The Prof G Pod with Scott Galloway - Crypto, NFTs, and Blockchain ft. Raoul Pal

Episode Date: March 25, 2021

We’re mixing it up today and busting right into our interview with Raoul Pal, the co-founder and CEO of Real Vision Group and Global Macro Investor. Raoul breaks down everything from why the digital asset space is disrupting everything — including higher education, the future of blockchain, and how Bitcoin could actually be a catalyst in the push towards clean energy. Follow Raoul on Twitter, @RaoulGMI. Raoul's book reference: The Fourth Turning: An American Prophecy - What the Cycles of History Tell Us About America's Next Rendezvous with Destiny by Neil Howe and William Strauss. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Welcome to episode 54 of The Prop G Show. So the crypto universe, it feels as if the blockchain, whatever you want to call it, is one of those areas where you know something big is about to happen, but you don't know if it's going to be a big hot mess or if it's really going to revolutionize finance, democratize the way we elect governments, take down institutions, strengthen others, make insurance and healthcare more egalitarian. There's something going on here and if you're like me, there's a part of your brain that is dying. And for some reason, I can no longer do accents. I used to be able to do a great impression of my father. I used to really be able to do incredible math in my head. And those parts of my brain have died.

And there's something about this whole space where that part of my brain just can't wrap its head around it. And so we are trying to bring in a lot of thoughtful people to try and help us understand, decipher, disarticulate, pull apart, and then reassemble this brave new world of crypto and stable or unstable coins and blockchain, et cetera. So today we bring in Raoul Pal, and he is the CEO and co-founder of Real Vision. And he's also considered one of the better macro investors in history, having overseen the macro group and one of the founders of GLG. Anyways, here's our interview with Raoul Paul. Raoul, where does this podcast find you? Finds me in Grand Cayman, in the Cayman Islands. Cayman Islands. That sounds so hedge fundy of you. Well, I was a hedge fund guy, but I just fled to go diving instead.

Nice. So let's bust right into it. You said something, you said, you tweeted, I should say, yes, there is a Bitcoin revolution, but there is a digital asset revolution going on that is beyond incredible. Beyond incredible, Raoul. Say more. What is going on is after the internet, we saw the internet 2.0, which is the rise of Amazon and all the businesses that you spend a long time talking about. But the next phase is the internet of value. Everything that is built on the internet and the new digital world that we've built, whether

it's gaming or digital artwork or any digital asset, IP rights, everything, is all coming onto blockchain technology. And this is going to be the format of the exchange, storage, transmission of value across everything. So we all know Bitcoin. OK, great. We understand that. It's a store of value.

We can buy it. We can hold it. Trusted ownership. But what was the big game changer was actually Ethereum. When Ethereum came along, they had a programmable blockchain and a token that allowed different characteristics. So that meant you could record ownership of other stuff. Let's say it's the IP rights to a song. We just saw two weeks ago, the Kings of Leon releasing an NFT, a non-fungible token of their album. Okay, that's fascinating. Then we've seen digital art, such as the Beeple piece

of art that sold two weeks ago for 69 million. But we're also seeing communities tokenize. We've already seen with football clubs, meaning soccer clubs in Europe, on a platform called Socios. But we are going to see it with everybody who has a community, every pop star, rock star, social media influencer, you, I, all of us will have tokens that reward our communities. It's all behavioral incentive programs. So give me an example of that. So how does a soccer team use NFTs?

How would you use an NFT? So the soccer teams use community tokens that allow their community of fans to, they get given tokens. Those tokens give them rights to be involved in choosing the new kit that season or be involved in various decisions at club level that they can be done to make them feel involved. If the team does well, you can embed certain characteristics in it where the tokens will go up and down in price depending how well the team does. So there's a value to these tokens. You can accrue tokens by being a good community member. You spread the word, you bring other people into the club, you buy a season ticket, you get community tokens. What it basically does, if this happens to larger influencers, particularly pop stars and social media influencers overall, is you take the power away from Google and Facebook and you give it to the hands of the community themselves.

So you're distributing the network. Because right now, even though Twitter may look like a distributed network, it's the hands of the community themselves. So you're distributing the network. Because right now, even though Twitter may look like a distributed network, it's actually a concentrated network where Twitter accrues the value, and particularly Facebook and particularly Google. In this, you're Lady Gaga. You have tokens that your fans receive. They can trade in price with each other. It allows them to get access to albums in advance, special music, merch, all of this stuff. And what you're able to do is directly monetize your audience without using a brand in the middle, without using advertiser, and without using a platform such as Facebook. It's extraordinary change in the power of who gets to monetize so it's and i'm not i'm still wrapping my head around this thing uh so it's decentralization or as i call it dispersion where

we skip the platform and the the source of the content or the value and the end consumer get to reduce the friction in between and as a result the creator gets more money and the end consumer get to reduce the friction in between. And as a result, the creator gets more money and the end user gets more value for a lower cost of your cutting out the middleman, if you will. This is the ultimate kind of supply chain. Yeah. So a great example of this is the music industry. The music industry, I interviewed on Real Vision, a guy called RAC, he's like a two time Grammy award winner, but he's also been building tokens. And I said, why are you doing this? He said, well, it's very simple. He said, every time I make a piece of music, the music industry takes 80% of my economics.

He said, but I have a direct relationship with my fans. So why do I need to do this? I mean, Radiohead kind of tested this with the release of, i think it was in rainbows that they did uh directly to fans and got them to to actually price the album bowie did the same thing with with the bowie bonds back in the 90s where he basically gave his future income streams to a group of bondholders right yeah which is really tokenization in advance so the tokens so say for example, a soccer club issues tokens and because it's Ethereum and you can put smart contracts on top, you can include governance rights. Correct. Or you can include access to season tickets to token holders first. They get access first and

then they get, I don't know, at some point maybe they even get access to content or highlights or videos, but that you're basically saying, all right, we're going to either parse or distribute ownership, governance rights, special access using a form of an IPO, but it's not necessarily just ownership. It's a way of distributing all sorts of different or decentralizing all sorts of different components as opposed to saying, all right, we're going to go through the NASDAQ or we're going to go through a record label. You're just decentralizing power ownership influence to a fan base. Is that accurate? Is that getting warmer? Yes. And there's another aspect that you'll understand as well is the rise of the social media platforms was actually the rise of behavioral

economics. Daniel Kahneman was one of the people who influenced them greatly. Now, the magic of Bitcoin, just to start there, is it is a behavioral incentive system so perfectly designed that you get rewarded with money. The more people you bring onto the platform to create Metcalfe's law or network effects, the more the value of your token or coin or Bitcoin goes up. So if you think of the difference of, let's say, Facebook, the owner and the value accretion were two different things. So you and I might use Facebook or Instagram because we can connect with some mates from university. Shareholders actually captured some of that value. but as a user, we got non-tangible value. But in the crypto world, they both combine, because the actual token goes up in value.

So you're creating a paradise for behavioral economics, which means you can create nudge-based systems within all of this. So you can therefore get your fan base, your followership, your community to do certain things, and in which case you reward them with more tokens or a rise in the token price. And how do you restrict? I mean, there's so many questions. How do you restrict? Do you at the upfront create certain contracts where I will not issue more than 1,000? Let's start another use case. Naval, the social media influencer kind of philosopher.

How would he use NFTs? Or what would he do here if he wanted to either monetize his influence or create a more democratized fan base, if you will? Yeah. So somebody like Naval, Tim Ferriss, people like that, they basically use it for layers of access. It can be designed any way. I mean, that's, again, what we need to get our heads around. It's so new that we don't really know where this is going to end up. But it allows, let's say, Naval's writings to be only available to certain people because they're on an NFT, which means they're attached to a particular token. You can also spread those to a fixed number of people. So if you say, if you're part of the community and you pay for it, you can get certain benefits. Now, those then can trade within the community itself. So it's like a piece of art can trade

within the arts community. But it's bigger than all of this too, because the whole gaming industry is built around this that most people don't realize. So the typical Gen X kid actually lives most of their free time in gaming world. Don't I know it. And that gaming world is hard for you and I to understand, being Gen Xers, it's not really what we grew up with. But they socialize with their friends there, and everything digital has value to them. Much like you and I might go and buy an expensive T-shirt,

it probably costs two bucks to be made, but because it's got the right label on it, we'll pay 100. It's ridiculous, but we're humans, and we do this kind of tribal stuff, social stuff. It's the same as happening online. It's no different for them. They don't understand the difference. So they will pay for digital assets, the same kind of premiums that you and I would pay for physical assets. And we're seeing that with swords or skins and other stuff in the digital world. A lot of this is on blockchain, and it's now becoming tradable across the different metaverses. So it's a weird old world where you can now trade something in one game to another. So that's now led, and those things are now becoming fungible with normal fiat

money. So we're now seeing people like doctors in the Philippines earning more money mining in games and transacting commerce in games than they make as being doctors. It's extraordinary. The gaming community has now got so far advanced that you can be in a VR game and you can play another game within the game. These are two different metaverses, which is truly weird. But we saw the glimpse of this when Grand Theft Auto came out. And remember, they had a radio in some of those cars. Again, I'm not a game player, but there was a radio in the cars. Those songs on the radio became bestselling hits. And people were getting more revenue stream from the radio in the cars in Grand Theft Auto than they were from traditional radio.

Coming up after the break. People are still so far behind the narrative. They're still talking about should we buy Bitcoin or not? When the reality is the world is moving so fast that everybody from musicians to artists to lawyers to accounting firms to everybody is moving to blockchain. Stay with us. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates

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Now, all of those third parties are centralized exchanges or stores of value. Or even if you look at swift payment systems, it's the transmission of value. What is being disrupted here is every single component of that from finance to ownership, to insurance, to supply chains, to the whole lot where it's all been centralized in the past and now it doesn't need to be. So it feels like banks are big. I'm trying, I'm going to go through losers and winners. It feels like a lot of the platforms could be losers. A lot of the banks, anyone who makes money off of escrow, insurance feels like it could get hit hard. Anyone who is the trusted intermediary and gets irrational margin by saying, all right, you want to buy a house, you need to get these stamps, this documentation, you need to hold the money

here and we release it based on certain conditions. You can build that all into a smart contract. Who are the biggest? It feels like right out of the gate, it feels like the biggest winner is Ethereum. Who are the winners here? Yeah, the big winners is this whole digital asset ecosystem, right? So currently, it's a $1.7 trillion asset class overall, taking everything into account. The equity universe, the fixed income universe, the credit universe, they're all in the $300 to $500 trillion range. So we've got the birth of an asset class, which is disrupting

all of those because bonds and equities and custody and all of that is going on to the blockchain. So all of that is going to be disrupted. So we can imagine the ecosystem grows to at least the 300 trillion. So that's a 200x from here, which is the nature of exponential growth and Metcalfe's law, adoption effects. So that's what we've got in front of us. And it's basically going to eat money, money and anything to do with value. So Mark Andresen's software is eating the world was incredibly profound. And it's becoming more profound by the day, because the magnitude of what is happening now dwarfs almost everything that's just gone before it. So it dwarfs the move to the internet,

the internet 2.0. It's much larger, because even things like houses are going onto the blockchain. They're going to be tokenized. So here I am in the Cayman Islands. We've got the rich-poor divide, as everywhere else has. It's not as bad as many places. But we've got a bunch of real estate on Seven Mile Beach, which trades at $10 million for a condo. And normal people can't afford it. So the rich who own these things and build these things make more money than the others. But when you tokenize real estate, you're going to be able to sell it to the local pension plans. And everybody can participate in high-end real estate or high-end cars or high-end art. It's really democratization of ownership of assets.

Right now, the average millennial, let's say, who's 32 years old coming into peak earnings can only own a certain amount of S&P or equity or fixed income. And they're not going to make enough returns because the valuations and what they can buy. Houses are expensive. But here, you're buying an asset class that can potentially go up 200x over the next 10, 20 years. And you can own small fractions of it, so everybody can own the same assets, which is groundbreaking. Because I'm an author, a podcaster, and occasionally I write books or I get consulting fees. And I'm going to tokenize my future earnings. And I'm going to tokenize it into 100 NFTs.

And it includes, each coin gets input on what I do or I don't do. Or advice, I would say, I'm not sure you can control people. But you get 1% of all revenue streams from my career over the next 10 years. And then is it like an IPO where you issue those coins and the individual gets the value of that IPO? Or do these things trade freely and the originator owns a certain number of the coins, which he or she can sell as the price goes up or down?

It depends on the securities laws. We're still in old security laws. The regularity's got a lot of work to do to catch up. But that's essentially where it's going. I mean, I think the world where students end up with debt is going to be reversed. And students are going to end up with equity. So if you're a student at Harvard, and you've got top grades, and you look like you're going to get placed into good jobs and have a good career, you will be able to tokenize part of your future earnings,

which is fascinating because that pays for your whole education. The other thing that comes into play within all of this is you will be able to monetize your attention span, which is part of the disruption of the business model of Google and Facebook that is yet to come, is there's already tokens, basic attention tokens that trade on Brave Browser, which basically pays you parts of the advertising revenue. So if you're, and I think there's a model of universal basic income that can come out of this as well, that if you're giving away your attention for nothing right now to advertisers and Google are creating a monopoly on the back of it, well, there's an easy disruption to share the economics. And that can be done by tokens as well. And I think there is potentially,

as I said, supplementary income, universal basic income style opportunity within that. So that's another whole aspect within this. It's quite democratizing. It can change the whole dynamics of this kind of rich-poor world world we live in where those with capital get everything. Because what you're saying is it's not all about capital any longer. And back to your earlier point that the big beneficiaries here are the ecosystem. About a trillion of it is Bitcoin, a couple hundred billion Ethereum, and then a bunch of cats and dogs. Is this true of even the hardware players or the folks making the mining equipment?

Is this just, you know, is what you're saying as someone who spent a lot of time advising people on how to invest their money, is your view that you should just invest in sort of an ETF or a basket of crypto related assets up and down the supply chain, if you will? Yeah, look, it's difficult. Mining and stuff, that's a whole different conversation to be had. There's a huge use of ASICs and stuff for that. But that's really for Bitcoin. And that's a whole different ecosystem, really. What this whole digital asset space is, basically, is VC with real-time mark-to-market, which is terrifying. Nobody wants to see that. Because the number of times the project's going to go to market, which is terrifying. Nobody wants to see that because the number of times the project's going to go to zero, no, it's not. It's going to be amazing. It's going to zero before it

eventually gets traction and builds its business model. We're seeing these in real time. All the mistakes and everything all happen in the open and in public. So it's quite hard to invest in because you don't know what's going to zero and what's not. So you kind of need a bit of help within that, but you can build baskets of stuff. You can do it yourself. You don't need to have somebody to do it. There are people who are now building indices, which I think is a nice, lazy way of doing it, the top 10 by market cap or top 20 by market cap. And they automatically adjust what's in it. And that's worked pretty well for most equity indices. So I think that's fine too. But I also think that really as entrepreneurs,

the opportunities for all of us are huge. I mean, staggering. And I think that's what is going to make the most money of all. Yes, buying and owning digital assets, and I'm fully invested in Bitcoin, Ethereum, and a bunch of others. But really, I understand that the change, the disruption that's going to happen to business coming from all of this, people are still so far behind the narrative. They're still talking about, should we buy Bitcoin or not? When the reality is the world is moving so fast that everybody from musicians to artists to lawyers to accounting firms to everybody is moving to blockchain. to everybody who's moving to blockchain. And the gaming industry is leading it. In the video industry, it was all led by porn.

They've been left behind in this industry. It's actually the gaming industry is absolutely streaking ahead of everybody here. And which gaming players do you think are embracing it and are going to benefit from it? And which ones get hurt? Because it seems like some are the intermediaries that get disrupted and others are embracing it and are going to benefit from it and which ones get hurt? Because it seems like some are the intermediaries that get disrupted and others are embracing it. Yeah. Again, I don't really know. It's not really my space. I've just recorded an interview with a guy called Pierce Kix that I would recommend you talk to. It's incredible. He's like 24 years old and the brightest guy I've ever met who's just lived in this world and knows every player. So I think there's one called Mega Games. There's a whole bunch of these that are there. There's a few listed public companies, but very little still.

It's all kind of below the radar screen for most people. So unless you know what you're doing, it's hard. But I think it's a big disruption to come again for Microsoft and Nintendo and platforms and all of this stuff. The people who are interesting to watch in this space are Facebook, because they own the VR, which is interesting, and they're about to launch Diem, which is their own digital stablecoin. You mean what was Libra? Correct.

Right. So they kind of understand that this is where it's all going. That's interesting to me. Google have been nowhere in this equation. But Facebook have definitely seen what's coming. Because they will, therefore, be able to create community tokens built off the back of Diem. It's open source. It's all of that stuff.

So I don't know where that's going to lead. But they're pretty serious about it. Well, and Amazon is experimenting with a coin in Mexico, right? I haven't seen that. Yeah, that's been kind of under the radar. They're experimenting with their own digital currency. So you sound like an evangelist who's sort of converted. What were the sources of inspiration?

If you wanted to really try and understand this and learn more about it, is there a book, a specific person you follow? What are the best sources of information for trying to wrap your head around this evolution revolution? You know, it's actually very hard. And I've been kind of in the macro investing world for 30 years. And I can stand on top of quite a lot of stuff this is it's just too much i agree you think it also let me ask you something i i think there's an age thing i i i see my kid my 10 year old last night downloaded fortnite and then went in and got some plugins and he understands virtual currency and robux he's just growing up in this world and they're part of my

brain that required to understand this universe, it feels like it's dying. I probably spend more time talking and thinking about this than your average bear. And I still don't, quite frankly, I still don't even have the confidence to invest in it. And I think that's probably what's holding the asset class back is guys like me are just on the sidelines. But it's- Meanwhile, your kids understand that there's a yield curve to swords that they lend out to others. I mean, that's how far advanced they are. And that's a 12-year-old kid understands yield curves for swords. So the places I go to, there's a bunch of podcasts out there that are

definitely worth listening to. However, the space is super tribal. And I think the biggest piece of advice is, yes, learn about Bitcoin to start with, but don't fall down the tribalism rabbit hole. It's much bigger than Bitcoin as a store of value and a potential world money. We're talking about the internet of value here, which is a much bigger concept. So you need to be careful in where you get your information from. Get it broad-based. I mean, we at Real Vision set up a whole platform for it, which is called Real Vision Crypto.

It's a free platform. We kind of interview everybody in the space. That's been helpful for me to try and just meet people. Because like you, Scott, I'm just trying to get my head around all of the nuances of this. Twitter's quite a good place for some of these people as well. But this whole NFT thing, we've been talking about it for a while. Then it exploded out of nowhere.

It's hard. And the community stuff, it's not really on the radar screens yet. Gaming's not on most people's radar screens. But it's coming up, and it's hard to find. There's a couple of research shops like Delphi Digital who are really good at this stuff. But yes, it's not easy. There's no books.

It's you have to throw yourself in and understand that you know nothing and then somehow try and piece it together. We have one more quick break. Stay with us. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average US company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it. So what is enterprise software anyway? What is productivity software? How will AI affect both?

And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts. Hey, it's Scott Galloway, and on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out,

we are joined by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. So you're the founder of Real Vision. And my sense is that, why not tokenize that? And every token gives you access to, up to a million tokens gives you access to the videos and up to a thousand tokens gets you up to two hours with certain individuals that appear as guests

or something like that. Yeah, we will definitely do something, a community token. The most important thing is to create a community token that doesn't have perverse incentives and doesn't go to zero in value. So I want to make sure that if we do something, it's done right. So I'm thinking about it.

I think it's going to be to do with rewarding the right behavior. So if you upgrade from one product tier to another, or if you go down our education tiers, you can earn more tokens by hyper-engagement. If you post on our social media platform, The Exchange, and you get engagement on the post, you can probably earn tokens. So you're rewarding good behavior. And that gives them discounts to other parts of the ecosystem. So I think it's something to do with that. But I think it's, I've actually been mapping this all out.

I think it's even bigger. I think it can even move into the investment product world and crossover. But it's going to take time to get this right. I don't want to be the first mover just for the hell of it. I want to do something that creates real value for the community and for Real Vision itself. Because don't forget, if we ever get acquired, people don't know what to do with these tokens yet. God forbid if we got acquired by an old media company, they'd be like, well, we can't value this stuff. We have no idea what it is. But even the media business is, as you know, just being destroyed in front of our eyes as it all changes. But even as you, I was thinking, if you acquire a

company, you also acquire the obligations to the contracts, the smart contracts that were put on top of those coins that were issued. Just as when you buy a company, you're taking on its shareholders, you're taking on its contracts or obligations, you'd be, if you issued a million community coins and part of that was access to the videos for free forever and access to certain individuals, whoever acquires you has to take on that liability in those smart contracts, right? That's right. And that therefore is basically bringing forward revenue, which you need to be careful of because you're actually losing future value. So what you might want to do is create incentive systems, as I said, for people to upgrade or do other things, as opposed to give me money and I'll give you a lifetime subscription,

because that's probably a perverse incentive in the end for the business and for the customer. But if I can say, hey, listen, if you watch 30 videos in a month, you can unlock a 50% discount. You'll earn X number of tokens. And that you can go towards going to the next product here. That creates a true value. So behavior creates value, creates more value, in other words. So You've talked a little bit about that you think that some of the headline news around the amount of power and electricity, incremental power needed to generate or to mine, and there's a lot of headline news that it's bad for the environment. You have a different view. Yes. I've spoken to quite a lot of people in this space.

What is actually going on is there is a bunch of mining that happens in countries where they have subsidized electricity or energy. So that will be China, Iran, Venezuela. And for obvious reasons, they've got energy resources, or they can misprice it because they're a state actor. But what else is happening is that for anybody to compete with people like that, they need to have the lowest cost of electricity. So that basically rules out anybody in the world who wants to use coal power, oil power, or anything else to mine Bitcoins. What you actually have to do is be located in the Arctic North, and you need to have hydropower. So it's actually driving green energy technology. People, because what you're mining is money, essentially, you're hugely incentivized to increase your margins, because it's direct payback. So it's causing a massive investment in green technology,

because green technology, in the end, is the cheapest way of producing electricity. The other thing that's happening is gas flare-offs. So both in Texas and up in Canada, people are looking at using that wasted gas that you see at the end of those oil rigs that just flares gas off, just using that gas, because it's being burned. So why not use it? So I think that's another interesting avenue for the reuse of electricity. Also, most electricity grids suffer a problem of variable demand. And that makes it difficult to price electricity. But what the Bitcoin miners have been doing, have been saying, we will take your low demand output. And so therefore, what the electricity company does is manage to lower the cost of electricity to everybody. That's interesting as well. So I'm not a big believer in that Bitcoin

is the great polluter. I think that was a narrative that came out of the ECB. And it's done purposely to slow institutional adoption, because most of the European institutions have an ESG mandate. And that's fine. But there's already people getting around it, because many companies are now looking to source direct Bitcoins from direct miners outside of places like China. So you can get them directly from Icelandic miners at a premium. And I'm aware that Temasek, the big Singapore sovereign wealth fund part of the Singapore government, has been for three years now at least buying pure virgin coin where they can prove the source. So again, it's really interesting, really interesting, moving so fast. So before becoming an evangelist for the crypto world and blockchain, you thought a lot about macroeconomics and the macro markets.

I would just like to step back and get your view on the state of the markets right now and stimulus. For someone like me who's been through enough cycles to sort of think they know something about it, this feels very uncomfortable. And it feels as if we're due for the mother of all corrections and we're just in uncharted territories here. I'd love to get your view of the state of play right now. I've struggled with this as well, right? Because we all knew there was a debt super cycle. We knew there's problems with the financial system. And we all thought the next recession, which was the one we've just had, was going to be a doozy. And we'd probably end up having to continue to see the ongoing mess that we saw in 2008. What happened was actually the reverse. We saw the largest ever recession outside of 1929, 1930.

The markets barely paused, rocketed upwards, and basically shook it all off. The government's papered over all insolvency issues and have basically pushed them forward. So many people will come off government support at some point, and they still have accrued debts to pay. So we've got some payback to come. Many companies were given a lifeline, so many companies didn't go bust in the equation, which the natural clearing didn't occur. So we've created yet more debt, and the equity market is now reflecting something else. And I struggled with that, because this was never something I foresaw. I could see the insolvencies.

I could see the government trying to help it. I've seen the change in monetary policy blending into fiscal policy, where basically the central banks will backstop as much fiscal stimulus as you want. So what I did is I went back recently and thought, am I thinking about this wrong? Because I understand this crypto world as well now. And I understand the crypto world is all about offsetting the debasement of fiat money. Maybe I'm looking at the markets in the wrong way. So I went back and changed the denominator for the S&P and just changed it to the Fed balance sheet. And when you divide the S&P by the Fed balance sheet, you get something that intuitively feels more real, which is that after 2008, the markets have traded sideways in a kind of up and down cyclical pattern since then. So then I looked at it against all asset prices.

And it basically told roughly the same story, is that it is maybe the value of the dollar or fiat currency overall that has declined, that has made it look like the asset prices increased. The only one that showed any difference, two assets, one was the NASDAQ. That, because I think there is a secular trend in technology. And there is an overvaluation, but even the overvaluation can be accounted for by the monetary stimulus aspect. So you're kind of neutralizing that. The NASDAQ kind of made sense. And the other one was Bitcoin, which made sense because its job was, it was invented for this. And it's going through Metcalfe's law, network adoption phase. So we're seeing exponential logarithmic growth as opposed

to linear growth. So when I look at it that way, it kind of makes sense. And then what I found is, because you and I will look at the equity market, we think this looks nuts. But then when I look at the equity market versus gold, which is another denominator, it looks pretty normal. Or the equity market versus oil, or all of these assets that have this relative valuation, it doesn't look like the equity market's crazy. It's expensive, for sure, but not as crazy as it looks in dollar terms. So I'm just trying to think this thing through as maybe I'm thinking the whole thing wrong. And so I hear a lot about whenever I say, I get very worried about the amount of

debt that we're taking on. The Fed's balance sheet, the debt we're issuing, it just all feels uncomfortable for the way I was educated. And then a lot of people will weigh in on various platforms and say, Scott, you don't understand modern monetary theory. You're thinking about our deficit incorrectly. Am I thinking at some point that the equity value of America goes down as our debt continues to go up faster than inflation? Am I thinking about it incorrectly? I think that you're looking at the wrong variable. So when I speak to the MMT people, they say, in this closed economy, that if you print your own currency, you can monetize your own debt ad infinitum. So therefore, you can run massive deficits. And therefore,

you can use fiscal stimulus as your primary source of simulation for the economy. What that fails to account for is the value of your currency. So any country, so Japan is probably going to be the first country that does this. They will end up monetizing their entire bond market. Now what is the outcome for that? Is there no payback? In which case, might as well tear up the economic textbooks. The payback is going to be the currency collapses, because there'll be no bond market.

RAOUL PAL, Describe monetize their debt. What do you mean by that? SIMON DIERMUTH, So that means the central bank just buys all of the government debt outstanding, puts it on their balance sheet, and then says, we're just going to write it off. It's done. A debt jubilee. It's as old as it was in the Bible. If they do that, what is the outcome? Well, the currency collapses. Why? Well, if there's no bond market, there's capital that needs a source of returns, and you've just taken out the world's second largest bond market. So the capital goes abroad for yield, because there's no yield left. So that forces your currency down, because you're selling yen and buying dollars or euros

or whatever it may be. So I think when you're talking about should equity be rewritten because of the debt, it's not. It's the value of the dollar that's being rewritten, which was exactly the same conversation we were having a second ago, that we've got the denominator wrong. We don't see it. It's the most, we don't get inflation CPI because we've got technology, demographics, globalization, and all these mega forces. But we're getting asset price inflation because assets are fixed supply instruments,

fixed-ish supply instruments. And the dollar is now a variable supply instrument. So obviously, it takes more dollars to buy the same amount of a fixed asset, which is exactly the argument of Bitcoin, which is the purest of all expressions of this. Or even better is art, where there's only one. So just a couple of things, because it seems like with this massive amount of debt, and you would see a debasement in our currency, right? More dollars out there makes the dollars worth less, which creates an explosion in asset prices. We've seen an explosion in asset prices. We haven't seen an explosion in inflation. And we've also seen the introduction of what I'll call artificial assets. I love this saying that never underestimate the market's ability to produce a product when people have cash in hand. So it's like people have so much money. Let's not have new works of art from

artisans. Let's create an entirely new layer of value similar to when they said, oh, let's not have new works of art from artisans. Let's create an entirely new layer of value, similar to when they said, oh, it's not just one piece of work. We'll lithograph it and create 100 limited editions that they'll sign. And we've created an entirely new layer such that we could find a home or new products for this cash. And yet we haven't seen inflation, and we haven't really seen a debasement in the dollar as far as I can tell. Well, yes. So two great points. The debasement in the dollar is not in the dollar itself. It's in all fiat currencies because the US is not doing this in isolation. That's right. Europe is doing more. Japan is, as a percentage of GDP, miles more. Switzerland more. The UK, Australia, they're all doing it. So if you look at, I've got a basket of

27 currencies, excluding the dollar, and look at them versus gold, which is the oldest form of money. And basically, since 2008, when all the central banks started quantitative easing, the value of that basket of currencies has fallen 60% against gold. And that kind of makes sense to me. But we don't see it in inflation. So that's the other part of your question. Why not? Well, inflation in how we measure CPI inflation is actually based around demand. And the last time we had large demand for goods from people and wages was the 1970s. And that was because there was a bunch of 30-year-olds who hit the labor force, bought their first house, first car, first suit, first home, first everything,

which was the baby boomers. There was no offsetting generation for them. They came in with record low asset prices. They bought bonds. They bought equities. They bought everything. And we created structural inflation for a while until they stopped buying goods at a rate of change. That's all changed now, and those guys are all in retirement and going into retirement. So they're net sellers of assets. They don't buy as many assets. At the same time, with the largest population boom ever, the baby boomers, you then just added 89 million millennials into the same workforce because everyone's working longer. So now you've devalued the value of people by 50%, basically. And then on top of that, you're then getting those people to compete on a global basis with Chinese or Indians.

So that devalues wages further. And you've got technology that's snapping at their heels every day saying, I'm going to make you out of a job because I can do this better than you, cheaper than you, which is the old software is eating the world argument. So all of that is going on at the same time. So the net result is, if you look at real wages over the last 40 years, they've barely moved. Basically, nobody's earning any more money than they did in real terms. Most goods, like TVs and jeans and all that stuff, has gone down in price because of globalization and technology. The things you can't produce more of because of globalization and technology happen to

be these fixed price assets. They've all exploded. So you've been able, as an average or a median American, you can afford 60% less in terms of housing with your salary than you could if you were. So the 32-year-old millennial now can afford 60% less than the 32-year-old baby boomer at the same point in their career cycle. That's astonishing. Yeah. Just to interrupt you there, because this is where this all gets really scary for me, and I like to caveat these statements with I'm a half-glass-empty kind of guy.

But I see our generation, we've demonstrated the genius to be born at exactly the right time, that we have the skills where we could get some income, take advantage of that arbitrage between making more money than it costs to live, invest it, buy assets where there's some scarcity value, and there's some skill in there, and then just an unprecedented explosion in the value of those assets, whether it was a NASDAQ

or a home on the beach in the Cayman Islands. And just an explosion in wealth among people of our generation who have the right skills. I see an explosion in opportunity among a smaller subset of a younger generation that has the right skills to build these great small companies. And I see everyone else getting just fucking crushed, just crushed in terms of their lifestyle. I just don't see how we have these conversations without a suffix or a fine print or an epilogue that says, unless we get past this non-capitalist trope that we're going to have to redistribute income, call it UBI or something, we are literally headed towards a collapse of society. I 100% agree. And this is why, again, this tokenization thing is really

interesting because broader people can participate in assets. And they can be really expensive assets and you can own a fractional share of it. So that helps. So you're not blocking people out because they can't afford to. So that's meaningful. That makes a difference. I think that we will be able to earn income online for ourselves or what we do. I think we will also be able to tokenize some of our future earnings, which I think is going to help. I think that if we are destroying labor force productivity as fast as we are because of technology and globalization, then we are going to have to go towards some form of universal basic income.

And it will create another whole set of unintended consequences, such as the need for humans to have a purpose. If you don't have a purpose, we're going to end up with a bigger fentanyl problem than we've got now. Because that's driven by the lack of purpose. I don't work for money. I work for self-worth. Correct, right? problem than we got now because that's driven by the lack of purpose i don't work for money i work for self-worth correct right so you solve an economic problem and create a social problem again 100 uh it's hard so let me i could talk about literally for hours mostly because i can't

wrap my head around it but i'm i'm passionate about the education space and i just listening you speak i think okay i think one of the biggest problems we have in education is we become drunk on luxury and we create artificial scarcity and we only let... When I applied to UCLA and got in and had to apply twice, the acceptance rate was 60%. Now, all right, I'm going to buy one seat. And as it increases in value, we expand the number of tokens and seats and say, okay, we need to expand the number of seats every year when it's going to be financed by alumni or people who see the social value in state-supported education. I mean, it just feels like there's opportunities everywhere. Of course. Don't forget, one of the best things is the alumni thing. So if everybody's tokenized within that. Also, as I said, there's the future tokenization of students.

The other thing that's going to happen, and you're onto this already, and we're going to do something at Real Vision on this, is the whole equation of teachers being underpaid is going to change. What's going to happen is there's going to be a lot less teachers in the world. And those that are amazing get paid like rock stars. It's like the South Korea tutors, the best make a million bucks a year yeah i agree the top five professors at every university will make millions and everyone else will make less yeah and many of the universities will disappear because we can all do applied learning online better you know people who've been in the industries know their way around it

we can create applied learning better than a middle of nowhere university. They're gone. And you're right. Tokenizing those communities is really valuable. Tokenizing an alumni network is amazing. Yeah, it seems like there's a ton of potential there. So last question. Advice to your younger self, your 25-year-old.

Let's just speak professionally or economically, where would you want to put yourself? What advice would you have for your 25-year-old self? I wouldn't have done anything different. So I don't really have a different set of advice for my 25-year-old self. And why do I say that? Is I was lucky because I had a wave behind me. Yeah, agreed.

Right? So I had the wave of the derivative Yeah, agreed. Right. So I had the wave of the derivative industry, the finance industry, the hedge fund industry. A 25-year-old now, look for the wave behind you. Don't try and get into a dying industry. Get into the growing industry. That's the best advice. And you would describe one of those waves as crypto. What other waves would you describe getting in front of? Data, artificial intelligence, all of that whole disruptive technology of which there's so much coming, distributed computing, it's all coming. The world I think we're going into, and I'm a glass half empty, cynical, macro, miserable guy who thinks the world's going to end most of the time.

I'm kind of thinking we're about to go into the digital renaissance. And it's kind of shocking me that I'm having these thoughts. But I think everything is about to change. The world that we are about to walk into in 10 years' time is going to be so dramatically different to the world we are in today. I think we'll have different institutions even. I think the fourth turning, if you've not read it, the Neil Howe, William Strauss book is going to be so spot on. And it's happening in front of our eyes, this whole digital revolution of everything and where this is all going. People don't even yet understand what, it's so contentious, but Elon Musk, Cathie Wood, they just don't understand what is happening. These guys have built communities around themselves

well before anybody's understood. Netflix is still busy pumping out content in a content war when YouTubers who are in their comment section answering questions and having events are creating much higher engagement. Literally, everything is about to change. And I just think it's going to be a terrifying but exciting time. I think Gen Xers will be able to get a hedge around most of it. I think the boomers will not understand any of what's about to happen. My mom's barely able to use her mobile phone.

Yeah, I think I'm closer to your mom. Raoul Pal is the CEO and co-founder of Real Vision Group and Global Macro Investor. He previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. In 2004, he retired from the funds management and started the Global Macro Investor in January of 2005. He joins us from his home in the Cayman Islands. Royal, thanks for your time and stay safe. Yeah, thanks, Scott. Really enjoyed it. Our producers are Caroline Shagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thank you for listening. We'll catch you next week

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