Kind: captions
Language: en
foreign
welcome back to the show my friend it's
always good to be here dude always good
to have you it seems like we're always
in some sort of tumultuous time so uh
FTX saga continues uh it seems like
fraud abounds total Mayhem how far does
that go what do you think is gonna
happen to crypto now I think even last
time we talked about we need to pass out
crypto into component parts so people
understand because if not if it feels
like this huge cluster [ __ ] going on and
nobody knows what it is firstly the
central banks are taking liquidity out
of the system and have been for a while
that has hit all assets
um and so crypto down 75 much like many
technology stocks around down about the
same so that's been going on that's been
putting the market under pressure
um at the same time when you get to the
bottom of the liquidity cycle if you
think about it if you think there's a
bunch of people in the street saying hey
buddy can you lend me a buck
and there's you've only got five bucks
and there's 10 people asking
well five people aren't going to get it
and that's what happened to the bottom
of the liquidity cycle
those who really need money don't get it
and they blow up
so in June that um you know we spoke in
the aftermarket of that that was
basically the blowing up of the
liquidity cycle suddenly you find out
that all of the people who are running
leverage in crypto
were getting blown up and they couldn't
get any money from borrowers or they
couldn't get any money you know from
investors
and so that had this huge ramification
so June was actually worse than now
because pretty much it triggered
everything do you think it feels
psychologically because right now I feel
like the biggest oh no right now
this is the I'll come on to this in a
sec but yes so June was the actual
damage right that was the basically the
nuke button to say leveraging crypto as
we've always talked about don't go
together right so that blew up massive
balance sheets three arrows Capital all
of them but one of them was hidden and
we didn't know
and that was Alameda we knew there were
a massive shop we knew they were kind of
a bit sketchy
but they kind of said it's fine but they
weren't fine so at that point they were
probably nine billion dollars in the
hole which is a staggering amount of
money now we don't know the exact
numbers yet and we won't do for a long
time but there were a staggering amount
of money in the hole
and
that was papered over by FTX when you
say paper it over what does that mean
they gave them ftt tokens
which is the the token that is part of
the FTX ecosystem that they control in
Alameda control and then gave them a
loan against it that's what it first
appeared but the plots thickened a lot
since then but that's so basically they
actually went up under in June so what
we're seeing now
is the end of the June thing it was the
bit that didn't happen that did happen
if you know what I mean so they were
able to hide it on paper keep the
perception that they were fine and when
you say they I assume you mean FTX
loaned Alameda ftt to quote unquote
paper over their losses and make it look
like they still had and then they gave
them cash in exchange for that
collateral but that cash was customer
money right now this is we're in the
Realms of bad bad that's what the story
appeared to be
and I have been speaking a few times and
said well you can kind of understand
that if Sam backmanfree is going to lose
his entire Empire in June you might be
psychologically pushed to do something
bad in the hope that maybe you can avert
it right if the 10 chance is worth it
but I asked the question a while ago and
I did this big Twitter spaces like it is
not clear to me
that there wasn't systemic fraud in this
whole thing to start with the story is
now coming out it's coming out in waves
and again nothing is verified here
but it's starting to appear that FTX was
just a front
for Alameda
to capture customer order flow to give
them an advantage
it's now becoming clear that FTX
Alameda because we can now assume
they're basically the same entity which
is very bad to have a trading operation
that takes advantage of customers
we've also seen that
that they changed their strategy from
being these lower risk Traders doing
Arbitrage buying one thing selling
another or very quick trading to Big
position takers and it seems that the
lunar debacle
was them just providing liquidity all
the way and it blew them up and they
pretended it didn't hurt them but it
seems that Alameda itself had changed
what he was doing
quite a while ago and was basically a
punter then there's the confusion of who
all these people are and half of these
people don't check out properly
we then hear from the guy the the guy
who's gone in the CEO
who's the now the the liquidating CEO
and he's like I've done Enron I've done
all of these this is the worst mess I've
ever seen so again news flows coming out
slowly but it feels like there was never
any proper accounting
that there was never any customer
positions that weren't being used by
Alameda again not clear yet
that they just pulled everything
together and there was no particular
Bitcoin or anything else that you
thought you bought on FTX that was being
stored for you that it was just Giant
pool of cash that they were just abusing
and it's becoming clearer even after Sam
Beckman Freed's tweets recently to a
journalist
that maybe constructed his whole
personality as well and that none of
that was real
so that that whole Twitter thread was
really unnerving he since came out and
said oh I didn't know that was going to
be uh public but nonetheless that was
his take
from the you know me being the Savior
and doing all this for good was really
just Persona and it wasn't really real I
was like wow I was shocked that he was
so forthcoming about it what do you
think and I know that there's going to
be a lot of speculation to answer this
question but what do you think it is
that he understood that allowed him to
pull this off was it that he understood
the weakness in the way that investors
were getting greedy in the Euphoria of
the market does he understand something
about Market making that allowed him to
trick people like what what he because
when you hear how people talk about this
guy
they're like yo he's the biggest genius
ever like this guy's amazing very bright
accomplished investors are like this
kid's the future
it's you know it was on oh God who who
had it on their website where they
actually had the juice
Sequoia I mean Jesus Sequoia is gigantic
so what is it that SBF San begman freed
understood that he took advantage of
here there is a cult of personality that
happens in Silicon Valley that we invest
in the founders
that was the Elizabeth Holmes thing
right the same thing was you appear like
a genius you act like a genius people
give you money
um and he's a smart guy right there's no
doubting Sam's not a smart guy what I
think he saw probably inadvertently was
that in banking
we'd gone through this which was the
banks used to be trading firms and would
have customer and those famous shops
like Salomon brothers who were huge at
this and then what happened is they
would abuse that because they would kind
of they wouldn't take the customer money
well they kind of would because it's all
the same balance sheet so the bank might
blow up but they would also trade
against the customers and then the
regulator said no no you're not doing
that then 2008 comes on so you've got
you've now got what's known as customer
and house and there's a Chinese wall the
wall means you two can't speak to each
other because you have privileged
information if you're advising or you
have balance sheets Etc and you guys
were the customers
we can't give it to the rest of the firm
because we can we would abuse it so that
is fine except that in 2008 the trading
side blows up of the banks
and the customers are going to get hurt
because everyone gets kind of have to
get bailed out
so then they change the regulations and
said trading has to be a much smaller
part in crypto
none of that exists you can do over the
[ __ ] you want
I'm not even sure using customer
deposits is illegal in crypto well
because Gary Gensler and others had not
regulated it depends what jurisdiction
how far their regulations got but this
is a problem I mean I got caught out in
another one a Futures brokerage I mean
this is not a crypto thing this is a
fraud Leverage
um thing I got caught out in MF Global
which was a huge Futures broker
and it was run by the xco Goldman Sachs
who you who was the senator for New
Jersey as well I mean this guy was one
of the most powerful people in the world
John Corzine
super famous
and so I'm so I have my entire trading
funds with them
because it's John Corzine it's MF Global
the biggest brokerage firm in the world
um he takes a huge he gets confused and
kind of thinks he's Goldman Sachs takes
a huge bet on European government bonds
blows up and lo and behold he's been
using customer money
so it happens endlessly in the
Securities industry because that little
pot of gold which is customer money
people just can't keep their eye on the
precious that's over there they want it
they can use it I can make return on
Capital and then it goes wrong so this
story is as old as the hills it's a
deep fraud it's so it seems it's now on
the scale of Bernie Madoff and Elizabeth
Holmes and Enron it's an accounting
fraud it's a cult of personality fraud
it's um
many many things it appears again we
don't yet know but as the news flow
comes out it's staggering so to go back
to your earlier question
is what's the knock-on effect here from
here so my hypothesis is this was the
final outcome this was the whale that
happened right the end of the crisis
so I think much like
an earthquake we had an earthquake here
like uh when was it January 2020 2020
was a freaky year we started with a
massive earthquake in the Cayman Islands
which never happens and you know for a
week afterwards you feel the aftershocks
you know oh my God is this a bigger one
that's what's going on now so yes there
are going to be some other firms that
get into trouble but pretty much all of
the levered trading houses the leopard
customers all got taken out quite a
while ago in between January and June
the levered trading shops the people who
were lending money to the trading shops
people like Celsius and block file all
of those guys they've all blown up
so who's left there's a couple of
trading firms like jump and Genesis and
that's it
so
they will probably be smaller
aftershocks if they fail
so what we've got is peak freak out
because the earthquake happened and
everybody is hypersensitive I've never
in my career
seen sentiment like this both in crypto
and the stock market really I mean
Twitter is so bad I put up a relatively
bullish chart just marginally bullish to
say maybe the nasdaq's priced in a deep
recession
I must have had a hundred comments of
anger
how dare I suggest
I'm like wow people I mean there's anger
resentment
fear
at this moment that of a scale that
wasn't in 2008 wasn't in 2001. I've
never seen anything like it I I haven't
been through this before so I can only
say that the having gone now through a
cycle of euphoria to doom and despair
that the shift is so Stark and it really
got me looking at okay
is something happening that hasn't
happened before or is this like you said
A Tale As Old As Time and that got me
thinking about money as a game and
people not realize like so I've gone on
this journey of trying to learn and
understand money going back to 2020 when
I was just really paranoid for people
that
um you know whether it was friends
employees whatever I knew there were
going to be people that were going to go
through a hard time I was going to be
fine because I had Capital that was
going to see me through but I knew that
a lot of people were gonna really
struggle
and so I wanted to be the one-on-one
primer of money as I got into that the
more I realized wow this really is a
game like it's a board game it has rules
there are things that you can do can't
do and a big part of it is the human
psychology of it all and understanding
where people get
happy sad whatever and so trying to
parse all of that out when I think about
the nature of you talked about a
liquidity cycle walk me through what are
these Cycles so you have a quote the
scam Ponzi crowd will be buyers in the
next cycle
so what is this cycle of money exactly
that allows you to go yes there was
fraud yes this is a problem but repeat
repeat repeat repeat
and there's still something workable
here so there is an expression Warren
Buffett's used it is when the tie goes
out you see who's swimming naked
so the tied out in this
is liquidity
and liquidity is driven by central banks
trying to stop inflation
so they raise interest rates when they
think there's inflation it slows down
the economy it's harder to borrow money
the whole economy slows down
and we restart it's called the business
cycle and you and I have talked about in
this in the past so the economies are
cyclical they're naturally cyclical
because the credit cycle even without
central banks is you kind of lend or
borrow too much money then something
happens at the margin and you're like oh
[ __ ] I borrowed all lent too much money
and you pull it all back again and then
you do it again right so the central
banks try and soften that cycle but they
still create it and use it to try and
not let economies go too far like
hyperinflation or depression whatever it
is right so that's what they're trying
to do
that cycle drives the movement of asset
prices and so that's the stock market
the bond market Equity Market the
currency Market the crypto market and
with that cycle becomes the human
emotion cycle
and the human emotion cycle is I'm
making a fortune I'm a genius I'm a
genius I can never go wrong I'm going to
be rich extrapolate extrapolate Future
Vision of myself is now going to be
driving a Lambo and you know Etc
to
and if you think about it and that's
what that's exactly what happens to all
of us and we have to fight that demon is
you start extrapolating out
and you start thinking my vision of My
Future Self has now been ratcheted up so
Investments are just a manifestation of
your future self right that's what we're
trying to do it's like you've got that
vision of what you'd like to be
and to get there you invest because that
will deliver that so if your Investments
do well you start stupidly readjusting
yourself higher all the time so then
what happens is when the market goes
against you
you have to go through the emotional
inner journey of
oh maybe I won't get there right that's
really hard for people
it's emotionally really hard to kind of
plant a flag on that's what my future is
definitely going to be definitely
because I'm really good at this
investment game to I was completely
wrong and what happens is you then over
extrapolate on the downside if this
continues crypto is going to zero all of
my savings that have been dollar cost
averaging listening to Tom andrell it's
all [ __ ] you know this has been a
scam it's the exact opposite
but when you step back you take a nice
logarithmic chart of Bitcoin and anybody
can do that on trading view or any of
those charting things
and it's a nice smooth upward trend
which is the adoption of
cryptocurrencies and blockchain
Technologies
as a new Financial system and a way of
exchanging value on the internet
in the middle of that on a log chart it
just looks like it slowly does that on a
linear chart it looks like this well no
it looks like more correct does this
collapse and what happens is everybody
goes
when it goes up
on a linear chart it's a bubble people
who aren't involved
then we all get to the over
extrapolation of like we're all going to
be billionaires let's order my Lambo
then it starts coming down its denial
typical you know the human phases of
emotion
and then you get to anger and despair
which is where we are now
but that's all that whole story of
humanity liquidity central banks is all
within this long smooth uptrend that
keeps going
and people forget it they forget it at
the bottom and they forget it at the top
and it's as simple as that so to go back
to what you were suggesting has anything
changed in the crypto Market
not a thing
is the technology
being utilized has Solana just agreed to
use it um to use their blockchain with
meta for nfts yes are Google working
with Solana yes is ethereum being built
out did D5 fail no does the
decentralized financial system idea work
yes
uh our cryptocurrencies being exchanged
in a in a value system on the internet
yes is the number of people growing in
that ecosystem not a lot
because it's stabilized but if you look
at the past cycle so the
2017 Peak
to the low in 2019
we lost about 80 percent of the active
wallet addresses wow when I look at it
now
we've lost about 30.
because the adoption keeps Rising
so it really is a psychological game
and it's a long-term game because you
know and you've talked about this is
we're not involved because we can make
money over a one year time or a two-year
time we're saying listen the BET here is
if you hold on
and if you add at the bottom of the
panic cycle and just keep holding and
don't use leverage and just be sensible
about what you're doing and don't keep
checking the market every day
the probability of you coming in at the
end of the decade
and having manifested
your future self in a way that probably
might be quite unexpected
and if you do that you won't go through
that emotional Journey yeah this is the
story of money is is solidifying into
two things for me you you've got a game
that has rules and you have human
psychology that is so
big and chaotic it becomes very
difficult to track and then on top of
that most people don't understand the
rules of the money hearing Sam begman
free talk about how you become a market
maker how you can effectively create
value out of nowhere you can do that
fraudulently you can do that
well so if you look at Global currencies
those were all value created out of
nowhere
for people that know about fiat currency
Fiat means by decree this is valuable
because I say it's valuable and we all
go along with it which then had me
thinking about specialization because I
was really trying to get to like what is
the root cause of all of this I think it
comes down to the efficiencies that are
created through specialization so
we all realize our life gets a lot
better if I handle my one little piece
of the world you handle your one little
piece of the world hopefully it's a
piece that you find thrilling in a way
that I don't and I find mind thrilling
in a way that you don't and so now we're
all contributing to the whole but I have
to have some way to exchange so I'm not
trying to constantly exchange Christmas
tree because I've got in this digital
age there's nothing to barter with you
with right right because you're so
you're doing non-physical you're not
making cheese and I'm I'm not growing
sheep so we don't have even if you were
though even that's a pain in the ass
yeah totally so like oh God like trying
to figure out imagine how many
spreadsheets you would have to have to
figure out how many uh
toenail clippers equal how many oranges
right it's like oh God so that that
would be a literal Nightmare and so we
create this very wise layer of
abstraction but then it like that layer
of abstraction creates all these
potential games so for instance
quantitative easing I mistook that for a
thing that we have done as long as there
have been central banks I didn't realize
that's a 2008 invention
and so you for people that are just
listening Raul was nodding like that I
had no idea that that was something so
well it's time to be fair as with all of
these things
the game is actually very old
but the the lipstick they add to it yeah
so quantitative easing
is a way of saying we're going to debase
the money
but but you'll hear you'll see on
Twitter people said well it's not
debasement because and they talk about
some mechanism
the net effect is the same because
they're too much debt what the hell do
we do with too much debt you either have
a massive inflation
or your debase your currency
the Roman emperors used to clip the
corners off the coins
and in fact anybody who's ever used gold
as a system of money has always debased
their money by clipping the edges off at
first you don't notice because they take
three percent off and then before you
know they're just cutting them in half
and saying there you go it's the same
and then the Empire collapses it's it's
just that story what it's several
thousand years old if you're ready to
level up all you need to do is take the
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your life what's the difference that
goes back to rules of the game What's
the difference between inflation and
debasing the currency I thought
inflation was a result of debasing
difference this is where everybody got
this wrong and I've been bleaching on
about this forever
inflation is a generalized rise in
prices
the price of eggs goes up the price of
gas in your car goes up you know the
cost of employing people goes up Etc
debasement of currency is this really
weird little trick
things of fixed Supply or relatively
fixed Supply
go up immensely optically because the
price of the currency has fallen
things of variable Supply like wages
corporate earnings don't and they don't
go as much
so what you find is after quantitative
easing what happens stock market goes up
gold goes up cryptocurrencies go up
housing goes up fine art goes up all of
that stuff
assets
so assets are a way of storing wealth
that's what an asset really is
so in relative terms they've held their
price and the currency's fall and makes
them look like they've gone up in price
it's not and this is what everybody gets
confused with this is why price earnings
ratios have gone up so much because the
earnings doesn't move as much as the
price of the asset because it's a small
fraction of it so peas keep going up the
more we debase currency
if you want to see another example you
look at charts of the Venezuelan stock
market
in Venezuelan Bolivars and it goes
straight up if you put it in US Dollars
it's actually down 99 percent
so
so it doesn't create a generalized rise
in prices this is what everybody can
fuse because they think it they thought
it was an increase in the money supply
in a way that you and I could get it we
can go buy more stuff it doesn't work
that way all right so would inflation
happen though if you didn't have the
basement I am not a monetrist I don't
believe inflation is always an
everywhere a monetary phenomena
interesting I think it is a
Supply demand phenomena Above All Things
some people claim it's of supply and
demand for money phenomena I don't
believe that because of the 1970s
inflation
is as provable as it possibly can be was
driven by demographics
the Baby Boomers all hit 30 at the same
time bought the first house their first
car their first blah blah blah blah blah
and that what was caught that's what
caused
the inflation of the 70s we've never had
inflation like that before or since
because guess what we've never had such
a big cohort of 25 to 30 year olds all
at the same time
that have a limited Supply correct
or by anything because they used to live
with their parents and before you know
it they're buying duplicate stuff
because you live with your parents
there's one car or two cars whatever it
is right you leave there's now another
car
and you meet a girlfriend or a partner
there's another car so you've now
doubled the con out and you bought a
house so that's the second house that
didn't exist before that's why
demographics are deflationary and
inflationary depending where you are in
the demographic cycle okay this whole
idea of demographics is Destiny's really
interesting here's a question that I've
never thought of before would we run
into a problem if you could so one I
let's put a finger on uh the basement
the basement is the government creates
money out of nowhere and so they
literally just make it up so if we were
back in the days of printing you would
just turn the printer on that's why they
call it printing money though now it's
just a database entry but if we were
back in the printer days you would print
more would we run into a problem if we
couldn't create more money because more
people are being born the population is
going up if money like I I think about
this sometimes with Bitcoin
that's what a depression is
a depression is when there's not enough
money for the demands like literal money
so what happens is the opposite of the
debasement
assets get devalued and currency which
is the thing that's in scarce Supply
but the money is the thing that
everybody desperately needs
when that is Extreme
that's a depression
what we're seeing now is the opposite so
we've got inflation
but
they've reduced liquidity to try and
cool the demand
and okay people want a preferring to try
and get hold of money as opposed to
assets and the price of assets has gone
down so they've actually done the bot
the opposite quantitative tightening is
the opposite of quantitative easing
so theoretically if contacted easing
causes assets to go up then quantitative
tightening should make better prices go
down because you're making currency
scarcer simple okay so one I I've asked
this question before but I forget the
answer how do they quantitatively
tighten how do they get money out of
Supply because they're not going around
burning paper dollars so how are they
doing it they're just buying it so
they're buying bonds from Banks or other
participants wouldn't that put money
into the system because at that point
they're buying something so sure sorry
they're selling off their bond inventory
so they're doing the opposite right so
they give people something but they take
the money and then they hold it
and so that I wrote that down as you
were talking about a depression a
depression really isn't that the money
goes away a depression is that the money
is now locked in people's wallets bank
accounts whatever they still have it
they're just not moving it is that
correct and you can't get it for level
money you just you want the money and so
the depression is is what all the assets
fall in price you know it it's that it's
the it's the it's it's all supply and
demand in certain ways it's all
psychology I mean this is the the
utterly fascinating thing that I'm sure
will keep looping back to
okay so money isn't moving during a
depression and so I was talking to
Robert Breedlove about this and I still
have a nagging feeling as much as
I don't right now with my limited
understanding I don't like that money's
being inflated right now with my limited
understanding I absolutely love Bitcoin
because I see how it's going to hold my
wealth over time but there is a part of
me that keeps asking the question am I
actually mad at them using this cycle
because if this game really is
psychology
and we get all of the Innovation and
everything that we get because of
innovation
and
to get people to innovate and I'm
remembering now how Robert uh swatted
this down but I'll be curious to hear
your thoughts so
I keep my default position is that
people innovate because money is moving
so you make something and people
don't think that their money will be
worth more over time if they hold it so
it is not a good asset in that sense
they think it'll be flat that's how I
think most people think of it I think
inflation is sort of invisible most
people don't account for it until you
get into a higher inflationary
environment and so they think of their
money as being flat and Truth their
money is actually declining and buying
power because of inflation but they
think of it as flat at least I always
have so I think of my money as flat
people think of their money as flat so
if I want a KitKat bar today I'm just
going to give you money for it and I'm
going to eat the KitKat but if I think
this is like the the joke that people
make about the guy that bought a pizza
for you know 20 Bitcoin or whatever it's
like bro that's 67 million dollars you
know or whatever at the height and so
what a fool you were that is when your
money is depreciating instead of
inflating or deflating excuse me instead
of inflating
so you've got this
trick that happens psychologically when
the banks put money into the system you
feel like your money is going to be
worth the same tomorrow that it is today
and so you don't have a problem spending
it does that seem crazy to you
no so
it's all about this marginal propensity
to consume or to save or whatever and
that's your expected future value of
money
the reason there's not a lot of velocity
of money in Bitcoin there's a lot of
hodlers
is that the general view is
well I'm going to be better off if I
just hold it
right which is why nobody's going to use
Bitcoin as a transaction layer apart
from lightning because it's just the
blockchain rails
but why would you
because nobody wants to be the Bitcoin
pizza guy
so you don't
so it's actually kind of deflationary in
that respect
and
all of this is a game
it's a game of
who are the other competitors in this
game who the
the rules as you would call them right
okay we've got the central banks they
want to do one thing to us we've got the
asset prices and they can do another
thing based on whatever's going on there
you know if you're investing Commodities
or equities or whatever
and I need to navigate that to get to
where I want to get to
and I have this base assumption that my
cash is going to be flat
so I put 10 grand in a bank I'm assuming
my 10 grand is worth 10 grand we know
it's not but in a one-year time Horizon
but we care if it's worth
take two percent less because we don't
notice that
so then we're looking at the other
levers and saying okay what is going to
deliver what Tom wants which is I want
my money to offset
debasement not inflation because
crypto's done a terrible job of that
as has everything including gold I mean
virtually nothing offset this inflation
we've just had
so that kind of took us all by surprise
but the debasement well I just divide
all of these assets by the FED balance
sheet
that's really interesting the s p kind
of goes nowhere
it kind of it's right at the bottom now
since 2008.
so as they started using the FED balance
sheet debasing the currency the stock
market has just accounted for that the
FED balance has been doing that the
stock market's done that but actually
they've nested each other out you
haven't got any richer
um gold Trails you've actually got
poorer versus the FED balance sheet so
the big
gold narrative failed I don't know
because probably because of crypto so I
people just had a less marginal
propensity to use it in a digital age
gold is not actually that useful
the NASDAQ did actually pretty well we
still got back up to 2008 levels or 2007
levels
but it's been going up why technology
technology is a secular Trend the S P
500 does not have a secular Trend behind
it
so and then when you put crypto crypto
is the only thing that's really
outperformed because what you've got
there is you've got technology
and this kind of whole network adoption
model
and it works really well for the
basement of assets because it's scarce
technology companies aren't scarce
really you can just keep building them
but you can't do it here
so it works phenomenally well so you're
taking the bet that future Tom
wants to not have screwed up
and therefore future Tom wants to choose
the asset that he thinks best represents
a set of risks that he sees that being
played at the table in the game
and that risk to you is debasement of
currency which I think is probably the
larger risk
um and therefore
Bitcoin or crypto
is the best bet to take
but it depends what what future you is
depending who's watching this and what
they need
because some people want to protect some
people want to grow
some people want to you know there's
different motivations but generates
protect what you've got so you can
maintain your level of yours who you are
because nobody wants to ratchet down
the reality or their expectations of
themselves there is psychology again so
velocity of money this is a very
interesting concept and I hope everybody
takes me as you would take somebody who
is learning something every time I get a
new piece of this puzzle it does feel
like the emotional ups and downs are
easier to deal with I won't say that I
feel that I'm better at predicting and I
do want to talk
at some point before we go about looking
forward to 18 months and what that looks
like but first I want to contend with
this idea of velocity of money so the
rate at which money moves seems to be
the thing that the FED is trying to
influence because they understand the
psychology so Roaring 20s if I had to
guess high velocity of money uh 1930s I
know because you said earlier that a
depression is when the money stops
moving so depression low velocity of
money
I think it was Jerome Powell that said
recently I want to keep cranking up
rates because it will slow the economy
yes and if I go too far and I break a
bone that's okay because I have tools
that I know how to use to fix a broken
bone but I don't have tools facing your
currency exactly so but this goes back
to the velocity of money and so
okay I'm I'm put putting this all in
context of a guy who has a a meaningful
not a scary but a meaningful part of my
net worth in Bitcoin
because I believe in The Narrative of it
will hold value over space and time
there's an interesting note there to be
made about did Bitcoin just inflate gold
which is an utterly fascinating thought
and that 50 years from now will there
still be gold and Bitcoin anyway so I I
believe in Bitcoin I believe in its
ability to hold that but I also have
this feeling especially now sitting in
the soup of uh all this madness has
happened in crypto with fraud yes it
happens everywhere cool but my punch
line is that regulation I'm always
tempted by the libertarian notion of
just like don't tread on me let me do my
thing then I'm like uh humans like
they'll find the edges there are
psychopaths among us even if SBF didn't
mean to be a uh just absolutely ruinous
psychopath like that's what ended up
happening and I can only imagine the the
human Agony expense of nine whatever
billion dollars that ends up getting
lost like whoa that just absolutely
devastating
okay so sitting in that soup I find
myself going
I'm actually okay with a certain amount
of government I pay a lot of taxes I do
have a breaking point where I start to
get really annoyed and feel like it's
being overstepped and misused let me try
to put all the context on the table here
but I don't feel like just that no
regulation is the right answer we need
some regulation to all of this to keep
people from going crazy but God is it my
ignorance that's telling me that the
central banks may not be the worst thing
ever oh I know how people that know more
than me are going to have a seizure but
I can't help but think
given that this is a game of psychology
given how easy it is to sort of nudge
humans in a direction that they could
clamp down on their money be too
paranoid to spend it and that it isn't
necessarily a bad thing that we do have
this tool to nudge it now conspiracies
the beasts from Jekyll Island like I
understand all of it and so it's like
it's all sort of bad
but
on balance
I come down on I don't know the system
seems reasonably functional how
crazy does that sound from your far more
knowledgeable perspective so there's a
few things first velocity of money
is as you say but it's a demographic
phenomena so velocity of money has been
super low since 2000 so not influenced
by the FED no
interesting whoa okay shocking you're
you're not making my worldview around
they have not been able to
interesting because
psychology
who is hoarding money
Baby Boomers the same people who cause
the inflation are causing the deflation
or disinflationary trend
because they're hoarding money because
they're now 75 years old and all you
want to do is make sure you don't die
destitute at 85 or 90 right imagine if
you're homeless at 85 right so you are
driven by one of the strongest
psychological factors you have is I
cannot get any worse than I am today
right so you're a hard stop
so you won't spend so the baby booms
have stopped velocity of money
and I've proven this with charts over
time that that's what's causing it
that's why we've got this
disinflationary trend in the world even
though we we're in a temporary
inflationary Trend and it's been that
that the FED of debased currency to try
and offset
the Baby Boomers have and I did this
whole long two and a half hour thing
that people should watch on the real
Vision YouTube channel with Robert
Breedlove about why we got here it's a
very long two and a half hour video and
I can't tell you how important it is
but the Baby Boomers with the debasement
of currency over time found that their
income didn't go up
but the assets did because there was too
many of them competing for these assets
just before the basement and so they
borrowed money to fund the gap
when we started the big debt though it
was all driven by this demographic so
yeah go and check out that video it's I
think it's pinned the our YouTube
channel that that that's a big issue
here it's a bigger issue with this
demographic game because that's one of
the rules of the game that you can't
change so what happens over the next 15
years as Boomers start dying they will
get firstly more
propensity to not spend
so when my dad retired
dad used to quite like spending money
you know he he was reasonably you know
he was a middle class reasonably did
reasonably well not phenomenally well
and what happened the moment he retired
he's like [ __ ] this is a fixed sum of
money
I don't know how I'm wrong I'm gonna
live for and my wife's probably gonna
outlive me
so his spending pattern probably in two
years fell 65 percent well
you know he was the guy who died
champagne he'd go out for dinner with
friends buy a bottle of champagne
whatever blah blah
you know by the time he hit 70
6.
he'd be on the
five euro special at the supermarket
because he just didn't want to not run
out of money the worst thing for him is
a him to die which he did and leave my
mum with no money
because then his whole sense of self is
tied up so anyway so it's really
strongly driven
by these kind of things so I think as
they get older it actually gets worse
but they are going to die so we've got
I'm gonna guess 15-ish years and then
they start dropping like flies that's
right and that's so then we've got the
other issue right which is depopulation
of the world right that's coming at
scale
but this gets offset by technology
so if you look at Amazon warehouses
Amazon is employing robots at a faster
rate than humans and the robots there's
now half a million of them and one and a
half million people work for Amazon
but the robots work three times as many
hours and are probably twice as
productive
so and they never have a holiday nothing
right
so that's going to happen at scale and
replace the Baby Boomers well what's
going to happen when the Baby Boomers
money floods into the system I mean
that's I heard some crazy number about
how much money Baby Boomers have locked
but they're gonna give that I mean
charity kids whatever but it's it's
gonna come in a pretty well I've heard
this story before there's one economy
that's LED everything that's Japan
the issue was is that people start
living longer the Japanese actually
passed on the wealth
to their retired kids
whoa
that was the problem
because if you had your if you lived to
90 and you had your kids at 20 the kids
are 70 by the time you die wow
and so they didn't get the wealth effect
of the pot change over in wealth now not
every economy is as long living
as Japanese and the Americans are 40
second longest livings inexcusable
um you know considering how much they
spend on health care as a percentage of
GDP and it's inexcusable what happens in
the US but I just can't eat like that
I'll just say it yeah you can't eat like
that and you can't have the drug
companies involved as far as they are
um so I don't know if there's a big wall
of money coming Tom that's something and
more scary and I think people's jobs get
replaced by technology but
I think there is a productivity boom
which we've not had for a long time
because of this retired population and
debt I think this what I call the
exponential age this rise of
Technologies may give us more wealth per
GDP
so it'll manifest itself in ways that we
don't know now it doesn't matter if it's
stuck right because as long as it's in a
pension fund that's investing in VC
that's driving technology it's okay
I mean the worst thing to happen is for
you spend it on bags of chips and
cans of drink because then you're
creating food inflation
what you actually want is it to create
GDP growth
so by Pension funds lending it or giving
it investing in companies
VC companies you're fueling
new technology New Wealth new GDP okay
so that brings me back to uh velocity of
capital people putting funds into the
market
if you could snap your fingers and make
central banks go away would you probably
not I'm kind of like you I'm actually
quite Centrist in most things I can see
the absurdities of of everything
but given the basket of stuff I asked
many people who were like I hate the fed
I'm like okay
2008 what would you have done well I
wouldn't have got there in the first
place I'm like okay but they did and how
do you get there in the first place well
and again watch that video with with
Breedlove I'm like
well that was a factor of
um
of
globalization would you have stopped
that and foreseen the outcome of that
and then that was a function of the Baby
Boomers in World War II and there's so
many factors it's like no they're doing
the best that they can
now nobody wants the debasement of
currency
but if you don't what is the outcome
that's why I ask people
if you don't buy the debt
if you allow the collateral of the
system
because the US is the most inductive
economy in the history of the world as a
percent of world GDP whoa it's over a
hundred percent of world's GDP and debt
that's a lot and that's not just that's
the country the people the corporations
right it's the whole lot the total debt
so what do you want to do
what do you want to do do you want to
let all of that collateral go to zero
the whole system Burns to the ground and
a complete destruction of Lifestyle even
whether we're living in a fancy
lifestyle driven by a debt and other
stuff do you want to destroy all of that
I don't think you would I don't think
anybody would so in which case you knew
the central Banker to try and just
juggle the bloody Bulls in the air
and yes we get angry because it kind of
gets the rich gets richer because it
keeps driving those assets up and the
poor get poorer
so we have to focus somehow on that but
America doesn't like the idea of helping
poor people I think it seems to be
you're a communist it's ridiculous you
know why would you not have a welfare
state if you've destroyed the ability
for wages in real terms to rise over the
last 50 years they're not risen at all
so you need to think about this and this
is why technology people are thinking
about Universal basic income because
these same people in the workforce are
going to compete against robots they
have no chance zero chance
so there is a lot of structural issues
here and I don't think you can do this
without government
and I don't think you can do it without
central banks and I don't think central
banks they've made some mistakes some
big mistakes they made a mistake in 1997
which was cutting interest rates
to defend the stock market
The Leverage hadn't built as big by then
and we could have had a clearing event
and The Leverage wouldn't build up
that's what's happening in crypto right
The Leverage can't build up it just
cannot do it because it keeps getting
blown out why because there's no
counterpart but look at how vicious the
Cycles are so do you want the whole
economy to go through the crypto cycle
well you can do that that's not having a
central bank
there's so many trade-offs of Zeus as
you suggest so
I think for a generalized population
you would trade
smoothness and
some level acceptable level of
debasement or inflation whatever you're
looking at
some acceptable level
versus an economy that does this
and you can't you don't know when to
save or how to invest
because the world I don't even think we
would ever get there I think people
would Turtle up so fast you would just
be in protect mode uh man even just
looking at
so I as somebody who but this is going
to make us really hated this video Tom
by some because we're both saying the
same thing and people are gonna go how
dare you how do you get it doing I get
it and that's the thing I wanted people
to know like hey the beast from Jekyll
Island the conspiracy is like I they may
even all be true let's just assume for
now that they are true
all of it is still born out of the
nature of the human animal and there
having now been in uh
uh I'll say blockchain instead of crypto
because the part that I function in is
very much not a currency looking at that
and going hey I I'm totally down for
some rules I would just like to know
what those rules are I don't want to
have to guess at what the rules are and
then you come later and you're very
angry so I like
to just let's have what the rules are we
can debate the rules we can fight about
the rules all that but now we can move
forward in a far more reasonable way but
I don't think that things settle on
stability if you have the ability for
the more powerful that could be physical
could be intellectual like I I really
think Sam bankman freed
has a talent for being able and and it
could be just of this moment where that
sort of He's Got The Geek Chic look he's
I've never I haven't I actually haven't
even seen an interview with him but I
will assume that what I hear is correct
that he's a very smart guy
he's certainly able to convince people
that he's a smart guy so he understands
something about this that he was able to
leverage against other people and I
think that will always happen and what
governments are is basic and this is
going to sound terrible but governments
are
the weaker people saying well we're
going to get our asses handed to us
physically intellectually so let's come
together as a collective and as much as
like that can spiral into tyranny I'm
well aware that somebody who runs a
business in California let me tell you
how aware I am of that there is a
pathological side on that side but I
think there's a pathological side on
this side and if we're going to find a
real path forward I think people need to
understand the rules of the game
I think we have to
stabilize the rules of the game impact
Theory University one full year for only
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people and that's why I'm going to be
going live later this month to host a
workshop on exactly what you need to do
if you want to make any goal stick do
not miss it I'm going to add some
complications of this too please of
course so one of the arguments about the
FED that people have is they're not
elected officials
and therefore we should have a say how
much our currency gets to based or
whatever
but the crowd is not always very good at
making these decisions either
and brexit is a great example
brexit the unintended consequences have
been enormous
I don't know anything about it so what
have been the second and third order
consequences so
there was yeah all these Brits love to
go on holiday to Spain France Italy they
had all their holiday homes they got to
retire they wanted to spend you know six
months a year in one country
and now they're finding they're not
allowed to and they have to leave
and they're like what but we're British
how dare you and we're like no no you're
not part of the EU anymore you have no
rights you have no rights over the
Health Care System there and they're
like well this is not what we agreed to
at the Border in France
you can drive a car from France to Spain
to Italy to Austria do anything you want
you don't even go to passport control
Brits at the Border in huge long lines
getting in and have to produce all the
right papers they're like but we're
British how dare you like you've you've
voted out
so normally speaking
that should have been done not as a
referendum
it should have been done as a political
process and that was going on as a
process that takes years of debate and
discussion and voters can say we like
that party because they're against
leaving or for leaving and that's fine
but it gets debated properly over an
extended period of time what we did was
say you make decision instantly and I
was like what okay
completely not given the tools
and they screw up so do we want to give
the same tools to everybody with
interest rates
do they even know what drives the
economy now I don't think they're better
particularly good with that either
I think they do a terrible job on
forecasting the economy
and that's why you know fintuit gets so
angry with them is like it's bloody
obvious we're going into recession and
you won the battle on inflation
but you're going to keep fighting and
you're going to make it worse people and
then people are going to lose thei