because in the U.S. at this point, most people can't come up with $500

if they have a medical emergency. So how are they going to go start a business? We're just taking a risk. So there's a lot of reasons why UBI makes sense of policy, and we can go into some more of them, but fundamentally it's because we can now do a lot of things with machines that we ought to be doing with machines so that we can free humans up to do things that only humans can do. Support for this podcast and this message come from Eris X. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all.

Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at Stellar.org slash CoinDesk. Our final sponsor is Grayscale Digital Large Cap Fund.

In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's G-R-A-Y-Scale. CO slash coin desk. One of the things that's so interesting about this is, and I think a significant challenge,

you have, for any sort of UBI argument, you have a policy and a kind of a political hurdle in terms of getting it there, but you also have this psychological hurdle. And it has been so long since anyone can imagine a paradigm of, that isn't predicated on your worth somehow being tied to your full-time job, right? our self-conceptions and our jobs are so, at this point, it feels intrinsically linked, but it's not intrinsic, right? This is a byproduct of the modern age. The idea that somehow you are what you do to make money is a very quintessentially, you know, mid to late 20th century, early 21st century thing. I mean, if you go back, this is, I mean, anyone who studied

economic, economic history has done this, but in 1930, John Maynard Keynes was writing about the expectation of a 15-hour work week in, you know, his grandkids generations based on the progress that he saw coming in terms of technology. And that wasn't something to be, to be scared of. It was about how do we design an economic system that kind of like where you're allowed to be a full member of society at a 15-hour work week, right? Like if we snapped our fingers overnight and said full-time, full participation in the economy means you work your 15 hours. And that was just normal. You know, there's nothing, ultimately something like 40 hours a week or whatever it is is arbitrary, right? especially arbitrary in the context where most people have to work two jobs if they're at minimum wage, you know, or more to make ends meet.

So I think that there's this psychological barrier even before you get into the question of political efficacy on breaking and disentangling people from, you know, having their sense of self and their sense of self-worth tied up in the thing that they do to make money. Absolutely. And I think this is going to be a multi-generational change. I mean, we have spent many generations now telling people that their job is, you know, what their self-worth ought to be about, right? I mean, we have this, you know, where people are like, my father was a coal miner, and my grandfather was a coal miner, so I want to be a coal miner. It's a family tradition and so forth. And so without a doubt, we've made this a central idea of what it means to be human. And as you point out, it's still a new idea and it would be in many ways strange to people.

For instance, if you went back into the agrarian age, yes, somebody might be a shoemaker and define themselves. I'm proud to be a shoemaker. But a lot of the purpose at that time came from religion. And people would look to religion to tell them why they were here and what their purpose in life with. So this idea that somehow this has been the state of human existence that we've defined human purpose through paid labor, through a job where you're employed by somebody, that is a very, very new idea. And I think we can come up with better ideas. In fact, I spend a fair bit of time in the book talking about knowledge because I think, as I said before, knowledge is sort of central, and it's also what makes. It makes humans uniquely human.

Only humans have knowledge. Dogs don't write books, much as I love dogs. They're the best, but they don't write books. And so we can, I think, successfully redefine human purpose to be the project of participating in knowledge. And I haven't talked about the knowledge loop. The knowledge loop is where you essentially learn something. and you use what you learn to create something

and then you take that thing that you've created and you share it back out. And that loop powers all of our progress, whether it's artistic progress or scientific progress or scientific progress. And so freeing people up to participate in that loop and creating a new value system where our sense of purpose is derived from our participation in that loop, I do think it's a feasible project, but it's not a kind of snap your fingers and make it happen

project. It's a generation, multi-generational. Do you think, so the critique of UBI that I am kind of leased on board with is the one which you kind of intimated against this idea that somehow, if you give people money, they'll just become lazy. I think that betting on, betting against people by definition is just a generally bad way to engage with the world. And I think that there's plenty of counter-evidence that people freed up will do things that are interesting and valuable, even if not priced by the market. So I'm not such a fan of that critique. One that I hear more often as people are having a more serious conversation about UBI is fear of political capture, where UBI becomes a game of brinksmanship

between the parties where, you know, once basically one, you know, a party institutes UBI and citizens will never vote against them because they're worried about losing their check. or two, on the other hand, you have this rapid kind of inflationary spiral where one party offers $1,000 and the next party offers $2,000 and it becomes this, that becomes the only issue that anyone cares about. So this is actually, I think this is a more interesting mental space to play because at least it's considering it like kind of rather than dismissing it out of hand. But I wonder if you've spent any time thinking about that kind of the political dimension of this. Yeah. Well, I think there's some interesting political aspect before we get to the one that

you raised, I do think one criticism of UBI that's often provided is, oh, it's such a small amount of money, what could it possibly mean? And one thing that it can mean, though, is that a lot more people can be politically engaged, right? So in the U.S., one reason for low voter turnout is that we don't make voting a national holiday, and a lot of people have a lot of jobs, and we've made voting maximum. inconvenient for a lot of people. So they would try and figure out

how to squeeze that between going from one job to another, and so they just don't vote. So also, they don't have a lot of time to be informed on what the issues are. So I think one way in which UBI can be politically empowering in ways that people vastly underestimate is by giving more people the time to be politically engaged and potentially do that as a full-time thing,

as an organizer or as a politician. Now, coming back to the question, won't this become captured and won't you get just one party upping it and so forth? It's definitely, I think, a legitimate worry, but I think there are ways of introducing it that would solve that. I mean, you could introduce it and you could require two-thirds or whatever, you know, majority or a three-quarter majority to subsequently change it. So I think there are ways you could do that.

I would add two important things. One is UBI is not a panacea, right? We cannot take all the other components of the system, leave them if they are, introduce UBI and go, our work here is done. This would be a disaster. It's like when you have an overall coherent strategy as a company and then you take one element

from some other company strategy, you just try to emulate that. It's like when, I forget what that chain was, but it was a very low-cost chain and they were retail chain and they saw what Target was doing. And it was like Kmart, I think. And then they wanted to emulate what Target was doing, but only in one dimension.

So you can't do that. You can't, and we shouldn't expect that UVI is somehow going to be this panacea and buy itself catapulted into the knowledge week. And so I think we need to change education. We need to change even how we run democracy. I mean, we have, Very few people voting.

We have a lack of students who are informed. The type of politicians we've been electing are often lawyers instead of scientists or engineers. So there's a lot of problems, and we shouldn't pretend that UBI is going to fix any of those problems. And so there is a scenario where we leave some of these other issues unaddressed. We have a non-functioning or barely functioning democracy, and we introduce UBI, and it backfires in exactly the way you described. that it becomes a ping-bong ball between parties. So yeah, I see it as one pillar of a larger systematic change, and we need to be careful in how we introduce it,

so it doesn't become that, but we shouldn't expect that we can then just say, our work here is done, mission accomplished, and we're now in the knowledge age. It's not going to happen. I think that's a really important contextualization, right? The whole point is that if we're talking about a shift in epic and eras, in a lot of ways what you're describing in terms of these freedoms is what kind of the natural

underpinning of them might be, not kind of what the immediate transition looks like in some way. And the other one of the other freedoms that you speak about is information freedom. What do you mean by that? Well, we all carry in the form of a smartphone, essentially a supercomputer in our pocket. And even more than that, we're carrying a supercomputer that can talk to every other supercomputer than any other person in the world is carrying it with them. And yet, our ability to make that device truly act on our behalf, to be our representative, is extremely limited.

So, you know, if you bring up your home screen, you tap an app icon with it, Facebook, Google, what have you, at that point, that app takes over your supercomputer. And yes, it provides some functionality to you, but it is not programmable by you. So we have the strange situation now where you have, having a supercomputer and you're reduced to like tapping with your, you know, thumbs or whatever it is you use and using your brain. Whereas on the other end, there's a company that's operating,

you know, millions of servers in the cloud, all gathering up your data and massaging it, but not really necessarily on your behalf, but rather on the behalf of, for instance, advertisers. And so that is a fundamentally broken state of the world. And we need to make these devices so that they're programmable. And to have a model of that in mind, I think the brief era of the open web and the web browser is a great example on the browser in the HTTP protocol is referred to as the user agent.

I can program the web browser and it accesses the web by open protocols. And the way we can see that I have real power in the era of the web is I can strip out advertising, for example, if I want to. So we lost our own. all that freedom when we went to native apps on the phones. And on the phones, you have to go through an app store to install an app. You can't script that app.

So a lot has gotten lost. A lot of power has shifted and shifted away from the end user. And I'm not expecting every end user to be a program and write their own software. I mean, for the most part, we can download software that other people have written for us that would do this job for us. But we need to get to a state where the control of computer. isn't essentially centralized in the hands of a few corporations on the world. Short of actually having every user be able to program software, what does that alternative look like?

Or what might it look like? I guess it's a better answer. Well, I think there's sort of two paths for getting there. One path is to create new legislation and basically require that any big system have an API, an application programming interface. So if Facebook had an API, if anything I can do in the app, I can do via API, then third parties can write software for me. So let me make this concrete. Why do we worry so much about what Facebook's timeline algorithms is? Well, because there's only one Facebook and only one timeline algorithm. But if Facebook were fully programmable, I could have somebody write the timeline algorithm for me. It would just go in through the API and say,

oh, Albert is friends with these people. I'm going to, again, via the API, retrieve those people status updates. And I'm going to do Albert a timeline that's constructed based on different criteria than the one that Facebook is using. And in that kind of world, there could be a million different timeline algorithms.

And so this idea that one corporation will solve as power and also is subject to so much manipulation by third party. who are all targeting the same algorithm, it would immediately go away in that world. By the way, mind you, it doesn't solve all problems. For instance, the whole problem of, you know, people being in their own bubble

might actually be made slightly worse by that. So, but fundamentally, it's a shift of power. So that's one way. Do you require it yet? The other way you could get there is simply by deleting laws. Now, historically, we've been very bad at deleting loss. So I'm not optimistic that that's how we could get there.

But we could get there. Right now, if you have the technological capabilities, if you're sufficiently skilled, you could go in and take Facebook's app and you could extract their encryption keys and you could write software that pretends to be the Facebook app. Now, if you did that in the U.S., you'd be breaking three separate laws. And of those three separate laws, two carry mandatory federal prison sentences. So we could remove those laws, like the Computer Fraud and Abuse Act is one of them. And the Millennium Copyright Act is another one of them.

So we could have fewer laws and people could just hack away it. That would also be a solution. Somehow I suspect that that solution is less palatable to most people than the solution of requiring APIs. And the solution of requiring APIs isn't as crazy as seen. So for example, in Europe, bank accounts now required an API. And if you can require it up banks, and it's not exactly clear to me why you could also require it up Facebook and Twitter and whoever else. Well, it's interesting because, you know, for anyone who's kind of listening and being like,

oh, this sounds like the power is so high among these platforms that you can never imagine something like this happening. Last December, Jack actually kind of surprised people with a tweet storm about exactly this. He wrote on December 11th, he wrote that they're funding a, team of five open source architects, engineers, and designers to develop an open and decentralized standard for social media. The goal is for Twitter to ultimately be a client of this standard. And he goes through and he actually talks about this. So there is at least some conversation about this at those highest levels. Now, Jack is a relatively unique and distinct figure in a lot of ways from these kind of leaders. But I still think that it shows that, again, when you're talking

about Overton Windows on some of these ideas, they may not be as far away as it seems, I think. One would hope. Twitter started life as a protocol in a way, and anybody could write a Twitter on client. And so if we were to return there someday, that would be great. Much of my interest in blockchain and crypto technology comes from the ability to build systems that are decentralized and yet maintain consistent state. So I do believe we're creating a new set of technologies that will allow the creation of that system. I just suspect that in absence of also making the existing centralized systems fully programmable, I think the transition to those new systems will be very difficult.

The network effects of these systems are extraordinarily powerful. And so most users are not going to want to figure out oh, I have a few friends who are over on this new decentralized thing, but most of my friends are over here. I should really check both. And so if we don't make the place where most people are today programmable, then I fear that these new decentralized systems will always remain small and upscale. Yeah, you just create niche archipelagos.

I mean, we've seen this, you know, the Bitcoin community got really into trying Mastodon, and that's a community that is probably more intellectually aligned with, with kind of controlled system and proprietary, you know, self-controlled systems than just about any other, and it still didn't stick, right, because of that network effect. So one that I think is interesting coming off of the conversation that we're just having is you're a venture capitalists, the model of these proprietary algorithms, right,

that have created these powerful network effect lock-ins has been enormously successful for the model of technology companies. How do you think of, about a willing attempt to kind of destruct that model. Isn't it economically disaligned in some ways from the interest that you have? Well, I do think that the large incumbent corporations have no interest in giving up their power. As far as venture capital is concerned, I do think that there may be ways of people still making a financial return,

even when investing in new decentralized systems, to the extent that by putting capital at risk early on, you can help create such a system and maybe own some small percentage of the tokens that are used in such a system. I don't think that venture capital is immune to disruption, and I do think that venture capital, if we were to enter a truly decentralized era,

would look quite different from the venture capital of today. And I'm even leaving open that some of it might be decentralized in itself in the form of a Dow, for example. So venture capital isn't immune from disruption. And I do think that there might be some DCs who would like to protect the existing model of the market, but by and large, I think VCs have been genuinely interested in innovation and fostering innovation, even if that means that they themselves have to change their model of how they operate.

Well, I think we could have a whole additional conversation. I'm going to have to invite you back for another hour on the shifting model of capital allocation in the world after capital. But maybe by way of wrap up, just one last question. Out of the great financial crisis a decade ago, we got Bitcoin and a number of other innovations, but a pretty huge one in Bitcoin. What are some of the things that you're seeing potentially coming out of this, economic challenge period that have you the most excited?

Well, I do believe we're seeing a big acceleration of trends that were already in place that are important trends, trend to remote and decentralized work, trend to remote and more decentralized education, same for healthcare. And I do believe that we will see continued and further adoption of blockchain and cryptocurrency technology. And one area that I'm currently interested in in that regard is the creation of local and community currencies, largely because I think that the way the existing system is trying to solve this crisis is through massive money printing, which are sort of the only means that are currently available to the system. And those are available at the federal level of the U.S., but not at the state or local level.

And so I do believe we can use blockchain and crypto technology to make local currencies, give them an important upgrade, and make them more accessible and maybe also more interoperable. And I think that's a very exciting possibility that could come out of this crisis. Well, Albert, thank you so much for spending a little bit of time today with us. It's a really, really great conversation, a lot more that we could explore. But for those of you, for those who want to find you and hear more of your ideas, where can they Where can they find you? The book is at world aftercapital.org, and my blog is at continuations.com.

And I'm on Twitter at Justice Albert Maker. All right. Thanks so much, Albert. My pleasure. Take care. Reflecting upon that conversation, the idea that I want to come back to is this idea of a renewed, re-evaluated, revised social contract. To me, the idea of a social contract is a set of a set of,

of guiding expectations that allow people to understand what they get from and what they're expected to give to a society. And I think the important thing about the idea of social contracts is that they are not just something that emanates from the ground, right? They are created, they are debated, they are organized by people, and there's no reason that we can't reorganize our expectations to be different. I think we fall into the trap, something that Albert has written about that we didn't even get to talk about, which is normalcy bias, where things are the way that they are, and that's the way they've always been, and that's the way that they will always be, despite the fact that if you take any sort of historical perspective,

the story of the world is radical periods of change with very small interludes of calm stability. The positive side of that is that there's no reason that we can't reimagine pretty fundamentally different futures. Anyways, guys, I hope that you enjoy this conversation. I hope it was a great way to start your week. I'm really, really looking forward to the rest of this week's interviews as well. a huge number of very different, very kind of directionally different speakers and interviews. So thanks as always for hanging out and listening.

And 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. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW.

Welcome back to The Breakdown. It is Tuesday, May 19th, and today we have something historical and fun for you guys. You may not know this, but I was a history major as an undergrad. I focused on colonial and imperial history, basically. From an American perspective, from a European perspective, I was always interested in the intersection of cultures, whether it was positive or whether it was forced, whether it was economic-driven, whether it was whatever. The history of imperial and colonial expansion

is the history of globalization in many ways. So I spent a ton of time thinking about that, and that study has informed my perspective to this day. So when I came across in mid-2018, someone on Twitter who was doing financial history but via Twitter, these short little bursts of these are the most interesting original articles or case studies

or literally snippets of newspapers from some past event that is relevant for some current context, I had to figure out who this person was. Well, it turns out his name is Jamie Catherwood. He works at Oshanasi asset management, but really what he's known for is being the financial history guy on Twitter. He does a weekly Sunday reads, which is not dissimilar from my Longreed Sunday, except instead of focusing on the crypto industry and economics kind of more broadly like I do, he focuses on financial history.

For the last couple months, that Sunday reads has been enormously more focused on the context and the history of both pandemics and economic crises, as we have struggled through the coronavirus crisis and the economic fallout from that. I wanted to invite Jamie on to talk about historical antecedents, historical analogies that he's come across, be it from the 1918 Spanish flu, where the relevant example that people bring up so often in the U.S. or even older, the plague in the 14th century in England, a cholera outbreak in Hamburg, Germany in 1892. So we get into some of those examples and then come around to talk about the idea of Minsky moments where effectively mania takes such a hold

and a speculative bubble grows so big that instead of financing debt to participate and buy more of whatever the speculative asset is, people just layer on debt over and over again to accumulate more of that asset, hoping that the asset price grows big enough to service all of that debt, right? So there's no connection to cash flow anymore. It's just an expectation of growth. This Ponzi financing moment always ends badly. And so we talk about that and whether we're in a Minsky moment in any way right now. So I hope that you enjoy this conversation. It was a fun one. and I'll be back with the wrap-up in just a minute. All right.

I'm here with Jamie. Jamie, what's going on? Not much, you know, just another day, losing track of time. Doing well. Thank you so much for being here. I really appreciate it. So I started following you. It's funny, you and I share a Sunday reads type curation thing.

In fact, that's how I followed you. So I started doing this thing I call Longreeds Sunday in mid-2018. And I think pretty similar time. you started doing basically financial history but via Twitter. And you would curate these really interesting articles, often contextual to things that were going on. But I guess for people who don't know you, what's your background? How did you get into economic history? And how did you become the economic or financial history guy on Twitter?

Yeah. So thank you for having me, first of all. And I actually was a history major. I went to university at King's College London. and I knew that I didn't want to do history. I didn't want to go into academia or anything after college, but my dad's philosophy, right or wrong, I think it's right, was for undergrad, just do what you're passionate about

because if you think you want to do finance or business in some shape or form, then you're probably going to go back and get your MBA anyway. So you might as well kind of round yourself out as an individual during undergrad and do whatever subject you're passionate about, which for me was history. And so while I was at school, I was kind of trying to find what I wanted to do after college. And I thought that originally I wanted to go into management consulting or try to go into management consulting. And then I started reading more about kind of the markets and finance and became really interested in that. And so I graduated, stumbled into a job with a history degree in finance at an institutional investment consultant.

And then I had a friend who recommended I joined Twitter to try and network on there because I'd been kind of really leveraging LinkedIn or trying to to kind of meet people, take him out for coffee, buy him lunch, whatever, and just get connections. But I turned to Twitter to start doing that. And he was a member of this finance Twitter community. His name's Connor Witt. But so I started following the people he followed and noticed that there was a ton of people putting out content and writing articles, dropping podcasts, et cetera. And being a history major, I loved writing and I hadn't really had an excuse to continue writing after college and sort of that same vein of like essays and whatnot. And so this seemed like a perfect reason to kind of start that up again and flex that muscle. So I just figured what do I know about that maybe people in this kind of finance Twitter community don't know as much about.

And that was history. And it was just a total stroke of luck and complete accident that what I happened to not be an expert on but know more about was something that no one else was really writing exclusively about financial history. So I kind of just merged my interests in history and finance and started writing articles. and then to my complete surprise, a lot more people than I thought actually cared about this stuff and kind of went from there. And I just started posting and writing about it more. And kind of the following and readership has grown in tandem. So it's been an exciting ride in one that was completely unexpected.

This is a, I mean, there's a whole different episode that we won't do right now about why Twitter not is the best LinkedIn. but it has to do with this. It has to do with like one, finding your community and two, having a direct distribution channel for content, which proves your validity that's not credentialed, right? It's about like you are offering a different type of value for something that people are, you know, the thing about history, and we were just talking about this before, I was also a history major, and it super informs my perspective on everything, is that it is whether you think you care about it or not, you are living with the implications

of it, right? And so there is something that is relevant for you, if you, any time you happen to take a chance to go back. And what I love about the way that you curate financial history is contextualizing it with things that are going on right now. So it's not like you, you don't require someone to be interested necessarily in financial history to start with. It's more that when we're living through a particular moment, people are looking around and saying, have we experienced anything like this before? what can I learn in order to better inform what I think about how I act next? And that's what a lot of this financial history can do. Yeah, exactly.

And I think that finance and history actually go kind of very well together because I think there are two areas where within both history and finance, you can explore so many other kind of industries within the kind of just broad bucket of finance. So you could be in finance, but then end up. studying and learning a lot about the healthcare industry because you're a analyst who covers that industry, you know? And you can do that with so many different areas of business and within history, you know, there's financial history, economic history, political history, etc. So I feel like there are two fields where there's so much you can do within them that they

kind of share a lot of commonalities. Right. Well, in finance history, I mean, finance literally it is the financing of other industries, of other pursuits, right? So inherently, you know, you get into the health industry, you get into politics, right? It's not divorced. It's impossible to divorce it from politics as anyone who's hanging on Jay Powell's every word and asking about whether the Fed and the Treasury are a little too close for comfort, right? Like we're having a political conversation, even though it's sort of an economic conversation. Okay, awesome. So that's a great way of setting up. And what I thought, you know, I've been watching the Sunday reads, I feel like over the last couple months, have taken on an even more.

a relevant turn for people. So I saw you wrote a little while ago. I think this is on March 1st. I can honestly say that since I started doing my financial history stick online in June 2018, I have never received so many questions and requests for historical context than I did with the coronavirus this week. And so that was before the market really started hemorrhaging. That was before the first Fed action. I guess that was about maybe a week after, I think on February 24th was the first day U.S. markets, really, or equity markets at least, really started to react to the coronavirus. And so you dedicated that Sunday reads to pandemics and finance, right, the history of pandemic. So I know that this is in an area where you were an expert, and really what you did is you went back and looked. But when you did do that kind of that first

past curation, that first past research, were there any kind of interesting historical moments or analogs that you found? Yeah. So to your first point, it was crazy. And I'm sure you felt the same way because you saw a lot of what I was seeing with people looking for historical context is kind of, it was really awesome to see as a history nerd how much people were turning to the past. I mean, I just looked up, I think two days ago, the explosion in Google search trends for Spanish flu over the last five years. And it's like nothing, nothing, nothing. And then absolute just like straight up arrow in people searching. And so I think that's the obvious comparison that everyone's looking at. I always try and go kind of as niche as possible with these posts.

So I went back and looked at events like the plague in the 14th century. And that was interesting where you just see a complete inversion with the population of England in wages. And that for how bad the plague was for peasants, it was kind of a good event for those who lived because their wages rose so quickly because the... lords of the land needed people to work their land, and suddenly the population was decimated, so they were willing to pay higher wages to get people to come kind of till their land. And then in this post, I just looked at things like William Getsman, who's a professor at Yale,

he is like the godfather of financial history. If you ever think you've come up with an original idea, you'll find out that he's already written an article on it. And he looked at the history of what he calls negative bubbles and what happened. after a crash. And because March 1st was, I think, that last week of February is particularly kind of brutal because that's when the markets kind of woke up to the impact that coronavirus is going to have. But so he studied just, I think, like four centuries of stock market crashes and shows that,

you know, after a market's experience a crash of 50% or more, they have a higher probability of a rebound with the average return being 14% higher. and crashes with less than 40% declines are usually actually followed by another decline and the magnitude of this decline is between 6 to 9% in the following year. So that's kind of interesting. But in terms of more recent pandemics, epidemics actually in this case, the one really interesting parallel I found was actually in 1892. and it was a cholera outbreak in New York.

And the reason I found this interesting is because when I wrote it, it was amid the, what was the name of that cruise ship? Was it the whatever that one Trump was always talking about in the media. I can't remember what the name of it was. But it was like, whatever the carnival crew, the Princess Diamond or some combination of words like that. There's some reason I'm thinking monarchy, so that sounds right. And yeah, so that cruise ship was like sailing around off the coast of California.

I believe, because it wasn't allowed to dock because there were people on board who had coronavirus. And while that was all going on in the news, I found this series of newspaper articles from 1892 in New York about a, I think it was three ships from Hamburg in Germany. And in Hamburg, there had been an outbreak of cholera. and there was news that traveled to New York that these three ships were coming from Hamburg with passengers on board who had coronavirus, but had cholera. And similar to today, people in New York were freaking out in the media about how this ship would arrive, and then everyone in New York was going to get cholera. And these newspaper articles pointed out that whether you were a bowl or a bear kind of influenced

how you viewed this event. And all the bears were hyping up these ships as like, oh, we have, because again, news traveled slower in those days. So they would start drumming up stories in the media about how they have information that like 90% of the people on board the ship had contracted a cholera and that, you know, 50% of them were already dead. And that obviously made investors in New York freak out more because they were preparing for the worst. And so it's just interesting that you had bears trying to overhype the story in order to drive down markets where you had bulls saying that, you know, this actually wasn't that bad, et cetera. But the newspaper articles at the time were crazy. They called it like the ship that, you know, the angel of death was approaching and stuff like that.

Yeah, this quote was amazing, actually. I pulled this out because I thought it was so good. So the headline that you pointed out, this is, you know, this is where clickbait was invented, right? William Randolph Hearst and Pulitzer of this time. This is not a new phenomenon, even though we've created algorithms that supercharge it, right? So the headline was coming closer. Vessels will be closely watched. And then a few days later, when it actually docked in September of 1892, someone wrote about

how people were actually let down by how few deaths there had actually been on board. So they said, this vessel had been talked of for days and had become in the imagination of the people, almost a phantom ship with the destroying angel on board so that when she finally arrived, it is not too much to say that it was a serious disappointment to some croakers of bearish tendency to find that she only had 11 deaths on the voyage. Also, I think that croakers of bearish tendency is the best way to describe bears that I've ever heard. And I just want to start calling people croakers. But yeah, I thought that was fascinating because I think that you can see, regardless of what one thinks about media response and, you know, whether,

other things have been overhyped, underhyped, or flipped between them, that there is this interesting cycle or this interesting relationship between markets, media, and health, right? That this is not a new phenomenon. In fact, this is 130 years ago, and it's the same thing playing out. Definitely. And another parallel that I found interesting was because today we're experiencing it with cruise lines and airlines, they talked about the passenger, the quote was, the Passenger receipts appear to show that some portion of the money which might have been expended in travel on the continent has by reason of the cholera scare been diverted to travel on our railways at home, and this may serve to compensate to some extent for declines in the goods and mineral traffic.

American railways, despite that it is promising in their future and that large additions are being made to the receipts do not command the confidence of investors here. So people are recognizing that there's going to be much less travel because people are freaking out about possibly contracting, contracting cholera. if they went on these railroads. Yeah, it's super, super, super interesting. And you're, yeah, again, this is, this is why I love history is the, you know, it doesn't repeat, but it certainly rhymes. So, so the, I guess the other, the, the comparative example that people have kept coming back to is 1918, right?

We, we hear about 1918 all the time. And it's, it's different, people plumb for different parts of it, right? So right now it's about whether there'll be a second, second wave and what that might look like. There are a bunch of things that I thought were particularly interesting, but before I call out some of the ones that I saw in your writing, was there anything that stands out to you in terms of looking back at some of these articles from and about 1918? Are there interesting analogs or is the comparison overblown or not as relevant as we think?

I'm definitely not a health expert. I'm wary of talking about the similarities from a health perspective. But what I can say and what I found really interesting is, as you mentioned, going through these kind of articles, the University of Michigan has a great archive of, I want to say it seems like thousands, but it's definitely hundreds of news articles from the day organized by different categories and themes or even by city and state. So if you want to, if you live it, someone actually messaged me the other day that they live in Pittsburgh and they went through this archive and just read all the stories that the University of Michigan had compiled about the black death. in Pittsburgh newspapers at the time, or not Black Death, Spanish flu in newspapers at the time. And a couple of the interesting parallels I found there was the first is oranges, where people might remember a few months ago, I think it was in March that the prices of orange futures were just skyrocketing.

And they offered a good return, and that was because people were buying up oranges. And the same thing apparently happened in 1918 where there's an article about because doctors were prescribing oranges to patients so much that the stores were running out of oranges and prices went up from like 60 cents to I think like $1.65 in some areas. So it's just funny to see that something as random as oranges has proven to be a consistently strong outperformer during a health crisis. And but also there was really interesting articles about how their businessmen defying lockdown and quarantine orders to open their businesses before regulations had been lifted. And today we're obviously starting to see that more. And there's been like cases in New York, Texas, where their business owners opening up their stores prematurely and then getting in trouble with the law. And then also there were articles about how people wearing masks. in public had reduced confidence, but then when those masks and requirements to wear masks

were being lifted that instilled more confidence and retail kind of sales started to recover more. And then also there was examples of people being arrested for not wearing masks and police enforcing these influenza rules very strictly. And today, I mean, I think maybe last week where there was that video of a woman in New York subway getting arrested for not wearing a mask. And I don't know, it's just so many direct parallels. It was crazy.

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The other one that you found, which I loved, which was a little bit more tongue-in-cheek, was just the terrible commercials. So you share the mash-up of every COVID-19 commercial being exactly the same and cringy. And then you shared like a theater bill, right? That was like, cheer up, theaters are open. You can safely attend the following theaters.

They are all properly ventilated and constantly maintained a perfect sanitary condition. Yeah. Try the laugh cure. It was my favorite line from that. Yeah, try the laugh cure. Oh, God. Amazing. Okay, so you've obviously had been digging into the history of pandemic side in those parallels.

But you've also spent a lot of time thinking about just market crashes more broadly, whatever the catalysts for. And you recently had a chance you hosted a show on Real Vision called History as a Compass. right? And so I wonder, as you were preparing for that or in those conversations, are there other lessons that you pulled out from, that are relevant for now from more of the kind of economic fundamentals perspective of crashes versus just comparisons to pandemics past? Yeah. So during that special, I spoke with Scott Nation's Jim Grant and Jim Chanos. And one principle that I are kind of concept that I've learned from Jim Chanos in the last two years is this idea of Minsky moment. And so Jim Chanos teaches a financial history course at Yale. And the great honor of giving a guest lecture on a 17th century IPO bubble. Because the size of lectures that can talk about that topic is definitely very small.

So I was happy to fill that role. But he taught me about this concept of the Kindleberger-Minsky model is one of the models that he teaches in his financial history course, which looks at the kind of lag of the fraud cycle and the market cycle. So when it's a bull market, people are much more willing to suspend their sense of disbelief. So when you're making money, you're much less likely to question why you're. you're making money. You know, if the business is producing strong returns, there's not as strong of an incentive to question, well, maybe that doesn't make sense or is this going to continue or maybe that accounting looks a little shoddy. But then when people start losing money, they get angrier and that's when they start looking at their portfolio is a little closer.

And it's often then that you start to find out which businesses are not necessarily full, full-blown frauds, but have bad business practices. And so there's this kind of lag in the fraud cycle compared to the market cycle. So what I found interesting, and we talked about in that special, is this idea of a Minsky moment is kind of the trigger that causes speculative financing and usually in debt to kind of collapse, where business expectations and investor sentiment gets so kind of divorced from reality and there's so much leverage in the system that eventually some event brings it crashing back down to earth. And then you have this kind of unveiling of fraud. And so I think it's

going to be interesting to see if we have a similar dynamic play out because of the coronavirus kind of downturn where who knows where it's going to spring up. But Chanos and I talked about, he sent along an article that's really interesting about it. It's called it, is private having its Minsky moment. And the argument in that paper was that all of this kind of leverage in private equity and the problems that people have been talking about for a couple of years now may now be brought to the fore because of this unexpected, complete just slowdown and in some cases shut down in businesses that private equity is owners of.

And so I think that's going to be interesting to see how it plays out. and see if this is going to be a Minsky moment, and we are going to see this kind of study unveiling of frauds in areas of the economy that were previously investors' favorites. So it's super interesting. This idea of Minsky moments, I think, is really fascinating for a couple of reasons. First, Hyman Minsky, who is the economist who coined this term, was like one of the only economists, I feel like,

who he basically did the starving artist thing, where his ideas weren't recognized in his, time or like a novelist, right? It was only after he died that they came into the forefront. And he wasn't particularly popular during his life, I think in part because no one really wanted to, when things are good, you don't really want to consider his arguments effectively. And it really wasn't until he died in the late 90s, I think. And it wasn't until the 2000s, and particularly the housing bubble, right? As the housing bubble started to happen, that's really where the Minsky moment got, it's this idea, this definition that moved into the spotlight, although the

term had been coined like a decade earlier. And I think it's worth kind of spending some time on what the Minsky moment actually refers to. Yeah, so Minsky identified three types of financing. And the first is hedge financing, which is the safest. And he defined that as firms rely on their future cash flow to repay all their borrowings. For this to work, they need to have very limited borrowings and healthy profits. And then from there, you have speculative financing, which is, as implies riskier. And that's when firms rely on their cash flow to repay the interest on their borrowings, but must roll over their debt to repay the principal. This should be manageable as long as the economy functions smoothly, but a downturn could cause distress. And then finally, you have Ponzi

financing, which is dangerous, as the name implies. And that's when cash flow covers neither principle nor interest, and firms are betting only that the underlying asset will appreciate by enough to cover their liabilities. If that fails to happen, they will be left exposed. So as kind of these definitions imply, especially the last one, things are fine if the underlying assets do appreciate enough to cover their liabilities. But if there's something like an economic downturn where that is not the case, then trouble ensues because you can't cover your liabilities and you are left exposed. And the economist was writing about this concept of Minsky moment, and they wrote that if asset values start to fall either because of monetary

tightening or some external shock, the most overstretched firms will be forced to sell their positions. This further undermines asset values, causing pain for even more firms. Over time, particularly when the economy is in fine federal, the temptation to take on debt is irresistible. When growth looks assured, why not borrow more? And to that point, they were talking about the fact that the easy response is, oh, well, then why doesn't everyone just do hedge financing?

And as they point out, when things are so good and business is good, it's kind of impossible to resist the temptation of getting a little bit more speculative just because things seem like they can't go wrong. And when you keep pushing yourself further out on the risk spectrum, though, then eventually some businesses will find themselves on the kind of wrong end of those three types of financing and be brought kind of crashing back down to earth in an eventual downturn. Yeah, I think one of the things that's really hard and why this sort of look back at history is so important is that it becomes very difficult to fight the incentives for short-term gains

by telling the lessons of history when everyone isn't thinking about that history or wants to intentionally not think about it, right? And the farther we are out from recent examples, the more disincentive to focus on kind of resilience and more incentive to focus on, you know, keeping up with the Joneses, where the Joneses are the firms down the street, right? And it's interesting. I mean, it's, we're in this strange moment where, you know, the economy is recovering and is betting on things getting back to some semblance of normal and or maybe is.

betting on the fact that the Fed is making it very clear that they will backstop the entire economy. But either way, it feels like it's too early to tell whether this is a real Minski moment or whether it is going to be, there's some exogenous force, in this case, most likely, the Fed that's going to kind of prevent it and keep the party going for a little bit longer. Yeah, that is the question. Whether he's right or wrong, I would definitely encourage people to read this article. called, as I mentioned before, called his private equity having its Minsky moment because it at least lays out some pretty interesting arguments. For example, the guy says, I think his name is Matthew

Stoller, Stoller. But he writes, now what happens with Ponzi financing is that at some point, a Minsky moment causes the bubble to pop. And there's mass distress as if all values fall on credit is withdrawn mass bankruptcies ensue. He says, I think you can see where I'm going to. go in with this. Private equity portfolio companies are heavily indebted and they aren't generating enough cash to service their debts. The study increased in asset values since 2009 has enabled funds to make tremendous gains because of the use of borrowed money. But now they're exposed to tremendous losses should there be any sort of disruption. And oh, has this ever been a disruption? The coronavirus has exposed the entire sector. And he talks about how you can, no matter what you do

with kind of creative financing, you can't make up sales if people can't. I mean, not that they are making up sales, but like if there's no sales period, because if a private equity portfolio company is in retail and all stores are shut, like there's, there's nothing really you can do. You know, you can't come up with some solution if there's literally no revenue because people aren't able to open their stores and sell to customers. It's the great fear of a game of musical chairs. Except the longer that it goes, the more painful the drop when the music stops. So by way of wrapping up, you now, you know, you have this financial history interest,

but you work in finance now. How do you try to keep lessons from history in mind as you go about your day-to-day? I think it's definitely given me a better perspective on things. I'm sure you feel the same way as a fellow history major. But when times are kind of tough in terms of just returns and investments in markets, I think that I am less likely to panic just because after reading about centuries of like bubbles and crashes and market downturns, that you realize everything's going to be fine, you know, eventually. It's easier to say, obviously, when you're a younger person like me who has time for Marcus to recover,

and it's not really going to affect my portfolio at this stage if I'm not going to touch it for decades. But I think, and the same goes for the opposite side. We're getting swept away by some new fad and mania. I think that you're a little more skeptical because, again, I've spent so much time reading about the fadd of different eras and they tend to not pan out too well. But I would say that on a kind of daily basis or in my career, that's the kind of most useful product of my historical adventures. That makes sense why your site is called Investor Amnesia.

We've been here before. Jamie, thanks so much for hanging out today. I really appreciate it. We'll have you on again the next time there's a historical context that we need for whatever it is we're experiencing. Awesome. Thank you so much for having me. All right. Thanks, man. Reflecting on that conversation, the thing that I think is so right on about the way that

Jamie diagnosed it is history has this way of turning down the volume on everything. It turns down the volume on joint, you know, eubilant optimism about new things that turn into bubbles, which could mean missing out on some short-term opportunities, but it also turns down the volume on the fear of total disaster and crisis because you've seen the market work its magic and become resilient over and over and over again. I do think that we're in a moment right now. We're about as fragile and about as least resilient as we've been in a very long time, and I do have concerns. But I think that the reality is that everything will adapt. It just might take a little while and be painful on the way. I'm going to continue to study my economic history.

I encourage you to go follow Jamie on Twitter or follow his investor amnesia newsletter for his Sunday reads. That's really great stuff and I really appreciated having Jamie on. Anyways, guys, that is it for today. Back with another awesome guest tomorrow. I'm really excited for. So until then, 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. This episode is sponsored by ArisX.com. The Stellar Development Foundation and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by Coin Desk. Here's your host, NLW. Welcome back to The Breakdown. It is Wednesday, May 20th, and guys, I am so excited to share this conversation with you.

Regular listeners will know that I've been spending a lot of time recently on asking questions about the fundamental design of the global monetary order, specifically as it relates to the place of the U.S. dollar in that system. I think it's one of the most essential questions we have right now is whether the dollar is still serving both the U.S. and the world as the world's reserve currency. This question in some ways, I think, was part of the provocation behind Libra. It was the provocation behind Mark Carney's idea of a synthetic hegemonic currency that he proposed at Jackson Hole last year. It is part and parcel of China's push for a digital yuan, and I think it has massive implications around the world as we see the dollar react to the context of the COVID-19 crisis. At the end of March, I noticed a thread from Lynn Alden that totally knocked my socks off that related to the dollar.

It introduced a set of concepts that are not normally talked about as it relates to the dollar, including the status of creditor and debtor nations and what trade imbalances between people actually do to the dollar conversation. I knew as soon as I read this that I really wanted Lynn to join to share her expertise about the dollar and about the economy writ large. And man, was I, my expectations were exceeded. Let's just put it that way. Lynn Alden is the founder of Lynn Alden Investment Strategy. She's been called by people like George Gammon a Fin twit rock star. And I absolutely have to agree. She focuses on value investing with a global macro overlay and has a background in both finance and engineering.

As you'll see from this conversation, Lynn speaks to a huge amount of data and context in her analysis and draws upon case studies from around the world to form her opinions. It's this sort of quantitative, non-ideological, non-dogmatic thinking that I think is so important right now. So I hope you enjoy this conversation about the world economy, about the status of the dollar and whether it serves us and the world as well as it should anymore as much as I did. So as always, when I do these long interviews, we edited only very mildly to keep the tone of the conversation as close to as it really was. Let's dive in. All right, I am here with Lynn Alden Lynn. Thanks so much for joining today. Hey, thanks for having me. So as I was just mentioning to you, I've been following your work for a while now.

And I think a thread that you had on the dollar really, really captured my attention a few weeks ago. It's something that, as regular listeners to the breakdown know, is a topic that's really important right now. is something that certainly those not only in the Bitcoin community, but then the economy at large are thinking a lot about. So I want to get into that, but I want to kind of start farther back and maybe define some of these key terms. Let's start with your thesis going into this crisis,

that we were nearing the end of a dollar cycle. What does that actually mean? Yeah, so the current monetary systems have been in place since 1971, which is that, you know, none of the currencies are pegged to anything other than essentially that the dollars kind of pegged to oil in a way indirectly. But since over those 50 years roughly, there have been three super cycles of dollar strength and weakness. So the first one, it peaked in the mid-1980s and then it had a long decline. The second one peaked in 2002, and then it had a long decline.

and then this current one has been in a peak for several years now starting in 2015. So that's kind of the overall long-term cycle. Of course, there's different fluctuations each year, but those are the three very large changes in the dollar. And every time the dollar has one of those massive spikes, something breaks because the whole system is levered to the dollar. and the dollar dictates all the liquidity in the world as far as trade and currencies go. So in the 1980s, it broke some of the South American economies. In the late 90s, it broke some of the Asian emerging markets. And then recently, it's impacted Turkey, it's impacted Argentina, and it's slow growth worldwide.

And then in many ways, it also negatively impacts the United States. So, for example, if you chart corporate profits in the United States, you overlay the dollar with it. Whenever the dollar is in one of those giant peaks, you generally see a long, flat, kind of sideways growth in corporate profits because they have trouble growing in dollar terms when the dollar is that strong. There's so much to dig into, but let's keep trying to unpack this for folks. So part of the issue has to do with the dollar-denominated debt, right? And in a world in which debts are denominated in dollars, but businesses are conducted in the local currencies, the strength of the increasing strength of the dollar can have really deleterious effects. We're seeing that in Lebanon right now. We've been seeing that for the last six months in Lebanon.

It's an example that we used a couple weeks ago on this show where this is not just a net importer nation. They import literally everything. And the 1,500 Lebanese pound to the dollar peg that they've had since 1997, or they've been trying to maintain. totally broke and with it has kind of ensued a lot of chaos. So how is that the story? Is it a dollar debt issue or are there other parts of the story that make this dollar strength even more complicated? The dollar debt is the big thing. And the reason it's set up like that is because for the past 50 years or so, most international trade, a large portion of it happens in dollars. And then specifically almost all oil purchases happen in dollars. So even if

Europe buys oil from Saudi Arabia, they still pay in dollars, even though neither of them use dollars in their own economies. So all these countries around the world, especially emerging markets, some of them have sizable like dollar-denominated debts relative to their GDP. And to offset that, they hold treasuries as reserves. And that allows them to defend their currencies that they need to and also do. to support their dollar obligations if it comes down to it. So some countries have a lot of reserves relative to their dollar-denominated debts,

which keeps them pretty safe. But some of these countries have very low reserves relative to their dollar-denominated debts, and those are the ones that we're seeing crises in. So that includes Argentina, Turkey, Chile, countries like that. The additional layer of complication on this has to do with the dollar shortage versus the shortage of actual dollars versus dollar treasuries, for example, right? And what happens when the dollar strengthened? So this is something that I know you've spoken a lot about.

Basically, you know, in a crisis as the dollar, as people flee or try to get two dollars, what they have to do is often sell other types of U.S. assets like treasuries, which can have its own type of impact, right? Yeah, if they, if it get to the point where trade slows down. So normally they have dollar-denimated debts and they service those debts with ongoing revenue and ongoing trade. But if those corporations and in some cases sovereign governments, if they can't get dollars because trade has slowed down due to a global slowdown or global recession, then their other resort is that they have to sell U.S. assets to get dollars so they can service those debts rather than default.

So we've generally seen a pattern where whenever we have these sharp dollar spikes during economic slowdowns, foreigners start selling their treasuries. So we saw it happen in 2016, and then we saw it happen again in mid-March when the dollar index went up to about 103. And foreigners sold $250 billion of treasuries in March until the Federal Reserve started setting up currency swaps and other ways to get them dollars. without them having to sell treasuries and other assets. Why would just, I think it's really valuable for our listeners to play this out, why would the Fed care about those other entities selling treasuries, right? What is the potential impact of that action? So essentially, it's to protect the U.S. treasury market.

That's the reason they cited in the data supported that's true. So years ago, the U.S. US was a creditor nation, which means that as a country, we owned more foreign assets than foreigners own of our assets. And that can include stocks, bonds, and real estate. But ever since the mid-1980s, we switched over because we've had persistent trade deficits as part of us maintaining the world reserve currency. And so years of persistent trade deficits have accumulated dollars overseas and they've recycled that back into owning U.S. assets. So currently, Americans own about $29 trillion in foreign assets, whereas foreigners own $40 trillion in U.S.

assets, which means there's an $11 trillion difference. And that's, you know, about 50% of last year's GDP. Back in 2008, our position there is defined as the net international investment position. that was about negative 10% of GDP. So we've actually, we've deteriorated significantly over those past 12 years. And because foreigners own such a large portion of U.S. assets, including $7 trillion in U.S. treasuries, if there's a dollar shortage, they start rapidly selling U.S. assets, as we saw both in 2016 and then again in March of this year. And this one was particularly severe because the whole Treasury market.

market became illiquid. We saw, even though yields went down early in the year in response to the crisis, during that period, Treasury started selling off with stocks in mid-March. And the whole treasure market just became illiquid. The Fed cited this in their meeting minutes and their press releases. So the Fed started buying treasuries up to $75 billion a day for several days. and then they increased their liquidity offerings to try to get dollars to what are essentially our creditors, you know, foreign nations that own our government debt that have lent us money so that they don't have to sell those treasuries to get dollars. The natural question becomes, so this is, you know, we had this setup, basically,

where the Fed's set up effectively repo operations with other nations, right, or credit swaps, or dollar swaps, right, with these other countries in order to, you know, curtail this behavior? Yeah, both programs. There's one that's an outright currency swap. That's only with a select number of nations, a little bit over a dozen of them. And then there's also an international repo operation where instead of selling the treasuries on the open market, they can lend them to the Fed in exchange for dollars.

Got it. And so the question becomes, if the Fed is so concerned with this sort of behavior vis-a-vis treasuries, why not just buy them all? Well, they've actually bought more treasuries than have been issued since the repo crisis in September and October. So they actually currently are buying all net new issuance of treasuries. They don't really want to buy more than they have to because, you know, they don't want to monetize $7 trillion in foreign-held treasuries.

That would significantly weaken the dollar. most likely. It also would just, you know, a lot of those foreigners need treasuries to maintain reserves. They use it for supporting their currencies. So getting that all on the Fed balance sheet is not something they are trying to do. Yeah. By the way, I ask this sort of big, dumb question only for the sake of we're living through this period where things that were once sacrosanct and totally off the table become on

the table. So I feel like it's useful to maybe draw some of these lines where we can now as everything gets up for grabs a little bit. Yeah, well, it's not far off because I think going forward, it looks like the Federal Reserve is going to be the primary buyer of Treasury. So they're not necessarily going to get all treasures on the balance sheet, but most treasury issuance going forward is most likely going to end up on the Fed balance sheet. What do you think has changed over the last 10 years to, or maybe it's less time than that, to make it the case that the Fed has moved from sort of a buyer of last resort for these treasuries to the primary buyer?

A couple things. One is entitlements, just demographics have changed. So now that the baby boomer generation is fully in the phase of their lives or they're receiving benefits, we've become very top-heavy with our social program, so Social Security and Medicare. So we're paying out a lot of benefits, and we have kind of more structural deficits now. And then on top of that, debt as a percentage of GDP over time is increased significantly. So, you know, before the 2009 crisis, it was like 60% of GDP, federal debt.

And then in response to that crisis, they brought a lot of that basically onto the, all that leverage in the banking system. a lot of it pretty much ended up essentially in the treasury market on the federal balance sheet. So we went up to over 100% of GDP. And then lastly, foreigners are, whenever we have a strong dollar period, foreigners generally don't buy as many treasures as they were. So starting in early 2015, foreigners haven't really been buying that much treasuries. So for several years, domestic sources were able to buy those treasuries. but we kind of ran out of balance sheet room here in the country, both on bank balance sheets and pension balance sheets and investor balance sheets.

So for running out of both domestic and foreign lenders, then essentially the Fed becomes the primary lender, the primary buyer of treasuries. So going back to kind of something fundamental that you were discussing before, can you explain the idea of a creditor nation versus a debtor-nation? nation and how how sort of these, the, the relationship between a currency and a country's economy is normally allowed to go. And where I want to get with this is the unique place of the U.S. dollar given its role as the world's reserve currency. Yeah, so the net international investment position is a measurement of how much assets that, like, how many foreign assets

that country owns compared to how much of their assets foreigners own. And if they have, a positive net international investment position, they're basically a creditor nation. And if they have a deficit, then they're a debtor nation. So the world's largest credit nation is Japan. And they have positive 60% of their GDP in terms of their net international investment position, meaning they own a ton of foreign assets. And foreigners, even though they own some Japanese assets, they don't own nearly as much as Japan owns of their assets. They also own, for example, over a trillion in U.S. Treasuries. They're one of our, they're one of the biggest lenders along with China, foreign lenders to the federal government. But then they also own stocks. They own real estate.

They own corporate bonds in the United States. And generally speaking, countries that have that are credit donations that have very high net international investment positions, they usually have pretty strong currencies because they build up those positions by having consistent trade surpluses, and they've managed to build a very large amount of reserves. So they're buffered against currency crises and other problems that can come up. Whereas countries that don't have very large reserves and that don't have a lot of foreign assets generally find themselves with liquidity problems and even solvency problems if there's a global recession or dollar shortage.

So you used the example of Japan before to talk about sort of the, the relationship between creditor or debtor status and the way that money printing or quantitative easing or whatever kind of, you know, you want to call it impacts currencies? Yes. Could you go into a little bit of, you know, so one of the things that's happening now is, I think people are trying to make sense of, they see kind of the money printer go burr meme getting popular, not just on Bitcoin Twitter, but kind of across FinTwit, and they say, oh, or in the zone for inflation,

but then other people point to the example of Japan as someone who's printed a huge amount of money but hasn't experienced that same sort of kind of rampant currency devaluation that I guess people would expect. Yeah, one of the main differences between Japan and the United States is that we're total opposites in terms of creditor nation and debtor nation. So they're the largest creditor, we're the largest debtor in terms of absolute terms. There are some countries like Singapore that have their larger creditor nation relative to their GDP than Japan, but Japan's the largest and absolute terms.

And there's a couple of things that Japan has going for it that are more deflationary for them than it would be for the U.S. if we were to print that much. In addition to demographics and everything, the main thing is that they have a pretty consistent trade balance. So they export products and services roughly as much or more than they import. And combined with the fact that they used to run very large surpluses, they've built up all those foreign assets. So they also have all these foreign income streams, dividends, interest, all these different sources of income coming into the country from their foreign investments. So combined with their trade balance, they have a positive current account surplus, which is just more money flowing. into the country over year. And that gives them a wide latitude to print pretty aggressively without causing some of these problems in the near term that people would think. Because they've

printed, the Bank of Japan's balance sheet is over 100% of Japan's GDP, which is way more than the Fed has printed and way more than the ECB is printed. But the main thing is, because they have a trade balance, it really prevents their currency from weakening more than, you. you'd think. Well, and even it was interesting hearing you describe, I think it was on George Gammon's podcast, how when that printing started, there was some amount of devaluation, but the natural kind of float or flow of trade balances quickly resolved it by having net exports be more valuable for a little while because the currency was weakened.

Yeah, I did a case that in Japan, and so in 2012, they actually have. had a trade deficit, which is pretty rare for Japan. And it wasn't very big on international standards. Like, it's smaller than the U.S. has now. But for Japan, it was a pretty big thing. And they also had large fiscal deficits. This was not that long after the global financial crisis. And they hadn't really recovered yet. And so they started printing dramatically. And the Bank of Japan's balance sheet was something like 30% of their GDP. And over the next several years, they got it up to over 100% of GDP. And when they started doing that, the currency weakened considerably compared to the dollar.

So there was something like 75 yen to the dollar, and then it weakened as much as 125 yen to the dollar. But in 2015, even though they never stopped printing, they barely even slowed down printing. Their currency stopped weakening, and it actually started strengthening relative to the dollar. And that was because their trade balance over those three years from 2012 to 2015, by weakening their currency, they essentially weakened their importing ability and they made their exports more competitive. And so that helped fix their trade deficit back to being balanced. And their current account went positive. And so that way, even though they kept printing, their currency didn't really weaken more and more and more because there's kind of an equilibrium there. that if the weaker it gets, the more competitive the exports get.

And so you can't really print yourself too deeply into a trade surplus. So as long as there is more wealth flowing into the country than flowing out, which is the case when you have a positive current account, even though Japan kept printing, it's weakening effect on the currency stopped after that point. Support for this podcast and this message come from Eris X. With Aris X, you can trade. spot and regulated futures on cryptocurrencies through a licensed U.S.-based exchange. ArisX believes in fair access for all.

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In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly treated investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y scale.co slash coin desk. Now, can you kind of building off from that explain this idea that's kind of embodied in Trippin's Delammer, Trivins paradox, that the scenario or the setup for the world's reserve currency

is simply different in some ways. Yeah, so for many countries, if their trade balance gets too out of whack for too long, they usually find themselves like Japan did where their currency changes considerably. So a country that runs persistent trade deficits a year after year after year, usually what happens is, you know, whenever the next recession or when next crisis comes around, their currency devalues significantly enough that it basically forces the country to have a more balanced trade situation. So their currency gets weak enough where, you know, their importing power weakens and their products and services get more competitive. and that currency weakness, it can be painful for citizens of that country, but it can, you know, as long as the economy remains intact and the country doesn't become like a failed state. So as long as you have, you know, the basic framework there, it can be a healthy thing where the

country is able to kind of stabilize and then become more competitive and have a more balanced trade position. But the U.S. dollar, because it's the global reserve currency and it's the only major, or currency that energy is priced in and most commodities are priced in, and because there's so much dollar-denominated debt, there's this extra layer of demand for the dollar, whether or not we have a trade balance or not. In fact, in order to supply enough dollars to maintain World Reserve status, in order for countries to be able to solely buy oil with dollars, we have to make sure that there's a lot of dollars out there. And that manifests itself in strengthening our currency

to the point where even when we're not competitive in trade, we never really normalized back down to having trade balance. So even when our currency weakens, it rarely weakens enough that we become balance of trade. So year after year, decade after decade, we have a trade deficit that never really corrects itself like we saw from Japan and like we saw from a lot of these other nations. So in that system, who are the winners and losing?

of kind of this persistent trade deficit and just the strength of the dollar without the ability to correct? Some of the winners have been countries whose currencies are that are able to stabilize. So, for example, Japan's been a winner, Germany's been a winner, China's been a winner. A lot of the countries that have these persistent trade surpluses with the United States, they're the ones that win because we basically ship them are supply chains. And so they remain competitive on the world scene, whereas, except for certain areas, we become uncompetitive, especially in industrial production and exports. So we're competitive in software, but we're not very competitive in making cars that foreigners want to buy compared to, say, German or Japan. So the one that hurt the most is the American

in working class, you know, the people that would make a lot of the products that we've essentially shipped outside United States, all those supply chains. So I want to come back to this point sort of on the other side of the COVID conversation, as we're seeing a lot of people have or take a different point of view, I think, on domestic manufacturing, maybe in the wake of this. But before that, what were your feelings about the dollar coming into this year, coming into, or before the COVID? of 19 shutdowns in the crisis, and how has what has transpired since changed or reinforced those views? Sure.

So every year I publish an annual report that ranks different currencies based on a variety of metrics. And in 2018, and then again in April of 2019, I ranked the dollar about average. I ranked it better than the euro, and it has strengthened compared to the euro. But starting in early October 2019 after the repo spike, that's when I started shifting to a more bearish view on the dollar, essentially because the U.S. was basically forced to shift from a tight monetary policy to a looser monetary policy. And that can be a significant contributor to a weaker currency. So for the next three months or so, right into the year end, we saw the dollar weekend. pretty significantly for a three-month period. But then in the first couple months of the year, the Federal Reserve balance sheet stopped increasing. And my view at the time was that that was most likely temporary.

We could look under the surface and see that they were continuing to buy treasuries and monetize the debt, but they were also able to wind down the repo lending a little bit. So I was expecting that to work itself out by maybe March, April, and that they would go back to balance sheet increases again, because they'd still be buying treasuries. But then, of course, the COVID-19 hit. So at the moment, I was near term neutral on the dollar. But then that, when that started happening, just like the case was in 2016.

And then also in 2008, we had this dollar spike because, again, all the trade, most of the trade shut down. We had oil price decline. So there was just not dollars flowing around the international system. And yet all those dollar debts still existed. So I became near-term uncertain on the dollar. I started tracking it more frequently. And my main view at the time was that although we were getting a dollar spike, that it would probably be briefer and lower than some of the dollar bulls expect because of the Fed's massive response that they have to do if they want to protect the treasury market. And is that what we've seen play out?

So far, yeah. the dollar index got to 103 in March at the peak. And that also was the bottom, roughly within a couple days of the bottom of the equity market. And since then, the dollar index has, it came back down to about 100. It's fluctuated in a pretty narrow band. It's stabilized.

You know, there's always possible we're going to get another spike later this year. But at the current time, it has stabilized back down to to 100. And that's because whenever you get these dollar spikes, foreigners have to sell U.S. assets. So if you look back at 2008, 2009, the market bottomed right when the dollar peaked. And again, in March of this year, the market bottomed right when the dollar peaked. So you can kind of think of as a control system. So whenever the Fed is not loose enough, you're basically going to get liquidity problems. You're going to get dollar spike. you're going to get foreigners having to sell U.S. assets, including treasuries, and you're probably

going to see the Fed have to step up and provide more liquidity if they want to protect the system. So when analyzing dollar strength, you have to take an account both the natural forces of all that debt out there, but then also what the federal response has to be if they want to protect the treasury market. So one of the interesting things is that there's kind of a debate right now, whether the thing that we should be most concerned about is deflationary forces or inflation, right? And both of them can be, the narratives can be a little bit narrow, right? And, you know, the money printer go burr meme leads to inflation. And deflation on the other side is sort of just a byproduct of relentless

technology and people having no demand. But, you know, you spend a lot of time looking at this in the context of actual currency flows. What should people be concerned with right now? Is it, either or or is it a both-and and it's based on timing and factors like that? It's a both-and based on timing, in my view. In the near term, deflation is more of a risk, especially for discretionary goods. So, you know, no one's really buying cars too much at the moment. So you're not going to see a price increase in cars. But essentials like food, we're seeing some inflation in that supply chain.

So with the sheer amount of debt and also the amount of money, a wealth that has been lost, at least, especially back in March and April. We've recovered some of the wealth loss since then. But whenever you have, even though the money supplies increased pretty substantially due to the Fed response, we've seen a reduction in people's net worth from their stocks. We could see some home equity reductions. We don't know yet. It's too early to say. So if you look back during the great financial crisis, for example, even though the Federal Reserve printed a few trillion dollars, that was actually smaller than the amount of U.S. household wealth lost during that period. And it took several years to recover. So essentially now we have that playing out, but on a swifter scale. So we lost some unknown amount of net worth. We've already covered a lot of it. And we're seeing printing. So we have a deflationary debt. you know, kind of collapse happening if it was unaddressed. But then to address that, we've had the more inflationary Fed response. And at the moment, it's roughly a tie. So we saw a decrease in broad

inflation. We've seen some targeted areas of inflation. But going forward, the amount of support that governments are probably going to provide to their citizens, especially the United States, because so many people are, you know, millions of people are unemployed, that those money taps are unlikely to stop anytime soon. And we're probably shifting towards a more inflationary environment over the next several years. Do you think that the extent to which it is an inflationary environment is correlated with the amount of money that's actually getting into the hands of regular citizens versus sort of the corporate industry backstopping we've been seeing?

Oh, yeah, that's a key thing. Because if you look back in 2018, most of that QE that was done, people back then feared that it would cause inflation. But in addition to being offset by all of that temporary wealth destruction, also most of that QE never really made it to the people. It mostly recapitalized banks. So going into that crisis, banks had very high leverage ratios. They had very little cash reserves. So the Fed basically created a lot of dollars and then bought some of their assets in recapitalized banks. and some of it trickled out to the public, but most of it just stayed within the banking system.

But now we're seeing that a lot of the QE is going to the people. So, for example, the $1,200 helicopter checks that a lot of Americans received, that was funded by, you know, the treasuries issuing treasury securities and the Federal Reserve's printing money to buy them using the primary dealer banks as intermediaries. Same thing for the extended unemployment benefits and other programs that, are aimed to make up for the fact that Americans and small businesses are losing money, you know, by providing them with temporary income to offset that. And, you know, those programs have all sorts of issues. Some people benefit more than others. But as a general quantitative fact, it is getting more to the public and more to the general money supply than it did back 12 years ago. Well, and you have to think, too, that in addition to just the actual net increase in

assets, we're seeing a pretty significant and rapid Overton window shift on how people think about this, right? I mean, this has been the greatest coup for any sort of MMT or UBI, even for people who come back from completely different perspectives, right? It is normalized this because you have an entire citizenry who's saying, well, if every industry in the world is getting bailed out, you know, and they didn't have any protection, they didn't have any resilience built through their systems, why wouldn't you also bail out the citizens? So it feels to me that there's also this psychological dimension to it. Oh, yeah, after spending trillion dollars to bail out Wall Street back 12 years ago,

it'd be hard for them not to do it today for the people when the people need it. And that's kind of the path they set up for themselves. And so we're at the point where the Treasury and the Fed are essentially working together and you have bipartisan support for multi-trillion dollar stimulus packages to try to help people. And yeah, it's definitely the environment we created of the past decade. I guess a lot of people are also trying to figure out what's the end game, right? And part of the appealing logic of something like MMT is that basically what it's saying is that this party can go on forever.

We're not playing a game of musical chairs. There's chairs enough for everyone. What are the real concerns about how far this can go and what? happens on the other side as it relates to, you know, something like the U.S. dollar and currency. Well, one of the significant concerns is that it can devalue currency relative to everyday goods relative to productive assets. And we actually see, if you look back in history, hundreds and even thousands of years, all civilizations go through these currency devaluation cycles.

And, you know, different people have focused on it. Like Dallio, Ray Dahlio is focused a lot on this recently where he points out the long term debt cycle. And so the last time we had this was the 1930s. We actually had smaller ones in between then, including in 1970s. But over time, countries often get out of debt bubbles by devaluing their currency. So that's most likely what we're going to see over the next decade. This will probably be a decade that in many ways mirrors the 1930s and 1970s in terms of seeing rapid currency devaluation compared to things like gold, compared to productive assets, once we're on the other side of this deflationary COVID-19 shock.

Yeah, I mean, this is certainly what we're seeing from a lot of different unexpected angles. The Bitcoin community has been paying a lot of attention to Paul Tudor Jones jumping in with both feet and writing extensively about this idea of a great monetary inflation and creating this whole methodology to rank different stores of value, which ended up producing them to open themselves up to get into Bitcoin. So certainly there's a lot more chatter about this being a realistic possibility than it feels like there was even six months ago. Yeah, if you look back in history, the only other time that federal debt as a percentage of GDP got this high was during World War II, the 1940s. And the way they dealt with that

was that the Federal Reserve and the Treasury worked together a lot like they're working together now. but instead of funding a virus response, they were funding the war. And what they did was the Federal Reserve agreed to lock treasuries at a yield of 2.5% or below. And so it was like 0.38% for T bills, and it went up to 2.5% for the long end of the treasury security market. And to do that, in order to have that peg, they had to basically buy any treasuries that were starting to trade over that amount. So their balance sheet grew pretty substantially. And they didn't call it quantitative easing at the time, but that's essentially what it was. That was, you know, people think it's a new thing, but, you know, they were doing that in the 1940s, where they were essentially monetizing U.S. debt.

And then by locking the yield curve at 2.5%, even as inflation during that decade in 1942 and again in 1947, inflation spiked into the double digits, but they still locked treasury yield at 2.5%. 5% using their balance sheet as their ammo to do that. And that had the effect of treasury holders, even though they were all paid back nominally, they lost on a real basis compared to CPI, compared to stocks, compared to real estate, compared to silver. Gold was pegged to the dollar, so that was a little bit different. But the Treasury and Fed working together essentially inflated away the federal debt as a percentage of GDP over the subsequent decade.

Do you think that any of the, call them larger sort of, you know, secular trends, things like technology wrought deflation, right? Technology pushing a downward force on prices of things like education or healthcare or real estate or trends that might stem from political shifts on the other side of this, such as a push to bring manufacturing back home could impact how these scenarios play out? Oh, yeah, definitely. Technology is a very deflationary force just because it increases our productivity so much. And then if you go back to the second point of what you said, bringing supply chains home,

that's a somewhat more inflationary variable because part of our disinflation over the past few decades is that we've continually outsourced our production to cheaper and cheaper places in the world. So one of the reasons that electronics have gotten cheaper, in addition to improving technology, is that the labor to assemble them has gone down dramatically. So instead of paying an American with expensive health care and that has a higher standard of living to assemble our cell phones, we've outsourced that to cheaper places in the world. So if we're looking to make our supply chains more resilient, and closer to home, we're basically going to stop exporting that inflation to other countries

and start potentially experiencing it ourselves. And then how that plays out, it depends on the different magnitudes of the variables. So technology is deflationary, whereas bringing supply chains back is more inflationary. But the main variable is most likely going to be intentional policy responses to try to increase inflation, including up to helicopter checks if they have to, because in our current debt-based system, sustained deflation doesn't work. So deflation, the natural impact of deflation can have all sorts of positive effects, but the one environment where it doesn't work well is when you have this much debt in the system. So from their point of view, they want to essentially

inflate away at least the federal debt and then as much other debt as possible to make it so that long-term holders of that debt kind of get an invisible tax of inflation. So even though they get back all of their returns anomaly in the treasury market, the Federal Reserve is likely trying to replicate what they did in the 40s and the 70s. And they've already talked about it. They've already had Federal Reserve officials come out and say, back in 2019, that yield curve control is likely a future policy option. And I would argue that in March of this year, when the Fed came in and started buying $75 billion a day in treasuries for that month when Treasury market was selling off,

that they've essentially already started soft yield curve control. They just haven't formalized it yet. What do you think we're going to see next from the Fed? I mean, so you kind of mentioned more of this yield curve control. Do you think we're going to see negative interest rates? I know that's something that is top of mind for a lot of folks right now. I don't know if we will or not. I hope not because country after country has showed that it's not a very effective policy.

I can see why they'd be drawn to it because if you have this temporary period of deflation, but your interest rates are zero, then you actually have a pretty high real interest rate. compared to what you came into the recession with. But negative interest rates, the financial system is just not set up for negative interest rates. So it basically kills the financial system. It kills bank profitability. And it can have opposite effects. Like it doesn't increase lending.

So I really hope they don't go to the negative interest rate route. Yeah. I mean, speaking of negative interest rates and where it has or maybe hasn't worked very well, what's your perspective on Europe right now? and in particular the euro. I know there's a lot of conversation about this as well. And, you know, we've had this interesting moment where right as the European project is really called upon, you have nations who are sort of moving farther apart rather than coming closer together.

Yeah, from a quantitative perspective, the euro is similar to the yen, where Europe has a positive current account, so they have more money flowing into the continent than out of the continent. And that's, you know, because the euro has a lot of problems, but being overvalued is not one of them. So generally, it's a very competitively priced currency, meaning that, you know, their products and services are pretty competitive on the global market. So they have good trade balances, good current account balances. But then those, unlike Japan, unlike the United States, the fact that they have a monetary union without a fiscal union creates all sorts of qualitative risk factors. So even though that the currency itself might be quantitatively cheap, there are all these qualitative problems, you know, between Italy and Germany as they sort out their totally different fiscal programs, even though they have the shared monetary union. So that's a huge tail risk to consider over the next several years is, you know, back in eight years ago, we saw the European sovereign debt crisis play out.

And that was essentially fixed with QE. But now we're seeing kind of the second round of that because COVID-19 is exacerbating sovereign balance sheets that were already very large, especially in southern Europe. And they're going to have to sort that out one way or the other. And that could be that they change the way they handle their currency. They could have potentially members leave or they can try to unify their fiscal. policies a little bit more closely. So another part of the world that I'm interested in your take on, I'm not sure if you've been following the kind of digital currency conversation, but last year we had Facebook basically

announce something that was sort of the equivalent design of a modern-day bank or, right, with Keynes proposed, which would be a currency that was pegged to a basket rather than any sort of individual free-floating currency. And, you know, they didn't. didn't say they wanted to replace the world's reserve currency. In fact, they went to Paines to say that the U.S. dollar was still the most important part of that. But what it did is, again, it triggered another round of conversation where a few months after that, Mark Carney, the then Bank of England governor, spoke at Jackson Hole and said the world needed a synthetic hegemonic currency, right? Same idea, but from central banks instead of from this random American corporation.

And then you had China who really started to pour on the gas of a digital yuan initiative that went back five years. They're now in the middle of testing this in a couple of provinces. They have major partners. And it's very clear that they're going to roll this out sooner. And some countries, including Japan, have been really nervous that this is a play for kind of expanding the economic influence, the monetary influence of China. And I guess I wonder, not necessarily just about the specific, the digital, currency, but whether you see China coming out, stronger, weaker, kind of neutral from this crisis?

Well, from a geopolitical perspective, they probably have a lot more risks of the next couple years than they had previously because they were already dealing with trade issues, and now they have a fallout from the perception of how they handle the virus, how much they disclosed about the details of the virus. and they also have a very leveraged financial system. But for the broader point, the current monetary system is certainly kind of hitting the bounds of where it can go without breaking more. Because if you look back 50 years ago, the United States was a larger percentage of the global economy. and we were the largest commodity importers.

And so in some ways it made sense to have commodities priced in dollars because the U.S. was the largest buyer of them. But even back then, you brought up the bank core. There were economists that saw that this would eventually be a problem, and they proposed a more neutral reserve asset. But the dollar went out. But now, decades later, the U.S. isn't even the largest import of commodity. anymore. That's China. And yet we still price most commodities and dollars. And as you've seen

from March, the Federal Reserve is essentially on the hook. If they want to keep their reserve status, that means that whenever we have these big dollar shortages, the Federal Reserve has to either bail out the system or they see foreigners selling U.S. assets to get dollars. And that causes our sorts of problems in our economy. And then in addition, the strong dollar, as we pointed out, it never gets a chance to weaken enough so that our supply chains are often uncompetitive. So neither for the U.S. or the world is the current system really benefiting anyone anymore. Very few interests are served by it. And the way that that solution takes form could be many different paths. And they, for years, they had all these chances to do it in an orderly fashion.

So we'll see if they still do, or if it kind of comes up in a more disorderly fashion. So you could have multi-currency oil pricing. We have, say, the dollar is used to buy oil, the euro is used to buy oil, the yuan, the yen. You can have a couple major currencies that are all used to price oil. And that would broaden the number of, currencies that are used for commodities and probably also diversify the types of debts that different countries have. So we don't have this big debt-based global dollar shortage like we have now where the whole world is essentially trying to use one country's currency for everything. Instead, you have a broader basket of major currencies. Or you can have that in like an SDR package,

which essentially, you know, like a bank or. Or you could have an agreement to use neutral assets like a central bank crypto or a gold, things like that. So there's a bunch of different forms they can take to have a more neutral settlement asset that is not tied to one nation's currency. And in addition to benefiting global liquidity, that would also benefit the U.S., even though it would be rough at first, because it would allow our currency to find its equilibrium and allow supply chains to come back and to make American products more competitive in the global marketplace. It's really interesting. You know, in some ways since the end of the Cold War, we've been implicitly withdrawing from one side of, the global monetary system, which is the U.S. security guarantee, right? And that's been accelerated, obviously, over the last eight years, call it, in kind of an Obama presidency that didn't really want to

spend much time on things. And then a Trump presidency that really wanted to kind of finish off that global order explicitly as part of its mandate in some ways. But we haven't necessarily backed off the monetary side. And it sounds like part of what you're saying is that this is a system that even for the U.S., you know, when we hear things like a strong dollar and our America hat flares, and we say, oh, that must be a good thing, right? But what you're kind of saying here is that this is a system that at this point may not really be serving anyone to the best of its ability anymore. Yeah, essentially, the strong dollar has resulted in exporting a lot of our supply chains.

And I think the best way to think of it is that in an ideal world, we neither want an artificially strong dollar or an artificially weak dollar. We want a dollar that is equilibrium. So we want one that is competitive that gives Americans a lot of purchasing power internationally, but that also is not overpriced so that our products and services become uncompetitive and too expensive in the global marketplace because that eventually corrects itself to the downside, even though it can take decades. And we're kind of at the, you know, probably getting close to the tail end of that. So going forward, instead of thinking in terms of strong dollar or a weak dollar, the best to look for is a dollar that is at equilibrium and that makes exports and services competitive without totally destroying the purchasing power of our citizens. In the next few years, how do you see this playing out for different assets?

How does gold play into this? If you spending time with Bitcoin, how does Bitcoin play into this? What does the dollar do? You know, where are you looking? Or maybe even a better way to ask, so I don't put you quite on the spot in terms of predictions is what are you watching? What are the key signals around these different areas? Mainly what I'm watching is liquidity indicators and also political developments,

specifically in the U.S., about like what we saw earlier with checks going out to people, like all these different stimulus packages to get money. money into the hands of people because that's where we're probably going to see more liquidity come from. We're probably going to see those types of policies persist longer than consensus currently thinks. And that can be inflationary and that can substantially increase the number of dollars out in the system. And in the near term, I mean, over the next couple of years, that can help relieve the global dollar shortage that's become very acute. But then longer term, that would be very beneficial to assets like gold, potentially for Bitcoin, even more,

potentially to certain emerging market equities that have been really beaten down over the past five years in the strong dollar environment and that are trading at historically reasonable valuations, things like that. So the main thing I'm watching is just different policies that would impact the abundance of dollars both domestically and internationally. So by way of wrapping up, you had a really great tweet the other day where you said, remember when people were saying high corporate household debt levels didn't matter because debt servicing costs were low thanks to low rates? That argument didn't age well.

Absolute debt levels suddenly matter when income gets shut off and thus promotes fragility. So now corporations and small businesses around the country and world had to scramble for government funds within the first month of revenue loss or face total insolvency. then the government is in the position of picking winners and losers, privatizing profits, and socializing losses. I think this is dead on. When you sit back and think about this, do you think we're headed for more fragility solved by more government intervention? Or do you think that there's a possibility of taking a different path where we redesign for something that looks closer to resilience? That's a big question to come down to the will of people and how well people. and how well people can come together to figure it out.

Debt is definitely one of the biggest contributors to fragility. So for years, people justified high corporate debt levels by saying, well, you know, industry rates are so low, so their debt payments are still a small part of their income, which works as long as things are going very smoothly. As long as there's no inflation, as long as interest rates can stay so low, as long as there's no massive disruption to income sources that can work. But that just showed how fragile we are, that within weeks of the economy having to stop, we had to have trillions of dollars in spending and corporate bailouts and helicopter checks

just because the system is so levered, so without cash and so with high debt levels. generally, we talked about before how over these long-term cycles, they're usually these periods of these periods of currency devaluation. And historically, even though they're very volatile times, usually the aftermath is a more resilient system because you basically have destroyed some debt in percentage terms, in real terms. So it can be a very disorderly change, but then on the other side of it, you've deleveraged, you know, either nominally or at least in real terms, and you have a base to move forward from there. But it can be terrible while it happens. And how well they handle that,

like how well they thread that needle, how much they have an orderly versus disorderly currency devaluation, that can shape a lot of how it moves forward after that. Well, Lynn, really, really appreciate your insights. For those who want to follow along, for those who want this annual currency report, where can people find you? Lynn Alden.com. And on Twitter, it's Lynn Alden Contact. Awesome. Really repose to the time.

This is great. Yep. Thanks for having me. The most interesting thing about this conversation to me is that there is this interesting implication just sitting there around the status of the dollar. as the world's reserve currency, where it's not clear to me that it serves the world anymore, and that's fine, but it also doesn't necessarily serve the U.S. And the thing that's so striking is that it's hard to imagine the world shifting to any system unless the U.S. is willfully part of that.

The U.S. is the most dominant economic power. It continues to be the most economically dominant power in the world, despite everything going on. and to the extent that the U.S. wants to preserve that world reserve currency status, it's hard to see how any other initiative does anything other than kind of nibble at the edges of that dominance. However, if the U.S. were to make the decision that it was no longer in its strategic interest to be the world's reserve currency, to have the additional burden of demand for U.S. dollars to service debts, to have to be forced into basically effectively always running trade deficits for that reason,

then something very dramatic and different could occur. So I don't necessarily think we're there yet. I think that the political idea of having the U.S. move away from the dollar as the reserve currency is something that will take a generation potentially to actually shift and think about. But I do think that the Overton window on this idea has changed dramatically, and it's going to be really interesting to see how this discussion plays out over the coming years.

Thanks to Lynn Alden for joining us for the show. I really appreciate her time, and I appreciate all of your time for hanging out and listening. So 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. This episode is sponsored by ErisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW.

Welcome back to the breakdown. It is Thursday, May 21st, and over the last few weeks, we have spent a lot of time looking at the U.S. dollar. And what it means for the dollar to be so strong relative to other currencies, does this serve the U.S.? Does this serve the rest of the world? Is there a better system? This is one of the most important questions, not just for the crypto and Bitcoin world, but for economies writ large. And I don't want to lose sight of the relevance

or what's happening to other currencies as we talk about the dollar. And so with that in mind, I'm really excited to share an interview with Tuolmus Malinen. Tuomis is the chief economist and CEO of GNS Economics, which is a Helsinki-based macroeconomic consultancy. He also is an adjunct professor of economics at the University of Helsinki.

I came across Tuolmas earlier this year when he wrote a really brilliant thread called why the breakup of the Eurozone is a near certainty. It's a really, really interesting thread, and my conversation with Tuomus did not disappoint. I think he is very clearly not an ideologue, but is someone who is trying to carve out an interesting middle space when it comes to economic thought and political thought

as it relates to Europe. We talk a lot about the background of Europe and the Euro itself coming into the crisis and how tensions around the disbursement of aid in the context of the crisis have actually inflamed larger political questions. That's the main part of the interview, but we also get into China and why we might be at the end of the Chinese economic miracle and more broadly just look at what the state of the world economy is and why it is so fragile. So there's a ton here to unpack. I hope you enjoy this conversation as much as I did. One note, as always, long interviews like this, we edit only very, very lightly.

So let's dive in. All right, I am here with Thomas Malinan. Thomas, thanks so much for joining. I'm glad to be here. Thank you for having me here. Yes, I've been following you for a little while now. It's far too little time, I think. I discovered you actually.

It was interesting. So I caught notice of a thread you posted about the, the euro and why the breakup of the eurozone might be coming and what challenges it faces. And I saved it. I saved everything that I saved to a common kind of file storage area. I use an app called Pocket. And I was going back and reflecting on this because I immediately emailed you and asked you to join the podcast after I saw that and had read some more of your work.

But then I was going back and I realized that I had also saved a threat of yours on China from January as well. So I had without knowing it, been following you for even longer than I thought. But I'm so excited to have you here today to talk about, you know, as I was mentioning to you, the goal of the breakdown is to help people understand really how economic systems and power shift systems around the world are changing. And being a U.S. podcast, we're naturally kind of a little bit U.S.-centric. But the reality is, is that as much as we are trying to peel this back and there may be kind of forces peeling back globalization, we live in a highly interconnected interdependency. world. And so I want to make sure we have perspectives that can speak to two different contexts. So there's a ton that you can speak to. I know your research is not refined or defined by any one

kind of region specifically, but I'd like to maybe start with this idea of Europe and talk about the euro in the context of this COVID crisis and maybe how it's exacerbating forces that were there before. But maybe by way of setup, let's talk about what was the state of Europe from an economic perspective or, you know, if we want to get even more narrow, a banking perspective coming into the crisis? Well, it was weak, to say the least. The latest figures just before the corona crisis hit basically showed that we were already in recession. And now this is a, this is, this, this massive economic hit will push us into depression. But the thing is that they are, and this something we have been kind of toting to our U.S. customers and also which have been constantly

raising in Twitter that the European banking sector is actually the biggest threat to the world economy this time around. So it's the shock, the actual shock is probably not going to come from U.S., but from Europe. And the thing is that what creates the fragility of the European banking sector, it basically starts in 2008 when we had the global finance, the crisis. And while in the U.S., they let a huge number of banks fail, in Europe, they did no such thing. So they bailed out the banks with very limited funds. And they also allowed the banks to keep some of this toxic stuff, you know, the CDOs and stuff, that in their balance sheets and pretend that they had some value and this kind of made

the the it kind of jumpified the European banking sector from the beginning from the 2008 crisis and then we had the 2010-2012 crisis which is usually referred as the European debt crisis although it was the European banking crisis and the the banks that were in trouble were basically German and French banks who had lent heavily to Greece, and if Greece would default, the banks would face serious losses. So our leaders kind of came out with this idea of recapitalizing the banks through Greece, and it, of course, doesn't work very well like that. So that's the starting point of why the European banking sector is so weak.

And after that, all the policies, the ECP, impact, implemented, basically the ultraide monetary transactions issued in 2012. The negative interest rates issued in 2014 and the quantitative easing issued in 2015. All made the European banking sector more weak. And the thing why the European banking crisis is so dangerous for the rest of the world is that we have the biggest concentration of the global systemic systematically important banks. And the assets of our banking sector in the Eurozone are some 300% of GDP, while the same

is about 80, 90% of the GDP in the US. So that's the background. How, what is the, okay, so this is kind of the banking side, but obviously a lot of these issues are inextricable from political challenges. And part of what makes Europe such an interesting case study. for the world is that you have a political experiment laid on top of an economic experiment. So what was the kind of the legacy of the political side of all of these different issues, again, coming into this crisis?

Well, yeah, the thing is that we know from currency unions that there is the glue kind of that holds them together is the political will. And when the Eurozone or the law. consented auto treaties concerning the Eurozone were created, there were several articles put in place that ensured that we wouldn't have fiscal responsibility from each other. This is just because, you know, we,

we Finns, for example, have very little similarities with the Greeks. We don't, you know, that we are not in the same country. We have different cultural heritage and stuff like that. So we don't, the people of the North, for example, consider that it's not their responsibility to support the people of the South, at least through governmental cooperation. And what the 2010-2012 crisis did is that it kind of enforced us,

the politicians of the Northern, of all Europe, basically enforced the people of the Northern member countries to support, the southern countries. And it started to show as a huge rise in the support for populistic parties like the true Finns in Finland and the alternative for Deutschland in Germany. Just because our leaders were kind of twisting the rules, we agreed when the Europe was set up. And after the 2010-2012 crisis, there was the refugee crisis. crisis in 2015, which caused kind of the same thing. So the EU kind of forced many of northern

nations to take a lot of refugees, which they didn't want to take, or the people didn't want to take. And this also raised the popularity of these populistic parties. And these two events have kind of eaten away the political support among the people to kind of keep supporting the construct of the euro and the weak of emancipination. So it's a, it's been a kind of tragic route for the last 10 years, which is eaten away, the political cohesion and will. And like I mentioned, the thing is that it makes the current situation inflammable because, the flammable, I mean, because the, now, we would need the political support and will more than ever, and it's the weakest we ever had. So that makes a case that it's very likely that the Eurozone will not survive through this crisis.

So, okay, so we have a structurally and increasingly weak European banking sector. We have declining political will. And so your thesis, or the next part, so your thesis is that the chances of the Eurozone not surviving this crisis are higher than ever. And then you said that the three questions the Eurozone now faces are, one, will the European Central Bank be able to provide support for sovereign bond markets through QE? Two, will national authorities accept the terms associated with possible bailout loans? And three, will national political leaders continue to support the euro? And just for context, for people who are listening, this was written on May 12th. So obviously, we've lived lifetimes in the eight days or whatever it is since then.

But could you explain just a little bit about those three points maybe as a way to get into the rest of this conversation? Yeah. Well, the first one is that the ECB has been strongly supporting the sovereign bond market of the Euros of member nations and thus supporting the fiscal capacity of especially the weak nations. The second is that the all 30 programs that were unleashed on the weaker member nations or the crisis nations in 2010, 2012 were highly unpopular in those countries, which is no surprise, of course. And the third is what I kind of referred to was that will there be enough political support in the northern member countries to keep kind of pushing or giving money to the southern or the weaker member countries. And as it currently stands, all these three are failing.

So can you explain for people who haven't been following along? How has the ECB attempted to kind of engage in this moment as compared to, you know, the U.S. Federal Reserve or other central banks around the world in the context of the crisis? Well, the original response of the ECB was very similar than in the US. They thought it, what was it called? It was the pandemic emergency purchase program, which they just bought a huge amounts of sovereign debt from the Eurozone. And they also bought some corporate debt. So, but the thing is that in the original QE, it was the decision of the ECB and the European Court of Justice that the purchase program needed to follow the capital key of the ECP, which means that they need to buy the sovereign bonds in according to the capital the countries have issued to the ECB.

So there are certain, like, I think it was over 20%, but then they can buy German bonds and just 2% of Finnish bonds, for example. But in the pandemic emergency program, they scrapped this. And that was kind of the beginning. But then there was the decision of the Germanist Constitutional Court, which essentially found that the ECB may have overstayed. its monetary mandate in the original QE program. And they gave us, actually not us, the ECP three month deadline to show that they have not disproportionately affected the fiscal capacity

of the member countries of the Eurozone. And that changed the whole ballgame because that's exactly what the ECB has achieved with the QE programs. So now the thing is that if the ECB can to persuade the constitutional court of Germany that this has not happened, the constitutional court will order the Bundesbank to withdraw from the program, which means that the Bundesbank will exit the ECB or that the ECB will stop the program. So the Germanist Constitution Court has kind of issued a backstop for all these bailout operations of the ECB.

So it has completely changed the ballgame. While there is like with the Fed, there seems to be no backstop. The Fed is buying anything it wants, basically. So this has changed a lot within just two to three weeks. The whole ballgame of monetary policy has changed. in the Eurozone. What is the perspective right now? Are people, I guess, who is, not that it's this easy to kind of make it a dialectic,

but who thinks the ECB is right in this case and who thinks the German court is right in this case? I think the federalists think the ECB is right. And those who are either nationalist or a reality. like me, we kind of think that the law and order and the letter of the treaties is very important and we need to hold on to that. So it's kind of, it's divided. Basically, now you can see from the comments of people, analysts and journalists, the difference that who would like to see Eurozone going into all Europe, going into full federation and others who want to go back to a as kind of smaller economic areas in the sense that we would have a sovereignty of national

economies again. So it's a it's rather it's rather divided in just two parts to the Europe at the moment which you know it's a defining moment in the history of Europe actually I think. Support for this podcast and this message come from eris x. With eris x you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure,

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That's G-R-A-Y scale.co slash CoinDesk. It's really interesting. You basically have kind of in that, in that, uh, the, that versus scenario that I just set up or kind of forced. You have on the one hand, you know, what you call federalists. And then on the other hand, probably uncomfortable lumping of nationalists and, you know, realists as you referred to yourself, maybe economic realists. What is the difference, I guess, for people who are trying to understand the difference between kind of a nationalist perspective, which starts perhaps from an ideological base and a

realist economic perspective, where do those two points diverge? Because they may be, I would imagine, comfortable bound fellows in some contexts. Yeah, yeah, we kind of are, yeah. It's, yeah, it's a water thin line, basically. But I think, well, we have, what we have in common is the thinking that decision making should be as close as possible to the ordinary people. But as realists don't want to close the borders, basically. That's the issue. We believe in globalization in general form and cooperation, a wider cooperation between nations.

But I think we have reached to the point globally also that the globalization has gone too far. So we have to come back a little bit because you need to have people need to have. sense of control of the issues that are within their realm. So basically, within your own country, people need to have that fate, that they can change their fate, basically. So the thing is that if you compare to the US and Europe, the US states have more sovereignty now than the member countries of the European Union. This is something that should not be because we don't even have a federal government, at least yet. So, the European Union went too far.

It has tried to grasp the power in any places it can get and transfer it to Brussels. And this is created a, this is basically what's behind the rise of the populistic parties. because people don't want, people don't want to lose control of their own nations. And that's the biggest mistake that the European leaders had made. I think this is a really important point of nuance because especially it gets so amplified in kind of the media model. But there is a big space between sort of a nationalistic country first at all times and all contexts and a purely globalized where one big global family no matter where you are, right?

There's a huge amount of meaningful space in between. And it's interesting to see, you know, the U.S. has an interesting spot in the globalization conversation, obviously, because of being the world's reserve currency, because of kind of the legacy of comparative economic power. But even now, you're starting to see people have a conversation, whereas, you know, five, ten years ago, again, it was presented as these kind of very, very diametric sides. I mean, Donald Trump one on on with you know mega hats right make america great again and that that sort of appeal whereas now you have the start of I think an interesting political breakdown a little bit where you have people who have been traditionally left and and kind of liberal or pro globalization called maybe neoliberal

who are like huh maybe we should be able to produce masks you know here in the country maybe maybe maybe certain types of supply chains are actually you know national security concerns and and the idea of a totally subverted global word order with just in time supply chains might be might be going too far in the face of what we might want is some national resilience. And that doesn't mean that they've gone full, you know, close the borders and screw China. It's more that there's this open middle space that that hasn't perhaps existed there in the political conversation. So I guess I would ask is, you know, is there any of that middle space or has the conversation politically calcified so much that it really is kind of the full federalist, you know, EU and Euro as it is,

an expanded integration on the one side and nationalists on the other, or, you know, are there more of you, basically? That's a very good question. I was kind of hoping that when the Brexit was done, people were or was agreed by the British people, that people would have woken up to this. But it seems like the, the bad. battle lines have been hardened. You know, the guys who want, the people who want the federalist Europe are more aggressive

than ever. And the middle ground is there. It's strikingly obvious that there is a middle ground. We need to act together in Europe to, you know, cooperate. But currently, the battle lines are so hardly drawn that I don't, I fear that we will be facing a complete collapse of. the European cooperation before we can build it again. And this is just because the federalists are pushing back so hard, not giving up an inch.

And that's a very, very dangerous strategy because if we look at the history of humanity, you know, sovereign governments have always defeated this kind of multinational. things at the end. So it's just something that I would really not like to see that the whole European Union will fall apart. But for example, leaders of French and Germany are now pushing so hard for the fiscal transfers that I fear that when there is this pact going against them with basically Sweden and Denmark and the Netherlands. And it might be a lot of the United States. And it And they are promising something to the Italians and Spaniards that I don't think many of the northern countries want to keep. And that is where you create a serious rift and the likelihood of complete breakdown of relations.

And when that has happened in Europe, bad things have followed that we know. So it's not lucky looking good at the moment for Europe, because we have. don't recognize the middle space that is definitely there. So this gets to something that I've seen you say numerous times, both in your own tweets, but then kind of responding to others, which is this idea of dismantling the euro to save Europe. What does that mean? It means that we agree in a common fashion that the euro was a failure. and we just decide in a secret cabinet meetings that we dismantle it.

We just, you know, there's all, these are these target two imbalances, which is basically tracks the transfer of funds from one eurozone to another. We have this. ECB has bought a lot of these sovereign bonds and we have this pan-European payment system which we need to have also in the future. So we just agree that we keep all this or handle these. We agree politically how they are handled and just, you know, let the euro go. At one day, all the countries, we announced that now we are in our own currencies

and we have capital countries in the whole Eurozone and we just go back to the national currencies and do it in cooperation to save the European Union. But if we don't do that, if some countries like Italy or Spain, they live in anger from the euro, there's a high probability that also exit the EU. And then the whole system breaks apart. So let's game this out a little bit. So let's say that this happens. How would this play out economically for different countries? Which, you know.

The version that you're rooting for, right? the non-chaotic, non-disorderly, the orderly breakup of the euro, right? The dismantle the euro to save Europe. How would that play out in the local economies or the newly returned national economies? Well, of course, depend a lot. But there was actually a proposition from a German economist just published yesterday or today morning about that. Let's just let Italy leave. and Germany pays them for leaving, gives a grant, just, you know, that they can manage.

And there are several scenarios how this could play out in each country, but there's all, there's, there has to be some defaults, basically, on the, on the, on the, on the most indebted countries. And well, going country by country is not possible in this, in this, in this, interview, but they, and we don't, I haven't analyzed it in the, in the, in the, but, but the, it would go fine if we would just, you know, support each other and the, and we will, we will, we will most likely have a banking crisis, we just have to go through it. So it, it will not be easy. It will be economically very difficult, but it would give us the possibility of a very fast recovery after the crisis.

That's what we are aiming here. And when countries, economies recover, cooperation also recovers. So it would be very important looking to look in the future that we get rid of the euro because it would most likely revive the economies of, well, all the suffering nations. Only loser would be probably Germany, but she would be, she will be justified. Do you think in some ways that the ability for European member states to figure out ways to support each other is actually easier outside of the Euro context if this scenario were to come to past? Yes, I'm definitely, I'm sure that it is because then, you know, then the people would probably support it more because they just, you know, that would be a, what's the word? Lacking the word.

But anyway, it would come out of the good will of the citizens, not because we have to have to do it because otherwise the euro breaks up. Now is these politicians are telling us that we have to do it. We have to do it, though the eurozone breaks up. And that gives a, when people cannot say that I help you because I want to help you, but we are told that you are forced to help. that's not nice. That doesn't create any goodwill towards the project.

So I think if we would get rid of the Europe, people of Europe would naturally start to cooperate with each other more openly as we live in the same space. Yeah, it's interesting, right? So you keep this model of open borders where the relationships between people is preserved, the easy flow of business between countries is preserved. And then all of a sudden you have a crisis in a southern state, Italy. and German leaders get to make the case to their people that whatever deal they want to cut is the right one between those two nations and it's designed, right? That's kind of the mental model instead of this emanating from on high or the feeling of it emanating from on high. And it is the obligation, right, of the people of, you know, ex-prosperous country to foot the bill for some other place. Exactly, yeah.

Well, this gets us to an interesting context for the essay that you wrote this morning. Can you tell us a little bit about that? Yeah, actually, I wrote a blog on essay demanding that the Finland will exit to Europe. And the reason for it was that the French and Germany have now agreed that there should be fiscal transfers in Europe. And this is very problematic because like I mentioned when we created the Eurozone, there was a treatise put in place which made sure that we will not bear the fiscal burden of other countries. And so Germany and France are proposing something that is directly breaching this. Moreover, it's also a breach of several constitutions like that in Finland. So we are going, we have gone to the, the situation seems to be such that saving the Euro, the European leaders, at least in Germany and France, are willing to sacrifice or go into unlawful place, basically.

And that is really troubling because, you know, all our countries are based on the, on the idea. of law and order, that we follow the law, whatever happens. And now they are willing to throw all our treaties away and constitutions away just to save a currency. So it's just, you know, we have arrived in a place where, you know, unlawfuless rains. And I don't think Finland should be in it anymore. And another thing is that we have, that euro has hurt us badly. We have a very kind of small or narrow.

in the export base. And we have always relied on the currency to depreciate when we have a, you know, when the demand for our exports drop. And it has always helped us in the future. And now we don't have it. And every time we have crisis or recession, it takes a long time for Finland to recover or the Finnish economy. So the euro has also been hurting us.

But now it's just, if we are suffering in the euro, And now we would need to go to an unlawful place also. So I don't, that's not worth it. So it's just better to leave. Yeah, it's interesting. There's a, there's a, there's a bit of a tail wagging the dog thing happening when the desire to preserve a choice, right? A euro, a construct, uh, starts to dictate policy, especially when that, the, what it

dictates is a certain type of crisis time power creep. I mean, we're certainly seeing that, you know, crisis is always creating. power creep in the political sector. I think in America, you're seeing it most acutely now with the blending, let's call it, of the Fed and the Treasury through special purpose vehicles or whatever you have. But it's a common story. It's interesting hearing you talk about, talking about the euro's deleterious impact on Finland just in general, though. This is something that people are starting to ask questions about in the U.S. The strength of the dollar, you know, because the US dollar is the world's reserve currency, you know, we always are going to run trade deficits

just to get dollars out into the world. That's kind of the nature of the beast. But the cost of that, and this is just built into the system, is that the currency can't really find its natural equilibrium via trade, right? It can't, it can't have, you know, momentary or, you know, a few year down cycles where all of a sudden our exports become more competitive, really, because there's just artificial demand because everything is priced in dollars. And that's, that's becoming more and more of an issue, the farther out from the initiation of the dollar-led system we get. Yeah, a good point.

Yeah, that's your problem. Yeah, exactly. Oh, well. So listen, you know, I think that there's so much to dig into in the euro. I really appreciate you taking the time to look into that. But I do want to ask you about a couple other parts because, again, your research is truly global. And so I wanted to touch briefly on China. China, you know, is kind of a third leg of this conversation as it relates to how the economic,

how economic power is balanced around the world coming out of the COVID crisis. You had a really interesting tweet storm at the beginning of, I think it was in January, where you said that China's leveraging and de leveraging has driven the global business cycle. And reading back through a number of your other blog posts on the site as well, you've written a lot about how we're kind of experiencing the end of the China. Chinese miracle and how it really kind of started in the great financial crisis. So I guess I'd love to hear your take on China coming into the COVID crisis and maybe coming out of it as well. Yeah. Okay. Yeah. So yeah, not many people understand, but China has been running this cycle

since 2009, basically. So if you look up, for example, the investments in the physical capital in the major industrialized nation, China has accounted for over 50% of them. after 2009. And moreover, it has accounted for over 60% of all new money or credit created globally since 2009. So this has been a been China cycle. Before they were usually US cycles, but this has been a China cycle. But the problem is that since 2009, the death of China has grown about threefold compared to GDP, so three times faster than the GDP. And that's something that just cannot last. And the thing, we were talking about the deleveraging and leveraging cycle is that China has tried to de-leverage to stop the growth of debt a few times.

Like first time in 2015, which led to the mini recession in China and globally. And then they started to leverage again. and then end of 2017 they started to deliver it, all the times China has done this. The global business cycle has followed them up and down, up and down, depending on the, are they de-leveraging or leveraging? And this has been really phenomenal and strict correlation since at least 2015. And many people in the U.S., for example, are very hard time. of accepting this.

But this is what has happened. It is very clear in the indicators. But the problem is that when you created a lot of debt and what happened, okay, let's go back in 2009, that Chinese government forced basically, it can command banks to lend. So it forced banks to start lending massively. And when you force banks to lend, a lot of that will go to unproductive investments. So slowly the productivity growth of China started to creep down, and in 2012, it went negative. And it has been negative ever since.

So China is investing, it's growing, but its productivity is declining. And this is something you never, ever observe beyond or outside economic crisis or some bigger shocks. So I consider that the Chinese miracle, the very fast growth that started in the, in the late 1970s actually ended in 2012, and since then they have been on borrowed time. And the thing is, when these massive dead bonanzas, which China is now driving, when they come to an end, there is a collapse. There is no exception. It always collapses.

And the Chinese credit bonanza is the biggest world history knows. So we are definitely heading to the end of the current Chinese miracle at least. And what happens after, then it gets really interesting because the kind of the Chinese Communist Party has its mandate basically dictating that they will grow the economy and jobs. And when those are taken away, what happens? Will there be a revolution? There's one Finnish researcher, China researcher, who has said that China has a revolution in about every 70 years. And just last year, China had the 70th anniversary of establishing the communist China. So it would be time, according to that logic, to have some bigger, you know, soft.

of the political scape of China, but we have to see. But the economic road is ending, that's for sure. And the coronavirus just, you know, it was just the thing that broke the camels back or something like that. Because it will deliver the massive economic hit. But the road that China has been, has already is, the road has been such that it will end to a collapse. regardless of the shock that will initiate it. It's interesting. This is a point that you've kind of been making more broadly, too,

about the world economy, which you see is very fragile. You wrote a piece on March 17th called Financial Markets are becoming unhinged. And you said, as we have argued repeatedly, the crisis most likely started on the 16th of September 2019 within the repo markets. The coronavirus is only the trigger and now a convenient excuse for emerging and unfortunately very real economic calamity. I asked, what was the thesis? of that article and just it's kind of your thesis writ large. And how do you see that playing out

now? Do you think that central banks are going to be able to kind of prop this up one more time? Or are we really at the end of a super cycle? I think we're at the end of the super cycle. The thing is, what broke down in 16th of September was this kind of massive leverage cycle, leverage cycle in the global financial order. So for several reasons, reasons, at that date, the big banks were not willing to lend to the repo market anymore because, well, there were a lot of leverage financial institutions like hedge funds in the repo market nowadays. And the Fed had to step in because if there would be no lending on the hedge funds, highly leveraged hedge funds, they would start to go under and it would create

a financial panic. So that's why we consider that. the financial crash actually started already then. But of course, what the Fed did, it stepped in and started to buy the U.S. treasury bills and started to provide a massive amount of liquidity in the financial system again. And then in mid-March, the U.S. financial markets were basically in a state of collapse. And the Fed stepped in and started to prop up every single major corner of the capital market. Our U.S. partner actually said that that was the end of the free American capital markets. But the thing is that this is, they can face, Fed can basically say the financial markets almost from any fate, except the one that hits the real economy, which the coronavirus has now done.

So you cannot print demand or you can try to print the demand by financing the government, but that will always lead to the destruction of the value of money eventually. So I think the Fed is trap. All central banks are trap. This is the hit in the real economy. They cannot fix. They will desperately try to keep the financial markets float. But the thing is that financial markets cannot indefinitely go,

detach from the real economy because we're in the same economy. So at some point, the financial markets need to correct on the level where the real economy is going, and that implies a crash. What are you watching going forward? What are the key signals that you're looking out for? Chunk bonds, basically. And all the real economy indicators, basically, you know, all the basic stuff like jobless and leading indicators and stuff like that.

But I would watch the junk bond yields and spreads very closely because there you can see when the financial markets started to become unhinged again. Tuamis, this is such a great conversation. I could pick your brain for much longer, but I really appreciate you sharing your insight. Thanks for being here today. Thank you.

Thank you for having me. The piece of the conversation that I keep reflecting on is this idea of a middle space between the European Union as it is conceived now and the euro as it is conceived now must be preserved at all costs and this rising tide of nationalism on the other side. There's a huge middle space and this is reflective, I think, of U.S. politics as well. There's a huge space between democratic socialism and rabid kind of right ideology on the other side, where people can debate and disagree but have a kind of rational conversation about tradeoffs and economics and what is right not only in the short term but in the long term, divorced from strict ideology. That space is the

hardest to claim right now for a number of reasons. We're at the end of cycles where they reward and incentivize highly reactionary attitudes. It's also hard to claim that middle ground because it doesn't make for good headlines. It doesn't work within the media model, which if anything says that's why we need a new media model. It's something I think about all the time. I'm sure we're going to be talking about it more. And for my part,

I appreciate you guys journeying with me on this alternative media path where we get to hear from a lot of different perspectives. Some that you guys probably agree with and some that you guys probably don't. So I appreciate you. I appreciate you listening. 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. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown.

It is Friday, May 22nd. We are on the verge of Memorial Day weekend, the historic beginning of summer around the U.S., And to celebrate going into this new season, this new period where we hopefully leave behind a lot of the pain of the last season, I wanted to celebrate and just discuss something that was uniquely Bitcoin from earlier this week. On Wednesday, I tweeted out, as if Bitcoin didn't have so much else going for it right now, the absolute intrigue of the living history of it is insane. So this episode is about what I was talking about and why Bitcoin's mythology matters. At about 11 a.m. East Coast time on Wednesday, the world noticed that a Bitcoin

transaction had occurred with Bitcoins that were more than 11 years old. These UTXOs, which refer to the specific Bitcoins that were moved, date back to February 9, 2009, which was only one month after the creation of Bitcoin. So these coins were mined when Bitcoin was literally worth nothing. There was nothing to even theoretically give it a value, which means it was one of the very earliest miners who actually had produced these coins, right? They were produced with a GPU, most likely, on just someone's random computer. And so immediately people got incredibly excited, wondering, is it possible? Was it possible that these were Satoshi coins? Obviously, they were Satoshi era, just one month after the creation of Bitcoin, but were they the person themselves? Well, very quickly it became clear that it was unlikely that it was actually Satoshi.

When the Whale Alerts account on crypto Twitter said that it might be, Jameson Lopp, who is a Bitcoin core developer and the CTO of Kasa, tweeted back, y'all need to up your analysis game. Nick Carter wrote, Keep in mind, it's basically impossible to prove that Satoshi didn't mine these coins, but the best research we have suggests that Satoshi mined a specific set of blocks of which this is not one. He wrote, here's a visualization of the Potoshi pattern with the block that was just spent. The blocks believed to be Satoshi have a specific pattern in the nonce, which this block

does not have. Basically, the point of this is that blockchain archaeologists, Bitcoin archaeologists, have already gone back to try to figure out which blocks they thought were Satoshi's. It's part of why we have an estimate of how many Bitcoin Satoshi actually mined, and this one wasn't among them. Now, there was some disagreement about that. Whale alerts, perhaps to save face, perhaps because they really believe it's true, commented to Coin desk in an article that they didn't believe that the Potoshi pattern ruled out that it was actually Satoshi. So they were defending that illusion, basically, or defending that idea. But the more relevant piece of this was that these were some of the earliest bitcoins in existence that moved for the first time in 11 years. What's more,

this is the first time since August 2017, as Antoine La Calvese pointed out, that someone spent coins from early 2009. Now, this happens very, very infrequently. The last time we heard of something from this really early era was in March a GPU miner, someone discovered that they had a trove of about a thousand Bitcoin from GPU mining in 2010, and they were able to sell it for something like $8 million. This happened right before the crash in March, Black Thursday. So that's the last time we saw even something from 2010, but like Antoine points out, it was August 2017, almost three years ago, that someone last spent coins from early 2009. People got incredibly excited about this. The internet was lit up. Satoshi was trending with more than 18,000 tweets

for a while alongside all of the whatever political rancor was trending that day. This is a really exciting moment for people, and I think it's worth asking why, because not everyone felt this way. So let's talk about one critique. Commenting on Reddit, Greg Maxwell said, Ugh, nothing connects these coins to Satoshi. Also, the Bitcoin software generally tries to minimize change. This will result in big outputs being left alone in an active wallet that has smaller outputs. So it's possible that the author of this transaction has been frequently active all along,

and their wallet just got around to spending this particular coin. He went on to say, The only reason this is being treated as newsworthy is because of the reason this is because of a symmetry break due to one of the earliest reports falsely presenting it as being connected to Bitcoin's creator. So his critique was two things. One, this could be an active user of Bitcoin whose wallet only thought to go get these older ones to move around. And two, that this was a non-news story. This was a non-event and it was only becoming an event because someone said they were Satoshi coins rather than just Satoshi-era coins. I think that the first point is super salient, right? And it gets to the idea of how

Bitcoin wallets and how the Bitcoin software tries to spend newer UTXOs before it spends older. So this could, to Maxwell's point, just be someone who's really active. Basically, it doesn't mean that this person is someone who hasn't been active in Bitcoin for 11 years, even though the coins themselves are 11 years old. But I think that the second point is just kind of wrong. There were intimations pretty quickly that maybe this was Satoshi, but I don't think anyone actually got excited thinking that the ghost of Satoshi had come back. some way, I think people got excited because there is a living history and a mythology to Bitcoin,

which is part of the mystery and part of the excitement of it. And so that's what I want to talk about today, why that mythology matters. A lot of ink has been spilled about Satoshi Nakamoto and the example of this person who pulled themselves out and the idea of an anonymous or pseudo-anonymous founder and all these sort of things. And frankly, I think we still don't appreciate just how much of a break with entrepreneurial history this is. I want to talk about why the Satoshi mythology itself is unique. First thing, the depth of the innovation is profound, and I think it would be easier to overlook this. For decades before Bitcoin was created, people were trying to solve the problem of digital money, right? Bitcoin wasn't born out of nothing.

Bitcoin was an outcome, a response to, and an evolution of, work that had been going on for decades, from Chom, from Adam Back, from people like Nick Sabo, who got pieces of it but couldn't figure out the full complex idea. They couldn't solve things like the double spend problem. Bitcoin was a pretty profound innovation in terms of the way that its system was designed, and that is part of this. Part of it is that it did actually take an act of genius to create this system that had eluded so many other people that many would call geniuses for the decades previous. So I think that it's really important to remember in this Satoshi mythology that there is genius in this system that has proven itself as its resilience

continues to be shown year after year, you know, more than 11 years later. So that's part one. Part two is that in addition to this technical innovation, this profound and important technical innovation, Satoshi had pretty unique instincts as it related to narratives and storytelling. And there are a couple examples. The first was the message embedded in the Genesis block. That newspaper headline from that day, January 3rd, 2009, Chancellor on the brink of a second bailout for banks. Building that in to the Genesis block forever made the point boldly and clearly to anyone knew who came in that Bitcoin's design was a direct reaction, a direct counterpoint to the inflationary monetary policy that was gripping the world in the wake of

the great financial crisis, in the wake of that crash. It is inarguable that Satoshi's intention was to design a system that was undemasible just from that alone. Hold aside anything he ever said again on Bitcoin talk or anything like that. It was built into the very first block of this entire system. That is a hugely powerful narrative hook that comes from, I think, a deep-seated insight in understanding how to make this thing appeal to different people, right, who weren't just curious about magic internet money and wanted a different way to transact. So that's part one. Here's another example, though, I think, of a narrative concession over a technical concession. And I saw someone, and I can't remember it now. I apologize to them. If you said this

first, please let me know on Twitter and I'll cite you. But I noticed that someone said that it might have been more efficient from a technology perspective to just have the emissions continuously decline in some linear function, right? The whole idea of the Bitcoin system is that every four years, the rate at which it emits new Bitcoin as part of the block reward has. This creates this occasion, this ceremony that we call the having or the halfinning, depending on who you are. And the interesting note that this person made, I think now that I'm thinking about it, it might have been at Paul BTC on Twitter, was that, sure, you could have just had a continuous decline. It would have made the same point to the world of a reduced emission schedule over time. But by having it be every four years, it creates this ceremony where the asset itself gets to graduate to its next level. It's almost akin to a high school career or a college career where it moves on to a new phase. And frankly, that's the way that we've seen it play out. We mark the history of Bitcoin as before or after different halings.

It becomes the biggest occasion. I mean, think about how much time we spent at the end of last year and the beginning of this year talking about whether the halving was going to be the most significant event of the year and what it was going to mean and what would happen in terms of hash rate and value and all these sort of things. Plus, plus, plus, plus, when this unbelievable, unexpected financial crisis, hit and the money printer got revved up again, the having sat there as this mark, this moment where you could point to, on the one hand, every central bank in the world trying to figure out

how much it could print to actually backstop the industries and the people in its borders. And on the other hand, this new, emergent, increasingly resilient and powerful economic system that was outside the existing system, reducing its issuance on this regularly scheduled, completely predictable, so planned and unchangeable to make it boring type of schedule. That monetary policy stood as so different from everything else in the world, but it might not have felt that way were there not this occasion, this ceremonial occasion of the having, to embody the idea. Ceremonies matter. Look back through any faith group, through any professional group, to any, any human society. Ceremonies that mark transatlose.

are incredibly important. And by having the having be at this regular predictable schedule, it not only reinforced the predictable programmed nature of the Bitcoin monetary policy, it created a context for people to do what people do, which is create ritual around it. So I think that that also, again, has to do with a pretty profound insight into human psychology and the way that we are social beings. That's part two. So part one, depth of innovation was profound from a technological perspective, except two is really profound and interesting instincts around narratives and storytelling and human psychology. Support for this podcast and this message come from Eris X.

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The withdrawal from fortune, fame, and influence is so, so at odds with the entire history of people making money in the world. Certainly at odds with the history or the recent history of entrepreneurship and entrepreneurs leveraging their lionization and their near-godlike status to move effortlessly from entrepreneurship and technology to whatever field that they care about. The fact that so early in this asset's life, the creator of it removed themselves from even the day-to-day discussion, to say nothing of the fact that they're

sitting on a fortune worth something between $5 to $20 billion based on what the Bitcoin price is at any given moment. Now, most people or a lot of people at least think that that fact, the fact that these assets, these Bitcoin have never been moved, is a reflection of the idea that Satoshi is deceased, that this person or persons are no longer with us. Most people can't imagine the idea of that many coins, that much fortune, that much wealth, just sitting there forever. So that's the way that people choose to interpret it. But regardless, this person withdrew from the ecosystem, they didn't try to control it, and they didn't try to guide it past letting it actually live and get out into the world. Again, this is so different. In fact, if you look at

what's going on in the rest of the world, how much of our conversations during this pandemic have been about individual figures, Bezos, Gates, Elon. Just today, the Atlantic put out a cover story, I guess it was yesterday, excuse me. The cult of Elon is cracking. the SpaceX and Tesla's CEO's response to the coronavirus pandemic is starting to alienate his fans. We have this conversation because we have this super amplification mechanism around the cult of individuals. Social media has supercharged the great man of history theory as it relates to the tech billionaires that we see around us. And so again, this is so distinct and different from someone who chooses to withdraw. You're also seeing this do nothing increases. People are able to create more and more independent

brands, right? Joe Rogan getting a reported $100 to $200 million from Spotify for his podcast, his conversations with his friends that have created a legion of fans who download what he does 190 million times per month without any startup financing, without anything other than his Rolodex, you know, some people who work for him and his conversation. Like that's what created this $200 to $200 million value. empire. This is amplifying the idea of the individual. And so to have an individual withdrawal, I think, is really, really significantly breaking the mold of the time that we live in. I think that there's more important, though, than just kind of reverse-lionizing this person

for getting out of the public spotlight. I think there's actually a distinct reason why it matters in the context of the Bitcoin system specifically. It matters because it lends huge credibility to the idea of the immutability of the monetary policy. In the absence of Satoshi, there is no one person in the Bitcoin ecosystem with the influence to change it. Now, there's I think a pretty good argument that if Satoshi did credibly resurface at this point and try to start changing things, that person would be rejected out of hand or pretty aggressively and probably have to fork off and do their own version of, you know, Bitcoin My Vision, because it has become something different and bigger than what that person started back 11 years ago, 12 years ago. But I think that

from the standpoint of those actors, whether they're individuals or institutions who are coming in from the outside and seeing the immutability and the distinction and difference of Bitcoin's monetary policy as compared to, again, everything else in the world, the fact that there is no figurehead who could wake up and change their mind tomorrow, who has the ability to influence the system to tweet out and change the price, that is hugely appealing. Again, in a world where you have Elon saying that the stock of Tesla is overpriced on Twitter, you know, like it's just so, so different. And I think it reinforces, again, the difference, the distinction,

the idea that there is nothing that is less correlated with the rest of the world than Bitcoin, which is a huge draw for investors of every class of every category right now. There's another piece of this, though, too, which is that the withdrawal of Satoshi creates a unique opportunity to extend the hagiography, right? The saint making, the reverence, two early actors in the system. In other words, it creates the opportunity for people to lionize individual apostles who were what we call OGs or something like that. And that creates really interesting dynamics as well from the standpoint of network building. We've already seen this in the context of VCs, right? So if you think about where Peter Thiel really became well

known. It actually wasn't for his work on PayPal, although he was certainly known in tech circles for that. Where he broke out into a larger kind of influence sphere is because he wrote that $500,000 check to Facebook, to Mark Zuckerberg, before basically anyone else really got in. That was not only a winning bet from the standpoint of economics, it also was a massively powerful signal to the world of this person being able to see things differently. We see bits of this in the way that people treat people who got into Bitcoin really early, who built parts of Bitcoin really early, who built early companies on Bitcoin. And this is not to say that there's exclusive reverence. There are plenty of fallen heroes. There are plenty of people who think that it's anathema to have heroes. That's kind of a

feature, not a bug of the Bitcoin ecosystem. But the point is that this idea that there's this set of early actors who are able to kind of give their perspective on things, to say I was there early is actually really interesting in a historical context. I've talked through kind of the uniqueness of Satoshi, but there is precedent, I think, that's worth exploring a little bit just for fun, which comes not from the world of technology and business, but from the world of religion. First, let's talk early Christianity. What we know as the Bible, the Old Testament, the New Testament, was not fully formed when Jesus was doing his thing back in the day. It was the byproduct of literally hundreds of years of intense competition and

internecine warfare between different interpretations of which Gospels and what the teachings were and how to put them together and what should be canon and what should be canon. And it actually took literally centrally's for this to become formalized in what we now know as the Old Testament and the New Testament. It wasn't until the Council of Nicaea, which took place over the course of about five months in 325 AD, that what we think of as a Christian canon, Christian Orthodoxy, actually was brought together in an intentional way. I mean, these were not just questions of which Gospels were going to be considered part of the Bible, but questions as relevant as what was the relationship between Jesus as the son and God as the father, right?

These were really pretty foundational issues, and it took until 325, 300 years after this person had lived for this to actually come together. Basically, the point here is that there's so much jostling and myth-making and attempts to, say, our views of the world are bigger than yours and more correct. Our views of this key historical figure who has vanished are more correct than yours. And I think that there are actually some precedence in how you see bits and warfare of the interpretation of Satoshi's writings and what thing was Bitcoin supposed to be. So you see some of that battle. This took place also not just in Christianity, but in Islam. And in fact, in some ways,

the Islamic context for trying to interpret the word of the prophet, you know, the Satoshi type figure, is even clearer, right? So Islamic jurisprudence, Islamic law is a collection of layered authority, basically. So you have at the very kind of core, the most authoritative on anything is what it said in the Quran. Unlike the Bible, the Quran is believed to be the literal word of God. It was actually given fully formed to Muhammad. That's the idea. So that is the single most important source of truth. Anything that is written in the Quran is meant to be followed to the letter. Then there's the Sunnah, as it's called, which is basically the teachings of the prophet, the teachings of Muhammad, that actually things that he talked about during his time being the prophet. So that is the second most

authoritative source is what he said in life. Now the third most authoritative is Ishma or consensus, which is basically in the wake of Muhammad, the people who were around him, who were leaders, religious leaders, who would interpret different things that he said and come together to say, well, this is what was meant on this issue that he never exactly ruled on. Think about some issue that the Quran didn't speak to exactly and that Muhammad didn't speak to exactly. Well, they use consensus of this set of religious leaders to try to get that. So that was the ishma. And then last is the idea of kiyah or analogies or ishthahad, which is reason. And these basically meant giving people the ability to reason based on what they had seen from those other three sources and make

decisions for themselves on issues that weren't determined. And this was a lot of very important part of this system for hundreds of years, this Ishtahad especially, it was the way that Muslims in the Middle Ages had the ability to actually figure out new modern situations that those texts and those people that were 400 years in the past now hadn't spoken to. And it was interesting because if you actually get really into this, in the 11th century, as the Mongol invaders basically came throughout the Islamic world, they closed the door to Ishtahad. They basically, said that Muslims were no longer allowed to use their own reason, to use their own analogy, to determine how to live. They had to just focus on the existing teachings. And there were

reasons for that politically, but it was a pretty monumental point in the history of this religion and how it evolved from a social perspective. By the way, if you're wondering how the hell I know all this, I studied abroad in Cairo and took a number of courses on Islamic jurisprudence randomly in another life. And I think that it's more interesting in the analogy than in the specific, which is to see that in both Christianity and Islam, you have these battles to basically interpret the word of some unimpeachable source. In the case of Christianity, it's Jesus and his teachings. In the case of Islam, it's the Quran itself as well as Muhammad. And in the Bitcoin case, there is this interesting battle that follows some of these almost religious lines around what is the intention, what were the words supposed to mean? I mean, you see these fights relitigated constantly on Twitter,

and I think that that speaks to this shadow of Satoshi's ghost that we all live within. Now, I think that there's going to be some of you out there who are saying, I don't think it's necessarily a good thing that there's analogy to these early combative religions in this Bitcoin system. And I think that there's one thing that you should take away, or one thing that should ease those fears. There's no order in Bitcoin. There's no institution that runs Bitcoin. There's no institution that's trying to consolidate control of Bitcoin any more than within the

context of a specific type of business, like a mining business, trying to own a big part of the market share. There is no Orthodox Church. There is no Sunnis versus Shiites or, you know, from an actual organization standpoint. So the actual risk of what this sort of religious battles, these holy battles of interpretation are mitigated because there's not an institution. that can leverage them to ruin the system, to cause chaos in the system. It's really just about this battle for interpretation and trying to win the narrative to one side and attract people to it.

And I would argue in some ways that the intensity of that debate, of that argument, is to Bitcoin's benefit in these early days. It creates an incredible in-groupness, an incredible depth of devotion to the project to help see it through these really early important stages. You have to remember that this is one of the most optimistic, arrogant projects that you can possibly imagine. Trying to fundamentally change the way that money has been organized for centuries is so much more ambitious than the average tech company, not just the average tech company, the most ambitious technology companies. This is a reimagination of society. This is why people bristle when it gets lumped in with other technologies, is that the intention is so much bigger, the implications are so

much bigger, that having these sorts of holy battles, as strange as it seems, creates, I believe, it reinforces these hoddlers of last resort. And frankly, those hoddlers of last resort are a big part of what creates confidence for other types of actors who, frankly, don't give a shi about any of this internecine warfare, about any of these battles to come in. Paul Tudor Jones doesn't care about the interpretation of Satoshi's every word. But what he does care about is the fact that the number of people who do, who are holders to the death, creates a floor for an asset that he thinks because of its structural design could be really powerful. And I think that that's really important. As we look at this new set of actors that might come into this system, the strength and resilience

of it is based in large part at least right now and for some time to come on the resilience of the belief of the people who are in the system. And I think in that way, this mythology, this myth-making creates a huge part of the foundational layer of Bitcoin as an asset, which is the ecosystem of people who will be there to the end for it. And I think as silly as it sounds, that actually matters, and it translates to derisking this asset for people who don't have hands that strong, who don't have that same belief system. Now, there are risks. in the Satoshi myth and the Satoshi assets as well. We saw a pretty significant sell-off yesterday after this happened.

I tend to be of the type of mind that thinks that when we try too hard to ascribe big changes in price to some event that happened, rather than the movement of large holders or the interest of large holders from kind of a day-in, day-out trading perspective, we're usually over-explaining things. However, it could be wrong. It could be that people were spooked. So why would people be spooked that these Satoshi era coins were moving? Well, part of the belief of the Bitcoin system or the base of it is that there's this 600, 700, 800,000, or a million coins that were mined by Satoshi that because they're dead or because of what else are never going to move. Imagine if all of a sudden big pockets of those started to be sold off that would create incredible downward pressure on the

price of the asset. So it's not a uniquely or exclusively rather good thing. There is a double edge to this sort. But I think that the point that I'm trying to make and have been trying to make throughout this is that the actual mythology of this pseudo-anonymous founder who has seemingly vanished from the earth is a really unique and powerful, at least in the early going, part of this system. And so what am I mean by that, at least in the early part? Bitcoin, every week that it goes longer, every time that people think it's dead and then it comes back, it gets more resilient. It gets more resilient in terms of belief, people coming in, people assuming that it's always going to be there. Over time, the actual demonstrated resilience of the system will start

to outweigh the theoretical resilience of the system that is embodied in these intense hodlers of last resort. In 100 or 200 years, if Bitcoin still exists, it won't be because there's still those hodlers of last resort who remember these Satoshi Times, who remember where were when they were reading Bitcoin Talk forums in 2011, 2012, it will be because the asset has literally existed. This is the idea of Lindy effects. But we are still in this very early stage and walking on fire. And during that time, I think that this Bitcoin myth-making matters.

Anyways, guys, that is definitely a post for a Friday for a long weekend. I hope you enjoy it. You can tell me I'm full of shit, too, by the way. I will not mind, especially with this one. But that's my interpretation of what happened this week with these Satoshi era coins and why I think it's interesting. Anyways, guys, I hope you have an awesome Memorial Day weekend. I hope it's beautiful where you are. And as always, thank you for listening.

I appreciate you. Be safe and take care of each other. Peace.