We Study Billionaires - The Investor’s Podcast Network - BTC057: How Fiat Works w/ Dr. Saifedean Ammous (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the podcast where we're talking about Bitcoin. On today's show, I have back by popular demand, Dr. Safedine Amuse. Safedin is the author of the number one selling book on Bitcoin titled The Bitcoin Standard. And on today's show, we talk about his new book, The Fiat Standard. This was a fascinating discussion and one that you definitely won't want to miss. So without further delay, here's my chat with the one and only Dr. Safedine Amuse. You're listening to Bitcoin Fundamentals by the Investors Podcast Network.

Starting point is 00:00:37 Now for your host, Preston Pish. All right. So like I said in the introduction, I'm here with Safedina Moose. And today we are going to be talking about his new book, The Fiat Standard, which I have here. Amazing. Safedy, amazing book, just like the first one. This is my first question for you. These take a love of education.

Starting point is 00:01:10 writing. I mean, you are not doing this for yourself because this is so much work, right? When did you have the idea that you had another book in you? Because, I mean, your first one was, in my opinion, was a smash hit success, probably the biggest book in the entire space with the Bitcoin standard. So when did you realize? What were you thinking when you were like, you know what? I think I'm going to do another one. What was that moment? I always had the idea that I just can't wait to get started on the second one. I always wanted it. And in fact, I started with doing my textbooks, principles of economics. I started doing that one first because I had had that idea for that book for a while. As soon as I saw the Bitcoin's end out and people were buying it, I just really

Starting point is 00:01:56 thought this is what I should be doing. This is so much more enjoyable for me than being part of Fiat academia. And I should just do this full time. So I started immediately working on a course in economics, which I taught at my website, and then I made it into another book, which is coming out in a few months, principles of economics, the textbook. But the idea for a follow-up was I also started writing initially for subscribers at an early point. Like, at late 2018, so some of the writing in this book was first sent out the subscribers in 2018, late 2018. So right after the Bitcoin Standard coming out, I'd already started, you know, answering questions the people that asked me about the Bitcoin standard by writing these essays that I was sending

Starting point is 00:02:39 the subscribers. And that kind of formed the genesis of the book. The main topic that I wanted to discuss was just how can Bitcoin rise in this fiat world and what is fiat world going to do about it? How is fiat world going to react? Are we going to have hyperinflation or is it to have to be ugly? Does it maybe not have to be ugly? These were the questions that kind of motivated me. And then what kind of brought all together was at Baltic Honeybadger in Latvia, a couple of years ago, Jaco Muzuko gave a talk on Manning Altcoin Apologia. So he went and made the case for Altcoins,

Starting point is 00:03:15 made the strongest case he could make for Alcoins. That's a good way of approaching my next book. Study the Fiat standard as if you were writing the Bitcoin Standard. Basically, give it the same Bitcoin Standard treatment. So if you like the Bitcoin Standard, let's take the same toolkit that we applied in that book. Take the same, you know, capital equipment. that we had to try and understand Bitcoin from scratch and apply it to understanding Fiat

Starting point is 00:03:40 from scratch. And I thought this would be the best preparation for answering the question of what happens in the clash of Bitcoin and Fiat. Let's give Fiat its own kind of Bitcoin standard treatment. Think about it as an economic system, as a software system almost, because ultimately it is software. You know, the vast majority of Fiat is digital. Fiat only a small percentage is in paper form. So it is a digital currency in a sense. And let's try and describe the way that this interacts with the real world, with the meat space. Kind of like what I did with the Bitcoin standard. This is what I really liked about the book.

Starting point is 00:04:16 So the terminology was Bitcoin-like terminology, but it was easy for me to really kind of wrap my head around how this very complex system works by thinking of it in those terms. So at the beginning of the book, you talk about there being four functions of a function of a, Fiat node, and you call it a node. So could you get into some of those various four functions that the Fiat node has and kind of describe what you mean by Fiat node? You know, drawing analogy between the Bitcoin network and Fiat is a very productive way of coming at it because, you know, Bitcoin contains all of the minimum viable product for a monetary system because it's clearly worked for moving money around and maintaining a monetary policy for more than a decade now. So if you need to run those things, Bitcoin has the software

Starting point is 00:05:10 infrastructure that you need for it. It has the structure to carry out these processes. So you can make an analogy to it in other systems, and that can help you separate the essential functional aspect of the fiat monetary system from the paraphernalia and propaganda. So it's a very kind of precise way of attacking the question. If this was Bitcoin, What would be a node? Who would be a miner? How does mining work? These are really the main questions. And if you just try and answer these with relation to the Fiat network, you can then understand, I think, and decode a lot of the insanity you see around you in Fiat world. I agree with you. And I like the way that you describe the miner in the book. So tell people

Starting point is 00:05:55 who the miner is in this situation for the Fiat system. Most people imagine that Fiat money is printed and it's still in the terminology, most people still use the term. But in reality, the majority of Fiat money is digital. And the printing is not really the creation of new money. Printing is a process where after the money is created digitally, a small fraction of it is printed in physical form. It's kind of immaterial to look at the printing. Where the mining of Fiat really happens is in the creation of debt, because Fiat money is basically debt. Fiat money is debt that is guaranteed by government. These are the tokens of the Fiat Network. So anybody can mine a new token for the Fiat Network by getting a lending license from the central bank government vast entity

Starting point is 00:06:41 that is the Fiat. You know, the central bank is granted a monopoly by the government to be the only one that issues money. And in exchange, the central bank buys government bonds. That's the kind of elaborate song and dance how this node works. So you end up with really one full node in the system per country, but arguably, there's only really one full node in the entire world, which is the Federal Reserve. And there are, you know, all the other kind of central banks are, in a sense, subordinate node to the full node in Bitcoin. You could say that there's only one full node because, you know, it's the only entity that can decide on how many tokens there are in the system, and it's the only entity that can annul and control any particular transaction.

Starting point is 00:07:25 So your entire country could be wiped off, taken off the Fiat network if your entire country pieces off the U.S. Federal Reserve. And it has happened. So, you know, somebody in your government says something. And then suddenly you and your 90 million co-citizens are kicked off the Fiat network. It's very different from Bitcoin. You can just run your own Bitcoin node and nobody can kick you out. With Fiat, it's really one full node.

Starting point is 00:07:52 And it decides on monetary policy. it decides on what the transactions work. Then we have, if you look at the different kinds of subordinate nodes, so there's like the central banks, but then there's the private banks, which are really the mining nodes, the private banks and the central bank guaranteed financial institutions, all the financial institutions that basically function in the white economy, everything that's legalized by the local central bank, is essentially guaranteed by the local central bank.

Starting point is 00:08:18 And so it can issue credit, and that's how they mine money. So when you think about it this way, when you think about the proof of work as being finding somebody who's willing to take your money, basically. In Bitcoin, you need to solve the proof of work problem. You need to apply all of that machine power in order to try and figure out the answer to the correct answer to the proof of work problem. In mining fiat, you need to find somebody to take your money and promise to pay you back. If you do that, you don't give them your money.

Starting point is 00:08:49 You just make new money. That's the amazing thing about it. Like, this is how it works. Once a bank finds a borrower for a million dollars for a house, they make a million dollars. You know, they get the block reward, which in this case is a million dollars. It's whatever the lender will take. Basically, you create that money out of thin air. Now, you know, you have other assets in return and backing it.

Starting point is 00:09:12 You have collateral. But that's extremely getting thinner and thinner as a part of the business operation, that essentially all these entities are doing is just lending out money. So that's really how the money is being created. And now you can see why there's a very strong incentive for people to borrow. I think that's really what explains the debt. Really, the best way to understand the insane amount of debt that happens in the monetary system in the fiat world is to understand that mining fiat happens through borrowing.

Starting point is 00:09:41 Everyone is always coming up with reasons to borrow and lend. So I love this point. And when you were making it in the book, I was like, oh, my God, this is so good, because you're getting at the essence of the incentive structure. When you're talking about that incentive for them to mine via issuing more debt, you start to think, okay, so as a group collectively, as everybody gets in debt up to their eyeballs, like, what's their next play? Well, their next play is they have to start dropping rates or rates have to go down

Starting point is 00:10:10 in order for them to continue to issue even more or mine more to put it into the system. And so, like, I'm thinking about this and I'm like, holy hell, like, everything's just going further out on the risk curve, right? Like, it's just incentivizing the entire system to go further and further in debt, further and further out onto the risk curve to employ newly issued currency into the system. You lay it out so clear in the book. It was just amazing. I was so impressed with it. One of the things that you did, probably about halfway through the book, you had mentioned something that really surprised you through writing this, that you found Fiat actually did serve a purpose for one specific thing that had a lot to do with how it

Starting point is 00:10:53 kind of rose to existence over the last 100 years. So tell us what that is and then tell us if there was anything else that you kind of uncovered or surprised you through writing the book. I have to say I tried to give Fiat as fair a hearing as possible. I tried to imagine it that it was an alt coin and I'm trying to be charitable for this alt coin. In a sense, I was trying to think of If I was writing the Fiat white paper and trying to get to sell on this piece of malware, what would be the selling points? And I think, to be fair, you know, the main selling point is saleability across space. And this is kind of the thing that complements the analysis of the Bitcoin standard. And the Bitcoin standard I focused on saleability across time,

Starting point is 00:11:38 so how gold or fiat hold their value across time. And I came at that book from the perspective of a gold buggy who just would only see the massive injustice and fraud that is involved in fiat currency, which I think is very true. But I think kind of misses the point that the reason that this was even possible is because moving gold around was extremely expensive. Now, in the pre-bitcoin era, this was something that us pre-bitcoinsers took for granted. You know, I speak as somebody who was a gold bug pretty late into life. It's something that's, It's very difficult to think about it being the other way. You're going to have to be moving money around anyway,

Starting point is 00:12:20 and so you might as well move gold, which is the most dense and the most valuable. And it is impeccable logic. It makes a lot of sense. But because it is so expensive, governments were able to just basically shut this down and make it prohibitively expensive on any kind of scale that allows for the development of a monetary network.

Starting point is 00:12:37 Like you can't just run a Bitcoin bank, a gold bank, and move money across the world. It doesn't really happen that way. for various reasons. And you know, I didn't get much into the history. I tried to focus on it in terms of, you know, just how it works. And the reality is people can't get around that. It's very expensive to move your gold around. It's really expensive. There's a limit on how much you can carry with you on an airplane. If you want to send it with couriers, it's also very expensive. It's, there's no banking clearance mechanism that can function around gold. And so moving gold

Starting point is 00:13:06 around expensive. And it was pretty expensive during the end of the gold standard. So you look at the beginning of the book is a little bit historical. at the episode of the World War I when the UK went off the gold standard, you see there that the, you know, they were moving gold to the US in order to finance the war, and they were moving mountains and mountains of gold. And it was pretty darn expensive. Moving that gold is not an easy thing to pull off. And on the other hand, once they kind of upgraded the entire system to be based on the credit of the sovereign, that gold could move around much quicker. So in terms of being able to move value around the Fiat system across space, it is faster than

Starting point is 00:13:50 gold. And that's, I think, the kind of grudging thing that gold bugs need to start to admit that their money loses – gold is good at not losing value across time, but Fiat is good at not losing value across space. Try and send your gold bar – gold box across the Atlantic. You lose quite a bit of their face value, which is a serious problem that governments have that, you know, they can make that happen. It's been the case for over a century. It's entirely possible for them. So that really, I think, makes us understand the benefit of Fiat. And then

Starting point is 00:14:23 that sets up the kind of interesting question about, the framing of the question about how Fiat and Bitcoin will interact, because it kind of shapes the way that we view the path that the two of them take. Because ultimately, whether Bitcoin is going to resist the forces of Fiat depends on how gold-like, it is in its centralization and its ability to keep things moving around the world. And so, you know, we can look at the bar that gold set and we can say that that's not workable, which is you have to spend somewhere around half a percentage point of the face value of your gold to send it across the Atlantic. So Bitcoin really has to kind of beat that. It has a lot of headway and room for growth without coming.

Starting point is 00:15:14 near that price point because we can just move enormous amounts of value on Bitcoin already. And it's very future ready in terms of being able to move more and more value, particularly with all the scaling solutions that you see developing all over and all the financial infrastructure that's around it. So I think, you know, thinking about it from this perspective is what's important toward thinking about Bitcoin security against the Fiat system. So one of the things that you wrote in the book that I thought was, I'm so glad that you put it in there was this idea of inflation as a vector. And this is something

Starting point is 00:15:49 that I know Michael Saylor, and that's who you attribute in the book to, to the idea. And, I mean, you can't find this anywhere in academia. Vectors are too complicated for them. You know, they're doing high-level physics math, but they don't like to think about CPI as a vector. It has to be a number. Talk to us about this idea so people understand what that means and why it's important to kind of economic calculation. Jack and Wazuku may have sparked the fire for writing this book. Like he gave me the idea of how to motivate it, but the one that applied the finishing touches to it or the one that really that provided the glue that held all together,

Starting point is 00:16:27 that put all of the puzzle pieces together on the board, was hearing Michael Sela to talk about inflation as a vector because that's something that, you know, you can see all this money printing all the time. And yet, you know, you have to get into arguments with Fiat people about the definition of the CPI, how dare you not trust the experts? You know, they're going to call you a conspiracy theorist for not believing in government statistics on price inflation. And I think so many ways in which you understand that the CPI is wrong. And, you know, I list them in the book and I discuss just how ridiculous the whole concept

Starting point is 00:17:00 is. But I think the way of expressing it that Michael provided, which is the idea to think about it in terms of being as a vector, and then think about the different kinds of goods and the differences between the goods and how they, react in that way. And so you see, with digital goods, inflation, price inflation, if you want to bind a test such, if you want to say price inflation, the changes in prices with digital goods is maybe negative 10, 20, maybe 50% per year. You know, things just keep getting cheaper. Your Google storage goes up, the speed of your connection goes up, and all of this stuff,

Starting point is 00:17:33 just getting cheaper. For the same amount of dollars that you're paying, you're getting better quality and all that stuff. And of course, that stuff is included heavily in the CPI calculations. If your laptop got faster, the central bank needs to print more money to make up for the dilationary damage that your laptop is doing. So when you're putting it all into one number, you're throwing in first, you know, you have your processing power. And then we also have, you know, the industrial cheap trinkets that are produced at the very mass scale, you know, cheap plastic thing for which really the vast majority of the cost is

Starting point is 00:18:09 just divided over many large number of goods. So the price there is kind of immaterial. It's very small and there's very little inflation on it because these things can just be cranked up. When there's inflation, people want to spend more because people don't want to hold on to cash. They start buying more stupid plastic trinkets. And these things demand increases for them, but you know, the stupid plastic trinket printer just goes burr. It's very easy to get it to go to burr basically. And to fight the inflation that happens on it, They do have the equivalent of the central bankers monetary policy. And the people who run these plastic factories just ramp them up on weekends,

Starting point is 00:18:48 and they can meet your increased monetary availability with more plastic trinkets you don't need. Then you look at food, and you see with food, and you see the same kind of idea with the cheap industrial food. It's easy to crank it up at volumes, and so you witness lower inflation there. but with nutritious food, it becomes more and more complicated. And if you wanted to get good quality nutritious food, you know, if you wanted the kind of good quality eggs that most American could expect in the 60s and 70s, as part for the course, if you want them today, you have to pay a lot extra.

Starting point is 00:19:26 The price of these things has gone up much more than just inflation. And so, and then you see like there is the, because these things are much harder to industrialize. You know, there's still the element of the cow that needs to spend a lot of, a time out there grazing and eating and getting sunshine. You can't make easy shortcase surrounded like you can with processed food. Then you get to the highly desirable goods, you know, like Miami Beach real estate. Now look at inflation rate on that. And when you think about it this way, you see that, yeah, like the CPI is low if you choose to focus your consumption on digital goods and on cheap plastic trinkets and industrial food. And industrial food.

Starting point is 00:20:08 Not coincidentally, you also see a lot of government science that recommends that you head in that direction. You don't need to consume when there's a recession. And of course, you need to have your junk food in balanced moderation. And you need to just always be spending to keep the economy going. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating.

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Starting point is 00:24:33 All right. Back to the show. So this is the part of the book that I was just like, oh, so this is how it works when you got into the academia part. So I've just looked at the whole journaling piece and the funding and never really kind of pieced it together on like how the institutions, the academic institutions are really incentivized. my God, you made it crystal clear in this book. Explain to people, just give people a little

Starting point is 00:25:03 idea of how that Rube Goldberg machine of funding flows into these academic institutions and how they're incentivized to produce these journal articles. You get through this process with people. I speak from bitter experience. I was a victim of the academic fiat mill for pretty much most of my life until I, you know, Bitcoin set me free. And the Bitcoin standard really set me free. The way that it works, I think, is, again, once you understand it from the perspective of Fiat, it all kind of lights up because Fiat is, you know, the underlying technology behind Fiat academia. It's what shapes the entire method of interaction that happens. And the key thing here is, what happens if we apply an infinite money printer at the top of science and just open the spigots

Starting point is 00:25:54 of money printing. And we see it happening. You know, as I was saying earlier, if you think about it in terms of inflation as a vector, picking up where we left off in the previous question, there is an enormous amount of motivation and incentive for governments to try and to emphasize the consumption of the goods that are easy to make, away from the goods that are quite price sensitive. And you can see how this is reflected across the board in all kinds of industries. You can see it in the food industry. And we just have to have to be. So many vivid examples of, you know, the Department of Agriculture is out there trying to make food cheap in the 1970s. Wonder why? What might have happened in 1970 to make all the 1970s

Starting point is 00:26:35 about making food cheaper? And, you know, then you look how they did that and the methods they did it is, well, it was all about industrialization because that was about bringing the cost down. So they sacrificed the nutrient quality because of this. And then, of course, you have an enormous incentive for academia to go along with this. And so academia is just churning out one piece of horrible diet advice after the other for the past almost 50 years now. Everything from the cholesterol scare and the idea that you need to eat six to ten rations of grain per day and that industrial produced industrial waste is good for you in moderation and that everything is fine in moderation.

Starting point is 00:27:17 Animal meat is really not essential and you should look to getting plant meats. So there's an enormous incentive for this, and that's where all the funding comes from. Like, there's no free market in academia and science. And so ideas won't live and die by their success on the free market. Ideas live and die by their ability to secure and generate funding. So I use the example of food, which I think has become, all right, people have been laughing at it for three years, but almost everybody has laughed at it now to the point where it's become kind of familiar.

Starting point is 00:27:48 And I think people are beginning to admit defeat on that one, that yeah, clearly there is something wrong in the idea that we should tell people to eat this poison and that they should worry about cholesterol and so not eat fatty meats and instead eat in industrial waste. Yes, clearly there's something wrong here. It clears there's a lot of benefit from it to be made in the fiat world, both from companies that provide this but also from the government is the one in understate inflation. Then apply the same framework for the rest of academia. And then the rest of academia starts to make sense. The way it would work in a free market, you would imagine, is that, you know, anybody can publish whatever they want.

Starting point is 00:28:22 And then people who are able to publish things and write things and teach things that are well rewarded in the market will get more customers and will be able to grow and scale and they'll basically command the market. This is how it works in free markets. But that's not how academia works. And if you look at academia, there's very little kind of innovation happening about it. I think, you know, one interesting aspect to think about is that it has gotten, and Michael Saylor says this and he's absolutely correct on it, as it has gotten cheaper to make education.

Starting point is 00:28:55 You see like all these major universities, they're not prioritizing, scaling and teaching more people. They're prioritizing remaining exclusive, this is in the case. And therefore, it's much more about the credentials than it is about the education. But it goes far beyond that, because the majority of the money that they get, that these universities get, are either are from the Fiat Spigot, basically, from the Fiat printers, and it either arrives in the form of government research grants or in the form of credit for tuition for students studying in your university. So basically, on both ends, the customer really is the government. So on both ends, the government is litigizing the way that Fiat academia works because it

Starting point is 00:29:39 is paying the piper, so it is calling the tune. So you then think about this. And if you look at modern academia, like I know you study a lot of investors and you're very well informed about the literature on investment, not just in the Bitcoin world, but also in the Tradfi world. Like how often do you and people like you, how often do you look into academic journals? Never. Absolutely never.

Starting point is 00:30:09 In fact, when I see them, I almost. roll my eyes, like, that's probably the last place I want to look for, like, sound information. I mean, just like the CAPM model is a perfect example in the finance space, at least for like doing economic calculation. I'm looking at this model and I'm saying, there's no way I would ever invest my money with this model. This model's so broke. But that's almost like the gold standard for anything that's going to get published out of academia on how you'd conduct a calculation is the volatility of these other things compared to this. thing and over this set duration that you just plucked out of thin air, right? It just doesn't make any

Starting point is 00:30:47 sense. And I think if you're reading nutrition science, you're probably wasting your time. A lot of that is just such an enormous time waste. And I think the same is true in economics and finance and in all kinds of different fields. Because the key thing, the key point I think, is that in fiat academia, there is no cost to getting things wrong. There is a cost to not publishing. My God, you couldn't say that any better. That's what it comes down to. You have to get published and you don't have to be right. It doesn't matter what you're right. You just have to get it past the editor. So again, there's no market feedback. There's nobody actually reading this stuff and making real decisions on it and then saying, you know, those guys helped me and those guys

Starting point is 00:31:31 didn't help me. And then a market learning process emerging from this is just about really getting it out of the door. It's like selling vegetables. You know, you need to get this many pounds through the door every week. It's like you're a pizza place and you just have to hand out these pizzas. And you have to put these papers in these journals. And so if you look at these journals, this is how the thing works. So the Fiat Spigot comes from the top to the universities. And the Fiat journals have basically captured the system. They're like the real parasites in the system. What they've done is they've managed to suck on the host. The hosts are the universities. And by having there people, which are the administrators in the universities, taking it over while the professors

Starting point is 00:32:11 and nerds are just basically busy trying to focus on their own topic. What the corporate fiat cancer has done and the parasites have done in the system is that they channeled the majority of the money to these journals that produce garbage that absolutely nobody in the entire world reads, except people looking into getting into that. They're writing more articles for more journals. Exactly. And it's either, you know, the people who want to become the parasites in the system, or the people who are volunteering to be the prey in the system. They're volunteering to be the host. Like, yeah, where do I sign off so that I could spend my life writing papers so that these journals would make money on my

Starting point is 00:32:50 behalf? They make obscene amounts of money, and it is all in copyright and, you know, in publishing for this, it's all on the copyright, so it's not even accessible. So they get the funding, the money, they get it from universities that they get the funding from governments. But still, they don't share their work because, you know, and I think they do that as. a favor for the professors, because if more people could get behind those journals and read the kind of nonsense that's in them, there'd be a massive problem for the reputation of the academic mafia. But so they do it. They hide these, and they charge exorbitant amounts of money to sell them, but they don't care about the retail market of you and me signing up one day to buy a $30

Starting point is 00:33:26 article. The point there is to deter people and then force the universities to pay enormous amounts of money for these journals. So it's so perverse. They get the, the university professors to do this work for free. So all the university professors, you know, in order to get ahead in your job, I'm extremely grateful that I was extremely slacking in my job, because I did very little of that while I was learning about Bitcoin. But they get you to write journals, the articles. You don't get paid for publishing them. And they need you to referee the journals and review the readings and edit the journals. So they have an enormous number of academics who are just their slaves who are working there, and then the academics

Starting point is 00:34:07 produce the journal, and then those publishers will sell the universities, the same universities where the same academics worked, they will sell them the journal subscription for obscene amounts of money. And that's basically how the academic market works. And that's why you can't take academic publications seriously. They're not produced because their content matters. They're produced to be grammatically correct, politically correct, and then to just get volumes of paper down the line. And now it's almost all digital. But still, like, you know, when I was considering applying for promotion as an academic, they give you a list of journals, and there's an enormous number of journals out there. It's beyond your imagination. It's incredible how many

Starting point is 00:34:48 journals there are in every single field. And they're just churning out articles that are being read by the academics for the academics. They just go into a repository that are then searched for the next journal that's being written. And since those are the only creditable sources that can be used by any academic writing, it goes into this repository that just turns into this giant self-licking ice cream cone that licks itself, right? They're providing absolutely no value to the outside world. They're churning out this relevant nonsense and they're miseducating people by just teaching them basic propaganda in most topics. But also, like the incentive in order to publish,

Starting point is 00:35:28 I think it gets even more perverse. There's the idea that it is all nonsense, but there is, I think, there's also a very strong incentive for it to be always driven towards panic and scare and hysteria, because that's how you get published. You can't get published and you can't get, you know, paper buckets through the door of these journals subscribing universities without creating important issues that require more money for research. So if you come along and you say, well, I've looked into this thing and seems fine to me. That's the end of your academic career, more or less. Whereas if you look into anything and you realize, oh my God, this is an existential threat that's going to ruin the world as we know. You're more likely to get more research

Starting point is 00:36:10 funding. There's no market test. You're not punished for being wrong. I do focus on the climate hysteria, which I think is a multi-decade in the making in my lifetime from an innocuous little hippie that you wanted to sympathize to, to at this point, the death wish of my modern civilization. Hey, Safe. So in your book, you get into shadow banking. This is a term that I know I hear all the time being thrown around. Help us understand what the term means.

Starting point is 00:36:39 And then tell us kind of where it fits into the overall process, the whole Fiat process. I think the key thing here is that traditionally, the way that banks created money was through lending and that it would happen. You know, you go to your deposit bank, you'd take a personal loan from your deposit bank, and then they create money. And today, that kind of still happens, but that's responsible for very little money compared to what's going on

Starting point is 00:37:03 in non-FDIC insured banking sector. So I think the distinction here is that the FDIC insured institutions are regular banking system, and then everything that's doing banking outside of the FDIC is kind of the shadow bank. And it's an interesting kind of negative term, even though the industry is enormous. And it's a very large number of people

Starting point is 00:37:25 who are doing this business today, but kind of a shadow of banking system because it's doing banking without an FDIC license. This is where the money creation is happening. This is where all the fun finance stuff is happening. You know, like your local regional bank is out of the fun Fiat games. They barely create any money compared to the amount of money that's being produced by large financial institutions in the shadow banking system. So I think the first problem with Fiat with the implementation of the Fiat standard was the fact

Starting point is 00:37:51 that banks failed. And so then then fix that with FDIC insurance, but then they took fractional reserve banking outside of the FDIC insured institutions gradually and slowly. And so now that's where all of the real bank is happening in the shadow banking system. One of the other terms that I think people hear all the time, they know the organization is there, but they might not necessarily fully understand how it functions along with this Fiat system is the IMF. So help people understand why the IMF exists, what it does and what its role is in the overall global economy. Yeah, so this was, I think, at some point, I hesitated to include this chapter, but it was the earliest chapter that I wrote for this book.

Starting point is 00:38:36 It almost felt like it needed its own book, but I felt it must be included because this was kind of central to the just entire analysis of applying this kind of fiat mining perspective to global banking and global central banking. and then thinking about the implications of that. The big thing here is that the IMF is the world's central bank. So the IMF is basically the US governments. Incidentally, very few people know this, but the IMF is essentially a US government agency. It is funded by the United Nations with a grant from Congress. So it is a United Nations agency. It has a credit line to the Federal Reserve in order to, you know, stabilize global market. But what that has effectively made it is the world central banks. So it lends to central banks where central banks are in trouble. You know, central bank nodes are always creating debt, and just like banks are always creating debt, and they're always

Starting point is 00:39:27 inflating the money supply, and they always run into problems. And then that's the kind of very strong centralizing check that continues to ensure that the side nodes have to kiss the knee of the central node, is that they always face a bailout threat, and so they always have to kiss the ring. And so that's kind of how the system works. So as a result, really, the IMF and the World Bank have ended up becoming something like a global bureaucracy that runs the world. And I think to think about it from the perspective of economics, from just the implications of this, like you have very strong tendency for central planning in very primitive economies that have not accumulated significant amount of capital. So you're taking away a very large amount of the resources. It's already

Starting point is 00:40:11 a small country with a small economy with very small resources. And you're putting that in the of basically graduates from halfway around the world who don't know anything about the country, but they're there, you know, to build a road network. Guess what? This doesn't work. So, you know what? What fixes this is more debt and a new expert who's going to tell you how to spend this new money now. Obviously, there's enough blame to go around with the local governments and with the international experts and with international organizations. And I must admit, like with the continuous revisions of this draft, I tended to move away from the kind of bile and anger against those people, and to try and just think constructively, because ultimately,

Starting point is 00:40:51 thinking about it just in terms of incentives, you've been unleashing a force of central planning for the past 60 years that is constantly destroying capital, constantly destroying the currency, constantly destroying ability of people to save, and putting all savings in the hands of unelected bureaucrats from halfway around the world, subjecting the entire country to the basic, complete command of the U.S. And fireworks resulted everywhere this has been tried. You know, everywhere has been having inflation and everywhere has been having financial crises

Starting point is 00:41:23 and economic crisis all the time. And yet, it just continues. And people just take it as a normal thing and it's an unquestioning thing. And I think this is one of the most pernicious things about the Fiat standard, just how much it has subverted politics all over the world to this game of power for control

Starting point is 00:41:40 of the local Fiat printer under the auspices of the central fiat node. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process

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Starting point is 00:44:39 The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right, back to the show. When you take a step back and you're just like looking at all participants in the world and what proportion of them are in debt up to their eyeballs and literally own nothing but have tons of debt, it's slave labor. You know, when I look back in history and I see things like the pyramids and

Starting point is 00:45:26 you're thinking, how in the world, how many slaves would they have to have in order to build and construct something like that. And then I compare it to today. People just don't realize that they're the slave. They don't realize that they're so in debt. There's no way they're ever going to pay it off in their entire lifetime. They're just going to have to continue to borrow more. And it's a function of the system that you're describing. And wow, what a crazy point we are in history when you look at that composition of participants in the system. And you would say, hey, what is it? 90% of them are never going to escape the debt trap that they're in. I don't know what that number is, but I suspect it's just unbound. But writing this book made me realize that, I mean, in a sense,

Starting point is 00:46:12 it's almost not that bad. Like, you almost have to be in debt. In fact, it's the successful winning move in the Fiat standard. Like, the way to understand this game is that you win in this game by accumulating the biggest negative balance that you can get. Like, you just need to keep borrowing larger amounts of money. That's how you win. You borrow larger amounts of money and then you use them to acquire larger amounts of hard assets. Yeah. Exactly. Equity, real estate, you know, all of the things that are witnessing very high amounts of price inflation in the inflation vector, all of the things that essentially are, you're told that you shouldn't acquire. That promises a higher yield than the fixed rate, interest rate that you're paying

Starting point is 00:46:51 on the borrowing. Exactly. And the thing is, the more you borrow, the more credit worthy you become the better interest that you get. So it's just a game where you need to get into more debt. Like Michael Saylor was really very important for me understanding because the Sailor strategy was like the logical conclusion of what I was getting at in the Fiat standard, which I was kind of unable to really articulate. And then Michael Saylor comes along and it's just exactly, yep, this is how you're in the Fiat standard. This is how you win in this game. You keep stacking more assets and borrowing against it. And then you get to borrow more at a lower price because you got better credit, and then you stack more assets. As he says it himself,

Starting point is 00:47:27 he said it on my podcast, you get better at the debt game. The goal of life is to die in debt. You want to die. You just keep accumulating more and more debt. It continues to get devalued. You accumulate harder assets. That's what rich people do. And if you think about it, yeah, that's it's about figuring out how to manage debt. And I think that's very important financial information for most people that everything decent in life tells you should not be True. Like everything, every logical thing, your grandma, everything, everyone tells you, you know, you shouldn't get into debt, you should accumulate savings, you should have savings for a rainy day, and, you know, you should not spend money that you don't have. And it makes sense. Like,

Starting point is 00:48:06 it's, it's not natural for people to do this. It's, it's not the natural order of life. You want to be producing and accumulating excesses. As humans, you know, we accumulate capital. This is civilization. Civilization has always been the process of accumulating more capital and accumulating higher and larger savings and passing them on. This is really kind of the in-your-face subtitle of the book. It's the alternative to human civilization. It's really a system where we're all debt slaves and we stop accumulating capital and we consume away global civilization and descend back to our ancestors' standards of living

Starting point is 00:48:42 because we consume all of our capital. We consume all of our corn seed effectively. and we start going hungry and we go back to our ancestors living standards. We get rid of all this modern technology that we're doing. We're seeing it happen in industrial technology with oil and all that, with Fiat essentially trying to mandate the essential oils that we need for survival away. It's a decline in the living standard if we keep doing it. You can win this game if you manage to borrow at a lower trust rate

Starting point is 00:49:13 and accumulate more capital and always make payments, but you're highly uncertain at all times. That's the thing. That's first that even successful people will have to pay in this game, which is that you're always two paychecks away from everything blowing up in your face, six paychecks, whatever. But the safer, the bigger margin of safety you have, the more you lose track in this game. You win by gambling recklessly. You have to basically leave yourself insecure or you're not taking enough risk losing it in the game. It's a horrific thing, I think, overall. So when I do a cost-benefit analysis, all right, yes, we do get

Starting point is 00:49:47 savings in terms of, you know, it's cheaper to move things around with fiat than it is with gold. But here's the upside. Here's the complete upside estimate, widely optimistic estimate of how much that costs us, you know, moving all this gold around is not going to cost more than half a percent of global wealth. Well, let's look at what fiat costs us by putting all of the power to print money in the hands of governments that promise they're going to be nice about it. Well, let's look at the report card. We've got 100 years now. Let's look at the last 60. We've got strong data from the World Bank over the last 60 years for the increase of M2 every year across the world. So we see the average, the numerical average for all the world's currencies is 32%.

Starting point is 00:50:23 But the weight average for all currencies by market value so that you don't give equal weighting to the US dollar in the Venezuelan Bolivar, so that the Venezuelan volivar's inflation is only to the size of its own, is only weight to the size of the Venezuelan economies. The Venezuelan shitcoins market value and the dollar is weighed. much more. In that kind of scenario, you see that the average inflation in the 60 years was about 14%. So about 14% is the average Fiat user experience. Pick an average Fiat user, put them in average Fiat country in the period 1960 to 2015. And it's even before 1970. So we're putting in the good years of the 60s, which were still pretty inflationary, even though they were supposedly

Starting point is 00:51:03 on the gold standard. You get 14%, which means basically your money loses half of its value in five years. That's the effect. Governments can say all kinds of different noises about this stuff, but that's the reality of it. This is what they've done. This is the track record. That's before taxes. Yeah. We're just talking about the currency. Yeah. We're just talking about the currency. Fiat devs and their social media influencers and all of their Alphcoin propaganda. We can give it all of kind of attention that it needs. At some point, we have to just stop listening to those chit coinners and just look at the project what it does. Like everybody has enormous assets. estimates about their transaction per second and about their security until their network, you know,

Starting point is 00:51:42 hits a critical bug. And then you start to the Bitcoin maximalists who told you in the first place. Let's really look at it. Like in terms of fiat, what does it actually do? Yes, it does save us on the move with money around, but it gives us 14% increase in supply on average. So even if you look at the best cases of fiat, you know, the best implementations were tried in countries like the U.S., Switzerland, Sweden, and Denmark, those are like the four best lowest. average value of inflation, they get something like 7% per year, which is still like 10 years to lose 50% of your money. That's still very fast devaluation of the value of your money. Just, you know, an increase in the supply, which is going to be reflected differently in different goods,

Starting point is 00:52:22 but still, that's pretty bad. Gold could do 2%. So the enormous role, I think that money plays, which I mentioned in this book, and I mentioned in the few bits going to stand a little bit, and I discuss in more detail in my next book in the principles of economics, is that the hardness of money is like a control knob time preference. That's, I think, the kind of conclusion from my two books and the principles of economics. Really, the harder the money is, the more we can save for the future, the better our money is holding on, the better the money is for holding to its value for the future, the more we are likely to plan for the future, the more we are likely to give attention to the future, the less we discount the future. In other words,

Starting point is 00:53:01 the lower our time preference. The more civilized as human beings we become, the more savings we have, the more capital we can accumulate, the more capital we can buy, the more capital goods we can have. And that's really the process of civilization, of going from trying to catch fish with your hands to catching fish with a giant trawler that catches much higher number of fish per work and feeds many thousands more people per hour of work produced. We have a constant increase in the process of production under capitalism because we're constantly lowering our time preference. And I think that is essentially linked to the ability of the person who produces to be able to save their value and the money that hold onto its value well. If they lose that,

Starting point is 00:53:38 they don't have a lot of time for work and production and they can't save and they can't accumulate real capital. And you witness capital destruction. You witness the reversal of the process of civilization. That's what I think fiat is doing. That's the kind of big takeaway from the book. Fiat is essentially a reversal of the human civilization process. We're destroying the value of the money, destroying people's ability to provide for their future. sure. This is the thing that Keynesian idiots don't get. They tell you, well, you just invest and you beat inflation. But investment is a job on its own. Whatever it is that you need to beat inflation is a job on its own that you didn't have to do as a gold user. In the gold protocol,

Starting point is 00:54:14 you got paid in a gold coin and you kept that gold coin and it had value in it. That value stayed there. It stayed in that coin for many, many years later. You know, many decades later, you could always go back to that coin. It would have that value. So that allowed you to earn extra money, let's say this year and put it aside for 10 years from now, for 20 years from now, for your house which you were planning on building in 10 years, you could always save and you could always expect gold would hold onto its value, and gold has held onto its value throughout centuries and continues to do, even though I think, you know, it's kind of getting demonetized, but that's besides the point. But the point is when you had gold as money, people

Starting point is 00:54:48 were able to get that. Now with Fiat, you can't get that. In order to be able to beat inflation, you have to go head to head with Goldman Sachs and J.P. Morgan and, you know, Preston Pitch, and all these people who spend a lot of time spending a lot of effort and energy into this, that it's basically almost like a full-time job. Fiat needs to be earned twice. Like with gold, you'd earned your money and stayed earned. With Fiat, you have to take it to the casino of Fiat markets, and you have to understand an enormous amount of economics and finance,

Starting point is 00:55:17 and you need to know what real estate's market is like in your area. You should look into real estate in other areas. You need to look at the commodities. You need to look at other countries, central banks. You've got to be a master of risk management, an economic calculation, which is your second point. That's a job. Full-time job. People can't invest capital anymore because they don't have savings.

Starting point is 00:55:39 And so investment is daunting. And investment, of course, involves a lot of pitfalls. Like people will say, well, you can just do index investing. Still, there's a lot of fees. Inflation is very high. And still figuring out that you can just do inflation index investing, there's a million other people out there telling you that real estate is the right answer. Bitcoin is the right answer, this or that is the right answer. There's no easy way around it.

Starting point is 00:55:59 And doing it means that you, it's an effect on the amount of capital that you lose. But you also lose it labor time because you have to figure out what the Bank of Japan is going to do next week in order to figure out where to put your savings and what to do with your stocks and your bonds and your commodities and all of this incredibly complex portfolio that you have. That's time taken away from your excellence as a doctor or as an athlete or as any kind of job, you know, unless you do this as a business, I think you would benefit enormously from just having a form of money where you could expect two, three percent appreciation per year, I think with current productivity would be much higher than it was under the gold standard, maybe three, maybe four, maybe five

Starting point is 00:56:37 even percent per year, increase if you wanted to think about an average price, although that's a problematic concept. But it would constantly go up. You could still invest, of course, but you know, you'd have a lot more time and a lot more ease to come at the investment that you understand, in the time you understand, with the amount of money that you can risk, and not constantly have a gun behind you, you know, forcing you to invest your money or lose it. So in your book, you have a whole section here about the Fiat Cost Benefit Analysis, which you were getting into there. I'm going to read the four things so people know what they are. And I loved how you went through. This is a little bit different than, you know, when I read the title of the

Starting point is 00:57:11 chapter, I was thinking, oh, this is going to get interesting because I suspected you were going to get into like the cost of energy to mine and Bitcoin and compare it to Fiat. And you didn't. you went in a different way that I thought was extremely thoughtful. And so these were the four main points. The first one, which is the one you were talking about, was the destruction of holders wealth through inflation. You talked about the M2 weighted is 14%, which is mind blowing to me. It doesn't surprise me, but hearing that number and knowing that you went and calculated

Starting point is 00:57:41 that was really quite interesting to me. The second cost benefit analysis was the destruction of economic calculation, which we were getting into a little bit there where you were talking about just how hard it is for a person to go out there and try to do all these risk calculations to just protect their savings, right, of the work that they've already performed. The third one was control to government to shape the economy and society. And then the fourth one was increased likelihood and cost of conflict, which is one that I'm intimately familiar with. And I'm sure many other people are intimately familiar with. I loved it, Safe. Was there anything else that you had on the cost-benefit analysis

Starting point is 00:58:21 or something else that you want to highlight with respect to that? I think this is it in terms of the Fiat. With the Fiat cost-benefit analysis, I do an analysis of Fiat versus gold. So Fiat saves us a lot of money on moving gold around, but it gives us a government that is basically in and can take 14% per year on average, is able to reshape the market and economy, and it destroys you a little, ability to save. It destroys businesses' ability to function normally because the currency is so destructive. Look at places like Lebanon and imagine the kind of problems businesses there have. And then you've got, yeah, the cost of conflict I think is an important. This is the thing, like being in power just means you're able to print money. You have the control node. You decide

Starting point is 00:59:02 what's real money. You decide who gets to print money. You get an enormous amount of power. And that just has made the 20th century extremely bloody. I think it's something that's probably worth writing a lot about, you know, thinking about how much of world's wars and U.S. foreign policy is motivated, is motivated in finance by this horrible software implementation that is the Fiat network where the central bank, remember you asked me about the four functions earlier. Let me say let me mention these. So the government gives the central bank a monopoly on printing money. Central bank prints the national currency, provides the currency supply, regulates the banking

Starting point is 00:59:35 system and controls what banks are able to do, and buys government bonds. and so therefore finances government and also get this amazing feature in our new fiat co-implementation. It allows the central bank a monopoly on the clearance of international trade because what worst possible engineering decision

Starting point is 00:59:57 could you put than could you ever make? Let's put the government and all of the country's savings and international trade in the hands of one central bank and give it a monopoly on doing all of these jobs. So only it can do this Because effectively what it's doing is that it is subsidizing governments spending through using entire countries, international trade, and local savings as collateral.

Starting point is 01:00:24 That's essentially it. That's like what you see happening extremely transparently in a place like Lebanon, well, where the government goes bankrupt and then suddenly the bank money has disappeared. And people are still asking their bank where their money is. And it's amazing, like watching a lot of these people, you know, still think that the issue is that the banks took the money and ran. And I'm sure some bankers, of course, took the money and ran away. But it's as if, you know, they had all this money in the central bank and bankers just took it and ran away with it. When the reality is that money was never really there, it was just part of a Ponzi used to finance government. That's where your government is spending all the insane amounts of money spending over the last decades. That's where your savings went. And that's what fiat does. And that's what fiat does. And that has financed war everywhere around the world. I think the world would be a lot more diplomatic and a lot more peaceful if governments had to take responsibility for this rather than just crank up their printers all the time.

Starting point is 01:01:21 All right. This is my last question for you. What do you see debt looking like if we would move into a Bitcoin standard? I think it would be heavily more equity world. I discussed this in the penultimate chapter of the book. I think Bitcoin basically eats the incentive for fiat mine. It basically makes, it's like somebody figures out a way to make SHA 256 hashing worthless. And so now you can figure out a new solution, but it won't get paid for it. That's what Bitcoin kind of does for fiat. It makes mining no longer profitable, makes lending no longer like mining. It's not that it makes mining no longer profitable. It makes lending, it separates lending from mining. It makes lending a static process that does not create money. So in order

Starting point is 01:02:08 for me to lend you money, I have to take money from my hand. I can't just create money, even if I'm the government's friend. I don't get to just print money because I have a license. I have to actually have, I have to be the one who pays the opportunity cost. You know, I'm the one who doesn't have that money available for me to enjoy. That kind of world, I think investment would become equity focused. I think back in a world in which I don't see, investors wanting to take on, take on investments that carry equity risk without getting equity return. I think this is the key point that the Fiat system kind of distorts in that it offers you the illusion that you can be guaranteed a 3% or a 5% or a 7% or whatever it is, that it's

Starting point is 01:02:49 the bank and the bank is guaranteed by the government and you get the specific amount of money, which there's no risk. We put your money to work, but not a lot of work. And therefore, we guarantee TU, there's no risk of losing all your money and you're going to get a 5% no risk loan. Bonds or saving deposits or whatever it is, this I think is just going to go out of business. We're just going to have a system of deposits where you pay in order to have your money safely kept in deposit available for you on demand whenever you want it. And we'd have a system of equity where because without the government, without the illusion of banking safety provided by government central bank monotone,

Starting point is 01:03:29 Nobody can guarantee that a business will provide return of capital. Any business can go to zero. It can go to zero, whether through liability, whether through natural disaster, whatever it is, any business can go to zero. Your investment can be wiped out. And there's no running away from that risk for an investor. And the idea that investors should be doing this, I think, is just a function of failure of the field system to provide a saving function. Because people can't save. They have to go and invest in a casino and then a casino wants to pretend, no, no, no, it's safe. Don't worry. You know, you'll make 3% whatever happens and you won't lose your money.

Starting point is 01:04:04 No, your money's at risk. So I think we'd go to a world of equity. I don't think we're going to be dealing with interest rates of 1 to 3% or discount rates in the low single digits for economic calculation when we move to something. It's fascinating. Hey, so this book, here it is again, the Fiat Standard by Safe. This thing, folks, go out there, read this book, the research, the amount of resources that you have in the back that just, dude, you crushed this. For people who are maybe listening to them, people are, I'm sure people are listening to this and are saying, wow, I totally disagree with whatever take.

Starting point is 01:04:40 I would seriously, go read this, get the full in-depth, laid out talking point and background and research that he has for some of these points. And maybe it'll just challenge whatever belief structure you might have and just provide a counterpoint to it. Safedin, is there anything else that you want to highlight or hand people off to? I know you can find the book on Amazon and some other places, but anything else you want to highlight? My website, safedine.com. You can also become a member, take my online courses in Austrian economics and Bitcoin economics. And you can also get a preview of my next book, principles of economics, my economics textbook, my economics textbook, which is on its way. to being done, very close to getting done.

Starting point is 01:05:22 You can also buy the Fiat standard from my website. And I'm also pretty active on Twitter and also my podcast, the Bitcoin Standard Podcasts, the podcast crowd. So if you're into podcasts, subscribe to the Bitcoin Standard Podcasts. We have these seminars that are for students in my website. People sign up for my courses. You can join the seminar twice a week. And then there's also the guests like Preston, for instance.

Starting point is 01:05:44 And we've just had Michael Saylor. We're going to be releasing it, I think, just today. I'll look forward to hearing from you. We'll have links in the show notes for everybody to check all that out. And Safedine, thank you so much for coming on the show. Always a pleasure. Thank you so much for having me, Preston. Take care.

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Starting point is 01:06:28 greatly appreciate. And with that, thanks for listening and I'll catch you again next week. Thank you for listening to TIP. To access our show notes, courses, or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC057: How Fiat Works w/ Dr. Saifedean Ammous (Bitcoin Podcast)

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