Speaker 1The problem is when you have over 100% debt to GDP, when you raise interest rates, you actually blow out the fiscal deficit by a bigger dollar figure, then you slow down private sector bank lending.
Speaker 2And so the Fed's tools get murkier. So because of sort of the loss of productivity with the aging population, we need to make up the gap. And so our debt to GDP has gotten extremely high.
Speaker 1The ways to get the deficit down meaningfully are tiny. It's kind of like, you know, trying to hold multiple like beach balls underwater.
Speaker 2The Clarity Act is dead, at least for now. And it seems like the regulatory agency said, fine, then game on.
Speaker 1I think the things that can be tokenized or should be tokenized will. I think trading will keep expanding toward 24-7. I'm not even sure it's a good thing, but it's a thing. If nothing stops the fiscal
Speaker 2train, but if AI makes the economy more productive, what happens when those two collide? All right, Lynn. Well, thank you. Thank you for joining back here. It's been over a year. Since. Since we talked. And there's a lot to discuss. So thanks for taking the time. Happy to be here. Thanks for having me. I'm excited to dig in. I have a lot of stuff I want to discuss with you. So it was a little bit over a year ago that we talked last time. And, you know, you've been making it very clear that fiscal deficits, they're unlikely to disappear. Nothing stops this train. But that doesn't necessarily mean that there was an immediate collapse coming. I've been focusing on more of the optimistic side, the different part of the equation, which is so much capital. We're going into AI, equipment, industrial capacity. And so the question let's start with is if nothing stops the fiscal train, but if AI makes the economy more productive, what happens when those two collide?
Speaker 1Yeah, it's a good question. You basically get a spectrum of price changes because productivity doesn't apply equally. It gets targeted in certain areas. And one of the closest things we can look at is, for example, what happened with electronics over the past 30 years. The combination of. Offshoring and just Moore's law made it so that despite, you know, decades of money printing, a TV generally got cheaper over time, even in nominal terms. It's one of the few categories that didn't inflate. And so what you do when you when you kind of map out inflation for different categories, there tends to be a spectrum where like this, the scarcest things will generally go up roughly in line with money supply growth because you don't really get better at making them. That's like, you know, fine art or water from. Property things like that, then like one notch lower is like gold where, you know, we increase the supply by something like one or two percent a year, but we don't really get we don't get like exponentially better at making it so that historically grows a little bit slower than money supply growth. Obviously, it's volatile. Then you get the things like houses, like normal houses, oil, you know, labor intensive things like hospital services, things like that. And then you get you get down to like textiles, grains and then, you know, cheap plastic toys. And so you get this spectrum where, you know, productivity growth pushes down prices on one side while prices are still going up with money supply growth in another. And I think AI gives us a similar outcome here. Of course, it'll depend on how how much more productive it makes us relative to the to the inputs that it takes. I mean, it is you know, there's inflationary components, but in general, we should expect that various white collar services just get way more abundant and therefore cheaper. Even as you have the scarcer things that still exist going up with money supply. And I think that that's kind of how we can think of it in the years and decades ahead.
Speaker 2OK, well, that's good. A lot of a lot of nuance to dig into there. So what I really kind of want to explore with you is that side of the equation, the growing ourself out equation, something I've spent a lot of time thinking about and researching. But before we dig into that side of it, let's just set it up with maybe just a short explanation. I know you've done it a hundred times. But for my audience, just give us a short explanation of the fiscal train that you talk about that won't stop running. You know, the fiscal dominant position that we're in. Set that up for us.
Speaker 1Yeah. So the U.S. is running something like seven percent of GDP deficits. It's kind of like six percent on a good year. And that's pretty much locked in. That's that's demographic. So we have a title system that's kind of designed so that with the expectation that every generation is bigger than the prior one. And that's not really happening anymore. You know, the baby. Every generation, it's a very top heavy generation and then we have lower fertility rates. So we have this top heavy both Social Security and Medicare, Medicaid, and we have the highest per capita health care costs in the world for very complex reasons. And we have a very large defense budget. And then the the kind of the kicker is that for 40 years we had rising debt, the GDP, but but falling interest rates. And so interest expense was was well contained. But once we bounced off zero and started kind of going. Sideways to maybe up interest expense exploded. And the challenge is that, you know, the Fed's tools for slowing down inflation involve higher rates. You make interest rates higher. It slows down borrowing, you know, slows down fractures or, you know, money creation. But the problem is when you have over 100 percent debt to GDP, when you raise interest rates, you actually blow out the fiscal deficit by a bigger dollar figure. Then you slow down private sector bank lending. For containing inflation. It's not to say that they're entirely ineffective, but they it's kind of like two steps forward, two steps back. And they'll affect certain parts of the economy differently. In some areas, they can actually stimulate. I mean, you know, when they when they boost interest rates, it basically means, you know, a cash rich senior that has a fixed rate mortgage locked in. If they have a mortgage at all, but let's say they have a fixed rate mortgage locked in, then they have a lot of cash. And, you know, let's say a money market, they should get a raise. And when the Fed boosts interest rates, they can actually go out and spend more than they could, you know, before the raise, you know, marginal amount. I mean, every every 25 basis points makes a difference. So the Fed's the Fed's just kind of more limited on what it can suppress. And, you know, the two main sources of money creation, one is fractures or bank lending. And the other one is monetized fiscal deficits. And this type of inflation is more driven by the fiscal side compared to the 70s, which, you know, I mean, it's it's almost always both. But in the 70s, there's more. It's more driven by that bank lending side. So it just creates a different environment. And then the kind of the kicker, like why it's even harder for the U.S. to deal with this than many other countries, is that we're so heavily financialized. We have 200 percent like our stock market's worth like over 200 percent of our of our GDP. We have global capital for the world's kind of stuffed in our in our in our various assets. And our our tax income is pretty top heavy because we have more wealth concentration than the average developer. We have a lot of wealth in the U.S. And so we have a lot of wealth in the U.S. A lot of taxes are paid by the top few percent. They often, especially the top, you know, point some percent, they often get paid in executive compensation through shares. They pay, you know, capital gains taxes on on appreciating assets. And if they even were to try some degree of pretty serious austerity, which is hard to do because how locked in the politics are. But let's say they were to try probably with a lag. You'd get weaker stock market. Prices and then the tax receipts from that would diminish, which actually makes it harder to cut the deficit than even even like the the hawks would want. And so it's this very complex Gordian knot that has like, you know, less than one percent of being entangled, you know, any time in the next call it 10 plus year, any sort of investable time horizon. And and that's just like a run it hot fiscal environment to be aware of investing wise.
Speaker 2Yeah. The knot. That's unlikely to be untangled. It is a very it's a very complex knot and it's not easy to just sort of simplify that. But one of the factors that you're talking about is the demographics. And I remember the first Harry Dent wrote a book called The Demographic Cliff probably over a decade ago. His first time I sort of really dug into that. Peter Zions did a lot of talk about that. How China has he said China is going to be gone in like 2030 because the demographic problem that they have. But then we have automation and then we have robots coming. So, you know. Things change and you can't just, you know, hold it down to one of those things. But in this type of environment, we have it sounds like if I simplify it, not trying to oversimplify it, but to two core problems. And then the gap has been deficit spending, debt driving that. And so our debt to GDP has gotten extremely high, over 120 percent. Now, you've have an. Amazing chart of when we got out of that similar situation in World War Two through financial repression, so letting the economy run hot through inflation, repressing yields. And so we were able to sort of grow our way out of that, I think, through a combination of both financial repression, liquidation of government debt and high growth because of the re industrialization after World War Two. So we didn't necessarily pay off the debt, but we got out of the high debt to GDP area that we're in. We got growth growing. Again, right. I mean, does that I know it's oversimplification, but does that sort of summarize how we got out of this in the past?
Speaker 1Yeah, that that's historically how the U.S. and other developed countries get out of a very dead situation instead of nominally defaulting. They default through purchasing power in a partial sense. And so, yeah, they they financially repressed their way out of it. Combination of growth and financial repression.
Speaker 2Yeah. Now, you know, Scott was sent he came out and said that, you know, 40 trillion is just a number of the 40 trillion dollars of debt that we have is just a number is another magical about that number. And then, of. Course, you know, him, along with most of the Trump administration, talks about growing a way out of this. Now, the one thing I would say I think about is the 40 trillion is a big number, obviously, but compared to what? So we often hear about the debt, but compared to what, right? So from a homeowner perspective, last couple of weeks, Robert Kiyosaki, a Vanity Fair article ran on him. He was getting roasted online. He has 1.2 billion in debt. People are like, oh, he should read Rich Dad, Poor Dad. Sure, 1.2 billion in debt. Against how much in assets, though, right? Is it against 10 billion in assets? And so we hear $40 trillion, but against what? So is it just a magical number? Is it something that we could grow our way out of? Could we increase GDP enough to grow out of that? So those are some of the things that I want to talk about. So we saw after the, whatever we call it, the Trump admin introduced the tariffs. We saw over $10, $11 trillion, Brookings paper said about $10.5 trillion of commitments to build out in the U.S. $10 trillion building out in the U.S. is a lot. I mean, because that goes into moving dirt and pouring concrete and running wires. I mean, that's jobs. That's like, that's real growth. And if that were to happen, that's, we don't know yet, obviously, but if that were to happen, that would be a lot of GDP growth. And so we are, it looks like we are starting to see some of that, right? We saw the jobs report that came out, the last jobs report, very strong. I think it was about 65,000 of those jobs were in manufacturing. We see durable goods increasing, things like that. It looks like some of that's starting to work. So if we were to get this $10.5 trillion of AI infrastructure built out over the next couple of years, that is sort of, and I think the Kobayashi letter had put out a chart showing this will be this more money building out this boom. than any other technology in history. How does that work to help offset that $40 trillion, that non-magical number of percent called it? Hey, look, over 130 million in Bitcoin was just stolen from cold card hardware wallets. This is the largest hardware wallet hack in history. And the sad part about this is that the victims, they did everything right. They had real devices, they kept it all offline, but there was a small firmware update that let hackers access their Bitcoin wallets and completely drain them. Now, don't blame self-custody. Self-custody isn't a problem. It's safe. It's a single key custody. That's the problem when you have a single point of failure. So here's what I actually do. I've been doing this for years because I was always afraid something like this could happen. Now, this happened before Unchained ever sponsored me. I was a customer and it's my Bitcoin. It's my parents. It's my sister. My family's Bitcoin. And it all sits in what we call multi-sig wallets. And I do that with Unchained Capital. Instead of one wallet and having one key, there's three keys on three different devices, three different places from three different companies. Okay. I hold two. I hold two in different locations. Unchained holds one. And it takes two of those wallets to move anything, which means like this exact hack right now that got everybody drained, one compromise key won't be enough. It probably sounds complicated. Don't worry. Unchained has a concierge service where they can walk you through the entire thing one-on-one. And they're going to build out your vault. They'll test your recovery. They'll have an expert review everything, making sure you don't have any problems. If you want to do the same thing I do, the same thing I have my family do, go to unchained.com. Again, unchained.com slash Mark Moss. Set it up right. Do it once. Don't get vulnerable to a hack like this.
Speaker 1Unchained.com slash Mark Moss. Set it up right. Do it once. not as like the kind of the bullish on is, you know, people expect the debt to GDP to keep going up, that ratio. And even Congressional Budget Office, you know, when they map it out, they just kind of have this like exponentially curving thing upwards. Whereas what I keep reminding is the deficit nominally fuels GDP as well. And so you can actually have a situation where the nominal debt is rising very quickly. And the debt to GDP is roughly static. You know, it might be going down slightly sometimes, it might be going up slightly sometimes. And it's just going on for a very long period of time. And I think that's roughly speaking what we're looking at. And when I say nothing stops this train, it goes both ways. It's saying that the ways to get the deficit down meaningfully are tiny on average. It's because when you start pressing one variable down, it's kind of like, you know, trying to hold more. It's like multiple like beach balls underwater. It's like you push one. So there's that. But then the other side of the coin is that it's also not going to blow up anytime soon. It's not going to it's not going to hyper flight away in like three years, like some of some people are calling for things like that. Right. So it's just it's this long run, kind of run it moderately hot environment. And people say, well, when will the debt matter? It's like, well, it matters right now for people that you know, the reason they have like a 7% mortgage, when they're looking to buy a home and like while prices still elevated is partially because of that fiscal deficit, right? So it depends on where you are in the economy. And you know, if you're on the receiving side, or if you're an asset holder, you're you're protected, whereas if you're if you're not, that's that's why you know, there's people are disgruntled, people are upset people, it's polarizing out there. And so I think I think that environment, unfortunately, just it's, it's gonna be here for a while.
Speaker 2Yeah, the media doesn't seem to be doing any favors to anybody in this either. I want to get into that K shaped economy. And and we'll dig into some of that sentiment a little bit later. But if we if we keep kind of pulling down this pulling on this thread that we're in right now, then on the other side of it, right now, we have the 10 year running away, you know, the rates, the rates are going up. The, you know, the analysts on X are saying that the Fed's lost control, bond markets going higher, it's signaling massive fiscal stress in the US, the creditworthiness, and on and on and on that whole story. On the other side of that, could it possibly be that the private sector is demanding a lot of capital right now, and there may be more takers of the capital than there are suppliers of the capital potentially, could it potentially be that the market is actually looking at really strong earnings and growth and pricing that higher as well? How do you see that sort of the long end of that of that, that that 10 year running away? And which side would you put that in fiscal stress? Or do you think it'd be a growth story? Hey, do you know that instead of sending your tax money to the IRS, you could buy Bitcoin miners with it instead? Here's exactly how I do it. You see, mining hardware is five year property. And under bonus depreciation, which was dying, it was down to about 40% last year, and it was going to zero. The one big beautiful bill has reinstalled it back to 100% and made it permanent. So I can deduct the full cost of the machines in year one. Now look, billionaires have run this play for over 40 years. They do it with real estate, oil and gas, rail cars, and it's the same provision in the code. But the only difference is what you own when it's done. So you see, I own the machines that produce the Bitcoin, but I don't have to do the work. Blockware does all that. Blockware sources the hardware, they secure the power, they run the sites, and my tax team, they structure it so the deduction actually works. You see, that's how I turn my taxes into Bitcoin. So if you want to try and do the same thing, check out Blockware today. To get started, just go to blockwaresolutions.com slash market disruptors. Again, blockwaresolutions.com slash market disruptors. I think
Speaker 1it's somewhere in the middle, which is the boring answer, but I think that's the correct answer. You're so full of nuance, Lynn. Well, here, because, so for example, the yield curve right now is actually flatter than average. Okay. So when the long end's running away, that implies a steep yield curve. Like they basically have a, you know, the long end just flying away compared to the short end. Whereas right now, the market's actually pretty, is demanding not that much higher interest rates for long end than short end, historically. I mean, you know, that spread can go up to three to 5%, depending on what part of the yield curve we're talking about. And right now it's pretty modest. I mean, it's a positive yield curve, but it's not a very steep one. So long-term interest rates are kind of roughly where they should be compared to short-term interest rates. Maybe even on the lower side, maybe, maybe 6% wouldn't be in the same. Now, the, the part that I think freaks people out is that, you know, when you have interest rates that high and you have 120% debt to GDP and no, you know, realistic plan to slow that down anytime soon, they're kind of doing the math and saying that, I mean, this, the interest expense is going to keep blowing out, the nominal debt level is going to keep blowing out. And, you know, if you're, you know, if you're a long bonds, you know, it's like, would you want to be long gold when they just kind of like found the biggest deposit ever? And it's like super close to the surface and it's going to, it's going to flood gold out into the world. That's what's happening if you're a bondholder right now is like, Hey, you, you have bonds. Well, here's a 2 trillion more bonds every year. Just keep, and it's going to going up exponentially. And so that's, and the bond market is kind of demanding higher rates to be paid for that. And then also to point that there's a, there's somewhat of a crowding out from, you know, like mega cap companies that are also issuing bonds, you know, before they were buying back their own stock and building fortress balance sheets and things like that. And now they're deploying all the bonds. And so, you know, that so they're actually competing with uncle Sam. I would generally say that's a smaller figure because, and this goes back to what is fiscal dominance. So in monetary dominance the private sector is generally doing the majority of, of borrowing and lending. Meaning that if you look at kind of net new bank loans in a given year, or let's say the sum of net new bank loans and net new corporate bond issuance, that sum will be bigger than the fiscal deficit, kind of the, and that's how it, on average, the US is most of the time. Now in, in, since roughly 2018, 2019, when we kind of entered fiscal dominance, we entered this kind of demographics cliff. We've been in a situation where, where public deficits generally exceed the entire sum of net new bank lending and net new corporate bond issuance in the US. And, you know, you can get an uptick, you know, you can get a few hundred billion extra, but again, the other side of that is two trillion. So, you know, you, you've, you know, a trillion plus in total, you know, private sector leverage increase in a given year, and you have 2 trillion in, in public debt increase. So I think a lot of it is, is just the, the, the bond market, you know, it's just saying that, hey, if you're going to, if this is, if this is the fiscal behavior you're going to do, and if money supply is going to grow at 7% a year, if things are going to run hot, then the bond market wants five or 6% yields on the long end of the current time.
Speaker 2And then you have the doomer crowd that says, well, that automatically should then be repricing equities. And so we should see, you know, multiples get compressed because of that. And that's not happening. And so is that because of the stronger earnings and job earnings and growth numbers that are coming out or that, that, that are anticipated?
Speaker 1I think that's part of it. I mean, you pay up more for stocks that are growing than ones that are not growing. But also the, again, the fiscal deficit feeds back into that. I mean, earnings are growing partially. Because money supply is growing partially because the fiscal deficit is running hot. And, you know, so if we were in an environment where deficits were low, and, you know, most of the, most of the money creation was from the private sector, if they have interest rates super high, then usually that would put some downward pressure on valuations also being equal. It would put some downward pressure on private sector bank lending, slow it down. But when you have over 100% of debt to GDP, when they have 5% interest rates, again, that means still there are entities in the economy getting a raise, thanks to higher rates. And I mean, there are corporations in that position, too. I mean, there are corporations that locked in 20 years of debt at a fixed rate, and they've got cash, and they're kind of like net debt neutral. And so the Fed increases interest rates, they just, they just get a raise. I mean, they're kind of opposite of a bank there. And so I think that it's just kind of it's that it's that middle of the road situation. And, you know, it's notable to see kind of the yield breaking out like they are. But again, I mean, the we've not seen the treasury market get super liquid. I mean, in recent weeks, it did get a little wobbly. It's not been as wobbly as it was in say 2022. Back when the gilt market broke in the US treasury market got got kind of messy. It's not nearly as broken as it was in March 2020. I mean, the treasury market just outright broke until the Fed came in and fixed it. repo facilities not really being tapped. The move index is high, but not as high as it was in the past. So I think it's not as high as it was in the same. And again, the yield curve is kind of roughly where it should be, if anything, maybe on the lower side. So it's I mean, it's kind of it's sort of almost business as usual. It's just that business as usual means extremely high interest expense and extremely high or moderately high nominal debt growth levels.
Speaker 2That's kind of where we're at. And so it's not Doomer, the sky's not falling, the market's not crashing tomorrow. We're sort of in the middle, as you said, and we have growth, but we have high debt And so we're sort of in that frame of the market. back, you mentioned how in Egypt, I mean, they came, I think you said 35 percent inflation down to 15 percent. And you can even look at places like Venezuela when, you know, have much higher Argentina. And like they just kind of just keep going. It just kind of keeps going. It's not good necessarily, but it keeps going. But I want to talk about the other side of things now a little bit. So let's jump onto the tech side, because technology changes things. And I think it's changing the monetary system and the economic system as well. And I think that might change sort of the some of these fixed constraints that we've been looking at. So let's just start with talking about technology and specifically around the Clarity Act. So the Clarity Act is dead, at least for now. What's your take on the Clarity Act dying and what that does for this next stage of this economic system being built out?
Speaker 1Yeah, I mean, I think it's technology generally moves things globally, while obviously regulations can shape things around the margins. They can it can moderately accelerate, moderately slow it down. You know, there's still still the Genius Act. So there still is a change compared to two years ago of kind of entrenched regulation. And then, of course, as you pointed out, you know, regulators can interpret things differently and be lax or be tight. And so I think we are seeing that the banking system is gradually shifting. You know, it's a slow regulated old industry that has global connections. And, you know, it deals with people's money. So it's kind of like, you know, it's like, it's very conservative compared to something faster moving. But over time, we're seeing more and more stable coin integration. We're seeing obviously more and more neobanking built on top of it in just more seamless ways. And, you know, if the old ones are not innovating, they're just kind of stagnating in terms of user count and people are going over to the newer, better ones. And I think that that trend is going to keep continuing. I mean, anyone who who like anyone who sends international wires on a regular basis just knows how how antiquated the global is. Yeah, the global. Yeah, it's still silly. And and stable coins can address that. I mean, sometimes you'll all be asked by an American. I mean, what are stable coins do? It's like, well, for an American in America, sending money in America, I mean, we already have efficient payment systems. I mean, stable coins only around the do things around the margins. Yeah. But we have Africa with 40 currencies or Latin America with 30 currencies. Or even if you know, if I'm sending money back and forth between Egypt or even back to Europe or something, I mean, it's just slow and expensive. And stable coins can make that more efficient over time. It can reduce the remittance cost. It can make just ease of doing business in any sort of international sense, especially if you're based outside of the U.S. or often do business with entities outside of the U.S. can just be more efficient. Which can mean you unlock you maybe less capital requirements to just keep the money because it can just turn around quicker. So you don't have like money locked up through the financial pipes as much. And that's all you know, that's all good around the margins.
Speaker 2Okay, so I got to tell you what I've been doing with my money lately. I moved my cash over to river. And before you ask, yes, I still pay all my bills and dollars. Everything works the same. But here's the real difference. You see, river pays me 3.3% on my cash, and they pay it in Bitcoin. So my money that was just sitting there doing nothing at all in the bank, it's now stacking Bitcoin while I sleep. And I started thinking like, my bank takes my deposits, they loan those deposits out, they make 12, 17, 24%. And they pay me 0.04%. I mean, honestly, that's kind of a shakedown when you think about it. Now, rivers FDIC insured, they use full reserve, they charge no fees. So I don't know why I didn't do this sooner. So click the link down below and get $100 in Bitcoin just for getting started. So I mean, the stable coins is one piece of it, which I think unlocks the bigger topic that I want to talk about, which is this tokenized future. And stable coins obviously are part of that. And to your point, the banking system is old and antiquated. And man, there's a real threat to them with stable coins. But specifically on the tokenization side of things, it looked like as soon as the Clarity Act was sort of shot down, you saw the SEC come out and expand their crypto rules. The CFTC chair Selig also came out right away and said, hey, we need a quote for mass tokenization, including tokenized collateral, 24-7 trading. And then right after that happened, so both the SEC said, hey, game on, tokenize everything, basically. NASDAQ is going to start trading stocks in tokenized form. The CFTC said 24-7, tokenize everything, mass tokenization. He said, you had three BlackRock funds get tokenized this last week. Robinhood chain went live. So they're tokenizing their stocks 100% and 20 countries have access to that. Even the DTCC is launching a tokenized service next month, October 2026. Larry Fink, of course, BlackRock says tokenize everything. And so it looks like Clarity Act dead, CFTC and SEC says game on. And it looks like we're full sprinting into tokenization. How much does that change things, specifically around creating more velocity to the amount of money that we have? Well, I would
Speaker 1separate payments from securities in that sense. So I think that when we look at kind of how the stock markets function, I mean, you used to be able to call your broker to make a stock trade. Then, of course, when we got online discount brokers, like a stock, you could do it yourself, but I mean, a
Speaker 2stock trade would be like $15.
Speaker 1I started trading internet stocks in the past. It was, it was, it was expensive and slow. Of course, now, you know, trading is nearly free for a lot of people. And it's, you know, it's very, it's, it's very efficient. Overall settlement times are getting faster. And again, I think the bigger benefits are those outside of the U.S. I mean, there's, there's, it's, it's pretty like in the U.S. you have all these financial instruments, opening a brokerage account is easy. It's very easy to trade. You know, if you're trying to trade good stocks in and out of the U.S., it's very easy to trade. You know, if you're in another country, especially in the developing world where the most, most population is, that could be a challenge, especially if you're not wealthy and you can just open account kind of wherever you want. And so kind of like how stable coins take the, basically the idea of an offshore bank account and just put it into your smartphone for, for nearly free. Tokenized assets can do that, you know, for equities and other types of assets. And, you know, I think that things that, that can be tokenized or should be tokenized will, I think trading will keep expanding toward 24 seven. I'm not even sure it's a good thing, but it's just, it's a thing that happens. Yeah. Like, I don't think, you know, we, we look around and say, you know, it'd be great for society if we just had more things to trade more, more hours of the day. But that's, that's, that's, that's, that's where things go, especially when it
Speaker 2doesn't create any value.
Speaker 1Yeah. Or like limited. I mean, obviously there's, there's value in liquid capital markets up to a point. And, and, and, you know, beyond that, it's kind of marginal. You know, I think real productivity growth, I mean, you know, going from, it used to take like two thirds of the population to, to feed everyone. Uh, and then with, you know, hydrocarbons and, and tractors and things like that, you know, one or 2% of the population can feed everyone. Then they go into manufacturing and then over time, you know, robots like, uh, you know, not, not even the humanoid ones, but just the robots we've had for decades, they made it. So only a small percentage of people have to work in manufacturing and then they can go into services. Now, obviously AI is going to make services more abundant. Uh, I think that's a, that's a bigger factor than, um, financial modernization in many cases, unless again, you're in, you know, Africa or Latin America in some places, and you're doing a lot of cross border stuff where you, you know, you want more options of what currencies you're holding and things like that. I mean, that, that can be game changing, or if you had trouble accessing equities before, you know, you wanted to own Apple and you couldn't, and now you can. Uh, um, and, and so I think that's where the biggest gains are.
Speaker 2But what about, um, so when we look at the economic, you know, the health of the, of the economy, the government uses the velocity of money. And so during the pandemic, during 2020, um, their velocity of money basically stalled out. Nobody wanted to spend any money. They sent out the STEMI to try to stimulate that velocity going again. And so if we can get, you know, $1 to create $2 or three or four or $5 of economic growth off of a single dollar. And so we have the money supply. It seems like everybody's screaming for more liquidity, more liquidity, the Fed's going to have to print whatever, more money supply, but it's N times V, right? So it's money is one side of it, but then there's the velocity side, which I think we're at about 1.4 right now. And so if we move money faster, but even more specifically, if we tokenize assets and we make the equity or the capital in those assets more liquid, and we increase the velocity of that, even just a little bit, if we go from 1.4 to 1.6 or 1.7, that could add 10% to GDP. Obviously, it depends on where that money gets moved into. So if it's just into more trading, it's not productive. But if I were to mobilize some of my equity that's locked in my home, for example, and put into a productive asset, I mean, that could be very stimulative. And so, you know, obviously, Fortune 500 companies have a treasury person in-house. Wealthy people have family offices, and that treasurer is managing their equity. Most investors never even think about what my return on my equity is. They just think their return on my equity is going to be on their assets. They don't even think about the capital, the equity that they have available to them. And so I could see this future in the next couple of years, 24 months potentially, where Everybody has their own AI, AI treasure. And if my assets are tokenized, I could be a 65 year old retiree with $2 million equity in my home, but very low cash. So it's a case for a lot of people today. I have a lot of equity, I have a lot of assets, but I don't have a lot of income. And that AI, CFO, AI treasure agent could mobilize some of my tokenized equity into ARB funds or digital credit funds and could move things. And again, even just a small increase in velocity could make a big difference to GDP. And it seems like that future is rapidly coming.
Speaker 1Yeah. And again, I would separate a couple of different things. So one is just obviously more leverage is one thing. I mean, if things are just not levered now, and they could be levered, and if certain tokenization makes it easier to lever things, I mean, if it becomes easier to, for example, use your home equity as collateral than it is currently, I mean, it's generally fairly easy now, and it could just get cheaper and faster over time. That could encourage more leverage, which has obviously advantages or disadvantages when we're talking about the macro economy as a whole. I think the biggest advantages show up in businesses, because cash turnover is a really big deal in businesses. You've got incoming money, outgoing money. And you have to basically, money's kind of locked up in that environment when you have just kind of days of settling things. And the faster that all moves, the less you have to have locked up. And it does around the margin increase velocity. I think overall, the biggest factors on velocity are going to be things like demographics or wealth concentration, because if you have a fairly small, older percentage of the population that has a lot of the cash, it's just not mobilizing because they're storing it. Even if you give them a stimulus check, they're not like, if the government sends me a stimulus check tomorrow, it's actually not going to affect my spending at all. I'm already going to spend what I'm going to spend. Whereas if I was living paycheck to paycheck and I get a stimulus check, that's going to radically affect my spending in the coming weeks. And so generally speaking, when you have an economy where the money's more spread out, it tends to circulate quicker. Whereas when it kind of pools, it tends to circulate more slowly. And in addition, I mean, obviously failed currencies have generally very high velocity because nobody wants to hold it longer than they have to. So they'll hold it, make a payment, get out of it, hold it again briefly, get out of it. Whereas something like a dollar or a euro, people are generally fairly fine holding a decent amount of it for intermediate use. And so, yeah, I think that velocity, we'll see what happens. And I think around the margins.
Speaker 2You said like the home, so the example that I gave, you said that there's already sort of solutions out there for that. And of course there are. I mean, especially in America, other countries maybe not as easily. But in America, I could get a home equity line of credit. I could refinance it. Sure. You know, but I might need 47,000 and it's very hard to get 47,500 or 86,000 out of my home. I'm probably gonna have to get my tax returns out. I got to file paperwork. It could be a 60 day process and I can't get the 87,000. I might need to get 120. I don't want 120, right? So it's a very slow and efficient process where if that was tokenized and I had an agent managing it instead of six months, or I'm sorry, two months, 60 days, it could be six seconds or six minutes. I mean, that's, that's velocity. Same with a business, right? Like I might have a lot of equity in my business. I might have a lot of capital locked up in inventory, things like that. And sure, I can go get a business line of credit. I could bring on an equity investor. I mean, there are options. I could get purchase order financing, factoring. Sure. I mean, there's those things, but it's slow. It takes a long time. And so again, if I could do it in seconds, if that could be all managed in real time, I don't know. It just seems like getting it from 1.4 to 1.6, maybe is that big of a stretch, which could radically change the GDP number.
Speaker 1Yeah, I think that could speed up quite a bit. I agree. And, you know, when we look at other economies, I think the gap can be even bigger. But yeah, even in the US, I think that that, you know, it's a decent impact. I think, again, compared that compared to like to the gains of AI, you know, like, for example, how much easier it is to do many tasks compared to how it was three, even three years ago. I think that's probably a bigger overall impact than financial optimization. But it doesn't mean financial optimization is small, especially those of us that are working in or around finance. I mean, from the venture side, I even invest in some of this stuff, tokenization, things like that, various kind of collateralization services and things like that. So I'm with you on that. I think that that is going to get more efficient. And AI is going to keep helping people find inefficiencies. I the switching costs are high you know it's like the big banks don't have to pay as much the little banks only have to pay you more uh and there's a lot of money that just like you know i have money sitting in a bank account right now and just i could move it and just it's just i haven't um whereas if you have just ai doing it for you or telling you exactly what to do um it says okay we'll take take it out of this put it here take it out of this put it in here um then all the ones that are kind of just coasting uh are going to be pressured uh because just there's more optimization happening at corporate balance sheets personal balance sheets uh and so forth this is the paid
Speaker 2advertisement for rumble wallet but the question is why did your grandmother keep cash under the mattress well because it was hers there was no bank hours there was no holds if she wanted to hand somebody 50 bucks then it was just done they had the 50 bucks and rumble wallet has rebuilt that but for the internet with their new self-custodial wallet so you hold the keys so it's not rumble's money and it's not the bank's money it's your money and there's no process to do that so it's not the bank's money it's your money and there's no process that could freeze it block it prevent it and i take tips right through it with no middleman now right now rumble wants to pay you to try it so if you set up with the code moss 10 rumble will drop 10 in stable coins usat into your wallet for free just for activating it not only takes a minute go ahead and scan the qr code right here or go to wallet.rumble.com slash moss enter code moss 10 and then fund it with a card or bank through moon pay and then claim your 10 right then you can have a free wallet and you can have a free wallet and you can have a free wallet pay with rumble wallet and you could send some my way if you want but note this is only good for the first 500 wallets that do it so you gotta do it really fast okay so scan the qr code right here use moss 10 claim your 10 terms in the descriptions are at rumble.com slash promo official rules so if anybody's listening that's into fintech and ai coding uh shoot me a message we got some stuff to build here because uh this is coming quick um so um yeah i think that's a big driver i think about as you said like i have money i have multiple bank accounts and within multiple bank accounts i have multiple or i'm sorry multiple banks and then multiple accounts within those banks and brokerage accounts and there's sort of money sitting all around everywhere and to your point it's it's kind of a lot of work i could just go move it into stata and make 13 percent but like man i i don't have the time for that right um and so if you had this like ai treasure bot uh it could be managed pretty quickly and it's just a small modest increase um the funny thing is lynn i'm sure you're experiencing this i'm curious your take but um it's sort of like jevin's paradox right the cheaper things get the more we use of it and uh man i'm i mean i'm like a power user of ai i have like my brain set up and i have like all these automations and it's doing so many things that i used to do manually right people do um but yet i'm still working more than ever i don't know if you're seeing the same thing we're just doing more
Speaker 1right that's i mean that's that's the decades ago people were like oh the work the work we should go down to from 40 hours to 30 hours to 10 hours uh and instead we we just work more uh that's kind of how things fill out uh for some people they have to uh just you know they they like one income kind of buys them less so they have to work more for people like us a lot of it's just there's so many interesting things we could be working on so if we save time in some place we often just go out and find something else to do i mean i just i write another sci-fi book or something because with this spare time i just instead of just you know lounging on the beach but uh it is what it
Speaker 2is yeah um now let's talk about i want to come back to you know you mentioned earlier sort of like the tax concentration at the top the k-shaped economy um those types of things and um you know you said that maybe it's a little bit more extreme maybe in the u.s than it is in some other countries um it seems like i would say the other countries might be more extreme where you have a few people that are very wealthy and most people aren't wealthy um but you know the u.s had used to have a very strong big middle class and we've talked uh you know extensively about how that's been hollowed out for any type of reasons you know and industrialization but then you know shipping jobs over to china things like that and as far as that middle class which continues to exacerbate that problem you mentioned that you know the economy isn't working for a lot of people and consumer sentiment is very low it seems to me that i mean certainly we have the problem with inflation making it harder for the working wages to pay for things but it seems like a lot of them hollowing out of the middle class is because of technology and so in the industrial era you know through 1908 henry ford created automobiles but mass production we had assembly lines and smart people and dumb people were equal on the assembly line so it took smart people brought them down dumb people brought them up and we had this massive middle class but when we went to the information age then you started to get that separation where people that want to work harder and want to develop their skills they just start pulling ahead and now with ai you know we have 10 person billion dollar companies 20 person billion dollar companies potentially one person building our companies. Because now we have with intelligence age, if I want to work harder, as you said, we fill our time with more stuff. We just keep going, going, going. We're starting to pull ahead further, further, further. It seems like no amount of trying to bring jobs back is really going to rebuild that because we're out of the industrial age and we're into this new intelligence age. How do you look at that? I think a lot
Speaker 1of that's true. I think the thing that often goes unmeasured or undiscussed is when you have wealth concentration, is it because the rich are getting richer faster than the bottom? Or is it the worst situation where the bottom is getting worse off? Because if things are generally booming up, people are complaining less than if things are stagnant. I think that on one hand, it is more competitive now. The peak of U.S. middle class was also in a world where the rest of the world was devastated after World War II. Competition, you had China and the Soviet Union were largely not in the same labor pool. Competition was literally walled off. With globalization, there's more competition out there now. If you're doing something that doesn't have to be done locally, you're competing with the world now. That's a change at large due to technology and other factors. In addition, the information age makes it so that certain people can do a ton more. A.I.s can make you radically more efficient. I think the thing to measure is the average person, in different ways to measure, apart from just sentiment, are they better off than they were three to five years ago? In an extreme case in Egypt, you have that 15% inflation we're talking about. You can measure it in terms of how many hours of work does it take to buy the same car it did three years ago. Or you can look at it in terms of how much energy does the average person consume. When those numbers stagnate for years, you get this kind of simmering frustration because there's some sort of inefficiency in the economy, this debasement that's just kind of like siphoning some of that value away. In the U.S., when you measure it in various ways over the past five years, you get this kind of simmering frustration because five years or so, the lower middle class is kind of treading water. That's where I think some of the frustration grows, which is that there's all these more tools available. Official unemployment is pretty low. It's less about high unemployment or things like that. It's more just like people are working, and then they're not finding that the productivity benefits we're talking about are necessarily flowing to them. They say, well, where's all this productivity growth? Why can't my hour of work buy me more than it could three to five years ago? Of course, in some areas, it can. It can buy you more AI than it could. It can buy you more electronics than it could. On average, it'll probably buy you less healthcare than it did five years ago.
Speaker 2Well, not with Obamacare, but I mean, we've said that, but anyway, I get your point.
Speaker 1Yeah, that's where you get frustration.
Speaker 2Yeah, got it. When their quality of life is going down because their wages are buying them less than they used to buy them, so they got to work longer to get the median house or longer to get the median car or things like that.
Speaker 1Yeah, and the biggest factor, I think a lot of it's going to be the home buying because, again, if you already have a house and you have a locked in mortgage, you're like, I mean, it's fine. If you're a young family looking to buy, you have the combination of high house to income ratios and fairly high mortgage rates, meaning that the amount of house they can buy currently is just low. On average, a young family is not going to that's not where the deficits are flooding toward. So they're getting kind of the brunt of the higher rates, but not really the fiscal side, usually.
Speaker 2The problem with real estate, too, is you started out in the intro, you started talking about the waterfront property. And really, with real estate, we have a real scarcity of location. And so people want the waterfront properties. They want the downtown walkable properties. I mean, I live in California. My brother moved to Missouri, and he got a four-bedroom house in his parents' house. And he's like, I want to live in a four-bedroom house. And his name was 500 bucks a month. And he's in Missouri. There's plenty of affordable housing, just not where people want to live. And so the areas that are in demand obviously have a lot of competition. And that's something else. But I know we're kind of short on time here. Let's sort of bring it back to the nothing stops this train, so to speak. I've often liked to say just dumbing things down to cliches. But the two things in life that are certain are death and taxes. And now we have the third, which is money printing, which is sort of the nothing stops this train. So, you know, some people are calling for, you know, the biggest blow up in the world. If we don't get oil tankers moving through the Hormuz, then the whole market's going to crash. The Fed's losing control. It's going to crash. Some people are calling for a really big print. If I understand your thesis, then you can clarify for me. You're just more of like just a steady ongoing print, which just means probably continued inflation and continued asset price appreciation. Is that sort of the way you're viewing things?
Speaker 1Yeah. And I've called it the gradual print. It's kind of in a contrast, which is that it's generally flat to up, but it's not, you know, a gigantic print. I mean, there are situations that can cause a really big print. So, you know, a long enough time frame, sure, we'll get another burst somewhere. But in the time horizon I'm looking at, I'm expecting a gradual print. You know, when the Iran war broke out. And what is that time?
Speaker 2Just so you can clarify that for us. The time you said you're looking at.
Speaker 1I mean, I started calling for that last year. And I was like the next year or two, at least, and we're a year in. And I think it's still, I mean, the next year, I don't see a big print. What about in the
Speaker 2next five years or something?
Speaker 1If you get five years, maybe, I mean, maybe you do get a blow up somewhere and you get another, you know, kind of rapid balance sheet increase, which it can handle. You know, you'll get a burst of debasement and kind of go back. But I think on average, it's probably more in that gradual frame. And, you know, when the Iran war broke out, some of the questions I got is, hey, so you have this gradual print thesis. I mean. Is that going to be revised now that, you know, the Strait of Hormuz is closed and there's war breaking out? And I was like, well, certainly the probability of a big print has increased, you know, compared to just no war. But I was like, it still wouldn't be my base case. And, you know, this many months in, we still don't have a big print because the things that are actually breaking are not really the types that require a really big print. And so I think it's pretty locked in toward gradual print with kind of only edge cases where I would adjust that view and say, maybe sooner than expected, we're going to get a big print.
Speaker 2But whether we have just a sustained continual moderate print, or we do get a big print because of some big, you know, shock that we don't see a gray swan or black swan that potentially happens, would you chalk that up to still nothing stops this train, meaning they can't afford a recession, they can't allow the market to crash. And so if there was this big shock, then the big, whatever size print would come to help offset that. So that nothing would stop this train. So it is that it's just that continued sustainable, you know, up into the right
Speaker 1part, I think partially, but a lot of it is not even a choice. A lot of it's just like automatic. I mean, basically, if you get a recession, tax receipts will generally suffer, the deficit will blow out. And, you know, if you're kind of pre stimulating at 7% of GDP deficits, it makes it challenging to have a recession, that the recession you are going to get are probably gonna feel milder and more stagflationary than the deflationary busts we're toward. And I mean, that the banking system is not that levered. I mean, I keep fading the idea that like private credit is going to blow up the entire banking system. It doesn't mean that you won't have obviously pockets of problems. There certainly are pockets of problems, but it's not nearly as systemic as things were in 2008, in terms of like total banking system leverage. And a lot of it is, you know, when private debt bubbles pop, it tends to be this kind of more deflationary shock. Whereas when public debt bubbles pop, it generally one, it pops over a very long period of time, it's just kind of like debasement pop. And it just it generally means things run hotter. And either either, if you get hot and growth, then it's, you know, it's that kind of running hot environment. If you get running into hot while you have stagnation of some sort, then you get that more stagflationary type of environment, something closer to like Egypt on a per capita basis. And so and I think that's that's largely locked in. And it's, you know, it's, you know, it's not going to be as explosive as some people think. And yet, it's going to be very hard to also untangle that and prevent that anytime soon. So I think it's kind of like the background North Star we have. And you know, if equities get over their skis, they can absolutely have one to two, three year corrections. You know, when when Costco was up at like 60 times earnings, I was like, I mean, this, this thing could could tread sideways for five plus years as earnings catch up. So you still have to be careful. But you know, you have to be careful. I mean, it's, you know, it's not like you're going to be able to get over your skis for a period of time. You know, it's not like you're absolutely correct as it as it has so far. And that could keep correcting for a period of time until just that the fast money's out and it kind of forms its new base and then can start grinding higher again. Bitcoin can get over its skis for periods of time. Housing in a given area can get over its skis. So you just kind of your long, scarce things that are leading in their categories. You're careful about overpaying. You're not worried about every 10 or 20 percent pullback. I mean, these things happen. And you just kind of, at least the way I do it, I'll gradually shift away from things I think are a little bit heated. And I'll gradually shift toward things that are maybe a little bit unloved until they pop up. And then I might shift back into the thing that is no longer overheated and now is fine.
Speaker 2Well, I think that's a perfect place to end it. Obviously, there's a dozen more questions we could get to, but I think that's a good place to end it. You mentioned getting back to writing more sci-fi. I think you just came out with a sci-fi book. Is that right?
Speaker 1Yeah, back in March, I came out with sci-fi. And we got Walker and Carla did the audio version in May. And then I have another one in the pipeline. I don't have a date for it yet, but that's kind of my new hobby, I guess, is writing sci-fi. So if people are into it, check out the Stoll Gardens.
Speaker 2All right. We'll put a link to that down below. Of course, your newsletter is one of my favorites to read. We'll link to that down below as well. Anything else you
Speaker 1want to shout out? Speaking of AI, we founded orangejuice.com. And we are acquiring businesses. And then we hired a kind of world-class AI expert. And we can help kind of businesses that we acquire streamline their backend. So if someone is looking to sell a business or they find that an interesting investment opportunity, they can check out orangejuice.com and see what we're working on.
Speaker 2So are you guys, I mean, it's like PE. So you're acquiring the business and then trying to sort of revitalize it using AI automations, I guess, to sort of bring the profitability up? In a sense. And then exit it? Yeah. So is it sort of like a fix and flip?
Speaker 1That's actually where we're different than PE. So this is more of like the Berkshire model where we're looking to buy something and then hold it indefinitely. So it's not a fund. It's a permanent capital structure, meaning it's a company. So it's a company that acquires other companies with no kind of just a plan to have them keep building cash for us. And then we'll have a treasury management where we expect to have some percentage of our treasury in Bitcoin. So on average, we'll be short fiat, long Bitcoin, long cash flow, cash flowing companies. And unlike PE, because we're not trying to flip it and to kind of maximize like a three-year ROI, we're looking for, you know, what is this business going to look like in five, 10 plus years? We're looking to keep the company culture intact. We want it to be a great place to work, but we do want to help the owners and the employees find efficiencies so you can do more with less. You know, the parts that are administrative backend just can be simplified. And, you know, if you buy, for example, a healthcare company, the doctors can keep doing what they're doing and they, you know, they can, all the stuff we just talked about, streamlining the backend can just be done to make that business more efficient without really harming anything.
Speaker 2Yeah. That's one of the big failures of PE is they want to run the business on a spreadsheet and they lose the soul of the business. They lose the founders, they lose the soul and you can't run a business on a spreadsheet. It pencils out, but that's just not how the real world works. So I think maybe your idea works a little bit better. I think it's a good idea. Works a little bit better. Although as somebody who's exited a couple of businesses, typically when I get the cash, I want to exit. I don't know if I want to stick around. But, but certainly if you can retain them, that would definitely help out. So that's exciting. Where do people find out more about that? Orangejuice.com. We got the domain. It's pretty cool. Wow. Wow. That must have been a hard one to get. Okay. With that, we'll wrap it up. Thanks so much, Lynn. Thank you.
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