The Pomp Podcast - #1267 Lyn Alden | Bitcoin Solves Broken Money

Episode Date: October 31, 2023

Lyn Alden is the author of a brand new book called "Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better." This book is almost 500 pages, and it is a fantastic breakdown of the history of money, why the system is broken, and where we go from here. In this conversation, we talk about how the average individual is being impacted, saving vs investing, diversification, energy as the arbiter of truth, interest rates, US treasury, national debt, and more. ======================= Trust and Will has simplified the process of creating and managing your will or trust online. They leverage a data-driven, design-first approach and amazing customer support to help you protect your legacy from the comfort of your home starting at just $159. Sign up today for 10% off using ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://trustandwill.com/pomp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ======================= Base is making it their mission to bring a billion people onchain. But what exactly is Base? It's an Ethereum L2 offering a seamless experience for both builders and users. With near-zero gas fees and rapid transaction speeds, Base is shaping the future of the onchain world. Base is a canvas for everyone, with hundreds of apps in the Base ecosystem, whether you're an emerging creator, a seasoned developer, or someone exploring the onchain space for the first time, Base is designed to bring your ideas to life. So, if you're looking for a platform where the future of onchain is being built daily, Base is your destination. Join in and make onchain the next online. Learn more at ⁠base.org⁠ and follow along on Twitter at @BuildOnBase to see cool things to do onchain, everyday. ======================= Pomp writes a daily letter to over 250,000+ 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. 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. Lynn Alden is a repeat guest of this podcast and the author of a brand new book called Broken Money, why our financial system is failing us and how we can make it better. Lynn wrote this book, which is almost 500 pages, and it is a

fantastic breakdown of the history of money, why the system's broken and where we go from here. In this conversation, we talk about a lot, especially how the average individual is impacted by this eroding situation, whether people should be buying and renting, saving versus investing, how they can think about diversification, what's going on with energy as the arbiter of truth, how high interest rates, declining interest in U.S. treasuries, and an exploding national debt is going to impact our children and the future of America. I always enjoy talking to Lynn, and this conversation was no different. She was in great form and dropped tons of knowledge, so I hope you enjoy this conversation.

Here is my latest episode with Lynn Alden. 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.

Today's episode is brought to you by Trust and Will. I've gone through a number of different changes in my life over the last few years. I got married, I had a kid, and I had to start thinking about how could I ensure that my wife and my child would be okay if anything ever happened to me. That's where trust, wills, and estate planning come into play. Now, most people, what they do is they get introduced to a friend, an uncle, or someone in their local community. It tends to be someone who's really expensive, a lawyer, an accountant, or somebody who does estate planning, and they just simply are using a one-size-fits-all template and just telling you, pay me thousands of dollars and I'll

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loved ones, having a trust and or a will can literally be the difference between someone being taken care of and some would not. Go check them out today at trustandwill.com. Today's episode is brought to you by BASE. BASE is making it their mission to bring a billion people on chain. What exactly is BASE? It's a layer two offering a seamless experience for both builders and users. With near zero gas fees and rapid transaction speeds, BASE is shaping the future of the on-chain world. BASE is a canvas for everyone with hundreds of apps in the ecosystem, whether you're an emerging creator a seasoned developer or someone exploring the on-chain space for the first time base is designed to bring your ideas to life so if you're looking for a platform

where the future of on-chain is being built daily base is your destination join in and make on-chain the next online learn more at base.org or follow along on twitter at build on base again that's at build on base to see cool things to do on chain every single day all right guys bang bang I've got Lynn here with me. Lynn, I thought a great place to start. You wrote a book. It's called Broken Money. What exactly is broken about the money, right? If you're going to title the book that, how do you describe why the money is broken? So I think why and how are two different parts of the question. I think why is because basically of the 150-year-plus gap that we've had between... We've had this period where transaction speeds and settlement speeds are

so different. That's a big part of what I focus on in the book is that ever since the invention and specifically the deployment, widespread deployment of the telegraph and kind of ushered in the telecommunications era, there's no fast way to send long-distance value without credit. And so we just basically had more and more credit, more and more abstraction until we just kind of like lifted off from gold and kind of left it behind. But the downside of that gets to the how, like what's actually broken, is that when you look around, there's 160 plus different currencies.

Each one's like a little currency bubble. And they're all devaluing at different speeds. So some of the most robust ones grow at 6% or 7% or 8% money supply growth a year. Many of the developing country currencies grow at 15%, 20%, 25% in some cases more per year. And people are just kind of constantly getting diluted. And so they're constantly on a treadmill where you have to constantly try to earn higher wages. You have to constantly figure out what you're going to do with your savings. You can't just save it. You have to invest it. And so that's like a treadmill that everyone's on at different speeds. Cross-border payments, despite the fact that we live in a telecommunication age,

are not as efficient as we probably expect them to be. People 50 years ago saw that the money system still, in many cases, works the same way it used to, which is a little bit more fintech overlay. I think they'd be surprised at how little we've developed here. But the main issue is just the fact that the way it works is that it's become so centralized and people are stuck in these 160 different currency bubbles. So what's interesting is you're talking about kind of being on these different speeds of treadmill. And really what's happening is the measuring stick is changing. At one point in the book, you say that sound money is a measuring stick that never changes.

And when we think about that, let's say, fast forward, we get back to a sound money kind of foundation and everyone is able to use that as a measuring stick that we all agree on and it doesn't change. What will be the implications in society for the average individual? Do they start to change their consumption behaviors? Do they actually start to just become savers and not investors? How do you see that playing out? So I think, I mean, the world will look different. It's always hard to predict the future, but in general, investing would be more optional. So right now it's like a necessity.

Like, for example, no matter where you are, like I know people in Egypt and what, but as soon as they get money, you plow it into like real estate or something. You don't just hold the money because it's like holding melting ice cubes. And of course, in the United States, we plowed into the S&P 500 and other similar things. and so in that world saving becomes more of a just a normal thing and investing is more of a niche thing an optional thing something you can do and this particularly impacts uh uh people in the working class the middle class uh in in you know in many countries for example people are just saving cash they're not even getting the interest because you know bank accounts have

overhead costs and so if you have a net worth of like five hundred dollars they often just don't even try to go for that market. It's not something they care about. The costs start to overweigh any sort of usefulness they get from that. And so many countries still have underbanked people. But in that world, saving just makes more sense. Saving just works better. And also, the contracts that people do in society shift a little bit more to favoring the status quo. So whatever you have a contract negotiation, whatever the current contract is, it's kind of like the default starting point and the entity that wants to change it, the onus is on them. And so in a world where there's inflation every year, anyone who's trying to get higher wages

or raise their rent for their tenants or raise their prices as a small business or something, it's always on you trying to make that action. And that's particularly hard for wage earners because there's an anchoring bias because of that status quo. So if someone comes to you and says, I want a 5%, 6%, 7% raise. You think, why are you 5%, 6%, 7% better than last year? But really, they're not. It's just the money supply was so diluted. But realistically, they're going to get 3%, 4% increases. And so they're going to slowly get eroded compared to the rate that money supply is growing up, house prices are going up, and things like that. A lot of people change jobs unnecessarily, just because that's actually a way to restart the

anchoring bias and get the wage that they can't get at their initial employer, which is inefficient. But in that world of sound money, the existing status quo have a stronger negotiating position. Even if your salary is not changing, if your money is hard and productivity is increasing, you're getting a small real wage increase every year. If you're getting 1% or 2% increases on sound money, you're doing well. And if there's so much deflation, the employer wants to reduce your wages well that's gonna be tricky for them to do they could try maybe maybe if it's you know it could happen but it's unlikely basically it just starts favoring the productive class rather than the arbitrage class and i think that's that's good for society i think a a side

of an unhealthy system is when engineers uh go work in wall street instead of and can make more money there rather than go work building products and yet that's what we see a lot is that the best place to make money relative to your training really is wall street like people with a bachelor's degree can just make an enormous amount of money because that's that's the source of arbitrage and i think that that that gets greatly minimized in that other world so one of the areas of diversification that i think about is really there's almost like two different uh levels to this the first is uh there's a very large portion of our population who they have no diversification because they just save in dollars that as you called you know melting ice cubes they just kind

to melt away. The other side of that economic ladder, if you will, these people are very diversified. They have multiple investments. They're getting out of cash. And whether it's in Egypt and kind of buying real estate, or it's here in the United States, and they're simply putting into the stock market, they're trying to get out of the melting ice cube. Once you get into the investment class, then what you start to see is some people are heavily concentrated. They may have one or two investments. And then there's other people who are trying to protect their kind of investment portfolio, and they'll become very, very diversified. If we get back to this sound money kind of driven world. How do you look at diversification? Does everyone, for the most

part, it's kind of flips and we become a majority saving economy and those who choose to invest may only invest in one or two assets? Or is it more so there's just additional optionality and so people have more choice and the people who are the least educated, the people today who are just saving, they're the ones who really get kind of the benefit and the people who are investing, they're still going to have the same complexities and challenges of trying to allocate capital to outperform whatever the money and kind of the value of that money is? Yeah, I think the high conviction view is that overall saving just becomes more important and investing becomes that more niche optional thing you can do, less necessity. But the lower

conviction thing is what would those investments look like? What would people be more diversified or less diversified in that world? I don't really know. Certainly people that are trying to build wealth quickly would want to probably be more concentrated. That's you're trying to outperform. um overall investment selection would still be similar there's and but it's just like that's something that professionals do it's something that if you have spare capital it's something you can go into um but it's just not this necessity so the overall importance of that in society it's it gets just downgraded it becomes more kind of utilitarian um and another key factor is that right now if you have a lot of assets you can get access to cheap credit because

you can use those assets as collateral you know obviously credit's a little more expensive today than it was a couple years ago, but on average in society, you can get a much cheaper credit than someone who has no assets, which of course is going to be true in any system, no matter if it's hard money or soft money. But when you have soft money, when the unit of account itself is always shrinking, it boosts the importance of having that cheaper credit because all the wealthy people that have assets and that have purposely some degree of liability attached to it, could be mortgages, could be other things, you're basically shorting. it's like an extra source of wealth creation. You're shorting society's devaluing unit of

account. And that's one of your long-term sources of wealth creation that the working class and below is locked out of. But in a world of sound money, debts are more strategic with their purpose. There's no reason to have a long-term short on the currency because the currency can outperform most things. Even things like homes, which are really consumable, they're durable. So not really investments for the most part, but we treat them like that because in this world where you can attach a low mortgage to it and you're short of the unit, we turn them into investments. So in that other world, you kind of return more towards them being like a baseline consumer durable and investments become more strategic. One of the biggest questions that I get whenever I start talking about Bitcoin reaching any degree of mass adoption and really becoming the center of the financial world is, okay, well, everything that I've been told in this Keynesian view is that we need inflation

to spur consumption. We need inflation to spur investment. If we move to a deflationary type asset or a sound money type asset, no one's going to buy anything and no one's going to invest anywhere. How do you think through what actually is true and whether the critics have a point in the lack of inflation driving a behavior change that could be negative for society and the economy versus, no, actually, it's a positive? So I think we have two specific examples that help counter that. One is, if you look back at the 1800s, that was an era of mostly gold and silver as money. There's virtually no inflation in the United States outside of kind of temporary wars.

Basically, you had a benchmark of almost no inflation from the founding of the country up until kind of the creation of the Federal Reserve, no structural inflation. And yet that was the period of rapid innovation. basically railroads, automobiles, electrification, different types of engines were being built, new types of energies were being extracted and used in various ways. Just a huge era of productivity across the world, but especially in these sound money environments, and there was clearly no hindrance to them. So I think that's the first example. The second example is that in tech today, basically, the cost of a gigabyte of

of storage goes down a thousandfold, and instead of just deflating that away, we use a thousand times more gigabytes than we used to. And so basically with cheapness comes abundance. You can use more of things that are valuable. And there's kind of like a... When people make the argument that you need to invest if you're... Or that a strongly appreciating unit of account would hinder investment, they're kind of double counting it because you only get that account that unit of account is only appreciating if technology is getting better over time. You know, if society is not advancing, your unit of account is actually not buying you more, right? If we just kind of get stuck into a status quo, and all we're doing is kind of maintaining

our existing world, then say a Bitcoin is just still going to be by the same amount year after year after year. So you're not really getting inflated away, but you're not strengthening either. Only if society is, if investments are happening, if productivity is happening, uh will that bitcoin be able to buy you more in the future than it can today um and so you it's like people say well no investment's going to happen because your your bitcoin's always uh going up uh but it's like well it's only going up because investment's happening um and and so basically if if any time you have a skill or a niche uh you can likely find a way to have a decent chance of say outperforming bitcoin you're you're you're going out and

using your time and energy and expertise and knowledge to go do something that's more useful than just holding it. And if you're deploying investments, you know, you might be more selective, which might slow down certain ideas, but you're also reducing malinvestment. And so those kind of balance each other out. And that's what we see again. It's not just theory. That's what we see in histories. You know, the Renaissance happened also on a sound money standard uh like i said the the whole kind of the golden age of innovation in the 1800s happened on a on a solid money standard um and so i think that there's no reason to expect it would be different under a bitcoin standard uh and you know like i to use egypt as an example

you know there's literally like a bunch of empty homes there that people just they have a second home and just leave it empty because it's like well you know maybe i can rent out later or like i just want to have something tangible rather than hold the currency and and the local stock market's not great compared to other assets. So there's this malinvestment that gets redirected purely because money's bad. And if that money was stronger, sure, people might be more selective on investments, but they also make a lot less bad investments. And so I think the overall percentage of investments that are there would be on average more efficient, more focused, and less malinvestment oriented. So there's four ideas that I pulled out of the book that I think are

worth talking about and would love to hear you expand on more. So the first is energy as the arbiter of truth. I think this is a concept that when you go, when you actually study the energy markets, when you study how energy has been kind of harnessed throughout the years and specifically in the technology sector, it becomes a little bit more obvious. But how do you think about energy as the arbiter of truth, especially when it relates to money? So basically, everything we do in the economy is kind of one or two things. Either we're getting more energy per capita, or we're using that energy more efficiently. For example, energy in a processor, both the construction of the processor and then putting

energy into the processor to actually make it work, that's a very highly efficient use of energy compared to other things we can be doing. And so that's really what our economy and our interactions are, is basically just harnessing different types of energy, using them. And in the book specifically, the reason I use energy as the arbiter of truth is because And that's in the chapter that kind of goes over the different consensus models like proof of work versus proof of stake. And the importance of energy is that it can't really be gamed. There's no kind of cheat code for just getting energy without cost, for example. And so part of the reason why a gold coin has so much value is because there's so much energy density in it in the sense that in order to get a gold coin,

one ounce gold coin you have to move like a ton like tons of rock uh you have to go out spend like first it's the efficient part first you have to kind of use technology or other techniques to find the deposits where it's it's more dense in the crust than elsewhere uh then you have to basically build roads build infrastructure to get to that mine then you have to actually have all these like excavation equipment and dump trucks and all that you're just you're spending a tremendous amount of like diesel fuel literally plus labor plus everything else materials uh which are energy intensive to extract the the tons of rock get the you know uh sift through get the gold uh then refine it into a single you know ounce of of gold or you know bigger bar things like that

and basically that is like that's proof of energy when you give someone a gold coin you're saying this is proof of a tremendous amount of work was done uh you can't just print this um And even major new deposits that can be found, it's still very hard to dilute this quickly because a tremendous amount of energy has to go in to actually extract those new deposits. And so whether it's Bitcoin, whether it's gold, whether it's silver, even to a lesser degree, it's basically proof of energy. And that's one of the hardest proofs to ever kind of forge as long as the substance itself has some sort of verification method. Like a Bitcoin, you have a full node. Gold, you have various techniques, especially the smaller and more intricate like the gold is, the easier it is to confirm that it's not just tungsten wrapped in gold. And that's proof of energy. And so as humans have gotten more energy efficient and more industrious over time, we started eliminating certain types of money as being useful because they just didn't have a big energy component. Maybe in a hunter-gatherer setting, their energy component was significant.

But when we enter the industrial age, it becomes a small amount of energy relative to what we're capable of harnessing, whereas only things like silver, gold, and Bitcoin can withstand the ability to bring a tremendous amount of new energy to something. And it's something that no single entity has to control. And it's proof of energy itself. later in the book you write in the modern era energy abundance and technological enhancements have broadly improved human well-being but the global monetary system has been slow to keep up when you think about uh the advancements of energy and all of the benefits and kind of that arbiter of truth okay got it why is the global monetary system so slow to to uh kind of uh run alongside it and obviously in the book you dive into a number of different solutions that you

think are possible. But what is really the greatest barrier right now between where we are and where we need to get? So it's a great question. I think one of the key things that people assume about technology is that it's kind of linear and smooth and exponential, like that every year technology gets a little better than the prior year, which is kind of true on net if you look at all technologies. But in any one field, usually you get like some sort of pieces come together and you get like a boom of technology and then you kind of eventually stagnate for a period of time because there's just not another breakthrough. So anything becomes very incremental. A really good example of this is aviation. And Michael Saylors uses this example because he's literally

an aerospace engineer by training, which is basically for thousands of years, we make almost no progress on flight. The closest you get is like Da Vinci drawing about it, but no progress. Then they get a little progress with like hot air balloons and airships. That's kind of the first like step change um but even that just kind of stagnates not not super impressive but when you specifically find hydrocarbons and aluminum and put them together then you just dramatically just you know when you have the when you have an internal combustion engine when you have machining when you have aluminum when you have hydrocarbons we just have this like golden age of flight for like 60 years you go from wright brothers to the moon in like a one human

lifetime it's like remarkable um but then we actually kind of stagnated again i mean the fastest um uh uh you know kind of military manned jet uh was like the blackbird like in the it was i think the 60s 70s i forget when it was built but it's like they it hasn't really changed since the 70s um our ability to send humans into space you know we've not really gone we've not gone back to the moon uh after the initial several uh rounds um basically we've in some ways we've taken steps back uh the most innovative thing we've done on commercial airlines is put wing tips on them to make them a little bit more energy efficient and improve their avionics their interior stuff um and so their field of aviation has been an example of stagnation um for a long time and it just shows

that you know you have these kind of step changes and that's normally how things go in any in any one given technology field and with money i think that's basically what we've been stuck in is that the Telegraph was a boom for ways to transmit money. Basically, there are a couple of step changes in history. One was the inventing of clay and papyrus, for example, writing. That was literally a technology that empowered money. Then things like papyrus, then things like paper specifically. So paper and even things like bookbinding on top of paper.

So there's things we don't even think about today that were actually technologies of their era. Then there was the printing press. That actually was another huge piece of technology for money. um and then there was a telegraph uh and really since then we you know things kind of look similar now than they looked 50 years ago in large part because we still have that existing technology set um and then there's also network effects i mean money is now closely associated with the government itself uh and it's a network effect type of good and so it tends to be you know kind of a long

lasting thing that's very challenging to disrupt and really bitcoin and and things like stable coins and things like that that's kind of the the latest boom we have uh that can usher in like a whole nother period of growth that we've not really seen in a while so i think it's mostly a technology reason why money's just not really been growing in in our lifetimes as fast as other things uh and the other part would just be basically entrenched network effects so you have this quote from Nobel Laureate economist Frederick Hayek, where you say, quote, I don't believe that we shall ever have a good money again, before we take the thing out of the hands of the

government. Since we can't take them violently out of the hands of the government, all we can do is by some sly roundabout way introduce something they can't stop. And quote, when you think about that, is Bitcoin the only current option we have to fulfill that kind of promise, or at least, you know, vision that Hiacad? Or are there other things that you think could be maybe not Bitcoin or blockchain related that could potentially also kind of get the same thing and help to restore a balance of power? So there's nothing on my horizon that really stands out other than Bitcoin.

Specifically, the blockchain combined with having the most decentralized type of it. So small nodes, proof of work, that seems to be the most robust way to do it. And then also, When you have the network effects of liquidity, your network's now big enough to stand up to pretty challenging attacks. Anything so far that uses other methods has a central hub, and that central hub is attackable. And so some of the examples I use in the book is there is a firm that people could have accounts denominated in gold ounces, for example, or gold grams, actually. And you could just easily trade them around and you could do all this. and then the government just kind of shut them down.

And of course, we've had some emerge since then, but really it's just, it's a chain of credit. And so it's not fundamentally solving the problem. I think Bitcoin fundamentally solves the problem because it creates a whole new ledger that is actually at the root about as decentralized as we can make it. There's still, you know,

there's like supply chain concentrations to maybe kind of try to make a little bit better. There's a couple, there's still a handful of kind of attack points are maybe not um you know 100 decentralized but it's so far it's the most decentralized thing i've seen uh and i think that's the best shot we have now in other countries i think stable coins are serving a similar purpose which is that uh you know if you're in argentina or basically if you're the argentinian government there's very little you can do about stable coins getting in

and out of your country um now the united states could go after stable coins if for some reason and they decided they didn't like them anymore. But Argentina can't or Nigeria can't. And so for people in those countries, the fact that there's a central hub, but that hub is outside of their jurisdiction and it's able to kind of pierce in there peer-to-peer. Like that's the main thing that these technologies do

is that with all these little 160 different currency bubbles, really the only two ways to bring money in or out are physical ports of entry, which of course are heavily surveilled and you can only bring so much cash or gold through an airport. And the other one would be wire transfers, basically various types of bank transfers or fintech overlays, which are still just essentially bank transfers. And those are also heavily controlled by government regulation. Whereas Bitcoin, stable coins, similar types of assets, you can show a QR code on a video call and send money.

You can send someone an email with money. You can DM with money. So as long as they're not shut off from the world like North Korea, you can send money in and out. You can memorize 12 words and just bring any amount of value density through an airport. And so that's just the world. That technology exists now. And the ones that have central hubs can pierce into most countries. And if you're going to go after the biggest markets of all, I think you have to be decentralized at the root, which is Bitcoin.

It's the closest thing we have. So I want to talk a little bit about taking what you've called broken money. and highlight the critique or maybe the warning that is being issued by people that the money could become more broken. And this gets into the national debt. This gets into what appears to be a declining interest of U.S. treasuries. So let's just start with the debt itself. We're now over $33.5 trillion in the United States. We've added over $500, $600 billion in the last month. It seems like the problem is getting worse and not actually providing any relief. Does the debt matter?

And how do you evaluate this in terms of the declining strength of the US dollar? Or does it actually not maybe come as correlated as people would like it to be? So I think it does matter. And people learned the wrong lesson about it about 30 years ago. And so for people that kind of track the nature of the public debt, back in the late 80s and early 90s, that's when concern about the debt kind of reached a peak level. That was like the zeitgeist of the time. So the famous debt clock went up in the late 80s. Ross Perot ran the most successful independent presidential campaign in modern history, running mainly on the debt and deficit.

And so that was like an era. And if you look at the interest expense as a percentage, well, both in absolute terms and as a share of the economy, that makes sense because it was like soaring. And so people were looking at this and thinking this is literally – it's going to go like Weimar. This is completely unsustainable. But what a lot of people didn't expect is that we would soon enter a 30-year period of very strong disinflation. And so China started to open up to the world in the 80s and really kind of accelerated that in the 90s and 2000s. Soviet Union fell and opened up resources and labor. The whole block opened up. So basically, we took Western capital, combined it with Eastern labor and resources, and you just

had a pretty unprecedented period of productivity growth, globalization, and that was very disinflationary. And that allowed interest rates to go down much lower than anyone could have imagined in that era. And so even though we had higher and higher debts and deficits the whole time, I was offset by ever declining interest rates. But once we hit zero and kind of chop along for a while and then bounce off zero because it's more fiscal activity and demographics are getting worse, now we're kind of going back to that late 80s, early 90s period where interest expense is now rapidly accelerating. And even if you don't keep increasing interest rates, even if interest rates now are just in a sideways pattern between zero and 6%, the fact that we're

We're still adding more and more debts and deficits, and there's no longer an interest rate offset, let alone if you start to have structurally higher interest rates. But basically, that is now rendering it more acutely unsustainable. And so we have huge interest rate-driven deficits, and we have no offset. And it's actually more of a U.S. phenomenon than the rest of the world. Japan's in that situation. The U.S. is in that situation. Europe's more mixed. But they also have slower growth.

And so it's really something that we're seeing a lot in the developed world now. And I think people have spent the last 30 years becoming too complacent around it and assuming that that kind of golden era of peace and exponential kind of productivity gains are going to last. Even if the world doesn't get more chaotic, even if we avoid World War III, even if we don't decouple from China, if the mere fact that we don't continue to accelerate in the way we have, If the status quo just starts to kind of stagnate and we kind of, you know, we already tapped into a lot of that labor arbitrage and that resource arbitrage and we just kind of hold it steady, that means we still have no offset mainly to what just happened. Now, there still are some like, you know, AI and other things like that can still provide a very strong disinflationary impulse. It actually goes back to the prior point of energy. I think ultimately energy is the big constraint here in terms of the ability to run these big fiscal deficits structurally without the interest rate offset in a world where energy is not getting remarkably cheaper. What becomes fascinating to me is Stanley Druckenmiller recently critiqued Janet Yellen, the treasurer secretary, and said, look, why did we not go ahead and refinance all of our debt at these really low interest rates and lock in long-duration kind of debt?

I think the counterargument would be that maybe investors wouldn't have bought long-duration kind of low-yield debt. How do you evaluate from a country's perspective? The citizens of the country were out refinancing their homes and kind of every single thing that they possibly could when it's your trade stove. Does that the role of the central bank or the treasury? And did they make a mistake here? Or do you think that actually maybe there was some logic to what they were doing? So I think that while they could have around the margins increased the average duration. I mean, you know, basically Austria launched a hundred year bond.

So basically, they made whoever bought that the bag holder or whoever got caught with it when the price actually started to go down. The United States could have done similar actions. We could have had 50-year bonds, 100-year bonds, or just issue more of the existing 10, 20, 30-year bonds. The average duration is something like six years on U.S. treasuries. And a lot of it's concentrated. It's not like an average thing. It's more like a lot of it's concentrated in the first few years. And then there's a long tail that goes up to 30 years of just less of that.

I think your point is correct. And that's what my counterargument would be too, is that had they tried to not just run the margins, but meaningfully extend the duration, if they made the average duration 12 or 15 years for the whole debt load, that would have prematurely jacked rates up. And they probably would have run into liquidity issues trying it. I am kind of surprised they haven't at least tried to do it more than they could have. I think that's a valid criticism. Why didn't you try to extend average duration any more than you did, especially when there was such a strong bid at the time for those types of assets? But I think that basically it was always going to kind of end this way. And another thing is that if we imagine a world where somehow they managed to extend the debt a lot more than they did, maybe the average duration is 15 years, we would have had even worse collateral issues in the banking system among the public. And so you probably would have had other issues pop up that would have ironically resulted in larger deficits because U.S. tax receipts are so heavily tied to asset prices going up and the economy doing well, more so than many other countries because we're more financialized in them as kind of the global reserve currency issue were. And so it's a lot harder to say that that actually would have really around the margins or at least in a big way made a huge difference.

Now, if we continue kind of down this path of evaluating maybe your framework of why the money's broken, kind of what the current financial situation is and where we may be going, I think there's a lot of folks who are concerned about the United States in the sense of we have a national debt that's growing quickly. We have interest rate payments that are growing quickly. We now have two essentially proxy wars, both in Ukraine and in Israel. And we feel like there's a lot of money going out and maybe not as much coming in as we would like. I believe the latest number from the Treasury is just going to be about a $1.7 trillion deficit for the year. And so it feels like all of this is happening and interest rates are already at 5.5%, 6%. And we haven't been printing money. And so if we continue down this path, we're going to have to return to some sort of loose monetary policy without even getting into a recessionary period, which also a whole nother group of people think that we're headed towards.

And so is it something where like we're in a bad spot and if we are forced because of economic conditions or because of geopolitical decisions to go back to a loose monetary policy prematurely, that actually we can go from a bad spot to an even worse spot? And the United States then kind of goes closer and closer to, you know, quote unquote, the edge? Or is that just, you know, doomsayers on Twitter and elsewhere kind of almost hoping for the implosion of the United States and maybe they should be more careful about what they wish for? So I think the 2019 period is destructive there when the repo market blew up. It's not something that was like super popular among people, but anyone on macro would be familiar with that event, which is basically just overnight the repo market that basically, you know, various overnight lending just kind of blew up. And so the Federal Reserve had to hop in. And there were a number of us at the time that were analyzing this and we're like, this is actually not a repo problem. It's actually just a T-bill oversupply problem. Basically, liquidity kind of hit its bedrock and repo just happened to be used as the funding source for treasuries by hedge funds and things like that. And so we were like, the Fed's going to have to stop QT and buy T-bills here. That's probably what's going to happen. And sure enough, a couple weeks later, the Fed was out there buying T-bills and then trying to call it. They were like, this is not QE. We're just buying T-bills, which people were joking.

and they started calling it not QE. They were like, the Fed's doing not QE. And to their point, it wasn't exactly QE because the purpose wasn't to stimulate the economy. The purpose, they weren't buying long duration. They were just basically fixing a plumbing issue that was based on too much debt. They just had to go back to a degree of deficit monetization. Now, of course, that wasn't a huge deal at the time because we weren't at above average inflation levels, at least not by any meaningful degree. So it becomes a very different world if the Fed eventually has a repeat of that issue in a world where inflation is 3%, 4%, 5% or higher, especially if there's wars happening, things like that. So I do think that that's the eventual trajectory that we're

headed on, is that there will be a time where the Fed just has to go back to balance sheet expansion, kind of regardless of what inflation is doing. And they're going to have a tough time kind of communicating to the market why they're doing that. And it could be volatile as they try to push back against doing that. But basically, if you have something like the repo market break or the treasury market go liquid, they're going to step in about as quickly as we saw them step in to the banking crisis earlier this year. I mean, they're trying to cut down on inflation. You could have let some people lose unsecured deposits and contract the money supply a little bit. They decided not to go that route. And I think similarly, if you have

repo blowout, treasury market blowout, something like that, that's going to override their other concerns. Now, whether or not that's a doom scenario, I think that for the first few years of that happening, that actually could feel like the next bull market. That could be this source of liquidity. And it's like, sure, inflation's above target, but things are doing pretty well. And then ironically, if you weaken the dollar, you could get an emerging market boom. That's generally how these go. Part of the reason they did so well in the 2000s was because we had a structurally weakening dollar for several years. And so the Brazils of the world, the Indians of the world, all these countries basically had a boom because their debts were being weakened

rather than hardened. And that can, of course, feed back into the United States where maybe our economy is not outperforming everyone else's, but then we're actually getting dragged along because ironically, our money problems are a boon for them.

So I think especially in the early phase, it's not necessarily the doom that people would think it is right away. But I think the long-term outcome is that we, and this is perhaps decades in the making, is that we do have a long-term monetary changeover based from a current system

to whatever the next system looks with some degree of recapitalization. It's like, I don't like to use the word reset because everyone thinks, everyone has, they picture their head what reset means. Basically, recapitalization is like a more specific thing, which is basically that the sovereign debt levels basically get devalued in real terms

in one way or another. And they kind of do the next system from there. And so I do think basically this is gonna be an issue. It's going to be kind of a fascinating and for many people, a hardship in macro world, winners and losers. And when people think about doom, I mean, again, I like to refer to Egypt as an example. I spent the summer there and inflation was 37% when I was there and life went on. People were driving, people were going to restaurants, people were having fun and eating together. And, you know, it was obviously some people are really struggling in that environment, but it's things that like our threshold for doom is like an average Tuesday in many countries around the world.

And so I do think we're going to go through times in the years and decades ahead that we've not really experienced in the past 30, 40 years that other countries have and that we have in the more distant past. And some people phrase that as doom, but it's both doom and it's opportunity, it's growth, it's challenging there. I think the only way you get true doom is to have basically either society breakdown, true energy shortages, or major, major war. Those are the things that I would consider outright doom, whereas monetary changeovers are crises, but not necessarily doom, is how I'd phrase it. The last thing I want to talk about is there's a very interesting trend that seems to be occurring between bonds and Bitcoin. Historically, bonds have been seen as a safe haven asset. But since there's been multiple geopolitical conflicts, we have seen bonds actually trade down. And so it seems like investor interest is waning to some degree. Then when we look at Bitcoin, Bitcoin is up after those geopolitical events, both short term and long term. In some cases like uh when we look all the way back to russia invasion of ukraine bitcoin is up 50

since that moment now it's a little hard to kind of understand on the bond side hey how much of this is just like the overall macro environment and kind of investments uh generally pulling down but bitcoin does seem to be the outlier it does seem to be going up when many other assets are correlating and going down we then see larry fink blackrock ceo the largest money manager in the world go on television and say hey bitcoin is a flight to quality which i which I think kind of surprised even people in the Bitcoin community saying, wait, that guy is not supposed to be saying this publicly on television. Is that what's happening?

Or like institutions and these large money managers and kind of people waking up to the fact that Bitcoin is becoming the default safe haven asset? Or are we maybe stretching some of these data points and trying to tell a story that really isn't there yet? I think both are true. And the way I would describe it first is that, so the closest correlate I have found to Bitcoin price action is global liquidity.

And so, for example, if I take global broad money supply denominated in dollars, which means there's two big components of it. One is how fast are money supplies expansion, especially the top 10 monies? And then two, how strong is the dollar relative to them, which is really important because that's what a lot of global debt is denominated in. That's like your liability unit of account. When the dollar is weakening or when the money printers are on, that global liquidity metric goes up quite a bit. And Bitcoin tends to be very correlated with that, to the upside, the downside. If you look at it in absolute terms or rate of change terms, you'll see it's arguably more correlated than the halving is, although the halving helps too, I think. But basically, it's one of those highly correlated things.

And most risk assets in general, and I would define risk assets as volatile assets. That's how most capital allocators would treat it. Most of those are correlated with liquidity. But so far, Bitcoin seems to be more correlated with liquidity, which I think makes sense because it's stripped away from other factors like earnings and things like that. It's basically when you're deciding whether or not you want to own this scarce emerging money, expansion of the broad money supply globally tends to be fuel for that. And if you have contractions or stagnations in that, usually people are not pouring into Bitcoin and they're more defensive elsewhere. So I think some of it is like literally just that. um you know bitcoin kind of bottomed when liquidity bottomed and has been rising with

kind of like we're not really in a booming liquidity environment right now but we're not as bad as it was in say late 2022 um but the other factor is like i i talked to some bank board of directors or institutional allocators and there is a changing of the view like um when i talk about things like fiscal dominance or uh the risk of a fiscal spiral or you know things like that, or talking about structurally higher inflation for a period of time, things that might have gotten you called a kook four years ago, instead of the board of directors scoffing when you're saying this, they're all nodding along like, yeah, that makes sense. Basically, it's slowly becoming more aware that we are in unusual times. And so I think that basically people are

taking things like Bitcoin, gold, hard assets in general more seriously than they would have a few years ago. And, you know, every time kind of the way that I've described it before is that people in the Bitcoin space, they, most people have seen like the log price chart of Bitcoin at this point. And they see it, you know, it's got like, you know, four cycles to it. Most people have actually not seen that chart. And if they've seen the chart, they kind of dismiss it. What I think matters for people is not how many, how many times Bitcoin's risen from the ashes, it's how many times they've seen it rise in the ashes. Because if they see a Bitcoin boom and it captures their attention for the first time, and then they see it crash,

their view was, okay, this is exciting. Oh, it's dead. If they see it come back a second time, that's when a lot of people have that wake up moment. They're like, wait a second, that's actually a thing. And for some people, maybe it takes a third time, not of Bitcoin having that cycle, but them literally seeing that cycle. And I think that it's kind of getting to the point where, especially after the 2017 bull market, that was big enough that it got on a lot of people's radars. Obviously, the 2021 one got even on more people's radars. And if they start to see a sign that it might have another one, that maybe this thing isn't dead after all, like they might have written it off as, people start to actually take it more seriously. And I think that's around, at least around the margins.

I think that's what we're seeing. Lin, broken money, why our financial system is failing us and how we can make it better, it's available on Amazon and everywhere else. It is, I think, as I told you before, the perfect mix between academic rigor and an entertaining read that makes you continue to go through page by page. What was the one most surprising part of the whole process? Is there one thing that sticks out to you that you're like, yeah, I didn't expect that, but it was of a pleasant surprise as you experienced it? I think how much I learned while writing a book, even though most of the book was already... When I started writing the book, the reason it came

out quickly is because I already had the outline pretty much there. A lot of it was just going to draw off my existing research with a couple of new ideas I wanted to really emphasize. But going into the nooks and crannies of each chapter, I would find new things that I didn't know like when i was digging into kind of banking system of the renaissance era or digging into the nuances of the bread and wood system uh things like that there's these a lot of times when you go to teach something you know you you end up learning it even more because when you're teaching something you want to be sure of what you're trying to teach and so you end up kind of you know crossing your t's and dotting your i's in a way that you might not do if you were just learning

something you can if you're learning something you can be like you can get 80 or 90 of it like yeah, I get most of it. Whereas if you're teaching it, you go back to that other like 10, 20% and really make sure that there's nothing kind of hidden there or nothing that's going to throw off your view or things that could be very surprising. And so digging into some of those resources, I was kind of just like super just kind of excited to see how much I learned even just as an attempt to educate along the way. I think people know at this point, uh i read quite a bit um this is one of my favorite books of the last year so thank you so much for taking the time to write it i know it wasn't easy although uh you will humbly say

that you already had most of the outline you still had to sit down and write 500 pages or so um and obviously i think people are going to learn a lot from it so thank you so much and we'll definitely do this again in the future i appreciate that thank you