The Pomp Podcast - #1194 Dr. David Andolfatto | First Central Banker To Present Bitcoin Publicly

Episode Date: May 1, 2023

Dr. David Andolfatto is the professor and chair of the economics department at the Miami Herbert Business School at the University of Miami. He was the very first central banker to ever give a public presentation on bitcoin. In this conversation, we talk about bitcoin, federal reserve, economics, why bitcoin may be something that the world needs to pay attention to, potential risks, central banks, what David learned, intersection between economics, markets, legal, technology, bitcoin, USD, and why you should pay attention. ======================= Pomp writes a daily letter to over 235,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. David Andolfato is the professor and chair of the economics department at the Miami Herbert Business School at the University of Miami.

He was the very first central banker to ever give a public presentation on Bitcoin. And in this conversation, we talk about Bitcoin, the Federal Reserve, economics, why Bitcoin may be something that the world needs to pay attention to, what some of the risks are. how exactly the central banks work, what David learned at his time there, and where exactly economics, markets, legal, technology, Bitcoin, and the US dollar all intersect, and why you should pay attention. I really enjoyed this conversation with David, and I hope you guys enjoy it as well. Once you get done with this, go ahead and jump on Twitter and let us know what you liked, what you didn't like, what you agreed with, and what you disagree with. The feedback is always helpful and helps us make these conversations better. Here is my conversation with David Andolfato.

with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement

to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got David here with me. David, you were the very first central banker in the world to give a public presentation on Bitcoin, which will make you very popular with our audience. But I thought a great place to start the conversation is just how did you come across this weird decentralized digital currency while working at a central bank? Yeah, I think my earliest recollection is reading, I think, an op-ed piece by Paul Krugman, in fact, where he was highly critical of the endeavor. And that got me to dig into Bitcoin to see what he was talking about. And initially, I have to say, I shared Krugman's skepticism, but after opening the hood, so to speak, and digging into it, I found that it was something really, really quite interesting.

So you wrote a blog post, I think in 2013, and then you followed it up and you went on a tear in 2014. You did like five presentations or blog posts and you were kind of really exploring it. And I think giving what I would call a good faith effort based on some of the presentations. And what I appreciate about in hindsight, looking at that stuff is you were complimentary in certain cases, you questioned certain things and said, look, I don't know if we have an answer for this yet. And then you were critical in other cases. And so in order to understand Bitcoin, I think we got to kind of go back and look at it from the view of, you know, what is the role of money? What's the role of the central bank? And so given that you worked inside of these organizations, one thing that you hit on over and over and over again, where I think you were comparing Bitcoin, the dollar, gold, and other assets, is this idea of money having to be stable in short periods of time. Talk a little bit as to why is that so important in your mind? Yeah, it's a bit of a subtle point, right? I mean, that for what's important for a monetary instrument, I think, and I think most monetary theorists would agree, is the short-run stability of its value. You need to meet payroll by Friday. Say it's Monday.

You need to meet payroll by Friday. You want to – that payroll is a fixed amount of whatever. It could be X number of dollars or Bitcoin or whatever. you want to be sure that that money is there and worth what it's worth on Friday. You know, if inflation is running at 5%, I mean, 10%, I mean, you're going to lose a little bit in purchasing power, but not that much.

What's more important for you to manage cash flow is the short-run stability of the monetary instrument. Ideally, I mean, you don't want to lose over the long run as well, But there are certain tradeoffs. And so I've argued that, for example, gold and Bitcoin are not really well suited to serve this role just because their demands can be very volatile and the purchasing power can fluctuate over very short periods of time, making managing payments very difficult. So that's not to say that gold and Bitcoin might not be good as long run stores of value or great hedges in some cases. So I try to make that distinction and see how. So you basically are pulling out, OK, there's this like long run, what historically so far has been a appreciation of purchasing power with gold and Bitcoin dollar and other fiat currencies have lost purchasing power over the long run. But I think you highlighted this short run stability and use the example of, you know, if it's Monday and you got to make payroll on Friday.

there's a fixed kind of debt, if you will, right? Or a fixed amount that you've got to pay. And if your money is worth two times that on Monday, it's worth 50% of that on Tuesday. On Wednesday, it's worth, you know, 150%. And it's kind of fluctuating. You almost don't know if you're going to have the money on Friday to be able to pay it.

It sounds like there's two solutions that I would highlight. One, which I think is kind of what you're getting at, which is like you have short run stability of the assets purchasing power so that whatever you have to pay on Friday, you have that. And it doesn't change throughout the week. The second would be to actually have a similar unit of account. So if I'm holding Bitcoin, but I have to pay in dollars, the U.S. dollar exchange price is obviously super volatile, right, of Bitcoin.

I use super as it could fluctuate 5% in a day, 10%, whatever. But if I have my payroll in the unit of account of Bitcoin and I have Bitcoin, does that take away the short-term volatility risk? Yes, a little bit, because you eliminate the exchange rate risk that's inherent in any, you know, when you have, for example, obligations denominated in some foreign currency. Suppose you're in South America and you denominate that in U.S. dollars, you subject yourself to exchange rate fluctuations. What you're talking about is, imagine now, however, a society where, say, Bitcoin or gold is actually the unit of account. And that does mitigate a little bit that problem, but not entirely. And we've had kind of quasi experiments of this sort in the past, gold standards, for example, where, again, what we witnessed was, especially during times of crisis, what you see is this kind of flight to safety phenomenon where people just rush into the safe asset, in this case, gold or Bitcoin. The effect of this is to dramatically increase the price of Bitcoin relative to goods.

And so, again, you know, producers or, you know, workers who are, you know, being paid in this object have their debts denominated in a nominal Bitcoin. Let's say you owe a thousand Bitcoin, but suddenly there's this increase in the demand for Bitcoin because people are freaking out and that drives the purchasing power of Bitcoin, you know, doubles it. You're going to have to work a lot harder to discharge that Bitcoin debt now because the purchasing power of your labor now is much lower. So that is the argument that, you know, it doesn't, that argument, letting the Bitcoin or the gold or this hard money be the unit of account does not entirely eliminate the problem that I'm highlighting here. So dollars, I think for most people, they would agree, it solves the short term volatility problem. If I owe, you know, $1,000 on Friday, it's Monday, I have $1,000, I'm likely to still have that same $1,000 that I can pay. Does the same kind of issue get solved even though the dollar gets depreciated over time? So when you talk about kind of hard money appreciating and having to work harder because the purchase power is increasing, what is the impact when the dollar is actually losing value?

Let's say if there was a massive quantitative easing or something like that where the purchase power was eroding. Well, you mean during a time of crisis? Correct. Well, I mean, in fact, you know, the Fed was founded in 1913, precisely, I think the language actually says to provide an elastic currency, that is to say, during a crisis, what happens is there's a tremendous flight to safety. And that flight to safety, as it can vary over time, but in recent times, it's been the U.S. dollar and U.S. Treasury. um and and look uh if if there had been performed the hypothetical back in 2008 let's say the financial crisis and let's try to imagine that the fed did not engage in quantitative easing that the treasury that the government did not run those very large deficits supplying the

the u.s treasuries that the global economy was demanding uh i conjecture that we would have witnessed the mother of all deflations we saw interest rates on t-bills go negative people were so so in need are desirous of places to store their money in a safe place and there's not many safe places you can go um and so i think that um it's it's usual to think about that counterfactual um this is the short run right this is the whole point of of the elastic currency is to supply the currency that's demanded in the short run to alleviate the elevated demand. But then at the same time,

once that elevated demand has dissipated, to then contract the currency. I think a lot of skeptics are always, what they're critical of is that that second part doesn't seem to come to play. And so ultimately this manifests itself as a lower purchasing power for the currency going forward. And that's kind of a legitimate criticism.

But again, conceptually, We have to separate out these, you know, short run versus long term term stabilized value of the monetary object. So when you talk about short run versus long run, is it possible for one asset to serve both cases? Or is it a classic tradeoff of if you want something that's stable in the short term and you want to use this kind of elastic monetary policy or variable monetary policy to address short term issues, you have to just understand the tradeoff is long term. you're likely to have issues? Or is there an example of an asset that's been able to serve both over history? I think that the U.S. dollar could, in principle,

serve both purposes, for example. But it would depend on the following. For example, Congress could make an amendment to the Federal Reserve Act, which is the act that established the Fed in 1913. Our elected representatives in currency could mandate that the Fed follows a hard money policy over the long run.

They can do that. So in principle, it's possible. As a practical matter, I don't think it's going to happen for a variety of reasons. But I think it is possible for this elastic currency to operate. Certainly, I can show it mathematically. The question really boils down to political. I don't think Bitcoin can do it because it's a hard money protocol. I'm not criticizing that.

I'm just describing the supply is essentially fixed or grows on a fixed schedule. conceivably, there might be other protocols. I do know that there has been experimentation of cryptocurrencies that do provide that elastic currency function. And you could kind of program the elasticity in, along with the hard money policy, into the code. I think that's conceivable.

And I do think people have tried to work on that. I'm not so sure how successful they've been yet. Yeah, people are going to try it for sure. Take me inside the room at a central bank during, whether it's a moment of crisis or kind of these short-term decisions, right? I think from the outside, the average American doesn't even know the central bank exists, right? They're just like, hey, I'm going to work. I'm going to make money.

I'm going to go home, do my thing, and I just want to live my life. And like, what's a central bank? For those that are a little bit more maybe knowledgeable or interested, their view is that there are people who go into basically a conference room. There's a bunch of data that's presented and kind of consumed. And there's some, I call it guesstimating. right in terms of okay we're looking at data i think the central bank knows that the data is probably a little bit uh lacking in terms of you know immediacy uh it's not real-time data uh and

then two is every central bank i've ever talked to is like very well aware of the complexity and difficulty of trying to use you know data that happened 60 days ago to make a decision today to try to forecast what's going to happen in the future but was that your experience like what happens in those rooms? Well, gosh, those rooms. I mean, so I was a senior vice president at the St. Louis Fed. So the St. Louis Fed is one of 12 regional feds in the Federal Reserve System, and that is centered at the Board of Governors in Washington, D.C. In times of crisis, I have to say it's really the Board of Governors in D.C., along with Treasury and the administration that kind of, you know, take hold. The regional fed presidents typically play a more important role in the day

to day conduct of monetary policy in the eight federal open market committees the fomc meetings that are held each year but here let me walk you through what happens i'm working there you know i'm an advisor to jim bullard uh jim bullard has there's a board of directors like the board of directors uh is what appoints the president of the regional feds uh these board of directors are bankers regional they're local banks they're people from the community they could be uh they're not just bankers but business people um and and social workers it could be a wide variety of people on this board um and the president meets them with them on a regular basis and they report on their business what's going on what's going on with the regional banks you know what's going on

with my business what am i seeing and and so the fed president gets a lot of firsthand reports from his board members fed president also has a lot of contacts in the region i think walmart is headquartered in the uh in the st louis district so you're talking to the ceo of walmart tell me you don't get information about what's happening in real time talking to the ceo of walmart he gets a lot of information on top of this we have in st louis and other branches but in st louis we have three regional branches one in louisville one in little rock and one in memphis they each have board of directors populated again by local representatives of the community you know i've been down there you talk to them they have go-arounds they report on their business they

report what's happening around the uh the local economy uh the fed president uh gets all this information and then he's briefed by his staff myself for example we have regular fomc briefings uh and then there's council uh we with some small group of us will meet with a president and and kind of disseminate and all or process all this information and think about uh very what it might apply for say interest rate policy at the upcoming meeting then they all gather at the fomc eight times a year all of them in this room along with their assistants and a few other people in the room and they discuss they have an economic go-around where each fed president and every board member reports on local conditions uh especially the fed regional feds are reporting

San Francisco Fed will report on the Western District, et cetera, New York Fed, et cetera. They have an economic go-around. And then next they have a discussion about what the appropriate policy action is. So, yeah, there you go. I mean, that's just a little bit of a, you know, there's a lot of stuff going on. I mean, it's not perfect, but I think that the Fed presidents, the FOMC, the ones who are undertaking the monetary policy decisions, are about as well informed as anyone. And New York Fed, in particular, will have a lot of information on Wall Street and what's happening in financial markets.

So I think they're about as well prepared as anybody in terms of the information they have available. So I've gone through probably too much of the data in terms of people have asked me questions over the years. I'm like, I don't know the answer. Let me go and read documents or figure it out. I think there's three parts maybe that'd be interesting to get your perspective on. The first is what I'll call kind of CPI calculation, right? And so it's changed over time. I think that every person I've ever talked to that's been involved in trying to figure out how do we measure inflation essentially, super good nature, trying to do it, it's very difficult to do. And they will even go as far as to say, look, there's like 10 different ways we could do it.

What we're trying to get at is a specific way to measure it so that it can be used as part of monetary policy, help inform the general public, help inform business owners, et cetera. And so it's not just measuring only one way because that's the only way to do it. It's actually, no, we know multiple ways to do this. What is the right way to do it for what we're trying to accomplish? I think it's an important kind of call out. And so as I kind of went through this, one of the things that surprised me is there's a couple hundred people who physically go into stores and they're manually inputting the data. And the part that kind of is the headline-grabbing part is somebody one time went and they said, I talked to that person. I interviewed them, and they got an eight-page printout of exactly like the Campbell soup, low-sodium, whatever, to make sure they got the right one.

And you start to realize, again, there's the theory, but then in practice. If you send someone to the store and you say, hey, go get the price for X good, well, take just soup alone, right? There could be Campbell's soup. There could be other brands. There could be low-sodium, high-sodium. There's all these things. When you compare that to maybe in the real estate market, we have Zillow and Apartment.com and these guys. They have data.

That data tends to be what they claim to be real-time. I don't know kind of how real-time. And sometimes these data points match, right, kind of the Bureau of Labor Statistics and these private companies. sometimes they don't does the central bank look at the private company data sets do those companies give them the data or is it pretty much what we see with like the bls and the cpi calculations like that's what they're using as well yeah that's it's a good question i'll tell you honestly i don't know exactly i've never myself personally got into the details of actually uh collecting the data of course i along with most economists are aware of all the pitfalls that you describe

um um for for your listeners by the way you might there's this thing out there called the million prices project i don't know if you've heard of that i mean this is a private endeavor to calculate cost of living these price indices and i'll just have to say what they come up with doesn't look a lot different than what you see from the official statistics um the recent episode is a little bit different because the real estate the the manner in which uh owner occupied rent interest into the CPI, how it's calculated, I think there's a general recognition that, gosh, we need to do a better job here. And availing themselves to like Zillow, the real-time data that's potentially available, I think would be an excellent idea. I'd be surprised if they aren't trying to do it. I can't

report to you exactly and say that they are, but I would be very surprised if they're not. They're always looking for ways to improve and to get the measurements right. And you're right, I know that the Fed doesn't just look at one measure. I mean, I know that they have the official measures, the PCE headline measure, but they look at all sorts of measures. And one of the nice things is that most of the measures you look at are essentially most of the time telling you the same thing. And you can't really fine tune things too much in terms of policy. You kind of really have to try to identify trends, I believe. And these indices do, I think, at least give us that.

But I would be all in favor of using whatever high-frequency data is at our disposal to improve the methods for sure. Yeah, it's interesting because obviously there's CPI, there's CORE, and kind of all these other official metrics. You mentioned the Million Prices Project. I think historically people on Twitter have loved to go to shadow stats, which there's questions around kind of the accuracy of that. There's a new measurement called trueflation that is trying to get at using on-chain data. And so I do think in the United States, we've been very fortunate that we've actually, most people have lived through low inflation environments, right? And so unless you were kind of really locked in and paying attention kind of in the 80s or so,

then you never thought about it, right? So for 40 years or so, we've lived in this low inflation environment. Now, compared to some other countries around the world, this is one of the most important things to them. And they really understand inflation and currencies and things like that. But over the last three years, now all of a sudden people kind of poked their head up and said, hey, hold on a second. Let me learn more about this inflation thing. And so naturally that leaves us some of them saying, well, maybe I could measure it better, which is, again, interesting. I don't know if they can or can't, but it feels like having more data points available is better for the people making the decisions, right?

Absolutely. And I do think that, like I said, I'd be surprised if there aren't people working very hard to incorporate that information. So one of the other pieces of this is once the central bank is kind of consuming all of that data, there is a human decision-making process, right? It's not formulaic in the sense of one plus one equals two, and no matter what anyone says, one plus one equals two, and that's what we're going to do, right? It is very much, as you described, the intake of information, the synthesization of that information, and then a human is making that decision. One of the things that attracted me to Bitcoin was this idea of an automated central bank, which now with the rise of AI, everyone's like, oh, shit, is my job going to get automated? But it's this idea that Bitcoin's not consuming any information. So it's kind of alleviated itself from that responsibility.

And instead, it's just saying, look, we are going to have a pre-programmed kind of programmatic monetary policy. I don't care what happens in the world. We're going to operate on this. Maybe that's better, maybe it's not, right? You can opine on that. But the idea that there's no humans participating is fascinating to me because I don't trust my friend to give me a suggestion,

I go to Google, right? I don't trust my friend to give me directions somewhere, I go to Google Maps. And so it does beg this question of like, should we just dump all the data into some kind of formula or some kind of computer program and rather than the individuals themselves

making the decisions, like could the software do it better i don't know what do you think well i mean uh truth be told i mean uh in our economic models when we write down policy functions that go by these names like the taylor rule if any of your uh listeners are familiar with that you can google it i mean taylor rule is basically a formula mathematical formula that uh purportedly describes in qualitative manner the manner in which interest rate policy is set a high inflation tends to illicit rate increases a weak economy tends to elicit rate cuts and so in our economic models they take exactly that form i want to push back a little bit though here in saying that uh

it's not like a bitcoin is completely divorced from a human interaction it was a human who designed the protocols i i kind of view it more like the constitution a legal framework a set of rules that govern the way certain things are done i was a human humans design these things and indeed uh it's not as if bitcoin is not alterable i mean in principle i mean in fact i my understanding is early on um you know certain bugs were fixed by patches by the core developers i mean it's it's like you you want the community actually to fix things that go wrong it would be bad to have errors and not constitutional amendments i mean these are you know we need humans to play a still have play a role there but i understand what you mean it's like okay

Once we've got kind of the right, you know, I don't know, it's like a human designed a car, but now we can program it to drive. And we just let the car bring in data and it can navigate itself on its own without error. And I think that's a really interesting idea. I wonder how far we can push it. In our models, I mean, what happens in our models, our mathematical models and listeners, And listeners, I mean, we all have models of the way the world works embedded in our heads. Yes. They're not as well formulated or as explicit mathematical models, but they're there nevertheless.

We're going to design something relative to solving a problem according to the way the world works and the model we have in our head. Well, you better be damn sure that you got the right model. How can you be so sure? I mean, the world is very complicated things. It's been my experience is that you write down something that is a great solution to a particular environment, but that environment you didn't account for X, Y, or Z, the unknown. Then what do you do? You need some discretion. You need somebody with wisdom.

You need somebody you can trust. You need somebody to accommodate those unforeseen events. You can't, I don't think, program every contingency into this model, at least not yet. I mean, I think if you could, you'd basically be God. Yeah. We're not there. What you're highlighting is actually not something that I think is too far outside of the world of finance. I mean, George Soros, this is basically his philosophical view of the world, right, is this idea of imperfect understanding.

And he really hammers on the idea that even though you can look at a set of facts, you cannot simply evaluate just the facts. You also have to evaluate how will people perceive those facts and what actions will they take, which will then influence the environment and the situation. And so he kind of separates out somebody who is kind of evaluating or thinking about it versus somebody who is participating in the environment. And so even the model itself, if it doesn't account for what the model is going to do, you kind of get into this very meadow world, if you will, of the model's impact actually has to be programmed into the model also. No, that's absolutely correct. I mean, we're fond of saying in economics, and I think in social science in general, that the data does not speak for itself. I mean, let me repeat that. The data does not speak for itself. It's impossible. You need an interpretive framework, a model, a way to organize your thinking. This is what we all have in our brains. It's nothing to be ashamed of. it's it's we we we try to do the best we can all of us uh every every day and this includes policymakers at the fomc they're not infallible uh but hopefully you know we learn and these institutions evolve in a way that helps serve uh the broader community but exactly you're right on

point so i want to go before we talk about the first presentation that you did publicly i want to talk about the blog post uh that you wrote in 2013 you wrote uh it was titled why gold and bitcoin make lousy money and uh we talked a little bit already about this desirable property of monetary instrument is that it holds its value over short periods of time right but you later said it is important for a monetary instrument to hold its value over long periods of time i'm sorry is it important for a monetary instrument to hold its value over a long period of time i used to think so but now i'm not so sure right and so i thought that was very interesting because you basically are saying look one you're changing your mind a little bit right which as you kind of

think more about this stuff. Hopefully you do change your mind. You would be a bonafide genius if you got it right on the first try. But talk a little bit as to how you view the long-term sustainability of purchasing power for money and the importance of that or the lack thereof. Yeah. So early on, my initial thinking was, why on earth would you want the monetary unit to depreciate in value over time? I mean, it's a metric. It's the way we measure things. We don't change the length of a yard, the length of a yard or a meter, depending on your audience here. I mean, we don't change it over time. A meter doesn't shrink.

And there's a great deal of utility in principle of having a metric that remains stable over time. So ideally, why not just a constant price level? This permits relative prices to change. The price of apples relative to oranges can change, but the overall price level should remain fixed. uh over time this is kind of how i i thought and there's still a lot of merit to that argument um i guess uh over time though i mean it kind of i i come to appreciate a kind of practical matters i mean uh you know our elected representatives uh you know are are at the power to tax and to to do whatever i mean this is uh the transfers the fund infrastructure uh the

interstate highway system, NASA, whatever. And they typically finance these endeavors through taxation. And we submit to it either explicitly at the ballot box or implicitly. It's part of our contract of civil society. Now, if the government has to tax, and I don't know, a lot of your listeners might shut off right now, But I mean, suppose that they have to tax. The question is, you know, how do you do it? We have income tax, wealth tax, consumption tax. Inflation tax? I mean, why should the inflation tax not be a part of that mix?

This is especially the case, in fact, in developing economies that don't have well-developed tax collection systems. How do you fund a public school or public roads in an economy that doesn't have a well, you know, it's very difficult to collect taxes. and yet in principle there's a public project that needs to be financed you know what i'm not going to be such a hard ass to say i want a stable price at all costs i can kind of see the merit of increasing the money supply to hire a few construction workers to clear the road and build a school and to grow some corn to feed the kids and give them free lunch i i don't know if that's going to cost me one percent per year my purchasing power i mean the government could tax me directly through my income tax or my wealth tax, land tax,

if they do it instead by increasing the money supply and financing it in that manner, I can kind of see, well, you know, as long as the monetary unit maintains a stable short-run value, as I say, I mean, it'll still serve its purpose to facilitate payments. And okay, it loses a little bit of its value.

I just consider that a part of a tax. I don't like it. Go in and call your congressperson, your elected representative and rail against it. But in the grand scheme of things, if I see 2%, 3%, 4% inflation, I'm not going to get terribly excited. I don't necessarily like it, but I mean, I can see how that's how my thinking kind of evolved along that dimension. So this is interesting because I think a lot of people don't think that way. Right. And don't see it as a tax, obviously. For those that do, I've seen two different groups respond. One is, I think, kind of your camp. Right. Which is, OK, I might not like it. I understand it. And if it's one or two percent, it's not 20 percent or, you know, Argentina, 100 percent or whatever it is at the moment. there's another camp that goes wait a minute we fought wars like you know uh no taxation without representation like oh we didn't elect these people we didn't uh you know subscribe to that monetary policy whatever how do you kind of balance out what i'll call like the explicit taxation right which is uh always seems to be going up over the long run right never never seems to kind of come down uh although there are short-term tax cuts um versus this more like implicit type

taxation because it has the effect of a tax but it is not explicitly a tax and so how do you think about that from like uh the intersection with politics and kind of representation yeah it's a very good idea and by the ways i just i i want to mention too even if inflation is two percent three percent it's not like people do not save their money in cash they save their money like Right now, interest rates are 5% on T-bills and stuff. So we only save a very small fraction of our wealth and zero interest-bearing security. So, again, that tax is not something that I would go crazy about. But good point.

You know, I mean, people have brought this up. I mean, at least, you know, in a gold standard regime or a hard money regime, if the government wanted to finance something, it would have to go through the legislative process explicitly. and kind of vote, you know, and so taxation with representation. The way I can reconcile this is, you know, the Federal Reserve, first of all, the Treasury is part of the government. Secretary Janet Yellen is part of the administration. The administration, we elected the president. So, you know, she's operating under the guidance of an elected official.

The Federal Reserve itself was established by Congress in 1913. There's a Federal Reserve Act. It prescribes the Fed's mandates and the available tools of the Fed. And the Federal Reserve chair is required twice a year to testify in front of Congress, once in front of Senate, once in front of the House. And he takes or he or she takes some very, very difficult questions. So there's some accountability in that sense, even though the board of governors, they're appointed by POTUS, ratified by the Senate. There's some representation there. The Fed president's a different matter.

They're elected by boards. But at the end of the day, I would say that there is at least an implicit, you know, representation there, the sense that although the Fed officials are technocrats, that at least, you know, they are accountable to elected representatives. And it is within the power of the American people, the pressure of their elected representatives to modify the monetary policy in the way they see fit. Again, if you do not like inflation even at 2%, if you want 0%, lobby your Congress, many of your representatives, and get them to change the Federal Reserve Act that restricts the Fed in that manner. You're not necessarily going to like the outcome, let me tell you. But, I mean, you can do it. Let's just say – kind of play off that hypothetical, right? So somebody calls up the congressperson and they say, hey, I don't like this.

And enough Americans do it where Congress says, oh, maybe we need to pay attention to this. And Congress decides that they're going to make a change. Does change change the Federal Reserve Act? Does it remove current officials at the Fed? What do you think is within the maybe kind of mandate or within the tools that Congress then would use if they thought the American people really did want change and they wanted to represent the American people in that sense? Well, I mean, like I said, they could explicitly be more specific about what they mean by price stability. So the Federal Reserve Act does, you know, one of the prime mandates of the Fed is price stability and more recently, full employment. These are kind of notoriously difficult to define, especially full employment.

But price stability has recently been interpreted by central banks around the world as low and stable inflation, 2% per year as measured by PCE. You can, I mean, you can change that. You can say, no, I'm sorry. We're going to have it like 0%. I mean, you could actually do that. And then we're going to give you the tools to achieve that mandate. I mean, that could be done in principle. The fact that it isn't done suggests to me that, you know,

there's a lot of problems in the world. And the Fed has been relatively successful, I would argue. I'm sorry, people out there. It's a very complicated world out there. It's very difficult. The Fed has limited tools, by the way. But if you take a look at the history of inflation in the United States, say, since the Volcker era, we've, by and large, had low and stable inflation. You said yourself, people weren't even paying attention to inflation until recently.

And the recent about, I mean, I have a very good explanation for what happened, and it starts with COVID. But by and large, you know, relative to other countries and relative to other periods in history, it hasn't been too bad. Surely there are bigger fish to fry, I would say. So one of the things that I hear a lot in the Bitcoin community, and I think it's a fairly valid argument, is you mentioned earlier that most people don't keep their money in zero interest type assets, right? And so cash ends up being a thing. I think that's true for business people, people in finance, people who understand some of these problems, pay attention, things like that. I went and I looked one time at the percentage of Americans who have no investments. So whether they're living paycheck to paycheck, or they could be making millions of dollars a year, they just stick it all in cash, right? And it blew me away. It was 50%. Now, maybe that number is off, let's call 10% either direction, but it's a big number, right? Whatever that number ends up being. Those are the people that seem to be affected the most, obviously, by inflation, because whatever money they do have, whether it's a lot or a little is being eroded away over that long period of time, stable in the short term, but eroded over a long period of time.

How much of that do you think is really what's getting at like wealth inequality and some of these like longer term trends that I would argue are very click baitable, you know, kind of headline grabbing things that you want to yell and scream about? They're real problems for sure. But there definitely seems to be a disconnect between, you know, the data points and yelling and screaming about it versus like what's driving this stuff. And so is that one of the main drivers is this like long term devaluation of the currency for a big portion of the population? Yeah. Great question. I don't think so. I got two answers. One is, I think what people really get concerned about in inflationary environments is not so much the level of inflation, but the change. So we came out of an environment of pretty low and stable inflation, and then suddenly it went up. And that creates a great deal of angst among people. you're worried you see the cost of living go up rise very rapidly and you become worried about whether your wages can keep up and and and this is this is the angst that uh i think uh it's not so much the level of inflation as the change you're worried about whether you can keep up

once inflation settles into a range people adapt and you see okay inflation was 10 percent this year yeah but i got a cola a cost of living adjustment i mean i get 10 percent so over long periods of time you wouldn't be so concerned about uh inflation for that reason um a problem of course is high inflation tend to be volatile inflation so it's just one reason why we want low inflation what about savings i mean as you mentioned most people aren't you know so sophisticated that they're investing in t-bills right now they're in bank deposits and i think last time i checked even my my bank america account i think i'm getting zero percent i mean i'm not very happy In fact, I think I'm going to start moving.

I don't like banks. I said that in my 2014 talk, by the way. fandoms that matter most learn more at accenture.com slash spotify uh uh so um i said that half joking but uh so in this case it's kind of interesting right so this is now we're not talking about um sudden changes in inflation but just inflation at some level say five ten percent that whittles away the purchasing power of zero interest bearing wealth which is as you mentioned a large fraction of the citizenry hold their wealth in this form? And doesn't that constitute a big tax on their savings? And isn't this what people complain about? I'd argue that that's right. I

mean, people do complain about that. But we can't miss the big picture here. One question is, is what's generating that inflation? Now, if you take a look at the CARES Act, the American Rescue Plan, these types of fiscal policies, they're very clear. I mean, for the most part, these policies transferred large quantities of money to the bottom half of the income distribution. I mean, I didn't receive a check, but a lot of these people did receive checks. Okay.

I mean, that's partly what's driving the inflation, apart from the supply shocks and the war. So people at that end of the spectrum should acknowledge, perhaps, that they are net recipients of transfer income that are partly responsible for generating the inflation. They get the checks. They can go spend the money.

That drives up the cost of goods for me, too. This is like me getting taxed. I mean, it's part of my and probably your, you know, we're losing purchasing power. They're losing purchasing power as well, but at least they're getting compensated through the transfer system that's part of our social contract in this country. I think people tend to not look at that. They look at the cost of living, but they don't think about the income support they're getting. Yeah. I think a big part of it too. And again, like you can spin numbers a million different ways, but, um, probably the, the most salacious view of this for sure is like, Hey, we gave people

$1,200 and 9% inflation. Like if you take a step back and you do the math, you don't have to have that much in savings, right. To realize like, Hey, that's a bad end of the trade. Now I don't think that, uh, the people who said, let's give out $1,200 checks, we're calculating and then 9% inflation. And like, we're going to, you know, we're going to come out better here. Right. I don't think that there was uh that sense i do think that a lot of times the fiscal policies especially in moments of crisis are all about we have to do something right and um you know i remember uh at the time during uh kind of q2 of 2020 i think i either tweeted it or i wrote kind of a longer piece i can't remember basically being like you know there's a a question at the moment

of should we do anything or should we do nothing right so there's like a binary do something don't do something and then if we choose we should do something then there's a whole bunch of you know options kind of a buffet of options if you will that we can pursue and at the time i think i was more worried just about like the do anything is almost guaranteed to be an error right just because it's nearly impossible how do you walk up and you have you know 3 000 different options we're not going to get it right now looking back it's interesting to ask the same question right if we had done nothing what would have happened now we'll never actually know right um but i think it's very clear that the impact especially on the on the monetary policy side of cutting the

interest rates and things like that it served as a great catalyst that ended up taking us from what was really a massive liquidity crisis out of that pretty quickly and so how bad would that have gotten would the free market have solved that problem in a couple of weeks a couple months a couple of years. We'll never know. But it is very obvious that the Federal Reserve stepping in had this impact. The fiscal policies, I think, are harder, actually, to underwrite because where the funds went is sometimes very obvious. Some people got a $1,200 check. Some people didn't. There's industries like the airlines that kind of got these, I think they were called loans, but eventually it was just like, oh, you don't have to pay this back type thing.

And the government didn't get equity for it. And kind of, you know, there was this transfer of money without, you know, kind of a reciprocal value given back. But then also, it seemed like there was a whole bunch of money that got put out. And I don't think you know this, but at one point, we literally live read through some of these bills. there was crazy stuff in here right which every political bill has it and i used to be somebody who was like oh all the pork is nonsense and you just got to go and i have a friend who i put in high regard and he said it's the single most important part of those bills and i said what do you mean and he said well think about this if you are in a position of power and influence uh and are elected official for any period of time whether it's you know one term or many and you have to work with your colleagues in order to get things done. It is all about finding some sort of middle ground. And so what ends up happening is the pork is like the greasing of the wheels to

get some of this done. But if it just came down to one single issue, he was like, you'll never get anything done because you'll just constantly have these battles and there's no room for anyone to give. And so I'm not 100% on board with kind of his view of the world, but I think it now, at least i understand more of the trading that goes on and so when you read through this stuff you're like man we're you know one of the the one i remember is the federal government was essentially authorizing the purchase of marijuana to test driving high right scientific study we gotta figure out whatever and i remember first of all immediate reaction was like we have people in our audience that will do that for free we don't need to go buy with government funds um but but

The second part was like, wow, this is a very small part. I mean, like literally non-material, no one's even talking about it. But if you add up enough of these, it becomes a material part of the bill and that money is inflationary and things like that. And so sitting inside of a central bank, how much is there worry or conversation about the fiscal stuff versus just a complete focus on the monetary policy? Well, that's a great story. I mean, politics is amazing. You know, I've read a lot about history and these issues. I always start to put things in perspective, first of all, and go, you know, look where we're sitting.

Look at this technology. I love this air conditioning. We do live in a pretty civil society. You know, there's 350 million of us, all very different. It's kind of like Charles de Gaulle when he said, how can you expect me to govern a country with a thousand different Jesus? I mean, it's like, we're actually, you know, let's all step back and kind of be grateful a little bit, you know. Okay, so now we can criticize. Okay, so monetary policy, it's funny.

I've got it a little bit reversed from you. I mean, apart from the initial March 2020 Fed intervention that kind of calmed the financial markets, and I have to say that the Fed really learned from the 08 crisis. When a crisis hits, I mean, you just forget. You just go in there and you do it. I mean, this is one thing we learned is you open up the fire hose. And indeed, I wasn't aware of these companies like Boeing, for example, actually availing themselves of our emergency lending facilities.

My understanding is that just the announcement that these facilities were available calmed down the corporate bond market, and that permitted Boeing to actually raise funds privately, for example. And so I thought that part of the Fed intervention was very good. I wasn't a big fan of the interest rate cut, to be quite honest. Why not? Because interest rate cuts are to stimulate aggregate demand. And I did not interpret the COVID shock as a deficient aggregate demand.

It was a negative supply shock. This was a huge sectoral shock where we actually asked large portions of the economy to go home, stay home. leisure and hospitality got crushed for example and this was part of the effort to slow the spread of the pandemic if you recall kind of flattened the curve now you're sending uh you know a good sizable portion of of your fellow americans home and asking them for the sake of public health public safety please stay home oh and by the way you're not going to be earning income and stuff you're not going to be able to feed your families are you crazy are you crazy i mean the fiscal response the cares act was absolutely the correct thing to do and um i think the counterfactual as

well no i mean in fact we we have a counterfactual just in the financial crisis where where you know the banks the financial system was largely quote-unquote bailed out and there's a broad perception that uh the american household was not i mean the american household suffered through a great foreclosure crisis in the you know i mean people were losing their homes and there was a perception that there wasn't that sense of urgency to help out the regular American. Oh, you're going to step in and save the bankers who actually caused this crisis, but you're not going to help the American homeowner. And we saw what this led to. We saw the divisions in our society that this led to, the populist politics. We saw the damage that this did. And I think that this was the

lesson that was learned in 2020, that we're going to go in and, gosh, it's going to be ugly, but we got it's better to get somebody fed and there's going to be some pork sloshed around i mean it's going to be higher inflation but this is not the time to quibble about it we can worry later about you know having a contingency plan in place to deal with a similar crisis that's bound to happen again but you can't you don't ask these questions when you're in the trenches in march 2020 things look pretty scary right good question about what would have happened without the intervention you You know, my goodness. I mean, yeah, the private, the market always solves these things, right?

I mean, how many people are going to die? How many people are going to go hungry? I don't know. It's a very difficult counterfactual. I think that by and large, though, I think that the government through the CARES Act, which I thought was brilliant. I'm less of a fan of the subsequent. But I think it was absolutely necessary to do. I got to work from home.

A lot of people didn't get the privilege of working from home. I think ideally I would have been willing to be taxed to transfer some purchasing power to those that were affected adversely, disproportionately by the pandemic. Now, it so happened that the government chose the inflation tax instead of a direct tax. But either way, it was the right thing to do. And it was not just the right thing to do, but also it's a smart thing to do politically. And it's something that, you know, contributed to the social stability. I mean, I think if you hadn't done that, we might have people come in, you know, with pitchforks and torches. Someone argued they did.

Yes. Well, sorry, that was a bad example. so um i think that uh the fed made a mistake lowering interest rates uh that the fiscal policy response was uh you know to a first approximation uh adequate or done correctly a lot of ugly stuff in there as you allude to perhaps they overdid it a little bit uh the consequences are uh an elevated inflation that by the way is starting to come down so um all in all we came out of this you know this being the covid pandemic and the subsequent war that's ongoing in russia ukraine pretty well uh especially relative to other countries and relative to the hypothetical

of what might have transpired had uh the government not supported the private sector i give kudos to the private sector as well by the way this is not just the government this is this is us working together private public sector we did a pretty good job all things considered and it was a terrible tragedy what happened so i want to take kind of that view of the current events and let's go back to your 2014 presentation um and in it uh you say two things uh pretty early on in it you say bitcoin hopes to one achieve long-term price level stability we've talked about and to drive transaction costs to zero and then you follow that up with it is uh a stroke of genius a monetary system governed by a computer algorithm now the reason why i pull that out is because it's very

interesting to me. It almost feels like at the time you were like, this is clever. You're not necessarily saying it's going to replace all fiat currencies in the world and, you know, kind of take over and be the next global reserve currency. But I think that separating out, hey, this is clever versus what is the impact on the world and kind of the competition of other currencies is important. Do most central bankers understand that it's clever? Do in conversations, do they at least acknowledge, hey, this Bitcoin thing is actually pretty smart. I don't think it's going to be successful you know competing with fiat currencies or whatever but just like that first point do most of them get there or is there still lacking in your conversations uh of that at least

uh kind of agreement i mean in the early days uh that recognition was completely absent i would say yeah but i you know i there there are some very good researchers in central banks around the world the bank of international settlements that get down it and then they agree you don't hear about them on the news they're just nerds like me just working away and they can appreciate kind of what's going on yeah but at the time i mean you know when i came to realize uh what was being achieved which essentially to me the the it was the solving the double spin problem problem for for digital money systems basically uh without the use of a delegated or trusted uh record keeper i i thought it was i just went holy cow this is like amazing uh first of all um it turns out that uh

There was nothing individually built into the protocol that was unique, but it was the way in which it was combined to kind of solve this problem. And, gosh, I still consider it to be a stroke of genius. And it's pretty cool. And by the ways, it reminded me a lot of what we talk about. You know, I think the reason why I recognize the genius, because I saw in it primitive versions of what I call primitive blockchain or primitive consensus mechanisms in primitive economies.

I think this idea of consensus, keeping record of a community's history, for example, through consensus is something we do all the time in friend networks and family. And I kind of noticed that the spirit of the endeavor was to go back to this system where record keeping was done just by word of mouth in small communities. Everybody knows what's going on in a small village.

There's no designated record keeper, you know. And so I really did appreciate what it had accomplished. And you're right. Whether or not I thought that this was going to replace the dollar, I don't know. I actually thought that it was a step in the direction of moving transactions cost to zero in terms of moving money. I am a little bit less hopeful that they'll go to zero because it's still an inherently very difficult problem. But that was the hope I saw that this endeavor was potentially going to help solve. So you also later on in the presentation, you supposedly call out a long tradition of new currencies competing with old, which I thought was very interesting, right?

That was almost like a very Bitcoiner thing to talk about. And you said probably the most important aspect of this technology revolution is the threat of entry into the money and payment system. It will force traditional institutions to adapt or die. And if you fast forward to 2023, I mean, that is almost dead on in terms of what's happened, right? Is you have central banks around the world who some of them are like, this is absolute nonsense. These people are idiots. You have some countries now, very small number, but some countries saying, well, maybe we don't want to replace dollars or anything, but maybe this actually does have some value and we'll start trying to figure it out. You have some public companies now saying, well, maybe this is good for my treasury.

Again, not a lot, but a couple. And then you have estimates between 100 and 250 million people, depending on who you ask, around the world who say, hey, this deserves to have some portion of my economic value, whether it's 1% or 99.9%. But it is competition at the end of the day. And I would argue maybe it's as close to free market competition as we get because it's not warring centralized institutions that kind of can conspire or price fix. like you have one that is fully decentralized and this free market asset what is your kind of view at now having seen you know nearly a decade of that competition play out like it should we have more competition or do we reach some point where like there's too much competition and hey everyone calm down yeah i see the and you by it are you referring to bitcoin specifically yeah um as

opposed to more broadly yeah so yeah uh more calm i i view it more like a darwinian competition it's It's unavoidable, and I am, like many Americans, actually I'm Canadian by birth, but we do need to be wary of concentrations of power. Concentrations of power, they're great for coordinating, great coordinating devices. There's this trade-off in my view. We need the fundamental problem of large economies

is how do we coordinate behavior amongst each other, and it's useful to have these central nodes, these coordinating mechanisms. problem is that the power becomes concentrated and uh and for this reason i i thought you know the evolution of something like bitcoin for example i mean this is kind of good i mean this is the threat of this it's going to force um some governments to kind of perhaps you know if if certain governments uh are abusing their power of the inflation tax you know this is different than just the u.s dollar now any kid with a cell phone can download an app and like start exchanging in

Bitcoin, and it's going to be very hard for the state to kind of ban this activity or enforce bans, that this might serve as a useful way to discipline governments, you know, currency competition. I still think that that's the case. And as well, also for our financial firms, you know, Bank of America, JP Morgan, I mean, all these big institutions, they have a lot of economic power. And I think that the correspondent banking system is kind of clunky and there doesn't seem to be much. I don't want to go too hard on the global financial system. It has evolved and improved relative to when I was a kid. So for all the kids out there, I remember traveling to Italy with my mom and having to go with traveler's checks, if you can believe that.

And I won't go into the details of how difficult that was. Now I travel with a credit card. Okay, I guess I get ding fees, and sometimes it's tough to send money to my friend in Cyprus or something like that. But, you know, the evolution of the appearance of these competing protocols I see as a useful way to keep us on our toes. I do think it's useful, and I do welcome it. more. Whether there can be too much of it, I'm not sure about that, but some is certainly good and healthy, I think. Is that a view that you see popular inside the central banks, or is that a unique view and maybe one that colleagues, whether at U.S.-based kind of Federal Reserve and central

banks or internationally may not share? Well, I'll be honest with you. I think that probably most people don't share this view in governments and these institutions. I don't know what it is if they select for people who are more inclined to kind of apply the heavy hand of government

or whether the culture molds them in that direction. I'm not sure. It's a very strong instinct a lot of us have, by the way. Myself, yourself probably too. We're engineers. We like to think of like solutions to problem.

And gosh, if only people would listen to the way I would design things, you know, it's an instinct that's kind of in a lot of people. But there are people that populate these institutions that kind of have similar views to me. And I'll give you a good example.

I mean, we just had Federal Reserve Governor Chris Waller come to the University of Miami to give a talk on central bank digital currencies. And the title of the talk was Demystifying Central Bank digital currency now here we have a federal reserve governor uh pointed uh um nominated by

the last potus uh ratified by senate he's you know very powerful position and he's saying like what the heck since when since when does the fed come in and since when is it an american tradition to have the government compete with private firms um i mean this is just not something we do in america we don't say that the government should create a car factory to compete with general Motors and Ford. We don't do that. You know, we don't, we see the government as a partner, as a supporting agency

to help support, like the Fed supports the private banks in managing the payments. It's there as a lender of less support to regulate, but we don't actually necessarily want to get into the business of handling retail trades. And that's something that the private sector does very well.

And so this is a high level Fed official expressing this view. So the view is not absent. By the way, as I came up with a counterexample, the U.S. Postal Office is actually in the Constitution, apparently. But not that I'd set that up as a model for central bank digital currency. But that's to answer your question shortly. No, I don't think the view is kind of well appreciated or popular, but it is there. Yeah.

Central bank digital currencies, let's talk about them, scares the hell out of me and many other people when you start talking about privacy. One of the things that I use to really highlight what I perceive as the dangers of them, or you can have the surveillance state, you can have the whole social credit system that everyone likes to point to China or whatever, but also even things that seem maybe less harmful, but I think still could be abused are things like personalized monetary policy, right? If all of a sudden I could say to one person, hey, you're going to have a currency that experiences low inflation, and somebody else is going to have one that experiences high inflation, and it's based on your savings rate or on your spending or consumption patterns. And again, we've never had the technology to do that, but you give that technology to someone, it could get kind of weird pretty quickly. And I think we always hope that people would kind of use it for good, and there's probably a lot of reasons why you could do positive things with it, but also a lot of bad stuff you could do with it. So those are like the negative side effects or the negative possibilities. The positive ones, and I think the first time that I ever saw someone in the United States government talk about a thing called digital dollar, not a central bank digital currency, but digital dollar, was actually during COVID when it was introduced in one of the early drafts as one of the legislative bills. And they basically were saying, like, we need to be able to deposit immediately the money into someone's account.

And so using this digital dollar would allow us to do that rather than sending checks, blah, blah, blah, whatever. Now, interesting that it made it into the first draft because there was no digital dollar at the time and it wasn't possible to be used. But you can see how people will come up with a litany of different use cases as to where it could be helpful or beneficial. Do the harmful kind of dangers outweigh the positives? How do you kind of view these assets outside of the government just usually hasn't done this, but if they did evaluate it, how do you look at it? Yeah, gosh, great questions. You know, well, first of all, Chris Waller, Fed Governor Waller's perspective is he has a very nice paper out called Central Bank Digital Currency, a solution in search of a problem, I think it's called. And so you just mentioned one. Oh, gosh, this would be nice. We could send digital money to people during the pandemic.

Well, I mean, you can do that right now. Have everybody open up an IRS account or a bank account. I mean, why can't you do it through conventional payment rails? He goes through the paper, financial inclusion, all the litany of things that a central bank digital currency would allegedly solve. And we're already, either they're already being solved, we have real-time payments fed now, the clearinghouse has real-time payments. And there's other ways to solve these problems. The central bank digital currency seems like a pretty clumsy way to solve these problems, according to Governor Waller. So there's that. um in terms of on the other hand in terms you you and many others are afraid of the kind of the

information that might be available to the government first of all keep in mind that the fed would never do this unilaterally it would only it would only act uh with the uh authority of congress so it's congress again you have to go and and let your congress your representatives in congress know how you feel about this and get your feelings expressed so the fed's not going to implement anything like this on its own. But if it were, I mean, how do you deal with privacy issues? Well, that's actually, you know, it can be done. I mean, people might not trust the solution, but one, there's different versions of central bank digital currency. So one version is what they call a synthetic version, where in fact, you wouldn't tell the difference between what your

regular bank account and a central bank digital currency account, you'd have an account at the bank of america and it would be called your cbdc account and it would be not a claim against bank of america the way your regular bank deposit is it would be a direct claim against the fed so a fully insured account with the uh the federal reserve that's intermediated by the bank of america bank of america would be the one observing your transactions the way they do right now uh and so the the government would not have in this version of cbdc the type of information that scares the heck out of a lot of people is there an argument to be made right now that a hundred percent of deposits are insured by the u.s government even though the fdic is only 250

uh it certainly seems that way uh that's uh i was hoping you weren't going to get into this issue we can leave it at that but i it it does beg this question right of like um again maybe kind of waller is hinting towards this but some of the things that people are trying to do like insurance or kind of who your counterparty is to some extent um in some way maybe we already have part of this system in place even though it's not explicitly said right and the bank failures that we've watched over the last you know couple of months maybe it's actually highlighting the system works a different way and and not in a negative light actually for the american citizen it works in a more positive light because it means more of their deposits are insured um but it is

different right then i think kind of what the system was said to do yeah the recent episode is kind of strange in many ways like silicon valley was very odd in many many ways there you know the depositor the depositors weren't you know i think they had 10 major depositors or something like that, not a very well-diversified depositor base. You know, they took the hedges off, but they didn't follow a very prudent asset management. They took the hedges off of their, you know, duration risk.

They did a lot of things wrong. One thing that I heard is, you know, with these days, especially with the lack of diversification in the depositor base, was how rapidly the deposits evaporated from these banks, from Silicon Valley, just the volume. Now, in principle, that shouldn't be a problem because if Silicon Valley has,

if they're being properly regulated, their assets are sound, they might be illiquid a little bit, but that's what the Fed's discount window is there expressly there to say, hey, listen, people are panicking. You have good securities. We'll lend you against this good collateral.

My understanding was that the deposit outflow was so large that the discount window could not handle the volume. But the answer to that is to fix that side of the window to make sure that the window can respond in the volumes necessary. I think the number, I may get this wrong, so somebody will correct us for sure. But I think the number was 40 something billion dollars was withdrawn in the first day on that Thursday. I think that sounds right. And I think even more after that. So, I mean, the volume was incredible. I mean, I wrote an entire piece. I called it a digital catastrophe, right? It's basically actions in the digital world that now benefit from the speed of communication, but also the speed of action and the lack of friction to doing some of this can have a very real negative impact in kind of reality.

well i was i was thinking about this question and the problem is not the speed speed is great the problem is the discrepancies in speed when systems are communicating so here we got the speed on the depositor side to withdraw but the corresponding speed on the disc at the landing side was not there you've got the when the speed differentials are different it's like you're going 100 miles down uh down a highway and somebody's traveling at 20 miles an hour that's the danger if everybody's going a hundred miles an hour on the Autobahn, that's not so problematic. So it's not, I don't think it's the speed per se, as much as it is the comparative speed. Yeah. So we, we, so in the evolution as, as we evolve, I mean, things, you know, we're not all coming up to speed at the

same rate that leaves us vulnerable as it did in this last crisis. But I think that once you come up to speed, I think the high speed is not going to be a problem. Yeah. The other piece of it that is, um, is fascinating to me in that specific example is obviously, uh, everyone's heard, You know, hey, you used to have to get down to the bank, stand in line. You know, you could talk to people, but you're pretty much talking to people who are right next to you, right? And so information doesn't travel in the same way. Twitter obviously had a very material impact here. But somebody in the Bitcoin world, a gentleman named Nick Carter, who you may or may not know, he pointed out that, listen, you know, some of the talk track of, I think, Janet Yellen and a few others after basically said,

look, we never accounted for the speed of this happening and kind of the dissemination of the information and all this stuff. And his point was like, look, computer's been around for a while, right? You know, cell phone's been around for a decade, you know, or 15 years or whatever it's been now. And so he basically was like, look, again, yes, if you've never seen it before, it's hard to kind of predict every individual nuance,

but to basically be like, oh, we never thought about the fact that people can withdraw online versus going in, uh, standing in line, it's hard. Right. And, and, and then you get the emotion laid into and all this stuff. And so what are maybe some other blind spots that you're like, you know, this is something that we may need to pay more attention to, or, or, um, uh, maybe people aren't thinking about they should be. Well, uh, it's, it's a great point you know um it's to be fair i guess and i try to be fair uh you know people uh like yellen powell they're fighting a lot of fire i mean and and and they're human and and the people working for them are fighting fires uh and you're human you you just have a limited bandwidth

and in retrospect when a crisis like this happens you go though of course thanks nick for pointing that out uh where's your blog post kind of highlighting this before the event uh nick if you're out there maybe he's written it he's going to show us but there's a 50 50 shot nick wrote about it before it happened just if there's one person that may have actually written about it nick would be the person well i'll be impressed if he has and and and and so we need to listen to people like like nick so um for myself my the blind spots for me are um are the in a well basically fighting fires i mean it's like in the lack of formulating contingency plans going forward so for example i i forgave on our discussion about the monetary and fiscal

interventions during covid i kind of forgave fiscal policy monetary policy for being crude and for being not well targeted and there's some pork and stuff like that but it's what you got to do in a crisis it's better to err on the side of caution i can forgive you for that i mean But I can't forgive you, Forrest. Why aren't we getting policies in place for the next pandemic, for the next crisis? Where are the people sitting down? Listen, the next time this happens, and there's going to be a next time, how are we going to deal with it? And that's, I think, an example of, you know, that this is where I am most critical of policymaking is not the actions are taken in the, you know, in the trenches during the war, the battle, but formulating the strategy going forward for these types of one-off events. um yeah i i i i don't know what to say i try i do my part but it just seems like uh people are so consumed with what's happening right now that there doesn't seem to be uh enough resources devoted to these types of questions like where are the weak spots what would we do uh in the in

the event this or this happens i mean i i wrote a recent piece uh actually in support of a central bank digital currency for uh potentially uh for an event for example that i think policy makers should at least discuss what is this event well the emergence of these uh decentralized autonomous organization stable coins kind of like the die um less tether tether is not quite fully dow but i mean it's uh less regulated but imagine something like a die-like object that uh or or or some sort of blockchain-based endeavor that kind of permits firms in the global supply chain to finance payments.

Rather than go through conventional American banking system, they go through this kind of unregulated structure. And it's going to be very hard to regulate by definition. And why might this be a problem? Well, I mean, Tether, for example, holds a lot of commercial paper. What if there's a run on Tether and there's a fire sale of commercial paper?

Is the Fed going to have to step in? Is the Fed going to have to like bail out Tether and unregulate? You know, these are questions. Maybe a CBDC that's available to firms globally, you know, they can open up accounts, finance their international trade and their suppliers along the global supply chain. Maybe offering a competing product might be a way to discourage Tether-like objects from becoming too large and becoming a systemic risk. for example very few people think like this i mean i i don't know why i mean they're just uh why why should i buy insurance well i'm not gonna need insurance i mean in fairness in fairness the general public too does not think about these things they're concerned why is my why are my

eggs going up like them you know they're it's inflation is the worry right now and so you can see uh um you know just policymakers are really trying to fight the fire that's kind of in front of them. And I think that I wish that more effort would be taken to thinking about these types of events. And maybe we should hire Nick to come out and help us out. Nick talks to enough central bankers where I don't know if they like him or not, but he's talking to them. One other thing around central bank digital currencies is kind of a variation of it. A couple of years ago, maybe this is 2018, 2019, I felt like the curtain got pulled back on a potential strategy for corporations and it frankly worried me right i said hold on a second here i'm not a genius but

i can put two and two together and see how there's a path to us getting into a world that we don't want to be in right and so the idea was um i think it was jp morgan at the time had come out and they had this jpm coin and their thought process was we're not going to offer it to retail we're only going to offer it to our corporate kind of partners it'd be easier uh to move money cheaper all the things that these promise. And they were going to back it with dollars. Seems pretty reasonable, right? Hey, it's basically just this digital thing.

We're going to move around. It's backed by dollars. JP Morgan, just with corporate partners, no retail. Okay. And I started thinking, well, if I was JP Morgan and I was sitting there, and I'm not suggesting that Jamie Dimon is thinking this way, but if I was running that bank and Jamie said, hey, be the most evil person you possibly could be,

well, I would get my corporate partners to start using it. Then I would get my retail customers to start using it. And I would get as much of the world using my JPM coin as possible. And then I'd wake up one day and I would just unpeg it from the dollar. Similar to coming off of the gold standard. And now I've got a money printer, right? And here we go. And I can now use JPM coin very similar to how central bank could create and destroy money.

I'm not suggesting that that is what they're trying to do or where we could go. But you could see any bank potentially getting into this situation. And so my point was like, not a really big legislation guy, but like we might want to put some rules in place to prevent people. If you come out and you say, hey, we got a coin or a stable coin or whatever, and it's going to be backed by something, you can't later change your mind and unpeg it, right? Is that a worry in terms of the central banks not only competing with these decentralized things, but these private companies creating their own currencies? Is that a worry? I mean, I'm sure you can find, you know, a central bank is populated by thousands of people. So I'm sure you'll find somebody who's worried about stuff like that.

I'm not worried. Why not? I think it's wonderful. If I can move money more efficiently with JP Morgan, that's great. I mean, you know, I've seen the advances in payment technologies over the decades, and most of them have been private sector initiatives. If you take a look at M-Pesa project in sub-Saharan Africa, take a look at WeChat and Alipay in China.

I mean, you know, I mean, the private sector does provide these solutions. Now, one of the fears, though, is that, you know, will a country lose its monetary sovereignty? I don't know. I don't think so. I mean, you know, first of all, how much you're still in charge of regulating. So J.P. Morgan is still going to submit to regulation, okay? And by the way, there's no way that they're going to de-peg J.P. Morgan coin. It's just going to be a regular bank deposit. Or they're going to suffer the consequences of their charter revoked or something. But what about the fear of a sovereign? And probably, maybe this is more like, take a smaller country like Canada, I guess, where I'm from. You know, suppose people stop using the Canadian dollar in Canada.

and they start using the U.S. dollar, let's say, or J.P. Morgan coin or Bitcoin. I mean, I don't know. You know, I can still imagine a regulatory body that's kind of governing the way banks issue deposits, and there's still going to be regulations about how their assets are structured, how their liabilities are structured, their capital ratios. At the end of the day, well, what about monetary policy? Well, I don't know. You still have fiscal policy.

How about a state contingent consumption tax? So you don't want to raise interest rates, raise the consumption tax to cool off the economy. You want to stimulate the economy, lower the consumption tax. I mean, there's other mechanisms that one might use instead. What about the loss of seniors, the inflation tax? Yeah, okay.

What is that? I mean, how much do you derive from that? That's a very small fraction of the total budget. Yeah, you'd lose it. So what? I mean, replace it with other taxes. Life will go on. What about a country like El Salvador, right?

And so obviously in the Bitcoin community, there's a lot of people paying attention to this experiment. It now appears that maybe the IMF and others are also paying attention because I've seen reports that as they're issuing various bailouts or kind of loans to other countries, they're saying, hey, you can't do anything with crypto as a kind of a clause in those contracts. But El Salvador is unique in that it's dollarized, right? So they lost their own currency, I believe, in a civil war. um and when they use dollars dollars seem to work right you and i go the atm we we can use dollar everything's great they didn't replace the use of dollars with bitcoin they kind of just said like well what about both yeah and so they said we're going to keep dollars as uh kind of a national currency um and we're also going to add bitcoin that's also going to be legal tender here in our

country it's interesting right um i think maybe the biggest benefit to them so far has been tourism A lot of people going to visit, tourism has exploded in the country, right? But how do you think about an experiment like that where they're basically trying to use both? And I'll caveat this with, I have a piece of information the audience probably doesn't have, which is the second to last slide in your 2014 presentation is you basically, I think the quote that you used was a match made in heaven. And you have a picture of Janet Yellen and a picture of a robot and Satoshi Nakamoto's name underneath it. And kind of this idea of like, is that actually maybe where we started the conversation? The dollar is a great short-term kind of store of value and a use for as a medium of exchange and will continue to be strong. And then this idea of Bitcoin maybe is like the long-term solution that people can use.

Yeah, I think there's that. I guess in that slide I was getting, I actually had like Ripple in mind at the time was in my head because it was a currency agnostic kind of payment rail. the way I understood it at the time. And one way to view this is one service that Bitcoin is, you know, what does Bitcoin offer that people value? I mean, for me, permissionless access and use. It offers, you know, a hard money policy and a pretty cheap payment rail, or hopefully cheap.

And so, you know, to the extent that in a country like El Salvador, or people have difficulty for one reason or the other, say the banking system is not well-developed, the people are not well-connected to the banking system, there's many unbanked, that, gosh, you know, why not accept Bitcoin as legal tender means that the government will find it perfectly acceptable for you to pay your taxes in Bitcoin.

Gosh, I don't know why people in the Bitcoin community get excited about paying taxes. I've never seen such excitement over paying taxes in that community, But that's what it means. At the same time, there's the payment rail. I mean, it's a wonderful thing, you know, not now that the central bank, the government doesn't really have to go to the effort of trying to build the payment rail, you know, it's a lot of effort involved. The you know, because money and payment system is essentially a database management system, you have to worry about communications, keeping communications secure, keep making sure the accounts are kept safe. Bitcoin solves all these problems. Why not let people avail themselves of this payment rail if it serves that purpose? And at the same time, you can have the domestic legal tender. I don't think the U.S. dollar is legal tender there, is it? Don't they have the – it is?

Yeah, so my understanding, again, I could be wrong, is they lost the currency during a civil war, and so they adopted the dollar. The dollar has great benefit, but it's hard, it's dangerous. I'm a big believer in coexistence. And because it's actually characteristic of history, by the way, as I've mentioned, there's been a long history of local currencies coexisting with a dominant, you know, national currency, even in the United States in paper form. I mean, the Ithaca hour, for example, in Cornell is at Cornell there. Ithaca, New York is a famous example. And so yeah, why not? Why not try this experiment? See if it works. I'm not sure how well it's working right now, by the ways, but I mean, what's, what's, what's the harm? I mean, I think I'm happy as a, as a social scientist, I'm very excited to see this, but. Well, it really in some degree, it's like it goes back maybe to the source's view of the world of like Bitcoin success or failure is something that many people evaluate as Bitcoin success or failure. But by El Salvador adopting it, they are betting on the success of Bitcoin being the first country to publicly adopt it has an impact on the success of Bitcoin. You get into this kind of circular world where maybe actually if there are people who want to see the success of it, the thing that they can do is to adopt it because it helps drive for the success. Now, the risk with that is the reflexive nature of everyone keeps doing that, and you risk, again, Soros with the bust side of the boom-bust cycle.

But again, it appears that, you know, at least that one country, and again, it's a small country, but that one country does see this as a viable option. I think so. And yeah, I like that Soros take on it. The other thing I like is I like to see redundancy as well. I mean, I don't see why we have to rely on one single system. I mean, if it goes down, you would like to avail yourself to the other. So you can imagine people holding a Bitcoin account, a US dollar account, but why not? you might lose a little bit in terms of efficiency but you gain in in robustness and by the ways i

just want to point out that even if bitcoin were to fail in in a narrow sense of the say the token goes to zero and nobody uses a protocol i would still say bitcoin's been a success for the inspiration that it's uh instilled out there there's many many uh projects out there that i would call that are not strictly speaking they don't use proof of work they don't use the exact type of Bitcoin protocol, but they've motivated many, many people to think kind of outside the box. And I call them Bitcoin inspired projects. So I think Bitcoin has been a success, will be a success, kind of irrespective of what ultimately happens to the value of its underlying token or use of its protocol. That's a great point. So we're talking about El Salvador. As I was sitting

here thinking, I said, wait a minute, they're using dollars and they're using Bitcoin. This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result, less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Well, I know another country that uses dollars, right the united states is there a world where you think the u.s should make bitcoin legal tender

and say it's not a replacement but it's a you know both situations dollars and bitcoin yeah um you know there is a branch in the economics literature that you know recognizes the role of the u.s dollars the global reserve currency and sees it as kind of a net negative for america Like there's going to be too much of it. We do benefit from the seniority we extract from the rest of the world. But there's this thing called the Triffin dilemma. Yeah, you can Google that as well. It's kind of a double-edged sword.

And some economists, like Michael Pettis in particular, have argued that it's led to a hollowing out of, it requires us to run current account deficits, which basically means you're going to lay off all the uh manufacturing workers here let them fend for themselves and import let china manufacture all the goods and by the ways is that really a good idea uh and so should we kind of encourage de-dollarization for example by permitting uh say bitcoin to be a legal tender kind of encouraging the use of some alternative currency um i think that the ad the the advocates of the

side where there's too much dollarization might be in favor of something like that uh although be honest i don't see this ever happening anytime soon but you one could see the logic of it uh yeah so i wasn't planning to do this but now i'm interested in uh in your thoughts um i want to paint a picture of a potential path i'm not saying this is the path that i i even would bet on but i think it's an interesting thought exercise um my view of the world is that the single best place to be as a country is to be the owner producer and controller of the global reserve currency for a whole bunch of reasons there's downsides that you know as you just mentioned but i think most countries aspire to have uh that control the second best place is to use a currency for the

rest of the world that no one controls right like if you're not in control you kind of don't want anyone else to be in control is is maybe a a very generalized framework now in that world if the united states actually does suffer from kind of global dollarization and there would be this argument for de-dollarization um other countries around the world if everyone began to use a currency that was separated from any nation state so you know use bitcoin as the example but but could be a whole host of things people could create but let's use bitcoin In that world, does it actually create, one, less violence because now you're not fighting over using currencies in these kind of violent interactions? But two is do you now actually, similar to GMT time, right, where the entire world can look at one time system and use it regardless of geography, et cetera, do you start to standardize across the world?

And now you essentially would replace the foreign currency markets. Now, I don't actually think in this scenario they go away. It kind of would be like the euro and maybe some of the underlying currencies, right? But it's an interesting way to look at, like, is there a world where actually it's a net positive to every country to adopt a global reserve currency that is not tied to a nation state? What do you think about that? I can see the merit of that argument, right? I think that the special drawing right, the IMF special drawing right, would be an example of that potentially as well.

And again, you know, there's the issue of coordinating on a – when I write down my economic models, it says one currency, please. That's the most efficient thing. Robert Mundell, a Canadian economist who won the Nobel Prize for his work in part on optimal currency areas, This kind of explains there are circumstances where you might not want just one, but a few. But, you know, you can kind of see the mirror. It's kind of like having a consistent yardstick, the idea just as.

Now, the second thing is, how do you govern this currency? How are the payments process is going to be Bitcoin, for example, or we could imagine a Bitcoin inspired protocol that doesn't isn't quite as hard asked in the monetary policy. could potentially be net beneficial. Whether or not it would lead to greater peace, I mean, I don't know, Tony, I think you have a much more optimistic viewpoint than I do. I think we'd find different things to fight about and we'd find, you know,

I've often railed against Bitcoiners who kind of, you know, believed or expressed a belief that, you know, that strangling the state of this source of seniors and inflation tax would lead to peace. I go, no, it's just going to make them build tanks and come after you physically and take your property physically.

It's actually, it might even promote violence. So it's not entirely clear. I think that we should focus more on kind of, you know, governing ourselves in a more sober and kind of adult-like manner. And then, you know, this type of vision that you have, I can see the merits of that, actually. I mean, I could see how that could work.

um and why not have it as part of uh you know i mean i have an option imagine you and i have an option of when we do have this option and i imagine say bitcoin for example does become very popular suppose uh as a global a medium of exchange sure why not i still probably want to hold a u.s dollar based account as well i don't see the united states uh not letting u.s dollars be legal tenders i would still pay my taxes in u.s dollars i'll still pay the canadian government in Canadian government dollars. So there's always going to be a demand for these different currencies

that can serve the needs of the different constituents. Again, I'm a big believer in coexistence. If this vision of yours was to actually transpire, I think it would be a good thing, actually. But I don't think it would end violence. Well, I think the violence component is one area for sure where I think Bitcoin rising in popularity

even to global reserve status, Every global reserve status change that we have seen has been at the hands of some violent weapon. It used to be bows and arrows and eventually now with the United States military doing it. But in a weird way, fiat currencies and the changing regimes has always been about who had the greatest offense. You went to some other land and you were able to basically take over, right? And you had military victory on their land and therefore now you are the dominant military and so you get to put the global reserve currency in place. In the cyber world, it's not all about offense. It's actually about defense. And so in that way, my thought process has always been, and I'm actively looking to have it disproven, right? This is something where it's like, man, this is interesting, but I don't think we have enough time to really kind of yes or no it.

If defense is the most important thing, actually the strongest defense will then lead to the global reserve currency, and nothing is more defendable or decentralized or stronger than the Bitcoin network. And so could it be the first global reserve currency that rises to that status without ever shooting a bullet, dropping a bomb, creating any sense of violence? That doesn't stop violence from Russia, Ukraine, I don't think is necessarily happening right now over global reserve status of a currency. So not all violence goes away, but in some way, a global reserve currency being established with no violence is fascinating to me. I see. I'm trying to think of counter examples to that statement. This is why I like talking to you, because I knew that's what you were thinking. My knowledge of history isn't that great about it. But I know that, you know, I think that in recent memory, I mean, we've had three global reserve things that's operated like global reserve currencies, dominant global currencies, the most recent being the U.S. dollar.

uh and prior to that it was the british pound and and prior to that my understanding it was the uh the dutch of course the netherlands had uh the netherlands of course was a tremendous economic power i think in the 17th century if i historians out there can correct me on that century um uh the uh the dutch were i as far as i know we're not i don't think i guess they did colonize here there but they weren't a mighty global power but they were a mighty commercial power uh and so i don't know if that's a kind of a counter example my point is is that these these two things seem hard to separate it's true it's true that the british empire was the most powerful militarily but they were also the most powerful economically

uh likewise it's the same is true the united states um but i wonder i wonder if those two things are necessarily wedded maybe so uh i'd have to think about it but your your your insight here about defense being so attractive in that uh you know there's no there's no elected leader of bitcoin there's nobody who's gonna go out and fight on and use bitcoin uh the power of bitcoin seniors to finance global uh conquest uh that this is just a protocol just by its sheer design and the properties in its design is going to attract people. And it's going to become powerful precisely because it's very peaceful. In fact, it's agnostic

and it's just a robot. That would be very interesting to see that emerge for that reason. Do you think that was a reasonable shot of happening? And if so, what would be your timeline for something like this? timeline is impossible we might not be around to see it but who knows who knows what might happen i mean i think that um my memory will fail me here but i think it was 2017 or 2018 there was a couple of countries for some reason i want to say like argentina and name whatever other country that decided to do some test settlement of bilateral trade in bitcoin now before everyone gets excited

this was like ten thousand dollars right this this was like literally didn't even matter for either country um but just the fact that they were even willing to try it announce it etc was interesting to me you see el salvador obviously doing this um we haven't talked about mining and kind of uh some of these very oil rich countries that may actually use it as uh some ability to monetize some of that energy in a much more cost-effective way one of the uh kind of negative sides of some of this is I had a gentleman from the economics department of Harvard who was saying, look, Bitcoin, after the sanctions on Russia, now enters the conversation as a sanctions hedge for many countries. Along those same lines, there's a report, I will say it's unconfirmed

because I haven't been able to find the exact source material, but it was pretty popular by a number of people I trust on Twitter, that there has been an explosion of ASIC, kind of Bitcoin mining hardware orders inside of russia and so if you basically you sanction them off you don't let them really kind of engage in the energy markets they have surplus energy they want to monetize it well one great way to do it may be through an apolitical you know kind of monetary system where they can literally monetize it at the point of the energy production you know you kind of start seeing some of these data points you're like look again it is nearly impossible to predict the future in fact i would argue it is impossible to predict the future but there's enough data points that

suggest uh countries will more countries are going to embrace this in the future than less and so if that is the path well maybe actually bitcoin is the first technology of our lifetime that's been globally adopted by individuals before nation states right if you think of most technologies whether it's internet computers whatever it's like the military the nation states then corporations and then finally someone got the you know the pc to be on everyone's desktop right and they got the cost down and all the stuff there's like no nation state right i mean literally you're the first central banker in the world that i think either you or i know of to do a public presentation on bitcoin in 2014 five years of individuals around the world running

around trying to figure out what this thing was and frankly some of them got it right some of them you know there's the classic tweets that go viral all the time where the guy's like so glad i sold my bitcoin at three dollars right it's now 50 cents um so so you know this stuff's hard even if you're early but it does kind of point to this world of like bitcoin will become in my opinion more important in the future what does that mean in terms of the day-to-day usage i have no clue right and i think that's maybe where i differ from some folks in the bitcoin community is i think they are adamant about you know 100 it is going to be the global reserve currency i'm probably in the camp of like there's a higher probability i would assign to it than

many other people i know in finance or technology but i don't know if i would be comfortable saying 100 right i don't know what do you think i mean i would never say never first of all uh and i don't think it's likely within my lifetime which admittedly is not that long for you youngsters out there but but uh you know you'd have to ask the question um you know first of all i think it's ironic that uh the the ability of russia to avail of itself of this is not exactly something i'd call to promoting peace but anyways uh you'd have to think you know um about certain countries about their political institutions how they're set up and the propensity of the local of of the uh representatives or tyrants in some case of their propensity to uh permit their citizenry to to to

utilize this technology oh but how are you going to prevent it i mean you just access it through the internet and blah blah blah well and and they can't appropriate it either right not not directly well i'm afraid you know if you've got a death spot uh i mean i i think can take some pretty pretty dramatic measures i mean they they won't know your private key but you know they'll they'll they'll take your daughter and string her up in a tree and then you you'll have a choice you can submit your private key or not it's true uh you know so i don't know uh whether you know for these reasons i mean these these base human instincts or these these these jurisdictions where you you get these governments that are just tyrants uh are probably not gonna

permit bitcoin to become universal in the sense that perhaps some people hope And even if it did become universal, like I said, Bitcoin will not solve the problem of despotism or tyranny. But who knows? I mean, I see the argument that you're making, and I share with you, I think it's going to spread. And indeed, like I said, even alluded to earlier, even if Bitcoin itself doesn't spread, but I do believe it will spread. Adoption is still relatively early. That Bitcoin-inspired projects will spread. as well. So Bitcoin itself, I don't know. Let's see. Let's see if these Bitcoin maskies turn out

to be right. The last thing I want to talk to you about is the University of Miami. So you and I met. Sometimes it was friendly. Sometimes we were debating ferociously all sorts of different things on Twitter. And then one day you messaged me and you said, by the way, I am coming to the economics department at University of Miami. It's right down the road. And I was like, oh, It's amazing. And talk about why take that job and what are you trying to do with the economics department there? Yeah. Yeah.

So, you know, I'm a lifelong academic. I have Italian roots just like yourself. We talked about that over coffee. Yeah. I made my way from pretty humble beginnings to, you know, I lost my job during the 1981-82, my construction sector job during the 1981-82 recession that Paul Volcker engineered. And that made me go back to school to kind of discover what was that all about. And I made my way through the Canadian academic system.

I was a professor of economics in Canada for about 20 years. And then I made my way to the Fed in 2009 during the crisis. Very exciting to be there to consult and to experience what was happening there. I got to meet Paul Volcker, by the way, and let him know that he was responsible for me being there. Thank you very much. But, you know, I had a very good run at the Fed. I met some great people. It's, you know, my respect for the institution.

I mean, it has its flaws. Don't get me wrong. I've been very critical of the Fed as well. I think it's important for all you out there to criticize the Fed for the right reasons, not the wrong reasons. And I had a great run, 13 years. I learned a lot being, you know, a policy advisor at the highest level at the Fed. I was a lifelong academic, and I thought that for my final act, what I'd like to do is to come back to university, my first love, and to transmit to the new generations kind of the accumulation of knowledge that I have, both through the literature and my experiences at the Fed. And I really wanted to have an opportunity to teach the next generation what I learned.

And so when the opportunity in Miami came up, I leapt at it, and I came as chair of the economics department, which is located in the Miami Herbert Business School, the University of Miami. And we're trying to build a department that's relevant, policy relevant, that we have top researchers that contribute to the literature, but that also are based in reality, that are interested in contemporaneous policy issues. We just sponsored that talk by Federal Reserve Government Governor Chris Waller on a very topical issue, central bank digital currency. These are the types of events we want to sponsor. It was free to the public to come and meet the governor and ask questions. We are growing. We are recruiting. And we were thinking of reconstituting our master's program, which I think went defunct after a few years ago.

And we're thinking about how to model that. We're thinking about what needs there are. In the DeFi community in particular, we have a fabulous Department of Business Technology in the business school. We have a fabulous business law department. We're thinking DeFi is a space where economics, law, and technology kind of naturally intersect. What type of courses might we offer the students? I recently talked to one of the chief economists at Amazon, by the way. He noted to me that Amazon, a few years back, came to the realization that they needed some macroeconomists.

The global factors are kind of 90% of what matters to Amazon now that they're a big global company. And so we're thinking, how can we tailor this master's program in a way that serves the students' needs and the needs of the community in Miami, which we are very bullish on. And we think Miami is just, especially the DeFi community, the area you're in. So I'd love to have feedback. I'd love to meet people to discuss ideas. If you have ideas for internships, collaborations, talks, if you'd like me to come and give a public lecture or whatever, I'd be very happy to do so and to develop a relationship with you. We'll put you on the podcast circuit of Miami. You'll have your whole day booked up.

That's true. um my last question for you is you've been doing this a long time now what is your single best memory at the intersection of your work economics finance markets etc like you've met all these amazing people you've had all these moments like if you could point back to one thing you're like man that was fun what would it be oh gosh there were so many uh i remember i don't know what one memory stands out actually i remember uh my colleague jane And I working on, I think it was early 2019, recommending that the Fed adopt the standing repo facility, that it would help for a variety of reasons. And we wrote that article.

It was completely ignored. And in the fall of that year, we had this mini repo tantrum. And I was in a vehicle actually going to an FOMC meeting. And there was Jim Bullard, myself. I was accompanying Jim Bullard and I think Neil Kashkari and Mark Wright. And as we're heading to the FOC meeting, the news of this event transpired. And Kashkari turns to me in the back and says, geez, we should have adopted your standing repo facility. I thought that was satisfying.

Yes, that's why I wrote the article and did the work. And then I remember Jay Powell came to the Fed, you know, and he said, oh, I'm going to be at the Fed. We should meet up. And he gave a talk. There were about 60 people there at the talk. And I never went to seek him out. But, you know, there's a big ball of people around him. And I just was in the corner with my wife there talking.

And then the Chair Powell comes up and says, oh, David, he shakes my hand, just wanted to let you know that I really appreciate your work on the Standing Rebo Facility. I think you're just doing a fantastic job. You know, that's very gratifying for him to, he's a super nice guy, by the way. I mean, he didn't have to do that. And he went out of his way to, and I think, by the way, that's an important lesson for all of us to kind of acknowledge the people who are working with us to let them know when they've done a good job. So that's a couple of highlights for me. That's amazing. Yeah, yeah, it's fun.

The riding in the car with those guys must have been a blast. I always wonder, do you just sit and talk about economic policy the whole time or do they talk about other things? It's not just about economic policy. You'd be surprised to learn that we're a fun group of people as well. We have a wide variety of interests. It's not just economics. We are econ geeks as well, but we do talk about other things. What do they say?

Make economics fun again? Exactly. That's our motto. All right. Well, listen, thank you so much for taking the time to do this. Where can we send people to either find you on the internet or find out more about what you guys are doing at University of Miami? Well, thanks a lot, Tony. This is a lot of fun.

Listen, I'm out there. You just Google my name. you're going to it's going to come out that's the easiest thing but i'm at the university of miami miami herbert business school uh and if you just google my name i think it's the easiest way awesome and you are fantastic follow on twitter it's a it's a good dose of uh hey wait a minute maybe we should like think twice before we tweet some of the stuff that uh well i love following you as well you're a great source of ideas and it's just a lot of fun that i'm so glad we got to meet in person absolutely all right well thank you so much we'll do it again in the future thank

Thank you.