We Study Billionaires - The Investor’s Podcast Network - TIP462: What is money? w/ Lyn Alden

Starting point is 00:00:00 You're listening to TIP. On today's episode, I invited one of our favorite guests, Lynn Alden, back on our podcast. We start out talking about what money really is and transition into a discussion of how to imply the takeaways for our portfolios. As you will soon learn, Lynn Alton is such a wealth of knowledge. You will learn about the role of money all the way back from the ancient Greek democracies, up to the beat money in Africa, to back a currency in the colonial period, up to today's modern monetary system.

Starting point is 00:00:29 I hope you enjoy this conversation as much as I did. Let's jump to it. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Welcome to The Investors podcast. I'm your host, Dick Broderson, and dear listener, we are in good company today. With us, we have the one and only Lynn Alden. Welcome back on the show. We'll have me back. To kick this episode off, perhaps you can tell the story of the ancient Greek democracy in 6th century BC that used partial jubilee as a solution to avoid a catastrophic class conflict and how that relates to where we are in the death cycle today.

Starting point is 00:01:28 You have something that builds up, you know, decade to decade, even generation to generation, you know, two or three generations. and it doesn't self-correct enough, right? So there's basically the structural issues in society where things build up and get worse and worse. Basically, things have a tendency to concentrate, especially the way we structured things. And so you have a given society where, let's say farmers,

Starting point is 00:01:53 you know, they harvest crops, you know, they have a big harvest every year, but of course they have to pay for things throughout the year. So they might, for example, use debt with the promise to pay them back once their harvest comes in. And that might work for 10 years in a row, but on the 11th year, they have a crop failure

Starting point is 00:02:09 and suddenly they find themselves in massive debt that they can't pay. And back then, you could become a debt slave. There are all sorts of ways to deal with that in society. The problem is that over time, you have kind of things build up, where wealth consolidates, and then, you know, it also feeds on itself.

Starting point is 00:02:26 So once you're wealthy, you're able to influence politics more, right? You have the ear of the king, or if it's a republic, you might have more voting power. You can even, you know, back then especially, only rich people could really vote anyway in societies that were, you know, republics. So you can further make the rules in your favor.

Starting point is 00:02:45 And you get this tendency to consolidate one way or another. And societies had to deal with that in different ways. And we have records going back to ancient Sumeria, Babylon, and Greece. And the one I used in this piece was Lutarch wrote about, you know, the ancient King Salon. in Greece. And this was an excerpt from Lessons of History by Will and Ariel Durant. And it goes, I'll just read it because it's actually a really good paragraph. In the Athens of 594 BC, the poor, finding their status worsened with each year, the government in the hands of their masters and the corrupt courts deriding every issue against them, began to talk of violent revolt. The rich,

Starting point is 00:03:26 angered at the challenge to their property, prepared to defend themselves by force. Good sense prevailed, moderate elements to cure the election of Salon, a businessman of aristocratic lineage, to the supreme Arkonship. He devalued the currency thereby easing the burden of all debtors, although he himself was a creditor. He reduced all personal debts and ended imprisonment for debt. He canceled arrears for taxes and mortgage interest. He established a graduated income tax that made the rich pay at a rate 12 times that required of the poor. He reorganized the courts on a more popular basis. He arranged that the sons of those who had died in war for Athens should be brought up and educated at the government's expense. The rich protested that these were, that these measures were

Starting point is 00:04:09 outright confiscation, and then the radicals on the other side complained that he had not redivided the land. But within a generation, almost all had agreed that his reform reforms had saved Athens from revolution. And so basically, when we talk about this kind of multi-decade, multi-generational compoundings, usually what you have is these sharpness. event at some point where either people revolt, right? Everyone's a debt slave now. So they say, wait a second, we outnumber these guys 100 to 1. Let's just go burn their house down. So there's that. Or they, you know, through politics basically say, okay, this is not sustainable. The courts are corrupt. We've kind of, you know, we have so entrenched cronism and policy is not good. Let's,

Starting point is 00:04:50 let's like sharply reverse some of this without going too far. And so this was an example where they manage to moderate it, most examples are not that successful. And so this is kind of shows over time that when you have massive debts and wealth concentration built up in a society, there's usually some sort of release valve that is in various ways. It's painful for various groups. And then depending on how it goes, it could be extraordinarily painful for everyone if you have kind of a collapse or a revolution of some sort. It's just very interesting to see what we can learn and then what happens. We know it just in times like these, you know, it can go either way. And I think historically it has typically ended with a conflict.

Starting point is 00:05:31 I've seen some stats that in situations like these, with the declining power and a new superpower coming, the probabilities of war around 75% historically. But, you know, we always hope for something clearly not a war and for a more peaceful solution. But I just hope that we are, we can take a page from the Greek playbook. If not doing exactly like it, that's not my point. So please don't read between the lines. more a hope that it won't go into war, anything like that. Len, shifting gears here a bit, but not quite.

Starting point is 00:06:04 In episode 426, you recommended the book Money Dthrown to our audience. And I want to say that central to the book was that the basement was the core of falling empires. And we both read Redellio's book, The Changing World Order. And in that book, it goes through how the English Empire, took over from the Dutch, only to be taking over from the US, and now we're at a point with the Chinese are gaining relative global influence at a rapid pace. As I'm reading the changing world order, money debasement in the book is surely a factor, but it's not the central theme of falling empire. It's more a derivative of something that happened before.

Starting point is 00:06:43 The cause and correlation is, it's very important to separate here. I am curious about in which place you think currency debasement has in the rise and fall of empires. would side with Dahlio on that, essentially that over time, that current devaluation is kind of an offshoot of declining, you know, national status, empire status. Empires are kind of inherently unnatural things, right? It's unnatural for one group of people to become so dominant compared to all the surrounding regions and then the whole world. And that takes a lot of organization and momentum and structure to change because over time, entropy wears that down. There are asymmetric attacks that competitors can use against that group, right? So things that are organized come

Starting point is 00:07:30 the degree of fragility to them compared to chaos, right? So you centralize attack points and you've more to defend. And so over time, empires start to just entropy decays on itself. And I would say that the same thing is true for a currency that is in human power, that if humans are able to influence the currency in any way, that eventually they will start cheating. They will start, say, having gaps for one reason or another, than having to debase and having to manipulate it over time. And so I would say that both currency debasement and falling up by our status are the idea that both of them require basically the rulers to be perfect forever in order to not fall. And of course, given a long enough chain of rulers and governments, they're not perfect,

Starting point is 00:08:13 and so they will eventually fall. But going back to the book, you know, money dethrowed, I think the big takeaway I have in that book is less about that and more about kind of what happens when different society, like how money works in different societies, especially about commodity money. So I think my takeaway from that book is that money is kind of a technology, that, you know, a money can work for a while, but if then if it comes into contact with an external culture that has better technology, they can undermine your money. And that, you know, things that are scarce in one region might be abundant in another region. and that over time as our technology changes,

Starting point is 00:08:49 our usage of, say, commodity money changes. And so, you know, that's kind of one of my big takeaways of the book is basically this historical look at how money works. And, you know, the book didn't really cover this, but an interesting point is that, you know, there's that, I believe it's called the Dunbar effect, basically the research that suggests that, you know, the typical human person can keep track of about 150 people, more or less.

Starting point is 00:09:15 We can keep track of 100, 150 people. We know what are their traits? What is our past relationship with the person? What did they do for us? What did we do for them? How do we stand relative to each other? And so if you have a small enough group, if you have like a tribe, you don't really need like a money because it's a small enough set of interactions that, you know, you can rely

Starting point is 00:09:38 on barter. You can rely on it. It's basically kind of like tribal communism, right? It's a big clan. It's a big family. Status is derived. you know, through your position, right? So if you're really good at something,

Starting point is 00:09:48 you might have to become the chief, otherwise you might be more shunned in society. But basically, they can account for all their needs and abilities because they have a small enough group that they all know each other. But once you go above a certain size, once you're at town status, civilization status, you need a more liquid accounting tool

Starting point is 00:10:08 to keep track of things. And that has to be resistant to debasement, resistant to manipulation. And so that's generally why you see. If you go to all these different cultures, once they get to a significant size where either their own unit is big enough or that they're interacted with enough external groups that they don't necessarily fully trust, that you start to see a development of a money. And basically, in those early stages, it ends up being some sort of commodity that is desirable, hard to produce, but pretty liquid and fungible. and so that there basically some commodity gets like a monetary premium on top of it where it might be used for its utility but it's even more used because it's recognized as

Starting point is 00:10:49 something that you can hold and that eventually you know that it's the most saleable good that you can always find someone who will want this thing because it's it's almost universal and so money dethrone kind of goes through you know from the perspective of travelers and other people how different societies had these these monies emerge over time And on that note, we often hear that the best money wins. And implicit, whenever we talk about the best monies, we often talk about currency that have the fused units that can be supplied compared to the current stock of those units.

Starting point is 00:11:22 Some people might know of this as the Stock to Flow model. And gold could be one example because the supply of gold only increases by 1.5% annually. Do you agree that the best money always wins? And if it does, is that consistent with Radalia's observations that he's, Historically, money has always followed the same three steps. Hard money, claim on hard money, fiat money, and then back to to hot money again. The best money isn't always the absolute hardest. There's other attributes like the ease of transaction, the divisibility, the speed with which you can move it around.

Starting point is 00:11:57 And that's why I would argue, for example, that for the past 150 years, you know, paper currencies have really kind of outpaced gold because even though gold's harder, in practical terms, it has trouble keeping up. So for thousands of years, commerce and money moved at about the same speed, which is the speed of humans, right? So we go around on horses and ships and on foot and we transact with each other with gold, silver, copper pieces, or even our ledgers, even if we started keeping ledgers, those physical ledgers could still only move at the speed of humans. We had to really bring them somewhere if you want to give them to another city. But with the introduction of telecommunications equipment in the 1800s, first with the telegraph, then the telephone, we lay these undersea cables under the Atlantic starting in the 1800s. And so, you know, by the time

Starting point is 00:12:44 you got to late 1800s, you know, institutions around the world could, you know, talk to each other almost instantly. And so you could update ledgers and perform certain types of transactions on multi-continent basis far faster than physical goods, including physical money, could settle. And so gold was no longer able to keep up with the speed of human commerce. And that really further, I think, led to the need for abstraction. So historically, gold was abstracted because it had limits on its divisibility. Whereas now, we also had the even more important thing where we had limits to its speed relative to the speed if we wanted transact.

Starting point is 00:13:23 So we had to abstract it more. And that eventually opened up the divide between gold and paper currencies, and then eventually they could be separated. Whereas if in some other world, if there was like an element like gold that we could just like mentally teleport to each other, it would have been much harder to ever introduce paper currencies because it would have been seen right away as like an inferior product. But because gold had those limitations and there was an advantage to using paper claims for gold, it was able to lead to that separation. So, you know, in many ways, even though dollars are less hard than gold,

Starting point is 00:13:58 they are, you know, they have other advantages over the past 150 years or so that has allowed them to, you know, at least kind of keep up with gold. And that more people use dollars than use gold, even though gold is a better store of value. So gold, as its hardness is better, retained its store of value property, but it kind of lost the medium of exchange and unit of account aspects to what is basically better technology. When you look at pure commodity monies, the stock to flow ratio is pretty paramount. There's actually a really good example in the early American colonies. there was almost like an accelerated version of how not to use, like why most monies fail.

Starting point is 00:14:39 And basically in the pre-American, before the revolution, you had these southern colonies like the 1600s, and they started using tobacco as money. They grew tobacco. It was a high-value crop. It was reasonably liquid and fungible. And so they started using tobacco as money. And they even made it legal tender in some colonies like Virginia, where you could pay your taxes. you could pay all debts in tobacco.

Starting point is 00:15:05 And so it became money. The problem is that when you put on a monetary premium to something, you basically give everyone an incentive to make more of it. And so tobacco is not very resistant to debasement, so anyone could go and plant more tobacco. And so they started to inflate the value of tobacco away. Basically, the prices of things as dominant tobacco began to increase. And then so the government imposed restrictions.

Starting point is 00:15:29 They said certain classes of people couldn't grow tobacco, or there's only so much tobacco that can be grown a year. They're trying to artificially increase the stock to flow ratios. Then you had another problem where unlike gold, tobacco is not very fungible, right? So there's higher quality tobacco, there's lower quality tobacco. And so there's an incentive to pay your debts in, you know, this marginal tobacco, the worst tobacco. And then to say, sell the good tobacco overseas or smoke that or whatever you want to do, use that for better purposes, give other people the worst ones.

Starting point is 00:16:00 So you basically have Gresham's law in play where the weak money drives out the good money. So everyone's trading around the bad tobacco. Then they had to say, okay, well, we need external auditors to come in and check the quality of tobacco. So they put tobacco in warehouses, grade it, and then trade paper claims for that tobacco. So that they basically had to try to increase the fungibility. And then eventually they disabandon the whole situation because it was untenable. And so that's kind of an accelerated version of why any commodity that, it's not resistant to the basement, meaning it can't maintain a high stock to flow ratio,

Starting point is 00:16:35 given our level of technology, ultimately fails as money. And that's, you know, when you kind of look at the broad aspect, all the different commodities of history, that's one reason why gold keeps reemerging, because no matter how good our technology is, we're not really good at making more gold. So in the 1970s, for example, when the price of gold went up more than tenfold, If you look at the gold production, it barely changed at all because we just literally don't have the capability to make a ton of new gold in a short period of time. I'm holding this amazing blog post. It's another one of Lynn's great blog post.

Starting point is 00:17:12 The title is What is Money Anyway? I'll make sure to link to that in the show notes. And you tell different stories about commodity's money. I love all of them. One of them is about African Beats, which is amazing itself. And really an illustration of what you're saying there about new technology coming in. I don't know if I could ask you to share that story with the audience. Yeah, so the African B-Story, that's probably the most tragic one, one of the most tragic

Starting point is 00:17:36 examples in that piece. So basically, for a long period of time, you had different groups in West Africa using bees as money. So again, that kind of goes back to the idea that money is technology. So what is rare liquid, fungible, desirable in an area could be different in other areas. So in that region, they didn't have glass making technology. And so glass beads were very rare and desirable. And then also, you had a pastoral society. So you'd be, you know, you might have like, you know, your herd of animals, shepherd, you're moving around. So you want to build to bring your

Starting point is 00:18:10 money with you. So you could, you could literally wear your beats. You could wear your wealth. And so that was a useful type of money. They also used things like, you know, fine fabrics and things like that and certain kind of herbs, these were money like instruments, but beads were a key one for them. And the tragedy was that Europeans, who at the time had glass-making technology, when they were traveling around, and they would identify and say, these people like to use beads as money, and so we can use that to our advantage. We can easily, it's cheap for us to make fancy glass beads, and then we can start trading it for things of actual value.

Starting point is 00:18:48 We can buy their animals, we can buy their resources. And then sadly, there was a slave trade, so you could buy slaves with these beads that you could make for almost free. So they became known as slave beads in some circles. But then, of course, the Africans had, you know, they had resistances against this. So if the Europeans flooded everything with like these clear glass beads, they would start to say, okay, these clear glass ones are, no, they're not good money. We want the purple kind. But then, of course, over time, the Europeans would adapt and say, okay, well, they want the purple kind now. So there was like this kind of cat and mouse game where beads were not fully fungible.

Starting point is 00:19:29 There were different types. And so there were different taste preferences. And then there were different reactions to the perceived scarcity of different types of beads. But eventually that money became untenable for obvious reasons, that there was a technology asymmetry between the cultures. And then, you know, over time, that technology spread everywhere. And so bees are just not glass bees are in the long arc of time, not good money. And also that shows that if you don't have hard money, and more like if your money is not hard and you're using,

Starting point is 00:19:59 if you're using something as money that another culture or that some other group within your society can produce more of, then you're at a disadvantage. And so that's kind of one of the tragic examples of, you know, why money is so critical, especially when different groups interact with each other. 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 saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future.

Starting point is 00:20:34 That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is, is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policy makers, the kind of people you don't just listen to but end up having dinner with.

Starting point is 00:21:19 Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can have. attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way

Starting point is 00:22:07 into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the Netsuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least

Starting point is 00:22:55 in the seven figures, get their free business guide, demystifying AI at Netsuite.com slash study. The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify.

Starting point is 00:23:29 Shopify is the commerce platform behind millions of businesses of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing

Starting point is 00:24:08 sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. what is something really backed by and you just keep asking why until you until you have an answer and one of the one of these stories I like to go back to is the story of of maga pole and kubla khan so we're back in the 13th century and at the time

Starting point is 00:24:45 kubla khan and his administration came up with this did great technology that could they could make money paper notes out of mulberry tree bark and so it was was this neat size, it was nine times 13 inches. And you might be thinking, that's not a great size for, you know, a note. But it was equivalent to a thousand coins. And a thousand coins weighed around eight pounds. It was actually quite efficient. And to this story, if you were a merchant in Asia at the time, in Asia, you would have generally holes in your coins, which you have someplace in Europe, but not all of Europe. And so you put a string in, so it will make it easier to transport, but as you needed more and more money, there was simply money demands.

Starting point is 00:25:30 It just became really, really heavy. For example, the word yen, you know, the Japanese currency and they originally got their money from China, it means round coin. So it's very integrated in society. And so that technology, having those thousand coins in one note, even though it was like nine times 13, it was very, very efficient. And before then, you were trading mainly in silver and in silk. And so, which also had its limitations.

Starting point is 00:25:58 The problem about that system was that it wasn't really backed by anything other than, you know, the sword. Like, it was all backed by if you do not accept this currency, a kubla khan would have you hanged. So there was this weird dynamic where you could enter his kingdom and everyone would be forced to give all of their belongings like gold, silver, silk, whatnot, and then they'll get these notes in return. It was perfectly fine because you can just walk around in that kingdom as long as they exist and get that. And everyone would accept that as currency. I know that was sort of like a bit of a detour, but as a geek wanted to look back in history, I just, it's so interesting learning about how money has evolved. Then I would see if I can avoid turning this into a book club, but I can see like,

Starting point is 00:26:43 yet again, I'm holding up a book here. And the name of the book is Check Your Financial Privilege. You'll reference quite a few times in the book. And we had Alex on the show on the Bitcoin Fundamentals, Episode 71. And it's such a wonderful book. One of the concepts discussed in the book was that the fear currency system created inherent instability because it allowed for the option of going to war. And specifically, it was also mentioned in the book, how European powers went on and off

Starting point is 00:27:12 the gold standard depending on the state of the two world wars. How do you think about the relationship between fiat currency and the ability to go to war? I think a lot of it goes hand in hand, but I wouldn't phrase it as it creates the ability to go to war because any student of history knows that war goes back as far as our records go. It goes back way before a fee of currencies. But what fee currencies do, so let's say without fee currencies, right? Let's say money is gold, for example. If a government wants to wage war on another country, they obviously have expenses to do that. They have to buy expenses. They might, you know, a lot of wars, you use external. mercenaries, right? So, for example, in the American Revolution, you know, Germans were used in that war. And so basically, there's equipment or soldiers that could be used as well as their own, you know, paying their own citizens to drop what they're doing, say, okay, stop being a blacksmith, come fight this other group of people that you never met. So we'll pay you. And so wars are expensive. And so if gold is money, the government has two options to pay for. One is that, you know,

Starting point is 00:28:17 they have a stockpile of gold that they can start draining in order to do the war. That obviously has limits of how far they can go. And then two, if that does get low, they can tax their citizens. They can say, okay, we need a special war tax. Now, the problem with that is that those two methods are inherently limited. If you keep taxing people more and more for this war that they don't perceive themselves as benefiting from, you're increasing the odds that you're going to get pushback and revolution. Either they're going to stop voting for it or if it's a kingdom of some sort, they have no voting power.

Starting point is 00:28:47 They're going to revolt. They're going to say, stop. You're at least stealing my mom. money to go kill people, I don't know. Whereas what fee of currencies do is they give the government basically unilateral ability to drain value from the citizens without them knowing and without their permission right away. They only find out after the fact. So if everybody say no longer uses gold, but they own a currency that is, say, peg to gold, the government can print a lot of that money, pay people with it, do all this. And then they, you know, over time, as that increased money supply,

Starting point is 00:29:21 trickles through society a year or two or three later, they start to realize how inflated their savings were. But war at that point, I've been raging for years. And so basically, it gives the government a third ability. You know, if one country can't drain its citizens' wealth to fight a war, and another one can, that the second one has a better chance of winning. Right. And so, you know, once this became possible, it's spread everywhere. Right. If one, if one, if, One entity can do it. You know, other entities either do it or they probably fail. And so one of the arguments I make is that while I fully think that's true, I also think,

Starting point is 00:30:01 unfortunately, it was inevitable. They're going back to the whole thing where commerce, the speed of commerce due to telecommunications technology became faster than the speed of gold. So we had to abstract the gold. And that abstraction gave basically the government and policymakers arbitrage that they could then use in ways that they couldn't use before. It was much quicker for them to debase money and much easier for them to control money. And so I do think that there is a lot of merit in the argument that the abstraction of money, either fee currencies or either paper currencies that are backed

Starting point is 00:30:36 by nothing or paper currencies that are backed by gold, but they can be depegged or devalied a stroke of a pen, that those technologies basically do enhance a conscious ability to do war, which in the grand scale is a bad thing. We would prefer if globally there are more limits on war, but it's unfortunate that when this technology exists and one country exploits it, it can be everywhere. I'd like to discuss the Triffin dilemma. Please present to audience, first of all, what it is and if we can still use some of the teaching from the Triffin dilemma in a fiat currency world. So the Trippin dilemma goes back to economist Robert Triffon. And basically it's an observation that the domestic needs of a currency and the foreign needs of that currency,

Starting point is 00:31:23 especially for a reserve currency, or one of the reserve currencies, that those needs are often in conflict. And so it's kind of changed over time as our money changed over time. So it's been used in different ways. So back when it was proposed in like the 50s, for example, he was basically proposing why that it in Woodson, would fail. So the United States had it's the dollars pegged to gold, other current other currencies peg themselves to the dollar. And he observed that this would eventually fail. And basically the failure point of that system was that the number of dollars were increasing substantially, including foreign needs for those dollars. So basically any bank when they make loans,

Starting point is 00:32:06 create more dollars. And broad money was convertible to gold by international. creditors, even though it was banned for Americans to use, but international creditors could convert dollars to gold. And then even offshore banks, if they had dollars, they could also loan dollars and basically create more dollars to a limited extent, but still possible. And so over time, the number of dollars greatly exceeded the amount of gold. And so we had gold drawing down, American gold reserves drawing down, and the number of dollars proliferating until that system became untenable. Foreigners have an incentive to convert those dollars to gold. America's have an incentive to you make that harder to do or discourage it or even

Starting point is 00:32:46 say, look, if you keep doing this, we're not going to defend you against the Soviet Union. You're kind of annoying us right now. And so you had this kind of weird geopolitical dynamic where the domestic needs of the currency and the foreign needs of that currency diverged until the system broke. And then after that, the reformulated version basically took Triffin's kind of observation and then applied it to the new system. We can call it the Eurodollar system or the petro dollar system, Basically, the fee of currency that has been in place since the 70s, which basically goes around the premise that, you know, the United States has been the largest economy for that period, the largest naval power, right? The ability to go around and enforce supply chains,

Starting point is 00:33:26 basically is the nation that's been able to project its power the most, is the one that's able to wage war on other continents more so than other countries can. And they were able to make agreements with, say, oil exporting nations, and they say, look, you know, only price your oil in dollars, and then also take those dollars and hold some of our treasuries as your reserves. So no matter who's buying oil from, you only do it in dollars. And then in exchange, we have all this military and capability. We'll help protect you. We'll sell you arms. We'll keep your oil supply chains open. And so we kind of purposely build up our network effect of the dollar even more than it already was.

Starting point is 00:34:04 And of course, network affects compound on each other. So once you become the most liquid currency, the most dominant currency, the currency that most global debt is denominated in, it becomes rather self-sustaining. And so in that situation, the triven dilemma diverges a little bit because the observation then applies to the current account. Basically that the United States has created all of this external demand for its dollars. So the dollar is now stronger than you'd expect on a trade balance basis. So normally, if a country starts running a persistent trade deficit, you'd eventually expect some sort of recession or leading to a currency devaluation that kind of tweaks that back to some sort of balance.

Starting point is 00:34:43 Whereas by having this network effect entrenched for decades, the United States has run like 50 years of like widening trade deficits, especially over the second half of that, especially over the past 25 years or so. we've run these massive structural trade deficits, current account deficits. And it never gets a chance to correct itself because of this network effect of all this foreign demand for that currency. And at first, that sounds like a good thing. You know, there's all this demand for a currency.

Starting point is 00:35:14 It's so strong. It's, you know, it's good for all these different reasons. And of course, there are people that benefit, especially, you know, the military industrial complex, you know, basically our ability to have foreign banks. by oil, project our power is enhanced by that. But the weakness of that system is that our domestic manufacturing really suffers from that system. It becomes harder for American manufacturers to keep up, let alone with emerging markets,

Starting point is 00:35:44 but even with other developed countries like Germany and Japan that don't have that kind of extra overlay of currency strength. And so we run a kind of a disadvantage in terms of keeping up with them. Now, there could be obviously situations like for, For example, the recent energy crisis is impacting Europe more. And so, for example, that can impair German manufacturing competitiveness as an example. But over the long arc of time, basically, Tripp his dilemma suggests that, you know, instead of drilling down our gold reserves to maintain the current system,

Starting point is 00:36:14 basically we're drawing down our domestic industrial base as a percentage of our GDP or as a percentage of global industrial capacity to maintain this system of persistent current account deficits. And from the rest of the world's perspective, they're saying, okay, we have 13 trillion in dollar-dominated debt. We use the dollar as a global funding currency. So we need a steady supply of dollars to keep that system up. And that steady supply of dollars comes from, in large part, United States' structural current account deficits. And so again, you have this dynamic where the rest of the world has a certain use for dollars and needs dollars. And the United States has a certain use for dollars and needs dollars, but those needs conflict with each other, especially

Starting point is 00:36:58 for certain groups that are most impacted by it one way or another. And so right now, I mean, after decades of this, you know, ever since the 70s, the United States has accumulated like $14 trillion in accumulated trade deficits. And foreigners then take those assets and they buy, they, they're the dollars and they buy U.S. financial assets. So they, you know, we're basically selling our dollars for mostly depreciation. Assets, you know, manufactured goods out of China, things like that. And then they take those dollars and then they buy our appreciating assets. They buy our, you know, percentages of our real estate market.

Starting point is 00:37:34 They buy a percentage of our stock market. They buy our bond market, which is maybe less appreciating. But, you know, they buy our financial assets after we gave them those dollars to get depreciating assets. And so over time, our net international investment position has become, it's the worst in the world in absolute terms. And it's also one of the worst as a percentage of. GDP, where the foreign sector collectively owns a lot more American assets than Americans own

Starting point is 00:38:00 of foreign financial assets. Yeah. And on that note, I would like to talk about the private to public deleveraging. Usually that is a process that's inflationary. And then we look at a country like Japan. They meant to do it for decades without almost any price inflation and with very low monetary inflation. But still many macro analysts, they look at this and they sort of assume.

Starting point is 00:38:23 that, well, if this is what happening to Japan is going to happen to the U.S., to the rest of the world, perhaps even, you think that they're wrong? Why is that? Two main reasons. One, they own a lot more foreign assets than the collective foreign sector owns of Japanese assets. So they actually have, you know, trillion, like, you know, over a trillion dollars, trillion dollars of claims, basically that they can draw in to pay obligations as needed, right? So they have this. large investment base relative to the size of their GDP. So that gives them one advantage that many countries now don't have, especially in the United States.

Starting point is 00:39:03 Number two is that that whole massive private de-leveraging and public leveraging happened primarily during the 2010s decade, which was a very disinflationary decade in terms of commodity markets. So there's roughly this, you know, 10 to 15 to 20 year commodity cycle that happens worldwide. where prices are low, so nobody invest in commodities, they don't build new production. Eventually, that causes a shortage. So lots of money rushes in for a decade and builds all sorts of new commodity production. Eventually, we oversupply the world with commodities, and then that breaks the price, and we start

Starting point is 00:39:41 this cycle anew. And that takes quite a while. That takes maybe 10 years of building, and then 10 years of working it out, and 10 years of building, 10 years are working it out. And most countries are not big enough to really affect that cycle. You know, United States and China are. But if you're a country that's a small percentage of GDP, you don't really affect that on a global scale. And so Japan happened to do this deleveraging during a time of substantial commodity disinflation or actually outright deflation.

Starting point is 00:40:10 Commodities were literally going down in price while they were doing this. And so they basically had all the commodity, you know, needs available to them at low prices. and you weren't getting this kind of scarcity and under supply of commodities. That is a much harder thing to do if you're not at the right part of the commodity cycle or if you're big enough to affect the commodity cycle. And so I would argue that Japan represents an almost perfect example of doing this with the right conditions and at the right time that we shouldn't then just look at that and say, well, when all the other countries go through a similar process, it's going to be just like Japan.

Starting point is 00:40:51 Another, actually, third factor I would say is that, you know, unlike most countries in the developed world, Japan has very little political polarization or rising populism and tensions in the country. And part of that's just how that is you have a rather homogeneous society and they've governed pretty well domestically. They don't spend a lot of money on military, things like that. And so a lot of the money just goes back to the people. And so you have a rather harmonious society. That doesn't mean it's perfect. There are obviously disagreements in society.

Starting point is 00:41:22 But when you look at just quantitative ways of measuring political polarization, the United States and most European countries are in a much tougher spot there, whereas Japan has a rather harmonious society, rather low levels of wealth concentration. And so that gives them a deeper tool to, chest, I would say, to handle those storms. But of course, their main disadvantages right now are that they are a commodity importer, which now is becoming relevant. And then they also do have now a ton of public debt. And so they have less ability to raise rates or otherwise protect the value of their

Starting point is 00:42:00 currency because they can't really service that debt otherwise. And so I think people over-extrapolate the Japanese example by not realizing a lot of the nuances around the time. and the details for how they're able to do that without it being inflationary. 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.

Starting point is 00:42:31 VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC2 or running an enterprise GRCC, program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riter spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com.

Starting point is 00:43:13 That's vanta.com slash billionaires. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&B 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4x, crypto, and energy. beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone.

Starting point is 00:43:49 Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit plus 500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify.

Starting point is 00:44:26 Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise income fund in just minutes.

Starting point is 00:45:10 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 fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. So let's talk more about that debt.

Starting point is 00:45:43 It's very hard to talk about Japan macroeconomic terms without looking that huge debt burden they have. And we started out this interview by talking about forgiveness of debt restructuring. And so keeping that in mind, the listener might be sitting out there thinking, well, we do know that a lot of money is being printed and, you know, that's on the Bank of Japan's balance sheet. Can't they just forgive that, like the government debt that they hold and thereby bringing down the debt burden? I know that's a question that you're asked yourself. What's the answer to that? The answer is mostly no.

Starting point is 00:46:19 And it is, but it is a good question, right? So people think, okay, so if the central bank buys a lot of the government bonds, and the central bank is more or less the government, why can't they just forgive the debt that they more or less owe to themselves? And just, you know, so if the bank of Japan ends up owning 75% of Japanese government debt, why can't they just wipe that off their ledger? And then they've lowered Japanese government debt by 75% and they start fresh. Problem is that the whole kind of crux of this fee of currency system runs on the premise that a central bank and the government have some degree of independence from each other.

Starting point is 00:47:00 Right. Because if you have a dictator with absolute power over the money, that money is going to get debase a lot quicker, just the way human nature works. Even if, say, there's some philosopher king running a country, as soon as he dies, the next one's going to be worse and he's going to miss it. Right. So if you have centralized power, you're more quickly going to debase the money. Whereas if you have all these checks and balances that make it hard to create more money, like so you have to have Congress, approve it, then you have to have the central bank finance it. You have to have the president not veto it. You have to have all these different groups agree to create a lot more money. That

Starting point is 00:47:39 really slows down the money creation. And that's why you have countries with strong institutions and independent institutions generally have a much longer track record of maintaining a reasonably successful fiat currency compared to smaller countries with less histories of institutions and then the institutions get co-opted by some more authoritarian type of ruler. And so going back to the premise, central banks are, at least in theory, supposed to be independent. And obviously in times of war and things like that, that independence gets seriously threatened. But it's still not like the president or a head of a country. You can just go and tell the central bank head to do exactly what he wants.

Starting point is 00:48:22 If they do, they're more like a banana republic. They're more like that authoritarian model. And so even though they might appoint the central bank chief, that central bank chief now has a term that can potentially persist through multiple administrations and that has checks and balances for how they can be removed, how a new one can be added, right? And so there's some degree of separation there. So a president can't just do something like cut interest rates three months before the election, make everyone happy and then go back to having higher rates, right? So they don't have that fine control over interest rates because it's in some. someone else's hands is supposed to be independent. And part of maintaining central bank independence is that they can't be insolvent, that they have to have assets that are equal or higher than their liabilities. Because otherwise, they're reliant on financing from the government and that they're entirely reliant on that government.

Starting point is 00:49:16 And therefore, they no longer have any sort of credible independence. And so the way central bank balance sheets work is that the currency is their liability. So physical currency is their liability and bank reserves of commercial banks that are assets for them are liabilities of the central bank. So those are their primary liabilities. And on the other side of that ledger, their assets are things like they're primarily their government debt that they own. That's their key asset. And then depending on the different central banks, some of them have mortgage-backed securities, some of them even have equities. But the core of their assets is that government debt. And so if they were,

Starting point is 00:49:54 to erase that government debt and say, look, you don't owe us anymore. Let's just start fresh. Well, now that central bank has a multi-tillion dollar hole on the asset side of its ledger, but still has all those liabilities. And so they are now technically insolvent organization. They have no independence. They're entirely reliant on government financing. And so that whole model of some degree of credible decentralization goes away, credible independent. And so while you might not have any sort of overnight effect from just say wiping away, central bank owned government debt. It's not like you wake up tomorrow and the currency hyperinflated.

Starting point is 00:50:35 But going forward, that central bank is now 100% captured by the government, more or less. And so the long-term ability to do that degrades. And that's why most of them have laws in place to prevent that from happening, that you can't just, that the central bank can't just wipe it away. Now, there are other tricks that they can do, right? So you could, for example, make, the government could issue a special bond that is like, you know, a hundred-year bond that doesn't pay interest. You know, now you have this kind of bond that's different from the other government debt that doesn't pay interest. And so basically there are things that they can do like that.

Starting point is 00:51:12 And there are other tricks they can do to kind of keep the ledger, the asset side, the liability side, technically solvent, but merely deleting the assets. asset side is generally untenable, at least the way that we've structured this system now for a century or more in many countries. So if we continue this discussion about the relationship between the government or treasury if you want and the central bank, then perhaps we can use the U.S. example. So in 1934 in the Gold Reserve Act, the Fed was required to give its goal to the Treasury and in return, because it is a double-entry bookkeeping, in return the Fed was given an equal amount of so-called gold certificates. And these gold certificates, in theory, represented a gold claim,

Starting point is 00:51:58 but they really didn't have any worth because they couldn't really be redeemed. But what this maneuver did was that it technically kept the fat solvent. And fast forward, and we are looking at this huge debt burden, you've mentioned three different options from the US. You briefly tossed upon the 100-year-zero-interest bond. One could talk about a re-value gold on the balance sheet, or we could also hold interest rate below inflation and effectively burn away debt. Could you please elaborate on these three options and what the consequences would be? Going back to what we talked about before, so over time, when we have this long-term debt cycle unfold, debt moves generally from the private sector up to the public sector.

Starting point is 00:52:40 So you have some sort of private debt bubble pops. So the government comes in, prints money, and does things that eventually get a lot of that debt onto the public balance sheet, the sovereign balance sheet, sovereign debt. And so that's generally what you saw in, let's say, United States, for example, after you had the global financial crisis, the subprime mortgage crisis, banks blow up, you know, you started to see some degree of privacy leveraging, but a lot more debt on the public balance sheet. And Japan's an even more extreme example where over the past, you know, call it two decades, you know, you had this, going into that period, you had a massive corporate debt bubble, just tremendous amounts of debt, corporate balance

Starting point is 00:53:21 sheets. And over time, you had a lot of that drift over to, you know, they gradually de-leveraged, but it was offset by the government leveraging up quite a bit. And so a lot of that debt was indirectly transferred from the private sector, the corporate sector, to the public balance sheet. And the problem there is that there's really nowhere to go once it's at that spot. There's no higher, place to put that burden. It's there now. And so when you have externally high government debt to GDP, really the only way around it is to default. But the question is how do you default? You know, there's there's polite ways to default and then there's messy ways to default. And so there's a study by, I think, was Hirschman Capital that showed over the past 200 years.

Starting point is 00:54:09 You know, every country that got over 130% public debt to GDP defaulted in one way or another over the next call it 15 years. They either inflated that debt away or if they're an emerging market and they owe debt in a currency, they can't print like dollars. They just would outright default. They'd restructure. They, you know, they default in various ways. And actually, the only exception was Japan. They were able to push that longer than anyone else. Because again, they had really good conditions. They had huge net international investment position. They had a harmonious society. They had, they did it all during a commodity bear market, or at least a big chunk of it, the worst part of it was drawing a commodity bear market. And so they had a lot of ways to push that longer than

Starting point is 00:54:51 anyone else. But they're kind of the outlier. And so going back to your list of options, when you have super high government debt relative to the size of the economy to support that debt, assuming it's denominated in their own currency, like we see in developed markets, they have a handful of options. Because as we discussed, they can't just delete that from the central bank ledger. They could, for example, they can issue, like I said, they can issue something that represents an asset that keeps the central bank whole, but that is different, right? So, for example, as you discussed, you know, the Treasury in the U.S. made the Fed give them all their gold, but that would have just made them completely insolvent. And so instead, they gave them gold certificates. The Fed could then have

Starting point is 00:55:35 on their ledger that gave them legal solvency. And so you can have things like that where, you know, the government basically creates this unique type of bond, you know, directly or indirectly sells it to the central bank for printed money, and that just gets stuck there for decades and, you know, is a whole separate type of asset than normal government debt. And so you can have the money supply and the economy nominal GDP end up growing faster than the rest of that government debt pool because you kind of offloaded it onto this weird instrument. That's one method. Another method is that a country can sharply devalue its currency relative to gold. And then therefore, basically, you've effectively increased everything else.

Starting point is 00:56:18 You've increased novel GP as measured in that devalued currency. You've increased asset prices as denominator in that devalued currency while debt obligations are fixed. So you've basically deleveraged in that sense. A similar way is to do that over time gradually where a country can say, look, you know, we're going to target 2% inflation, but we're going to hold bond yields. Like, let's use Japan as example. Japan officially has a 2% long-term inflation target per year, but they're doing yield curve control where they're holding short duration rates below zero, and they're holding long

Starting point is 00:56:52 duration rates at 0.25%. And so they're basically saying that, you know, we're going to over time try to gradually devalue our sovereign debt compared to nominal GDP, compared to nominal, you know, total total asset base in Japan. In most situations like this, it ends up being more extreme. So, for example, the 1940s United States, we were fighting World War II. How did we finance it? Well, we've ran these absolutely massive government deficits to pay all the soldiers and manufacturing facilities and wages war. When they came back, we paid those soldiers to go to college. We gave them, you know, we helped backstop their mortgages. We did all sorts of things.

Starting point is 00:57:32 that were all collectively very expensive. And the way we financed it was we basically captured our central bank and said, look, you're going to make sure that our cost of debt is low. And so the central bank said, okay, we're going to keep short-term interest rates at near zero. And long-duration bonds were going to cap at 2.5% by being willing to buy an unlimited amount of them who printed money. And so that whole decade in the 1940s, we averaged 6% annual inflation, while industry rates paid zero to 2.5%.

Starting point is 00:58:04 And so we devalued a big chunk of that debt without hyperinflating it, without going too far. We, over time, gradually devalued that. And you even had years. There was like one year. We had 19% year-of-year inflation while industry rates are still zero to 2.5%. And so that's like kind of the third method, where if sovereign debt is denomined their own currency, they, over time, devalue that debt relative to nominal GDP and nominal asset prices by having inflation run much higher than interest rates.

Starting point is 00:58:37 So the government is now basically borrowing at a deeply negative real interest rate, and then if they can eventually get their deficit under control, they can shrink their obligations relative to size of the economy, which is effectively a form of default, but it's not a default as measured in the contract of their bonds. Let's continue talking about some of the things we learned during this interview and how to apply this in practice. If we talk about how to invest during a period of stackflation, that you might argue that we now have entered.

Starting point is 00:59:11 So stackflation is high inflation and then lower negative growth. And I know you looked into the performance of different asset classes during such a time. What can history teach us about the performance of, say, bonds, real estate, industrial, commodities such as oil and monetary commodities such as gold. In general, inflationary periods happen in large part due to rising commodity prices. It's really hard to get a period of high sustain inflation if commodities are cheap. They're kind of one of the key inputs for what contributes to inflation. And that can happen, of course, on both sides of the ledger.

Starting point is 00:59:46 You can have the currency itself being rapidly devalued or you can have scarcity in the commodity itself causing that to go up against other financial assets. So either way, commodities are rapidly increasing in price. And so by extension, when you have this kind of inflationary environment, commodities tend to be historically the best place to be. So that's kind of one of the most like kind of highly correlated assets that does well in inflationary environments. Now, the challenge with that, though, is, of course, that they're very volatile.

Starting point is 01:00:14 So even in inflationary environments, you can have sharp pullbacks in commodity prices. So commodities are one of the key places to be, but you have to put up with that volatile. So the general trend of commodities over time is that they're usually not very good formers over the long run. It's not really good compounding places for capital. But specifically during inflationary decades is when they really shine. Because if you think about it, the traditional stock bond portfolio is actually a pretty disinflationary portfolio, meaning it prefers a disinflation environment because obviously the bonds prefer disinflation. But then even the stocks, you know, they would prefer easy access to commodities, low commodity prices,

Starting point is 01:00:53 high margins, right? So generally, when you have that inflation environment, bonds suffer, but then also stocks generally run into turbulence. They have margin pressures. They often face lower valuations due to higher interest rates and higher investor uncertainty about the future of those cash flows. And so generally, broad stock and bond indices usually stagnate or suffer in those environments. Whereas specifically, besides commodities, value stocks generally hold up pretty well. So if you go back to the 2000s decade, which was a somewhat inflationary decade, it was all set by globalization. So we didn't really feel too much as an inflationary decade, but it was a rather inflationary decade, as well as the 1970s inflationary decade,

Starting point is 01:01:37 as well as the 1940s inflationary decade. Basically, the three most inflationary decades of the past century, value stocks were major winners versus growth stocks in those environments. One way to describe it is that stocks that are at the top of an index, index are generally optimized for the environment that persisted over the past decade or so. Right. So in a disinflation environment, after a long period of that, you generally get a lot of gross stocks at the top of an index. You know, they're the biggest companies, the most successful companies. And then when they encounter inflationary a decade, they're basically encountering, you know, they're overvalued and they're countering now a period that's not

Starting point is 01:02:15 well suited to them. And so they generally tend to suffer. Growth stocks tend to suffer. They're overvalued and their whole business model was kind of reliant on cheap access to commodities and disinflationary growth. Meanwhile, a lot of the reasons why you have inflation is that you've underinvested in real assets. So commodity production infrastructure to transport those commodities around, you know, maybe to make manufacturing chemicals, whatever the case may be, a lot of more value-oriented type of sectors. They may not be cutting edge, but they're necessary. And so generally for multiple reasons, you get that value factor outperformance compared to growth stocks. And that obviously you can frustrate value investors during disinflationary decades, but tend to reward them during those

Starting point is 01:03:01 more inflationary decades. So commodities, value stocks. And then often gold and other hard monies can do well in that inflationary environment, partly because, again, they're a type of commodity, essentially. But then also, you know, compared to say oil and gold, I mean, oil and copper, that are used for their utility value, something like gold is being paired to those treasuries or compared to cash in the bank. And investors globally are saying, you know, do I want to hold this asset that's only increasing in supply by 1.5% a year or do I want to hold this other thing that's going up at double digit percent in terms of supply every year? And you have to look at that both the individual level where they say, okay, as a household, do I want to have some gold? You know,

Starting point is 01:03:44 maybe offsetting some of my bonds and cash. But you can also look at that. at the sovereign level, if a country is deciding where to put its sovereign reserves, does it want to invest in a treasury yielding 3% while inflation's 8%, let's say? Or did they maybe say, you know, we could actually increase our gold reserves here. We could even self-custody of them so they can't be censored or confiscated by another country, but then they're also kind of inherently inflation-resisted, maybe not year-to-year. Obviously, it's volatile, but over the very long term, I'm basically holding a much scarcer thing than a treasury bond that pays negative real interest rates.

Starting point is 01:04:21 And so generally those harder monies with historically gold being the key example do pretty well along with commodities, with a little bit less volatility in those types of inflation environments. In addition, if you have appropriately priced real estate with a fixed rate mortgage attached to it, that's also generally done pretty well in inflation environment. So it did really well in the 40s, did it really well in the 70s, the United States, and did really well in the 2000s. And so you basically have the value of the land, the property, the materials, the relative degree of scarcity, that's all going up in denominator in that devaluing currency while the debt attached that property is fixed, and therefore that's all getting devalued. So the home equity is actually doing pretty well.

Starting point is 01:05:05 Now, the challenge is that if you overpaid in the beginning, that can offset by, you know, the home value is kind of melting in real. terms. And so, for example, I'd be concerned about using that strategy in overpriced cities or many countries that are just overpriced in general, like Canada and Australia and China, you know, very inflated housing markets. And so that strategy might not work as well. So really, it kind of comes down to looking at more utility, more scarcity, more cash flow-oriented assets and less paper assets and less disinflationary kind of like high growth, long-duration type of assets. Then, this was just amazing. I learned so much reading your blog post, speaking with you, and please give a hand off

Starting point is 01:05:51 to your blog, first and foremost, but really to anything you want. I'm sure the audience would love to learn more from you. Yeah, so I appreciate that. This is definitely a challenging time with, you know, basically not only our asset prices changing around, we go from a disinflationary to an inflationary type of environment, and then they're determining how long that inflation is going to last, all these different asset prices shuffling around. And then we're picking and choosing what, you know, to the extent that we want to hold, what types of money are we going to hold? That becomes a whole, it's almost

Starting point is 01:06:17 like investing in different monies. It becomes a whole problem of its ownness worth through. So it's definitely in a challenging environment. And I've enjoyed kind of writing and researching and trying to share what I can out that. Most of my content is at Linnaulden.com. And I'm also out on Twitter at Linnaudden Contact. Thank you so much for making time once again for the Investors podcast. Thanks for having me. Thank you for listening to TIP. Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence.

Starting point is 01:06:49 To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional, this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting. Thank you.

We Study Billionaires - The Investor’s Podcast Network - TIP462: What is money? w/ Lyn Alden

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.