#161 - Lyn Alden - The Inevitable Collapse of The Financial System

Do you believe we're living through a slow financial collapse that the majority of people don't even recognize is happening? I do, yeah. And people kind of look around and say, "Why does it seem like everything's more expensive? I'm still earning money, but it just doesn't feel like it goes as far, and in a lot of times they're right. Every currency system in the world has to grow or die, at least the way they're currently designed. People feel it not just due taxes, but then through their wages getting debased, and their savings if they're holding currency and bonds getting debased." And you kind of keep adding new layers to the system until by the end it resembles theft. The best product Coca-Cola ever sold was their bonds, not their coat. And what they're basically doing is they're shorting the currency. You know, they're literally shorting the thing that you're holding your bank account, and that you're saving in. Governments are shorting it. Corporations are shorting it. Wealth individuals are shorting it. The system is based on having people hold the currency in the bonds while other people are literally shorting it. And the least able to short it are ironically those at the bottom of the income stack. They're kind of getting the full damage of the inflation. So they're socializing the debt that the private sector has built up onto the public to protect the private sector to keep the economy going. Take the risk away and lock in all the gains you've had and socialize the losses. Once you get to the part where there's this much debt on the sovereign ledger, there's really no way out of it other than they're going to default. This show is brought to you by my lead sponsor, Iron, the AI Cloud for the next big thing. Iron builds and operates next generation data centers and delivers cutting edge GPU infrastructure all powered by renewable energy. Now if you need access to scalable GPU clusters or are simply curious about who is powering the future of AI, check out iron.com to learn more, which is iren.com. I have to do Lynn. I think we might be about to make the most important podcast of the year. Ready? I don't know about that but I'll do my best. I think we're going to do it. So okay. Do you believe we're living through a slow financial collapse that the majority of people don't even recognize this happening? I do. That's actually one of the talks I gave at your conference. What I focused on is people always ask me when, for example, will a sovereign debt crisis matter? When we talk about $39 trillion in US debt and all the debt that the UK has in other countries, when will that matter? In my view, it has been mattering. It's already the case that currency and bonds have underperformed most other assets because they've been devalued. All of the rising poplars we see in the US and Europe. A lot of it stems back to basically our financial systems and the imbalances that those have built for years and decades now. I think a lot of people listening might not even understand how currency works, how bonds work, how would you explain the financial systems so they can understand the current state? I would say that it's one giant ledger. In a given country, the central bank runs a ledger and then it's really a two-tier ledger. The central bank runs the base ledger and the commercial banks build on top of that ledger and then they fractional reserve currency by lending it out. They have something like five times more currency outstanding. It's backed by a smaller amount of base money. Both the central bank as well as commercial banks can basically create more money. Only the central bank can create the base money. The challenge is all the debt builds on top of that and you have to trust the runs who run the central bank who run the government to manage that ledger properly. We think of paying taxes and then the government spends and does service and stuff but they almost never meet the difference. They always have not enough taxes and way too much spending and no matter how much they raise, they always have a deficit. In practice, that gets leaked out into the currency. Over time, they monetize meaning they create new money to buy some government bonds to create more money in the system. People feel it not just due taxes but then through their wages getting debased and their savings if they're holding currency and bonds getting debased. We've kind of survived okay with this system up until say 2008. Some people were able to outperform what was happening with the currency but recently I speak to a lot of people and everyone said life is just getting a lot harder and they don't really understand why. Is this us living through the tear lending the system? I think that this phase could go on for quite a while but I do think that we are at the more rocky part of it. What's remarkable is it seems normal now but the system is actually pretty young. In the current form it only really came into being in the early 70s. It's not that much older than we are. Many people watching this have been around since before this current system was in place. Before that, of course, it was based on precious metals so there's another layer below everything. Now there's not. Even the central banking system itself, it goes back further but still not that long in the current form. It's been this grand experiment that the whole world has done. Basically Ken as a nation, instead of relying on a natural ledger like precious metals that we don't only have the rules for. We have to just mine it and do things like that. Can we run our own ledger? Millions of people in a country and of course our politicians. Can they run a ledger and sustain it over the long term? The answer is so far is that in almost every country, imbalances slowly grow and it comes out. We see it in debt levels but then we do see it usually in rising populism and other issues like that. I do think that this phase even though we are far into it is probably going to last longer than people think. We're about 55 years into this current experiment and when you talk about precious metals and things changing in the 70s, again I think some people might not even know what you mean. I think a lot of people will expect this has always been the system, a system of money but not understand that previously the money was backed by gold. Do you want to explain that? Sure. I mean for events how far you want to go back but basically for thousands of years people have wanted something liquid, divisible and fairly scarce that they can use on one side of every transaction. Instead of having to barter for things or just kind of promised to exchange something later, you can have a money that kind of serves as one side of every transaction. It just makes things easier instead of trying to figure out how much grain I got to give you for a shelter for example. It's not really feasible. For shells, we're literally like shell jewelry. It wasn't an early example that many used but of course as technology got better and as cultures all ran into each other and some were more technological and they could deviate each other's money, the world really settled on gold and silver as generally the best natural ledgers. Just because they're scarce, they're long-lasting, they're verifiable, they're fairly divisible especially silver. One of the challenges with gold is you can only kind of break it into a piece small enough that still might be pretty valuable so that's often why silver was kind of used along with it. For thousands of years gold coinage and other types of precious metal storage has been used as kind of a universal store value and payments. But then ever since, because it's very costly to move that around, to audit it all the time for centuries, we've had layers built on top of that that are representations for gold and silver. For example, you have a bank note or you'll have some other account that basically represents this is how many ounces equivalent you have and you just kind of tell your bank to debit your account and credit someone else's. And so for centuries, we ran on that system until all around the world, governments got kind of constrained by it. They didn't want, especially in World War One, they got constrained by how much their finances they could kind of spend while still having that backing. So between kind of the aftermath of World War One and then especially into the 30s and 40s, they started to gradually decouple from precious metals. It wasn't like one individual time, first it was like a devaluation. And then they would say it depends on the country, but they would say things like, okay, so it's still backed by gold, but not for normal people. Like if a large foreign entity wants to exchange some currency for gold, we'll do that, but not the normal person. And then over time in the 70s, even that last peg was default on. So we can consider it a fault basically. So now instead of being based on precious metals and these other layers on top of it, we just have a ledger. It's just a computer system. It's just kind of a list of ones and zeros that we use for our money. So gold was a constraint on how much money the government could create. More or less, as long as they wanted to keep it back. Now even in that system, it was still fracking or reserve. And that's, I mean, that was kind of the, the Achilles heel of the whole thing is that, you know, if you have a lot of gold and you give it to a bank, you know, if it's a pure custodian, they'll just hold the gold for you. Like if you have a safe deposit box, you've got very specific things in it and they can't, they can't like lend those out because you can come back anytime and get your specific things back. But if it's something fungible, meaning kind of pretty interchangeable like gold, if you go into deposit gold in a bank, the bank might say, okay, we have a thousand customers, We're holding all these ounces of gold. And any given year, only 10% of the customers ever really want all their gold back. So maybe we could lend some of it out and generate a return on this. And by doing so, we can actually eliminate the cost for the depositor. Instead of charging them to secure their gold, we can actually pay them a little bit interest so we can get more people to come to our bank and deposit with us, not with our competitor, and we can lend it out. But then the problem, of course, is that you have all these IOUs for gold in the economy when you're all the different banks in custodian doing this. And those IOUs greatly exceed how much gold there actually is. And then the government, of course, themselves also run into the issue where they spend more than they tax, so they build up debt. And eventually, when both the commercial banking system is kind of over leveraged and when the government's over leveraged, they kind of say, okay, we messed up. But it's, you know, it's just other factor that, you know, you can point to war, you can point to something else and you say, well, now every IOUs only worth half as much gold as it was before. And so you kind of do these devaluations. So it's the ill-disciplined government. It's an ability to keep to a budget, which is devaluing the money. Yes. That and just the, I would actually say it's even more fundamental than that. Basically, ever since, in this way, it gets a little technical, I've argued in my book, and money, that we're really kind of ushered in the modern age of money was the telecoms. Like the, as soon as we had the telegraph, the telephone, as soon as we could do the long distance information transfer, which is basically the late 1800s, we opened this door where you could do fast transactions around the world, but we had no way to settle value quickly. So prior to all the telecommunication technology, information couldn't really flow much faster than people could move around. And so transactions and settlements were roughly the same speed, and you only had so much use for intermediaries. But in the, in the, kind of the modern age, when, you know, a money can flow around the world at the speed of light, but gold is very physical, it's, it's hard to audit. It gave a ton of power to those middlemen, those banks, those central banks, and then the governments that are attached to them. And they've, you know, they've been the ones that are kind of settling. They say, okay, we'll hold all the gold. And if you want to be money around, just tell us and we'll, we'll send it where we want to go. And people trust that. And so over time, both from just the fractures or the nature of the system, as well as governments being unable to balance their budgets, you get over major inflation over time. A given year might not feel that bad, but occasionally during crisis, like a war or a lockdown or something like that, it'll kind of come out all at once. So people kind of slowly get rugpulled from not just their savings, but also their wages. Basically, everyone who has a contract, whether it's a business setting their prices or a person having a wage, all of that kind of, like weekends over time, partly from the government, but also just because the system itself is kind of designed like that. So is this a failure of design? Is it a failure of humans? And was it just operating as a system exactly as it should? I think, I mean, most things go back to failure of humans. We're imperfect. And part of why a government can't kind of meet its budgets is because of course, people want a lot of things. They want to, in an ideal world, you don't pay almost any taxes, but you get a ton of services. So people, if you say, okay, we have to balance our budget, what do you want to cut? Maybe in the core things that they want, they usually don't vote to cut things, but then it's okay, we'll raise your taxes then. They say, no, we don't want to pay more taxes either. So they kind of obviuscate it by debasing over time. I think the other one is just every money I mentioned before, like, you know, kind of people had looked around and said, what can we use as money? Every money does have like a certain limitation. And for Golden Silver, it's their speed of movement. It's to some extent their audibility, their divisibility has some limitations. And so most financial innovations in history are kind of attempts to make money move around quicker. And even things we don't consider like technology because they're so old, like coinage is a type of technology that allowed for quicker verification of money. You know, you put it into a standardized size, you put ridges on the edge, so you kind of evidence that no one shaved it and made a little smaller than it should be. And things like the printing press, they allowed us to have it drastically reduce the cost to give someone like a kind of a verified document that says, okay, this is a issue by a bank and you get a certain amount of gold or silver attached to it. So most attempts in history are trying to kind of minimize the frictions. And I think the current one, it's not an accident that like every country in the world uses this system, but it has flaws. Even at the end of the day, it's a bunch of people managing a ledger together and disagreeing. I want to talk to you about my new sponsor, Sally. So one of the things that happens with making this podcast and recording shows is that I'm constantly travelling, especially out to the US, to record interviews. And one of the most annoying things that I have to deal with is get into another country and figuring out what to do with my phone. Because either you're going to get hammered with Roman charges, we're just trying to find a sim card at the airport. And so that's why I've started using Sally. Now, Sally is an eSim app from the creators of Nord VPN that gives you affordable mobile data in over 200 destinations worldwide. And listen, the setup is really simple. You just download the Sally app, pick a data plan for the country you're travelling to, install the eSim once and when you land, your phone just connects to the local network. There are no roaming charges, no swapping sim cards and no airport kiosks to deal with. And listen, if you travel a lot like I do, it's a genuinely useful app. You can get 15% off-sale data plans by downloading the Sally app and using my code, Peter McCormack. So the ridges on the coins, I didn't realize this, is that downstream from the Romans clipping the coins and debasing it? It'd be interesting to say where the first ridges, I mean, there's coinage experts that probably tell you exactly what region. But they, I mean, Romans weren't the first to the base. And back then, debasing was actually hard because, you know, let's say there's like a million coins throughout the Roman Empire. I don't know how many of them were blessed. There's a million gold, gold or silver coins out there. Silver was popular back then. Let's say they have a million coins and they're taxing in, you know, 100,000 coins a year and they're spending out 120,000 coins a year. So their vault's going down. If they want to devalue the coinage, they can't just snap their fingers and devalue the coinage. They actually have to tax it in, re-melt the coins, put some like base metal into them. So they said, okay, instead of 95% gold or silver, now it's 85% gold or silver, that let's some spend more back into the economy than they taxed. And over time, of course, prices go up because there's more coins flowing around for a number of good services. They would do that to basing, but then even once those coins are out there, like if you're doing business on an exchange or with a merchant, it might look like it's a normal size, but they could shave a little bit off the edges. And just every coin they get, they just kind of shave a little bit and take 5% of it off and you wouldn't really know if you had a smooth edge. But the ridges basically show that this coin is roughly the size that it was issued at without being, you know, basically fraudulent. So it seems to me that the biggest problem is the misalignment between the political cycle and money. In that, to win an election, it's going to be very unpopular to come out and say, we're going to cut significant amount of spend, we're going to balance our books. You have to make kind of vague promises. You see this say with a green party in the UK at the moment, they say cut bills, tax billionaires. There's no policy, but people who don't understand money think, well, that's a great idea. But that appears to be the misalignment, which is leading to currency to basement because once the reality of governing hits a political party, they either have a choice of raising taxes, cutting spend or borrowing more money when they always tend to default to the bar more. If you kind of point to what is aside from war, what is kind of a key reason why these debt levels have gotten so big into basement, it's been so significant is that when they design their kind of social insurance systems, their entitlement systems, they assume that every generation is going to be kind of bigger than the prior generation, you know, we had a long stretch of global population growth. So they just assumed, okay, so, you know, the new generation, when they work, they can pay for the older generation when they retire. But then the problem, of course, is that throughout the developed world, fertility went down, people had fewer children. And so we got to the point where the population is not growing like it was before. So you have a fewer number of young people that are kind of, you know, in a burden position to support a now a much aged population. So it's top heavy. They kind of built these, it basically a Ponzi scheme at the end of the day. They always kind of pay the prior generation from the younger one. And that only works until you slow down. And then all these politicians kind of run into issues where it's very in popular to cut those programs, very popular raised taxes to pay for those programs. And so it tends to come out in the form of debt and then to basement. well. So the system itself does appear, it's a in the UK and maybe in America, it does appear to be a stable system on paper, but people are increasingly feeling like they're falling behind. How does that happen? Well, it can happen in a number of different ways. I mean, fundamentally, like in the US, for example, after World War II, so much was damage around the world that Americans, particularly, and UK was also, I mean, they were more damaged by the war than the US, but compared to much of Europe, they were at least in better shape. These places kind of things felt really good, but then over time, as kind of the rest of the world kind of recovered and caught up, and as kind of big dislocations were addressed, people had more competition from overseas that I think put a lot of pressure. In addition, automation, anytime you have a new technology, it kind of changes the balance between certain types of workers and say business owners or consumers of those goods and services. So automation was a big factor. But yet, at the end of the day, the reason kind of people feel like they're left behind is partially because they're in a more competitive world than they used to be. But then too, as all this force we talked about occur, as banks freshly lend out their currency, as governments spend more than they take in and monetize the difference at times, there's just more and more currency units in the system. And people's wages, let alone their savings. You always think of like debatement and inflation as impacting people's savings, but it also impacts their income because if you agree to pay someone 50,000 pounds a year to do something, the burdens now on them every year to try to grow that number to keep up with inflation. So 50,000 pounds will be worth less next year than it is this year. It will worth even less two years from now. And in the developed world, money supply historically grows by something like 7% per year on average. That's a non-crisis year. Over a multi-decade period, it usually averages around 7% developing countries that's quicker. And if you look at what people are able to increase their salaries by every year, it might be 2%, it might be 3%, it might be 4%, it's rarely 7%, unless they got a major promotion. Basically, if they're doing similar work, they're unlikely to keep getting these 7% wages. Or a bonus. Or a bonus. And then so after say a five-year, 10-year stretch, they're getting a smaller share of the money supply than they were five or 10 years ago, just by having their salary grow more slowly than the underlying debasement. And if people kind of look around and say, "Why does it seem like everything's more expensive? I'm still earning money, but it just doesn't feel like it goes as far." And in a lot of times, they're right. It generally doesn't go as far. And it's hidden sometimes through products becoming smaller, strength, inflation, ingredients changing, and certain products. There's different ways they try and hide the inflation, but they can't always do that. Exactly. And there's also just genuine productivity growth. So on average, we get better at making things than we were decades ago. Our technology improves, our processes improve. And so if you had say a fairly stable money supply, over time, things should get cheaper because we're more efficient making them. And that's generally, if you compare most prices of things over the long arc of time to gold, gold can generally buy you as much or more than it did centuries ago. Just because over time, you've gotten more efficient at making things, but not much more efficient at mining gold. Just so people understand that's because gold is scarce. Gold is scarce. And if you divide the amount of money, there is into the gold, you will get a better share of the gold. Or basically, if you take all the goods and services in the world, they're growing more quickly. There's more things you can buy, and gold itself is only growing at a pretty slow rate. So it makes it so that each kind of unit of gold generally lets you buy more goods and services than you could a long time ago. Not way quicker, but over time, it gets a little bit more things get more affordable in gold terms. The problem is that for for fee occurrences, the opposite. Fee occurrences grow is more quickly usually. Then goods and services grow. And so there's more dollars, there's more pounds chasing a slowly growing pool of goods and services. And when times are good, like when we're getting way more productive, you might have say 7% money supply growth, but things get say 3% more efficient to make. So kind of their natural kind of let's call it their gold relative price goes down a little bit. So it feels like say 4% inflation. Because you get 7% more money supply growth, but 3% kind of more stuff or more efficiency in buying those stuff. And so you kind of feel that 4% difference. But then over time that keeps compounding. And then it really kind of comes out all at once when you have setbacks in productivity. So either because you reach some sort of technological ceiling or more commonly because you have war, war is negative productivity. You're literally spending money to blow other productive things up. And then in today's world we have blockages for energy and things like that. And that's where years of kind of hidden inflation can kind of feel like it comes out all at once because we're no longer having those productivity offsets for the ever growing amount of money supply. So whilst we hear the headlines of GDP growth, inflation, rises inflation, is it really actually more important that people understand what scarcity is and what productivity is? I think so. I mean we failed to do that. I mean it depends on the country, the schooling system. But I think on average one of the biggest misconceptions is people they think that inflation is just the price increases. When I think the bigger picture is that it's the money supply growing only being all set a certain amount. And so they're kind of they're kind of showed one number. You know, that's inflation. And if you earn interest, you can keep up with that inflation. But really the actual number is bigger. And that's a hidden number that interest that like interest on your bank account, your bond doesn't generally keep up with that real number. So what is the real number? Is that hidden from us? Is this the changes to the money supply growth? Yeah. And it's it's public knowledge, but it's not common knowledge. I mean you can generally look up any country's money supply growth. But this is not how we're wired. It's not how we're taught to think. It's not how we're wired to think. It's not how the government wants us to think. Probably not. Probably not. No. I don't think people truly understand scarcity, which is I think a significant problem. And we should probably talk about there are ways when people lose wind significantly within the system. If we talk about the expansion of the money supply coming from the government, obviously, it's amounts of money supply. But the majority, as I understand it, the majority of the expansion of the money supply comes within the banking system. And those who are able to take on large amounts of debt and acquire the assets when inflation hits, they're the people outperforming the market. Generally yes. One of the kind of the statements I've used before is like the best product Coca-Cola ever sold was their bonds, not their Coke. I mean, if you look at some of these some of these companies whether it's Coca-Cola or let's just pick a British one like British American tobacco, whatever. There's U.S. companies, British companies. Many of them have been profitable literally for decades straight. They've never had a year without profit. And you look at their balance sheet and like let's say Coca-Cola has 40 billion dollars in debt. And it's like why does I mean Coca-Cola has been around forever? Why do they have debt? And the little of the answers because they can, they choose to. It's an arbitrage. They can issue bonds. Let's say before this you know last few years of inflation, they could issue bonds like 3% 2% for five years, 10 years, 20 years, sometimes even longer. I mean Disney did like a century bond once. They can just they can issue these bonds, lock in these really low borrowing rates. Right. So the current spies growing it, let's say 7% a year. They're borrowing it only paying 2% 3% on their bonds. And then they're they're using it to buy more valuable things. Maybe they make an acquisition. Maybe they buy their own stock back. And so over the long arc of time, the winners of those that are able to short the currency for the lowest rates for the longest amount of time while owning scarce of things. Real estate, business equity, that kind of thing. And so they're literally shorting the thing that you're holding your bank account and that you're saving in. Governments shorting it, corporations are shorting it, wealth individuals are shorting it. Even people that are middle class or upper middle class and have property, they're generally shorting it. And the least able to short it are ironically those at the bottom of the income stack that don't have assets that that aren't going to get good loan terms. And so they're kind of getting the full damage of the inflation because they their wages are getting devalued. What little savings they have are getting devalued. And they've not really gotten on to that asset treadmill of owning scarce things and shorting the abundant things, which is currency. They probably don't even understand how this works. I think a lot of people don't truly understand how it works. Well, know how they can even move from one side of the game to to the other. I think, well, I think, yeah, most people, I mean, on average, there's a lot of things I don't know about multiple subjects. Right. Just focusing on the money system happens to be one of the things I know. Many other people, they're an expert in something else and knowing the details of the financial system are just not what they focus on, but unfortunately, it's such an important area that it affects everyone. I think the other factor, of course, is even when you know the system, if you start or basically from scratch, it's hard to kickstart that process. Once you have assets, once you're short in currency, attach to those assets, it tends to snowball, it's pretty easy to maintain it, but it's hard to kind of go from zero to one. That's where people have to work super hard, save a lot of extra money, potentially get retrained or educated in something to have higher income or take the risk of starting a business. That's a more challenging set of steps that, of course, once they get past that, things get a little easier. But like I say, there's essentially two players to the game. If everybody understood how it worked and was trying to short the currency and long the assets, would that just essentially crush the system? Does it require peasants on the other side having their life debased to allow it to work? Pretty much, yeah, basically the money only works as long as people are holding it. That's also why developing market currencies fail more quickly is hard of them to kind of maintain the system in a stable way. There's not a lot of reason for them to want to hold the currency. They'd rather, if they're going to own currency, they'd rather own dollars or pounds, not pesos. So, NTS don't want to hold the currency. It collapses quicker. But yeah, basically the system is based on having people hold the currency in the bonds while other people are literally shorting it and growing it by shorting it. Ironically, when you borrow money or when a bank lends money, it's creating more broad money. It's literally levering up the money. You're putting more broad currency units into the system. So by shorting it, you're also helping to grow the number of units and you're benefiting in those that are unlevered, that are just earning that money or that are storing some of that money in a savings account, there are the ones that are losing. So, I'm just remorguing my house at the moment. I've been offered a rate. I think it's about 4.3%. And so over that period, we would expect the money supply to expand 7 to 10%. So I am essentially in NTS and R a short in the market. I'm in that beneficiary. Yeah. So, that's every year. Every year. Over the course of say a 25 year term, the money supply might be growing by 7, 8% a year or more and you're getting, you know, you're paying 4% or 5% interest. And that's not, I mean, that's not even the most extreme example. Corporations can borrow even less for less interest than you can. But yeah, the close you are to that kind of source of money creation, the more you can short currency. And now I can sew over your skis that, you know, if the house price goes down a little bit or you lose your incomes temporarily impaired, that you'll default. As long as you kind of don't get over leveraged, that's historically been the winning strategy. Short currency, own scarce things. And yeah, there are people on the other side that are unable to do that and they're getting the negative effects of that. But that is the vast majority of the vote in population. It's very, I think there's a small number who usually, who understand the system now to arbitrage it. There are others who maybe knit beneficiaries without realizing it. They're just own a good home. They do own assets. It hasn't crossed their mind. There may be those training water and the large number of people who are falling behind, which is why we get the populism. I think if enough people understood it, you might even get a revolution. Potentially. Yeah. Unfortunately, every time currency fails, they usually, like we have now kind of decades and decades of, of instances of this. Unfortunately, and whenever a currency fails, people temporarily default to a currency that hasn't failed yet, like dollars, for example. But then they just restart the system and they kind of get enticed to trust it again. And they go back to trusting it. And then years and decades go by and another set of politicians is in power and the same thing happens. So unfortunately, people kind of were almost stuck in the same loop. It's like an infinite loop. Unless you had a politician who came out who could win popular support by explaining how this works. Malay has done it to some extent. How much have you looked? Well, he's been doing it. I mean, he is a knowledge bond economics. That's true. I think the challenge is that whenever someone kind of enters that system, especially because most places are not dictatorships. Someone can just come in and just do whatever they want. There's other people that have power. And they all are kind of working with each other to figure out how we're going to, you know, can we raise that tax? Can we cut that issue? Can we cut that spending there? So even, you know, if you ask him, which like the money supply to grow, he'd probably say no, but Argentina's money supply is still growing. Just because the fundamental system is still functionally similar, even though you can dial some knobs around to slow it down. So the system as it is really should lose its legitimacy because it is a system of extraction outputs from the poorest and middle class to the wealthy. Yes. Or at least the money part is the fiscal transfers. And that's partially why many governments have these fiscal transfers. It's an attempt to kind of offset that. So in the US, it'd be Medicaid, it'd be food stamps, it'd be various types of, say, free public schooling, for example. That's an attempt to kind of offset that siphoning that's happening. And people, that part's more visible. They see the kind of the top down flow, but they don't see that behind that top down flow is there's this sucking sound. There's this viving siphoned, yeah, from the bottom to the top. And is it to offset it or is it to quail rebellion? Is it part of bread and circus? I mean, this governance goes back, Lily, millennia. And before kind of the current era, when information couldn't flow as quickly, when governance was generally smaller on average, people were more local. There's only so many services they could provide. In the modern era, people have kind of come to expect more. We kind of added, used to be the basic kind of function of government was to provide security. The Lord would say, okay, you're all peasants. I'm the Lord, and I'm going to tax you, and I'm going to set the rules. But I'm going to make sure that the barbarians don't come and burn down your place in your farm, right? That's my end of the bargain. And that's kind of the whatever country you look at, that's kind of the basic arrangement that's been around thousands of years. And really in this kind of modern era, do we have he added more and more services to it? We say, okay, well, we're going to do schooling. We're going to do more infrastructure. And then mainly what governments are now is military and insurance. You know, it's like they operate the military, but then they also have these big, usually social insurance programs. Whether it's healthcare, whether it's retirement systems, they operate these big ledgers, and that's the part that the people see and that they vote for. So they are things that they create to ensure the system can continue, but this is a system where the engine of it is debt. Yes. So what happens if we stopped the debt part? Would it collapse or would it reset? Well, this goes back to the flaw of how the system is designed. Whenever money is lent into existence, the interest on that loans is not lent into existence at the same time. And so the way it works is basically that the system always has to grow or it collapses. So it must grow. It must grow. That at least the current, the fractures are banking system, kind of the, the having a base ledger and then the fractures are banking system layer on top of it. That is designed so that it must always grow or die. Now it can go a year or two without growing. I mean, there are occasional years where money supply could be flatter or slightly down. But over a multi-year period, especially a multi-decade period, but even a handful of years, every current system in the world has to grow or die, at least the way they're currently designed. Right. So if it has to keep expanding as it collapses, then wealth disparity will have to keep expanding until it collapses, hence revolutions. And governments have to keep making promises to keep the system alive, otherwise it collapses. So our choice is either a continuation of the rich get richer in the poor get poorer or collapse. For the most part, that's how it works. And theory, it depends on what you're spending money on and who you're taxing. Not every country has the same level of wealth concentration. I mean, Japan's an example where they don't have very high wealth concentration on average. And if you look at what the government spends money on, they're not really spending much on military. And then even though it's a very old society, they actually spend pretty, they keep healthier costs in check. And so the combination of things may be makes it so that even though their current supply keeps growing, they don't really have that growing wealth divide because they've toggled the numbers in a way that is fairly harmonious there. So other issues compound, including savers getting devalued and all this, but you don't necessarily see that wealth concentration that we see in the United States, that we see in parts of Europe. Is there a structural limit to the system beyond the collapse if we end the expansion of debt, but the expansion within the world, but that we do have the expansion. Is there a structural limit? I mean, they can always add zeros. I mean, that's literally like Turkey or Iran. I mean, when they, when you go through major, major inflation and the numbers reach into the, you know, comical, if you take to billion units to buy a bottle of water, they just shave six digits off the end and kind of consider the reset. And so that's, that's, you know, it works until nobody wants to hold their current anymore and then it literally can just restart if people don't have another alternative. And how does it restart? Like if you, if you look, I'm sure you've done this, you look back to history when debt levels have reached the, say, I mean, compare the UK or the US, what tends to come next? Yes, we can go a little bit further, but what happens when it does break and how, how can it break? How will people even know? So usually it breaks in two phases. First it breaks in the private sector and then it breaks in the public sector. So in the private sector, because you have these fractures or banking system, you build up more and more and more leverage until you have, and at the time you have like a minor contraction because it must always grow or die, they will stimulate to try to keep it growing again. And so you go through these like cycles of debt where you kind of like get leverage and then you kind of deliverage a little bit and then you get way more leverage and they'll deliverage a little bit. So you have this kind of higher highs and higher lows. Is that Q and QT? No, that's just, that's, it, it interest rates. Okay. Just banks lending money, people borrowing money, corporations borrowing money, growing money supply. And whenever, you know, that lending slows down, they cut interest rates to try to encourage more borrowing and, you know, occasionally when it gets overheated, they'll raise interest rates to try to slow down lending so they can, they're, they're moving the, not the, the knobs on this centralized system and they're always growing it. And the problem is when they hit zero interest rates. So over the course of say from the 80s, 90s and 2000s, they would always kind of cut to lower interest rates than the prior cycle encourage even more debt to build up. The problem is when they kind of go with zero interest rates and debt is extremely like, like households, corporations and banks are extremely levered relative to the base amount of money in the system way more IOUs for money than there is money. It starts to kind of crumble. And even when they could not rates to zero or in some cases slightly negative, it still doesn't solve the problem. And that's when you get that kind of popping of that, that private sector debt bubble. And then historically what happens almost every instance is the government says, okay, we're not going to let this all collapse. We're going to, we're going to do big fiscal injections. We're going to spend a lot of money. We're going to monetize it. Meaning we're going to, we're going to do QE. That's where QE enters the picture. We're going to, we're going to create more base money, buy our own bonds, spend more money into the system. And what that does is that kind of gradually transfers debt from the private sector onto the public sector balance sheet that sovereign debt basically. So that the US isn't debted or the UK isn't debted. And it kind of does partially deliver the private sector, but then it's all on the public ledger now. And historically when that gets extremely levered, there's really no where for it to go. A government's almost never going to default on units they can print itself. So it just prints way more units and it defaults through purchasing power. And then if they manage that poorly, it spirals out of control, literally hyperinflate. The money becomes worth nothing in kind of develop market history. They will generally do like a partial devaluation. So they'll say double the money supply, devalue the debts. But then they kind of get the wheels back on the track. And it's okay. Now we're going to stabilize and then they start that whole multi decade process again. Nothing stops this train. Yeah. I wanted to talk to you about one of my new sponsors, which is monetary metals. Now if you're like me, you probably spend a lot of time thinking about sound money and how to protect yourself from currency debatement. Now for some people, that's Bitcoin, for others, it's gold. For me, it is both. But here's the thing about gold. Most of it just sits in vaults to do absolutely nothing. Monetary metals is changing that. They let you earn a return on your physical gold holdings, but they pay it in gold itself, not dollars. So instead of your gold just sitting there, it can generate more gold for you. So to put it simply, if you deposit 100 ounces and earn around 4%, at the end of the year, you're going to have 104 ounces of gold, regardless of whatever happens to the price of gold in dollars. And in a world where fear currencies are constantly losing value, earning a return in actual gold ounces is pretty cool. Is essentially making your gold productive instead of idle. Now if you hold gold and want to learn more, check them out at monetaryhifemetals.com/procormac. That is monetaryhifemetals.com/procormac. Yeah. And I mean, one of the, it always tends to work out. Of course, it'll depend on the country. So like for example, in the US when we had the 2008 crisis, banks were bailed out and bankers, they had one year of not really getting bonuses and they were layoffs in the industry. But then they go right back to making a lot of money rather than kind of facing the consequences of having levered themselves so much. And that's, I think where the system becomes truly toxic is, we talked before about how the winners and the system are the ones that are shorting the currency owning scarcer things. And that does come with some degree of risk. But the worst thing is that when they're doing that for years and decades, they're constantly winning. And then finally, crisis happens that would actually punish them for having leverage attached to their assets. The government comes in and says, no, no, we're going to stop this from happening and we're going to bill you out. So it's like we kind of lock in, we kind of take the risk away and lock in all the gains you've had and socialize the losses. Is it, when you look at what's happening now, is this comparable to what happened in the 1940s, pre 1940s? It's similar. That's why these debt cycles have certain patterns that can be watched. I've argued before that the 2008 crisis looked a lot like the Great Depression, meaning that was like the peak of the private debt bubble. Whereas what we're seeing now in this more public debt level issue looks a lot more like the 1940s. And I was making that comparison, I mean, that was before Russia invaded Ukraine. So before we were even at war, let alone I ran now, but before there were any major kind of wars, it was saying, I was saying like the system now looks like the 40s. And it's going to likely plow similar in terms of inflation and debatement. And I was like, hopefully we don't get an actual war, but now we're even in that territory too. But yeah, functionally, it looks a lot like the 1940s. So it was more helpful. I mean, it's helpful as a distraction sometimes. It provides a reason to, instead of posmakers saying, hey, we messed up our own ledger, they gently want someone to blame. In a developing country, they'll often say that like outside speculators and the currency, broke our currency. It's not our fault. outside force and in in developed countries, it, yes, often war. It's often justifying it through that type of activity. Do you think it's fair to say the system is a system of theft? I think well, I don't think that people got together and it was like a piecemob thing that kind of grew over time. Every time you're you're adding something new, you're kind of solving a prior problem, which was, for example, merchants in Venice wanted ways to move money around quicker. So they started using a shared ledger, an account to just make that process easier. And then you want your account to talk to some other account. So those banks link up and all that over time, you have more and more banks. And then you want them to build a move money around quicker. So then they go and make a central bank. And you kind of keep adding new layers to the system until by the end, it resembles theft. And occasionally there is nefarious kind of design as part of it, but a lot of it is just come out of solving prior problems and creating new problems along the way. And just the incentive structure isn't great. So a lot of decisions don't really come home to roost for 20, 30, 40 years when the politicians are out of office and the voters that voted for that can no longer enough times gone by that they can't link what's happening now to votes there their parents made decades ago. So I think a lot of it comes down to separating in time the downsides of decisions from the decisions being made. So it is then just an experiment. We're in an experiment. We are. Yeah, we're in like a 55 year experiment, or we're a little longer when you kind of go back to central banking. And it's an experiment. We could argue that it's failed on a level of fairness across the society. I mean, I think so. I think the, the, the, to steal many opposite view people would say, well, in this past 50 years, most accounts of poverty in the world have gone down. So the number of people living in extreme poverty has gone down. Even being poor in a developed country looks different than it did 50 years ago. And so they say, well, look, the system worked. My general argument against that is really what worked, what a huge piece of human flourishing over the past 50, 100, 150 years has been the discovery and usage of hydrocarbons. One barrel of oil has the energy equivalent of thousands of hours of human labor. So it's, you know, by, by harnessing coal, gas, oil, and then hydro and, you know, nuclear and all that, geothermal. But really the hydrocarbons component is what's, what's, you know, new and huge in the world, that has done a lot to alleviate poverty. And the current systems kind of been alongside that. And people say, well, that's, that's evidence that it's working. And I would say, no, it's, it's, it's our technology, it's our energy that's working. And the financial system itself is just a layer on top of that. And I would say it solves certain problems. I mean, money moves quicker than it used to. But it has these other failings. And unfortunately, it kind of rewards central policy makers and gives them, I think, undue levels of power. I think it's one thing to have a taxing and spending authority. I mean, that's something that just, if people dissolve the government, the first thing they do is make another government. So governments, it's like a vacuum, like there's no, like the phrase is like nature abhors a vacuum. So if you somehow make a vacuum, air will flow into it and just do its best to, you know, kind of go where there's nothing. They think it's true for government. But I think where you get to that toxic mix, mix is when you have that spending and taxing authority. And then they're also managing the underlying ledger. So they can always just debase the difference and invisibly, basically it's an invisible tax on top of their normal taxing and spending authority. So the anti-federalists will write in that prediction. By arguing that as things centralize, it creates problems. Yeah. I would say at least in the money system, yes, the more you centralize it, the base of the rugpole capability increases. So like, going back to that, we talked before about Roman debatement. It was actually a long process to debase because they had the tax in the coins, melt them, re-spend them in the economy. But in the modern system, they can lay just overnight with a stroke of a pen, double the number of currency units or, you know, increase them by 30%. Like they did during, for example, the lockdown stimulus. And it just, it centralizes power in a way that I think is, it doesn't work with the kind of incentives that politicians have in place to generally optimize things on four or five year terms. And I think from my understanding, it's fair to call this a Ponzi scheme. But all Ponzi's eventually break. I remember when I went to Columbia, I met at somebody from Venezuela. He explained to me how overnight his entire savings were lost. And I think, look, there is a slow bleed of people's savings, the slow bleed of their purchasing power because their wages don't keep up. But there is a general risk of hitting severe devaluation in this country. We've talked about Egypt before, where they halved the currency overnight. I think twice is it now, for recently? Yeah, they've had a number of, basically, you know, very quickly, cutting the currency in half. And, you know, dramatically increasing the supply. But there are scenarios where that kind of situation could happen in the UK across Europe or the US. And how would people know it's coming? With the closest example would be the world worse. That was, you know, because it was such a damaging time for productivity. And such a, you got the combination of low productivity and way more currency because no government could make that math work with taxes. So they just kind of spent money in the economy for war. Now, because the main thing to develop country and developing country, obviously poverty and other factors are a big thing. But from a financial perspective, developing countries, they often have to borrow in dollars. Or sometimes, euros or other currents would be usually dollars. And so they have this added kind of instability on their system, which is they actually owe, they actually owe debt to foreigners that they can print. And so they're running their own kind of flexible ledger while they're kind of borrowing, quote, unquote, hard currency. And so they're operating these currency mismatches. Developed countries have the advantage that they're mostly borrowing in their own currency. So they have that lever where they can just kind of usually gradually disperse a problem. They say, okay, the numbers aren't working, but, you know, we'll, you know, leak that out over over many years through debatement. And people won't really notice too much. And really when that gets called out is usually some sort of productivity damage happens. War is the biggest one. It could be a, you know, in ages past, it could be a famine. It could be some sort of, that's when kind of the, the, the problems that have built up kind of all get called at once. So if you avoid war and avoid things like that, the system can generally go a lot longer than you'd think. But as soon as something unexpected happens, that's certainly when even a developed country can look like a developing country in terms of its currency imbalance. So, so this could go on for years, decades? Yes. I mean, one thing, I mean, the kind of the biggest example is Japan. So they're further out on the age and curve than anyone else. Now they have the advantage of, they were extremely productive in the 80s, the 90s, the 70s, 80s, 90s kind of the whole kind of the post war period really. So they build up one a huge current account surplus and huge domestic savings. So even though they have a lot of debt, they actually own tons of foreign assets. And so they're, they're kind of now in that, in that harvesting phase where they're, their public finances look really bad, their trade surplus is not what it used to be. But because they've got that, you know, generation past of having worked so hard, they've actually got a lot of like, you know, reserves that they can kind of gradually tap into and they can extend that time very, very, very far before like a major crisis or financial reset occurs. With Europe and the US, we probably don't have quite that long of a runway. But I think, you know, the system can last for decades longer unless we'd blow it up with war and energy shortage and stuff. But it will mean financial repression. Yes. And that's, so historically when you, when you have that private debt bubble, it pops and then you rotate it onto the public ledger, the last kind of process there is they do financial repression, meaning they hold their interest rates kind of artificially below the growth of the money supply. So people are kind of holding currency in bonds. Sometimes we even force to. They might do capital controls to say, okay, like in the US, we literally banded the ownership of gold, which is insane. Like for, for the land of the free, well, you couldn't own a benign yellow medal because it was, it was competition compared to what they wanted to do with the currency. So they kind of force everyone to hold the currency. They don't pay interest that kind of meet the growth rate of that currency. And over years or decades, they will try to basically siphon that value away and kind of reset the system. So why do they continue to raise taxes if they face this anyway? We were seeing in the UK discussion around wealth taxes raising capital gains tax to the level of income tax. They've talked about exit taxes because we've had so many people leave the UK. If taxes are so unpopular, why don't they just do this all through debt? Because the taxes are basically way of slowing down that process. Okay. If in theory, just the government just didn't do any taxes, it just spent all the money into the into the system every year, either through debt or even just a basement. Barrow would stop lending money to them because they say when your deficits now, like in the US, we would have like a $7 trillion deficit instead of a $2 trillion deficit. I don't have the UK numbers on hand, but if you have much larger deficit, way faster bond issuance, flood the whole, you know, all the buyers would just have way too many bonds on their hands to buy. So they basically there'd be a buyer strike. So the central bank would have to buy the country's own debt and therefore you'd get way faster inflation. So taxes are kind of like the speed break that helps them balance the equation. And it's so it's in it being a multi-tool thing. They directly tax, they pull in currency. So that's the transparent part. And then the other transparent part is because taxes are quite unpopular. The last part is what they do with debatement. It's just like a slow motion horror movie. It feels horrific because I know what you see and you see it with a lot more clarity than I do, but I see it as one. I see in the impact. But it doesn't feel like there's any way out of it. Is there any way out of this? I mean, if you were a policymaker, then what would you do? There's really, once you get to the part where there's this much debt on the sovereign ledger, there's really no way out of it other than they're going to default. And then the question is, what does default look like? Is it all at once? Is it normally? And in a developed country, it's almost always through debatement. You never default on the, it's not like the government says, okay, we owed you dollars or pounds that you're not going to get back, they say, okay, we're going to pay all the dollars and pounds, but we're going to sharply devalue them because we're going to print so many more of them. So default is socializing the debt on the, the socializing the debt onto the voters. Yeah, defaulting, we often think of it as just failure to pay back, but in, in, in, effectively, it's failure to pay back the value that you borrowed. So government. Yeah, yeah, that's, I mean, yeah, when a private sector entity defaults, they leave as can't pay it back, but when the currency printer itself defaults, it's, they pay it back, but this is, it buys you less food in real estate and insurance and, and healthcare and whatever than it did when you, when you lent them that money in the first place. And so that's, that's a guarantee to happen now. I mean, it's already happening. So it's been happening. Well, the right at which is going to happen is going to increase. I think we could see another like COVID level type of, because that was like a very fast rate right there. That was a, in the US and in many parts of Europe and in many parts of the world, we saw pretty rapid rate there. We've since slowed down. But if enough things kind of go wrong at once, you could get back there or even higher. But I think in general, it's apart from kind of crises kind of pulling forward. I think it'll be probably more moderate than many people think and just be stretched out over a very long period of time. And I think back was back to the incentive issue that because the system is designed, so it's actually really hard to totally collapse. It allows it enables and incentivizes that kind of intergenerational decision making where a politician can do things now and kick the can down the road for someone to solve decades later on another generation. And I think that's kind of the, that's why things get so indebted is because short term decision makers are kind of optimized to optimize for their term. They're next two years, three years, four years, five years at most a decade. But can't we just tax billionism fixes? I mean, it depends. I mean, generally speaking, in the US, for example, we have a system where as you make more money, you generally pay more taxes. Some people they can make so much money. They actually pay a lower tax rate than someone and say the upper middle class or kind of the lower end of the wealthy spectrum. So there are certain kind of loopholes that could be addressed. I think it was gun lock, the sea of double line capital. He was, you know, he's a billionaire. He's like, you know, before you boost my tax rate from say 50% to 70%, how about you go after the person who somehow paying 15% and get that up to my level before we just keep getting numbers higher? So I think there's a discussion around certain loopholes that can be fixed. So you don't have someone who's making more money than someone else but paying less somehow. But the problem is once you are already taxing wealthy people with a certain amount, it's if you raise it above a certain level, they have a much higher incentive to want to leave that jurisdiction. It's less incentive to start a business and hire people in that jurisdiction. And so that's kind of the effective limit of how far they can go. Could they not, if you had a smart government, could they work much harder at just reducing their spend levels, cut, spend from certain departments or cut whole departments, trying to boost productivity and try and even balance the books to begin with. If they slowly paid off the debt, even if they spent 100 years doing it, could that work? In the past, there have been instances where that can work. It's always very unlikely for it to work. And especially in the modern time, one of the challenges, and they encountered this in the US when they did the whole Doge program. The idea was, we're going to find all this fraud and waste and cut it out. There are, of course, massive pockets of fraud and waste. But when you look at, say, the US system, it's the truth for most developed market systems. The vast majority of the spending is the social insurance programs, basically the retirement, the healthcare system, that kind of stuff, as well as the military. The amount of money in the US was actually going to say, federal workers and federal buildings and things like that. That's actually a pretty small percentage of the pie chart. That's why trimming that was challenging because they committed not to touch the big stuff. So they're trying to kind of squeeze pennies where they can with the other stuff. But the actual core issue was those programs themselves are just large. It's like here in the UK, the National Health Service, the pensions, welfare, it's the largest sector in public spending. Yes. I don't know current polls, but it's unpopular to cut. The NHS is very unpopular to cut. Anything that's seen as a cut to the National Health Service is seen as selling off the NHS to the private sector by rich people. It's never seen as a way to make it more efficient. Okay, so like, I imagine we talk about Steve, we don't actually know Steve, but Steve's got a couple of kids. He's listened to the show right now. He's terrified. His wages haven't really gone up for the last few years. Everything's getting more expensive. What do you advise a Steve? Or even young people who are looking out there at this and thinking, what opportunities are there for me? What do you advise people? That's a challenging thing. Especially once someone has kids, it's more complex, of course. When someone's young, you can tell them the hustle, work extra hours, get ahead. But once you kind of have all these other calls on your time, it's hard to do that. Really, the only advice is to take appropriate risks where you can try to find ways to boost your income, try to cut spending on unnecessary things. There's research that shows certain types of spending boost your happiness and other types of spending. You're just keeping up with the Joneses. You're just spending for appearances sake. Flash call. Yeah. Of course, if someone happens to be weighing a car, then that might give them a lot of joy. For a lot of people, it's fixing pain points. It's what really boosts happiness. At the end of the day, it's hard to get out of it unless you can get ahead. Meaning that you can boost your income, keep your expenses in control, and then invest the rest into assets that then kind of start lifting you off of this financial oppression scenario. Because you're now the asset holder that your things are getting inflated, your short in the currency, you're in good shape. But that's a multi-year process to get there. Well, usually at this point, I say to people, you should really research a single Bitcoin. It's quite interesting because of the history of the show. It used to be a Bitcoin show. It hasn't been now for 18 months. We have new listeners who, you can see they switch off when we started talking about Bitcoin. They don't understand it. They think it's a scam. They think crypto is a scam. As you know, I think you're the most brilliant macro analyst in the world. You are pro-biccoins. What would you say to these people? I would say that when we analyze, when people around the world look at money they want to hold, what they're ultimately looking for is usability and security. There's a hierarchy out there. If people in Egypt, for example, they would rather generally hold dollars than Egyptian pounds because dollars lose value less quickly. The Egyptian pound, the supply of those might increase by an average of 20% a year. Just the number of pounds is going up by 20% a year. It's a huge runaway growth. They say, "I want to own dollars." They can't put their finger on why, but the dollar is holding up better. A lot of it's because the dollar is growing by 7% per year on average. Instead of holding this thing that's growing by 20%, they want to hold the thing that's growing by 7%. Gold is often people that live in the US, they live in the UK, they want to even scare sur money, they were often buy gold. The supply of that, based on most estimates, increases only by about 2% per year or even a little bit less around the whole world. As miners bring more out of the ground and refine it, we rarely ever lose much of the existing gold we have because it gets repurposed. The supply of gold is growing by, say, 2% a year. Then the cost for that is volatility. You say, "Okay, I don't want to hold dollars, I want to hold gold." In exchange for that longer term appreciation, they have to take on the risk that it might be worth less than 3 years or 5 years, even though it's growing at a slower rate. It's volatile, more people buy it, more people sell it. It can get an temporary bubble. It can get depressed. And so they can kind of start taking that near-term risk to store their value quicker. And of course, real estate is an option. High quality equities are an option. And Bitcoin, one of the advantages is that there's zero long-term supply growth. So if developing markets, current, she's growing by double digits a year. Developed market, current, she's growing by high single digits a year, gold's growing by 2% a year, Bitcoin's not growing at all after a certain point. And so as long as the technology functions, and as long as the network effects make it so that one currency kind of captures most of the markets that have tons and tons and tons of currencies out there, they're holding something that's truly scarce. And it gives them certain resistances to the basement with the cost being that just like gold can be volatile Bitcoin being a smaller and newer and less understood asset is even more volatile. So it can go down sharply in a short period of time. And that's an exchange for holding something that's scarce. And actually does protect your purchasing power over the 17 years that it's existed. It's come back full circle to understanding scarcity. Yes. OK. Fine. The thesis, I understand the thesis, I hold Bitcoin. But even at that moment, how do you help people understand it's money? Because we grow up understanding money as a kid. We're giving a till with coins and a little potential up. And we go to the shop with our parents. We want a toy car or a chocolate bar pack or a crystal. We give us some money. Money just becomes part of our life, even if it's digital. And even gold, we've come to understand and accept it as part of the economy. We know people where it goes into products. How do you legitimize Bitcoin? Is this weird invention that turned up 17 years ago? Is all digital? It uses these terms like sats and big-- how do you legitimize Bitcoin to people? I think one is just describing it as another way of running a ledger. So we talked before about how our currency systems are basically ledgers. So the central bank literally has effectively a spreadsheet. And then it's commercial banks build a second layer spreadsheets that are on top of that central spreadsheet. And it's literally just a bunch of people in a room running this ledger. And Bitcoin is similar except instead of a council of a handful of people running that ledger, it's designed to be decentralized. So the rule set for how new coins are created, how coins are transferred from one entity to another, that's all kind of distributed among the users of that currency. And then in order to move or add units, it takes energy to do so. So Bitcoin uses proof of work. So instead of with a fee of currency, you can just snap your fingers if you're the policymakers. And you can just add a lot of currency units to the system. With Bitcoin, no one has that capability, even the creator of it, if he's still around. No one has that capability. And so it's effectively just a way of using energy and code to run a decentralized ledger. And in the beginning, I think it was right for people to not trust it would be legitimate because there have been multiple temps at private currencies in the past. The technology had to show over time that it actually is stable. A system can seem like a stable for a little while and work until eventually some flaw just grows. And then it eventually cascades. So I think it being around for a while, the legitimacy comes partially from the lindy effect, meaning that for many types of things, the longer it has existed, the longer it will continue to exist. That's true for most things other than life forms because we have kind of an eventual end date. But whether it's a language, whether it's a cultural norm or something, that if something's been around for a while, there's usually a reason it's been around for a while. It's proven its stability through multiple periods. And Bitcoin's only 17 years old, but that's, in terms of technology, that's pretty old. And the longer it goes on, the more it proves that there is this decentralized ledger, it is working. It has pros and cons, just like any other type of money. But it is an alternative that people can hold. They can hold it in their own custody and no one can debase it. And they just have to withstand the volatility. They come from holding that, as well as having some understanding of how the tech works. Even though you don't have to know every detail, kind of like how we don't have to know every detail of the financial plumbing system to use dollars or pounds. So it's certainly worth spending a little bit of time, forgetting everything you've had if it's negative and understanding Bitcoin a little bit. I think in general, understanding money, is really important. Whatever other work we do, whatever skillsets we have, we can't get away from money. And it's kind of impacts on us. And so I do think it pays to study money to some degree, to spend some hours to understand how money works. And that by extension includes Bitcoin, I think. I think any sort of reasonable study of money in the modern age, you can start with commodity money, gold and silver and other types of commodities. Then you can get to ledger money, you know, fee currencies, nature state money, bank money. But then in the current world, studying Bitcoin is, I think, really important, because it shows you what the alternatives are. - I mean, you mentioned your book on a broken money, by the way, good by the book. And if the current system is broken, if the money is broken, could Bitcoin be a system that replaces it? - I think it has the properties where it could. It would have to be much, much larger than it is now. And that would dampen the volatility. But really, there's nothing that would prevent it from working other than people. I mean, it's, if you look at, I mean, the way it scales, Bitcoin can do about as many transactions per year as Fed wire. So as the US centralized system, it does about as many transactions per year, ironically, as Bitcoin. And yet it settles, and it sounds like a fake number, but a quadrillion dollars a year and settles on the Fed wire system. And of course, on top of that, you have all the bank system and things like that. And so Bitcoin has the capability to scale through layers. Those layers have already been developed. There's always kind of more research being done. But there is a layered stack that works. And it would, I don't think people would turn to it until the existing systems fail, or at least like an at mass. Obviously, early adopters do. But yeah, it's a functional system that can work instead of a centralized ledger. At least 17 years of history shows as this. I think we need more time to prove it, but so far it's working. This episode is brought to you by Ledger, the most trusted Bitcoin hardware wallet. 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OK, so if we are living through this slow, systemic decline that most people don't even yet recognize, what would you say people should be paying attention to on a daily basis right now? I mean, that's a dependent on what they do. I think, I mean, to end on a slightly more optimistic note, yeah, the financial system itself is in decline, meaning that we've built up all these high debt levels in our system mainly through intergenerational promises, like a combination of a generation promising itself, something, and then not having the population growth that has made that as possible as they thought it would be. And now the chicken's coming home to roost as it were. But underneath the surface, I mean, technology on average gets better over time. People have a lot more options now than they did decades ago in many parts of the world, at least most parts of the world. I think there's a lot to be grateful for. And not everything is in decline, even though our financial system is. And people can get trapped into the social media bubble and doom scrolling. But when you go outside and focus on your health, focus on your family, focus on what's good in life, hopefully there's light at the end of the tunnel. One more question on this. Have you looked at AI as a potential fix to this? Could that lead to the productivity? that he booed and solved these financial problems. - Well, so the short answer is that the more productivity you have, the more it extends the current system before you have like say a major inflationary reset. And so whether it was like blue collar automation with like the manufacturing automation, AI is basically that for like more white collar type of work. It is a productivity boost over time. But it doesn't fundamentally change any of the things we talked about. And of course it creates winners and losers. It gives people a lot more optionality to start businesses at a lower cost because now they have more tools available. It allows people to save money on things that used to be expensive to do. But also it, there are people who salaries are risk of being devalued because they were trained in something that software can do more effective than it could say five years ago. And so they might have to shift to new things. So AI doesn't just magically fix any of what we talked about. But that's why policymakers, that's why a lot of times they don't focus on adjusting things now because they hope that by growing the ledger at a moderate pace, they hope that enough technology will come online to keep disguising the inflationary kind of money supply that they're causing by having these productivity offsets. If productivity can go up by 5% a year instead of say 3% a year, it can hide that 7 or 8% money supply growth more effectively. But of course it shows up in other pockets. I mean, you can't just print new homes. You can't print healthcare. You can't print energy. And software has kind of been a cheat code. We look at old science fiction movies. Gently speaking, they overestimated how good our aerospace capabilities would be. The overestimated, a lot of our mechanical growth of things. But they underestimated how powerful in many ways computers and screens and electronics could be. That's the part that's kind of surprised to the upside for many decades. Amazing. All right, let's talk about your new book. I have a copy. The Soulguard Incident. Yes. I have a copy. I'm saving it for when I go on holiday. I've gone back to reading books from audiobooks, actually. Really? Yes. Yeah, because do you know what I found with an audiobook? You don't pause and replay paragraphs. And I was finding that I was listening something, you know, and I was like, I didn't understand that. And then I was trying to rewind, couldn't get to the point. And I realized with a book that you just take your time on a paragraph. Yeah. I've been rereading a lot of books I've read previously. So I'm going to read this when I go on holiday. But you've gone from writing about broken money to a novel. Yes. I think, I mean, because broken money, it's about the past, present, and future of money. But the majority of it is the past and present. It's basically just analyzing what money is, how it works, what some of the future options are, to try to-- we talked before about how a lot of people don't know how this works. And so it does its best to educate people. This speculates about the future. And it kind of takes certain trends, extrapolates them, and sees how they could go awry. It could-- So is this the sequel to broken money? Weirdly. You caught that. I mean, for the most part, I mean, people need hobbies. I've used the phrase before that no one should write a book unless they feel that they kind of have to. Broken money, I didn't write it to make money per se. There's almost anything else they could have worked on would have a better return than sitting down in the tedious process of writing a book. But it was like the foundations of the structure of that book just built in my head. And it was too distracting not to write it. And this, I've had this story just bouncing around on my head for over a decade. And I was like, I don't know when I'm ever going to have time to write it, but eventually I prioritize it. I think part of what happened was technology. Now we have AI. Technology is catching up to what I envisioned in the book. And I was like, if I don't write this soon, instead of being science fiction, it's going to be like a historical fiction. So I was like, I got to get it out. Was it harder or easier to write the broken money? Harder because it required new skill sets. We broke a money. I mean, I've written well over a million words of nonfiction. Wow. And so putting a book together like broken money, while it was a new challenge, it wasn't like a totally different type of writing. We were just kind of taking my existing writing, my existing ideas and just making a very polished version of that, whereas this required learning fiction prose, which is not the same as nonfiction prose, and kind of just polishing up on skill sets that I didn't have. Before I had the story in my head, I had kind of the-- I had a good grasp of, say, pacing and character development. But for me, the hard part was how can I actually write it effectively? Have you sold the film rights? No. No. Yeah. And you put a young me on the front of our-- It does. Yeah, it kind of looks like-- I wish on the buy. That's no. Lynn, some new listeners of the show won't know that we've known each other a long time now. I can't remember the last time. The first time we spoke, it was probably six, seven years ago. Probably introduced you like 15 times. But it's a real pleasure having you here in the studio. And thank you for coming to my conference. I wish you the best for this. I can't wait to read in. I think, do you want to tell anyone about anything else? You're amazing news letter. I know. People can-- yeah, go to linodon.com. They can check out my books, Broken Money, or the Store Guard incident. Thanks for having me on. I'm always happy to be here. Thank you for coming. And thank you to everyone for listening. We'll see you soon.