Kind: captions
Language: en
the impact and the damage of the
lockdowns was much worse in Canada and
Australia and New Zealand because they
had strong centralized governments and
it was weaker in the U.S because we had
state governments if it wasn't for
Florida and Texas we might not have ever
reopened our economy
Michael Saylor welcome to the show yeah
thanks for having me Tom
dude I'm very excited to talk to you now
obviously things have changed
dramatically in the financial landscape
since we last spoke and I want to start
us off actually with something that you
said which is the world is going through
an unprecedented financial crisis the
greatest of our lifetime now I want to
know one why do you think crypto and
everything else has crashed and two is
there an opportunity in all of this
disruption for somebody to take
advantage of or not well uh if we look
at the past year
what you've got is a drawdown of all
Financial assets so the NASDAQ is down
about 22 percent over the past year and
so NASDAQ represents tech companies and
all the risk assets but on the other
hand if if you were to go and look at
like the bond
uh market and the bond portfolios
bonds are down like a b-o-n-d index the
long Bond index
it's down six almost 17 percent
in the year so for 30 or 40 years you
had the 60 40 Bond portfolio and the
idea ones were considered a safe space
the idea was if stocks work then uh then
bonds will be a low return and stocks
would be a high return but if stocks
trade down people will shift their money
to bonds and you'll you know the
interest rates will go down the bonds uh
prices will go up and you'll actually
get a yield on your bond portfolio
but of course that broke around uh March
of 2020 and the reason it broke in March
of 2020 is because interest rates got
pegged to zero so after we had lowered
interest rates from five percent five
and a half to five to four and a half to
four to three and a half to three to two
and a half to two to zero and left it at
zero then bought you know the debate was
can can they take interest rates
negative
if you can't take interest rates
negative then bonds don't act as a hedge
to stocks anymore I mean you're kind of
you're at the end of the road for bonds
and uh and what we saw with stocks is
the Federal Reserve printed a bunch of
money
pegged interest rates at zero and then
you saw all these risk assets explode
you know you saw the NASDAQ explode up
and the s p explode up you had a
k-shaped recovery
and in the k-shape recovery it's almost
like
the entire economy was in a train wreck
or in a car wreck and we got taken into
the hospital and they pumped Us full of
morphine you know and if you've ever
been in a bad accident and then first
you're in pain
and then they pump you full of
painkillers and then you actually feel
pretty good
and you're sitting there and your arm is
broken but you're high on morphine or
high on something you feel pretty good
about it and you're thinking why don't I
just go break my arm and do this all the
time and then at some point there's part
of your brain that says you know I'm
going to come home from the hospital and
I'm going to get off this painkiller and
I'm going to be in great pain for the
next three months or six months or
whatever it is so
I think what happened here is the the
FED just pumped tons and tons of
liquidity and we stayed high for about a
year year and a half
and uh I remember when uh when Jerome
Powell said
I'm not even thinking about thinking
about raising interest rates
and the input and said strongly that
it'll be till 2024 before interest rates
start coming up again
but here we are in 2022
and now instead of uh raising them a
quarter point you know each time now
they're raising them 75 basis points so
they're taking three steps at a time
multiple times so we took the cost of
money down faster than any time in
history and now we're jacking up the
cost of money faster than any time in
history
and the result is um
that all the traditional models are
broken
let me uh let me give you a uh a
two-year uh post-mortem
um
since we started uh dealing with this
issue
microstrategy had we had uh we had a 500
million dollars of cash
and we saw interest rates at zero
and we saw the stock market inflated in
the summer of 2020. and we said well
what are we going to invest in and we
looked around at everything should I buy
gold should I buy land should I buy art
should I buy some crypto asset and
what's going to happen next
so what we did is we decided to buy
Bitcoin and we bought 250 million
dollars of Bitcoin August 10th 2020.
and then uh September around September
10th or so of 2020 we bought another 100
uh
75 million dollars of Bitcoin or
something like that
and then we started buying Bitcoin more
in December and we we kept buying
Bitcoin we ended up buying nearly four
billion dollars 3.97 billion dollars of
Bitcoin over that time period so uh so
in terms of like our strategy
microstrategies just bought as much
Bitcoin as we get our hands on since
August 10th of 2020. and in that time
period stocks gyrated North they gyrated
South uh you know currencies have
changed so let me tell you what's
happened
microstrategy stock
our stock is up 93 94 since that day
well
Bitcoin is Up 77 since that day
the s p index is up about 18 percent
the NASDAQ index is up seven and a half
percent
gold is down 16 percent
the bond market if you just bought bonds
they're down 18 percent bonds are down
80 and silver if you think silver was
better than gold
it's down 32 percent
now if you go on and say okay well fine
let's just buy big Tech
if you had bought uh the the greatest of
the big tech companies is Google
Google is up 41 apple is up 39
Microsoft's up 22 you might have won
those were all better investments in the
s p
much better than NASDAQ much better than
gold not as good as Bitcoin not as good
as microstrategy
but
if you bought Amazon you're down 18 that
was overvalued in the summer of 2020.
like you know a bunch of 20-somethings
were just buying Amazon because they
thought well we're all ordering Amazon
stuff so it must be good
well uh when you buy something that
everybody else understands to be good at
the same time they all agree with you is
normally bad yeah Facebook is down 41
since then
Netflix is down 54 since then so half
the big Tech got shellacked the other
half did pretty good
and now last Point what if you bought
enterprise software we compete against
uh companies 100 times as big as us
Oracle sap
Microsoft
um it Oracle is up 39 IBM's up six
percent sales force is down nearly 20
sap is down 45 percent
so
summary for us microstrategy strategy
wise buy as much Bitcoin as you can and
buy it with equity and debt we borrowed
money we borrowed 2.2 billion dollars at
a blended interest rate of like two
percent or one point eight percent so we
borrowed cheap money while money was
cheap and we bought Bitcoin now people
are saying that's stupid because Bitcoin
was trading up and then it traded down
at the end of the day if your time
Horizon is a decade or longer if you can
borrow if you can borrow the money for
longer than five or six years and you
can hold it through the volatility
then uh raising cheap money
grabbing billions of dollars at low
interest and then investing in a scarce
desirable asset that's got sort of a
technology appeal and holding it for a
long period of time that's going to be a
good strategy that's why our stock is
outperforming Bitcoin that's why that's
why we're out performing all the
enterprise software companies all the
big tech companies and the reason
bitcoin's outperforming all the other
asset classes
is because it's scarce it's desirable
it's technical
you know no one's going to write a piece
of software to make gold better you're
not going to put gold on a billion
iPhones whereas lightning is a protocol
that's been rolling out lately uh you
know square cash app or blocked cash app
put lightning right into Kasha
it means that you can send a hundred
dollars a Bitcoin to anybody in the
world on a Saturday afternoon for less
than a penny instantly peer-to-peer and
so I'll get to that though I want to I
want to make sure that we humanize this
for people that aren't as familiar with
a lot of this so one part of the appeal
of Bitcoin is also its volatility which
I've heard you speak about but I think
we have to build a few bricks before we
get to that
so I've been going on a journey myself
of really understanding and investing
and understanding what this all means
and so I get to play not play I really
am the sort of ignorant guy but smart
enough to figure it out that's been
going through this in real time with
people so I want to go back so the first
thing we do is we start lowering
interest rates now I want to understand
why they're doing that I have a thesis
let me know if this is actually accurate
the reason that they lower interest
rates is they're trying to Goose the
economy by making money cheaper so that
entrepreneurs and other people will go
and take that money or people that want
to build a house whatever they can get
cheap money they can do something that
creates activity in the economy so
whether you're buying Lumber to build a
house or you're you know taking on debt
to grow your business but you're doing
things is that accurate that's why
they're lowering the interest rate is to
try to get activity
so if you're trying to use monetary
policy
um to uh to counteract the negative
impact of fiscal and foreign policy and
domestic policy but what is the negative
impact is it people just pulling back
and not spending money it's going to be
important to to get where I think we
need to go it's going to be important to
understand why this stuff happens when a
government declares a war they basically
put public policy initiatives ahead of
the interest of the free market
right so if I declare a war I could just
draft every single every single adult in
the country put them in the military
send them off and if I lose the war
They're All Dead
right what's it do to the economy the
economy crashes
right what's it do the prices uh well
price of everything go up if you want to
create inflation you do it too a couple
of ways either you cut the supply
or you increase to cut the supply of the
product you want to buy or you increase
the supply of the money that's available
to buy it with
so if I uh if I make it illegal to
manufacture food
the price of food is going up okay
I don't even need to print more money
right I can create inflation uh just
ever in a war like in World War II we
have uh we have gas rationing you have
you have food coupons why because all
the gasoline gets shipped off to Europe
to put in tanks or to put in airplanes
or put in ships so when you have um when
you have policies that are declaring a
war on something
you divert resources so we had a war on
covid
we have a war on carbon and energy War
if I decide I don't want you to burn
coal or oil that I drive up the price of
energy if I decide I don't want you to
show up in your office I drive up the
price of uh production
if I if I decide that um
you know that uh
I want to fight uh this covid war and
I'm going to
going to change the way the economy
works if then I'm going to drive up the
cost of everything else so we've got
lots and lots of wars right you've got a
culture War you've got a war on office
work you've got a war on carbon you've
got a war in the Ukraine the war in the
Ukraine
has escalated right it's not just a war
in the UK and it's really a kind of a
quasi-economic war on Russia so when we
actually imparted Russian sanctions we
cut the amount of uh of
gasoline or or the amount of fuel
available in energy we drive up the
price of energy
so every single time you actually put a
a public policy in place you create
inflation
policy is inflationary the more policy
you have the more inflation you have I
think this is going to be one of the key
elements that uh people need to
understand so centralized control I
think is a core part of the thesis as to
why things are breaking so you have
governments coming in top down this is
going to be the way that it is and I've
heard you say it and I would agree with
this very much
let's assume that they're coming in with
good intentions but despite their good
intentions they're creating all kinds of
problems there's actually a do you know
Thomas Seoul
I don't oh my God I think you would
really resonate with him he's an
economist so you might discount him a
little bit for that but he uh says the
last 30 years have been marked by
trading what worked with what sounds
good
and I think that we're to your point
about wars let's take the one on energy
so we've got people doing a green War
great intentions they really believe in
that they want to save the planet but it
in trying to help the patient they are
putting forward measures that do feel
very warlike that are closing off a lot
of doors that are making energy more
expensive that are going to
disproportionately impact the poor not
just here in the U.S but around the
world and so that that top-down control
I know better I know what to do with
this knob instead of letting it evolve
or happen in the free market we're going
to prescribe behavior and that now I
would say and I'd love to know if you
agree is
if not the biggest certainly one of the
biggest contributors to what's happening
to the economy
yeah good the road to hell is paved in
good intent right people uh people uh
get into positions of power
and they want to do good
and so they do good by issuing edicts
executive orders policies regulations
and they think that the regulations will
make things better they believe that
that you know if you if you enter into
government and politics you believe the
political process is a way to make the
world better
so what you have is political
organizations centralized organizations
getting progressively more powerful
and as they get more powerful people do
things
right and I think if you roll the clock
back to Ronald Reagan he would say you
know government's the problem
government's not the solution
so
let's take nuclear energy
right the the cleanest form of energy is
nuclear energy it's it's the cleanest
probably the safest nobody died at Three
Mile Island uh you know we can't we
can't hardly trace a death from nuclear
energy in the U.S and yet we haven't
built a nuclear power plant since the
creation of the nuclear Regulatory
Commission
50 years ago and in Germany they shut
all theirs down
right and in Japan human psychology a
play like this feels another key piece
to the puzzle here as we look at why the
collapse how this happens how we get
back out feels like in is humans react
in a very emotional way to what happens
so it has yeah exactly and Euphoria so
you get these two competing things that
set something up weird so this is the
first cycle that I've lived through
where I was paying attention like uh
somebody interested in the financial
World till then I was just an
entrepreneur and just totally focused on
that and so I watched the Euphoria grow
in crypto and it was like exciting and
thrilling and it was so fun but
there were people like I had heard you
say a gazillion times guys you have to
be thinking in at least four-year
increments and any thinking less than
that is you're you're gonna get tricked
by the volatility and despite the fact
that you and many other people were
saying similar things the second the
price starts dropping people panic the
price starts dropping more people get
liquidated because they were in way over
their heads and now it's the sense of
Despair and it's never coming back and
it's over forever and so there's like
this this schizophrenic bipolar maybe is
a better way to think of it attitude of
like we're up and we could never lose
and I don't need to plan for a down
scenario we're down it will never be up
again and
how much of that do you think
exacerbates the problem if you're an
entrepreneur or you're an investor you
have to have a 10-year time Horizon and
not nothing great is accomplished
without a decade if you look at
Microsoft
the companies founded in the mid 70s a
decade later in their mid 80s you know
if you're not willing to hold Microsoft
stock for a decade you probably didn't
get to the point where they came Paul
White so a decade's a short period of
time for someone who's an industrialist
or or an investor I mean Warren Buffett
still owns Coca-Cola stock and he must
have bought it 50 years ago right
so I you know I think that anybody you
know that's a billionaire right all all
of these names the Sergey brins the mark
zuckerbergs the Jeff Bezos the Elon
musks of the world they didn't get there
without without holding an asset that
had technical potential
for a decade or longer there's no get
rich quick scheme so I think that uh
people want uh they want a an easy route
uh if you're trying to if you're trying
to get a quick uh a quick win with no
volatility with no risk doesn't make
sense and if you're actually trying to
be
successful in a hurry with volatility
that probably still won't work either I
mean ultimately success comes from
taking a a decade-long view
right Andrew Mellon John D Rockefeller
Jeff Bezos right we forget like Tesla
was founded 20 years ago like people
think it's an overnight success but it's
not an overnight success
um and with regard to the um the macro
picture we live in an a time of
unprecedented public intervention in the
Affairs of the economy
right uh unprecedented we never had a
never in the history of the country did
you have a government that told you you
couldn't have Thanksgiving dinner with
your family because they didn't want
family members to sit too close to each
other
yeah we arrested a dude on a surfboard
in the middle of the Pacific Ocean for
for for basically paddle boarding in the
middle of Pacific because that was
deemed as unsafe right that kind of
stuff so we have an unprecedented amount
of encroachment we have we have
politicians overriding the free market
they tell you what kind of energy you
can use they tell you you know how how
you how far you have to sit from someone
they tell you whether it's safe to be
sitting in your office at a table next
to someone lots and lots of encroachment
each of these areas right war is the
suppression of the free market uh
to the uh to the benefit of the public
or the public organization right the
government is suppressing the free
market so if the government keeps
suppressing the free market everywhere
what you do is you [ __ ] production
right yeah that's why we have tariffs on
uh on Chinese Imports right that the
driver prices up or down drives them up
right
you have you have a war on uh on uh or a
labor War right if everybody unionizes
and if everybody's afraid to go to work
and if everybody's a if everybody thinks
that their life is threatened to stand
next to another human being right and
and uh if we're afraid to trade with
each other and if we're afraid to talk
with each other
right if you if you have Capital
controls wage controls price controls
export controls manufacturing controls
right as those things happen they have a
chilling effect on the economy so what
we have right now is on one hand you
have a supply side problem
right you're we're not producing as much
the the degree of not producing by the
way is misunderstood uh the currency
weakened by 20 in the year after covid
if the economy measured in nominal terms
is flat that meant that the overall
economic output decreased by 20 the
overall economic output decreased by 20
or more in the last two years people
wonder if we're in recession we've been
in recession since March of 2020 but
what we have is a situation where all
the metrics are distorted right for
example how many people would measure
the Economy based upon GDP output
measured in dollars most is that the
correct measure no
right because the dollar is not worth
what it was 24 months ago right what if
you look at it you have to measure it in
real terms or measure it in the uh the
actual output of goods and services for
example
how many airline miles got flown right
if Emirates Airlines grounded half their
Fleet and decommissioned it after covid
now they're up and running the part they
did in decommission how is it possible
that the error sector could possibly
recover to the point where it was in
January of 2020.
if you've actually mothballed or
decommissioned half the airplanes
right I could double the price of a
ticket
if I double the price of a ticket I can
tell you that the size of the airline
industry is the same as it was in
January 2020 right
I get a card there's no recession but
the fact is everything costs twice as
much there's half as much of it
right I changed the way that I measured
it what is up my friend Tom bilyu here
and I have a big question to ask you how
would you rate your level of personal
discipline on a scale of one to ten if
your answer is anything less than a ten
I've got something cool for you and let
me tell you right now discipline by its
very nature means compelling yourself to
do difficult things that are stressful
boring which is what kills most people
or possibly scary or even painful now
here is the thing achieving huge goals
and stretching to reach your potential
requires you to do those challenging
stressful things and to stick with them
even when it gets boring and it will get
boring building your levels of personal
discipline is not easy but let me tell
you it pays off in fact I will tell you
you're never going to achieve anything
meaningful unless you develop discipline
right I've just released a class from
Impact Theory university called how to
build Ironclad discipline that teaches
you the process of building yourself up
in this area so that you can push
yourself to do the hard things that
greatness is going to require of you
right click the link on the screen
register for this class right now and
let's get to work I will see see you
inside this Workshop from Impact Theory
University until then my friends be
legendary peace out
GDP measured in nominal terms is a gross
Distortion and then CPI is a gross
Distortion if I if I have a hundred
things that you want and I pick 10 of
them and I measure the increase in the
price of 10 and I ignore the price and
the other 90 I can show you a CPI is
eight percent right eight point three
percent is the number this morning but
the actual inflation rate is higher but
it's it's inflation on something
like it's inflation something you want
but I'm not going to choose to measure
for example you know the 30-year bond is
is traded up to
350 basis points and it was 180 right
mortgages have doubled so mortgages have
doubled housing prices are up 35 percent
and that means in you know in theory the
cost for you to actually buy a home is
going to be 50 60 percent higher year
over year but I don't choose to measure
it
because we don't actually calculate CPI
that way I take a survey and I ask you
whether or not you think you could raise
your rent by something and if the owner
equivalent rent is up three percent and
I say that the inflation is three or
five so we have a set of metrics that
are that are just
manufactured metrics
and then we focus on them and then we
talk about them
But ultimately what you have is an
economy that's distorted there are some
things we produce more of
and there's and there are some things we
produce less of
and we have flexibility with what we
choose to measure
the uh the monetary intervention is the
government basically
if I put everybody under home arrest for
a year
it's going to be a problem for the
economy right I mean if I shut down they
did it in New Zealand they did it in
Australia they did it in Canada they
kind of did it in certain states in the
U.S if I do that that cripples the
economy so
while I'm doing that
then if I go ahead and I pump a lot of
money in the system
right then maybe I I create a wealth
effect and I can say well you know we're
recovering but ultimately
you never recover from the fact that
nobody went to school for a year and no
nobody you know went to work for a year
right you can't You've Lost That forever
you're just not measuring it you you can
you can change your metrics
right there's this there's a saying you
write the
the winners write the history books
so the Romans remember the carthaginians
have been as being like evil
right if if we win the war then we write
out all of the good that our adversary
did and we write up all the good that we
did and we suppress all the bad that we
did because we won the war we write the
history boxing
and so I think right now what you're
what you see in the economy is lots of
distortion of numbers lots of distortion
of metrics
right the fact that we have a debate
over whether we are in a recession or
not is is kind of laughable right
because we've been in a recession for 24
months if you were measuring the
production of goods and services all you
got to do is look at the variety of
things that were available to you in
January of 2020 versus the variety of
things available to you today and the
delays
if you've got one-tenth the selection
and it takes three times as long to get
it and it costs 20 percent more
how are you not in a recession yeah this
is what really is
um I find unnerving as I go down the
road of trying to figure all this out
trying to figure out where the
opportunities are is I'm looking at what
feels like and again I want to to give
that it will be it's being done with
good intention but you have a changing
definition of what a recession is to
match a thing that seems designed very
explicitly to keep people calm and uh it
seems the same thing with the FED right
the reason that they said we're not even
thinking about thinking about taking up
breaks they just want to keep everybody
calm so we're told things not
necessarily because they will be the
most effective long term or at least
that the outcome is that they don't end
up being effective but they're looking
at the short-term impact of I want to
make sure that people stay calm and I'll
admit if they were like oh my God the
world is burning and everything is bad
like then people are going to act like
it's 10 times worse and so that's why I
feel like if I'm if I start putting the
pieces together there's really three
pieces that I think give us the
situation that we're in as you have said
people just don't understand money and
so you said half of the problems that we
face as a civilization have to do with
the fact that we do not understand money
that was pretty interesting and then
you've got this top-down control so
centralized decision making which is
destined to fail historically just
looking at it does not work and then the
third thing is human emotion and so you
put these things together in a cocktail
and you get the moment that we're living
through so you've got people freaking
out you've got other people know that
you're going to freak out so trying to
control everything trying to say hey I
can make better decisions than you I'm
going to tell you sort of white little
lies to get you where I need you I mean
I I think back to the mask statement
right in the beginning it's like they
don't work actually you need to wear
them all the time uh they didn't work
when they wanted to save them for
hospital employees and suddenly they
started working when there was enough
for all of us to wear them and so it's
like I get it again good intentions but
without sort of a pathological fear of
doing this top-down control
you get this issue and then compound the
fact even if people wanted to think
through the process for themselves they
don't understand it and so I feel like
I'm just barely beginning to understand
how money actually works and I think now
we should get into
[Music]
um Bitcoin as a thing that exemplifies
some very powerful principles that will
begin to help people understand so the
the first thing that I'm gonna say and I
say this knowing that you will correct
me if I'm incorrect but here is my
understanding of what makes Bitcoin so
interesting that money is basically your
financial energy put into a form that
can be carried across space and time
some forms allow you to carry across
space and time easily some not so much
but getting people just understand that
I go do a thing that is my physical
energy my physical labor my time my
actual like turning uh oxygen and food
into ATP and I'm actually able to put
that into a medium right it could be
gold it could be uh fiat currency or it
could be Bitcoin but just getting people
to understand holy [ __ ] like there's
actually a way for me to do a thing
receive a thing that allows me to carry
that energy across time and if if you'll
bear with me it's like fat so I can eat
a bunch of food and I can store it on my
body as fat but if I'm really smart I
will eat a bunch sort of my body's fat
and it will give a bunch away because
I'm too full I can't keep eating I will
give a bunch away and essentially store
fat on their bodies so the next time if
I don't get food they do get food so the
idea of being able to transfer useful
things across time and space
in unique ways is really important so
Bitcoin comes along as
certainly the newest entrant and maybe
the best entrant of things that allow
you to Sock away your time and energy
into that and carry it across time and
space
have I understood that correctly I think
that's well said I mean
fundamentally money is an energy system
to transfer energy over time and space
right that's the right way to think of
it uh fat is an organic battery
it's it's it's your way to transfer
organic energy if you put 20 or 30
pounds of fat on your body you can live
for 90 days
right and if you don't you don't eat you
die so
fat was developed over the course of
millions and you know 70 million a
million years and it's a pretty
wonderful invention when you think about
it it's it's it's the reason that we
didn't go extinct or the reason you're
not dead
um
the the challenge with money is uh the
Fiat currencies that are used
communities money they're all broken
they all have a big hole in them and uh
and the big hole is inflation period end
of story or is there something else
the whole is we could call it inflation
but inflation such a Charged term
because most people think inflation is
CPI uh the defect in Fiat currencies is
monetary inflation it's the expansion
and the money supply
not just the increase in consumer goods
because the CPI is a distorted it's a
submetric
right if if you look at the US dollar
the dollar is the supply of dollars has
been increasing seven percent a year for
90 years it's been increasing 15 to 20
percent a year for the past two years
right right so the the big I think
that's true so it seems worth walk us
through
how where do you get that number
well if you go back to 1930
my house in Miami Beach cost a hundred
thousand dollars and if you roll the
clock forward to
two thousand and 2012 it cost 14 million
dollars and today it would cost you 40
million dollars so
so it's 400 times more expensive
than it was
you know 90 92 years ago now if you back
solve that you'll find that that works
out to about a six percent or seven
percent annualized inflation rate
right and if you go and you look at any
kind of scarce desirable asset something
that's something that is uh you can't
make any more of you'll find typically
the increase in cost about seven percent
a year normally you can actually see uh
if you look at the market basket of
things people like want like really good
health care really good education uh you
know a beach house in the Hamptons uh
artwork picassos right that kind of
stuff
that doesn't go up in price one or two
percent a year that goes up in price
normally about seven percent a year and
uh if you look at the at the price of a
a basket of stocks
like the s p
the s p has gone up about 10 percent a
year Well the reason it's gone up ten
percent a year is because the money
supply expanded is seven percent a year
and then the underlying companies
probably grew two or three percent you
know effectively so
uh you can figure this out for yourself
if you just got start to go and take
samples of what stuff costs in 1971 what
it costs in 1930 what a cost in in the
year 1950 and what you'll see is that
for anything that's really desirable
like uh scarce energy that has energy
content it doesn't go up in price two
percent now the stuff that that uh
doesn't go up in price is expensive is
stuff that's highly manufactured with
low in low energy content High
information content so for example a
streaming video on YouTube
or something that could be Stamped Out
in quantity 100 million at a time
[Music]
boxed food right stop highly
manufactured stuff that has machines
generating it or even better
you know something that's got cheaper
right it cost a lot of money to listen
to Beethoven's Fifth Symphony if the
orchestra plays it in 1850
but it costs not that much to listen to
Beethoven's Fifth Symphony if you're
listening on your iPhone through your
airpods right so if I can strip the
material the matter and the energy out
of the product I can provide that to you
very cheaply so the information content
products got cheap but
Stakes right more expensive although
there's a slight benefit if you can
manufacture a hundred thousand cows and
I can use machines right then there
that's a deflationary thing one thing
you can't easily manufacture more of is
three acres of beachfront property in
the Hamptons
that's very difficult right and if you
look at the cost of a Palm Beach House
they're a hundred million dollars right
now
okay so a hundred million dollars for a
house on two acres or three acres in
Palm Beach now ask yourself the question
why isn't that getting cheaper that
thing's going up a lot
so
the problem coming back to money is is
um Fiat currencies aren't anchored in
energy uh when we were on the gold
standard theoretically during the gold
age 1870 to 1914 if a if a dollar uh was
convertible at a 20th ounce of gold
right and you really pegged it hard to
gold
then you're anchoring the currency
into a hard asset now gold isn't um
isn't um fixed in Supply the gold Supply
increases at two percent a year two to
three percent a year so if you're on the
gold standard that means that the supply
of money would be increasing at two
percent a year or an otherwise doubling
every 35 years
so so money under the gold standard
perfectly executed bleeds energy every
35 years it's got a half-life of 35
years but that creates stable prices Tom
because the economy grows at two to
three percent a year
so if the economy grows three percent a
year if the money loses three percent of
its value a year then everything kind of
stays stable right the demand increases
the supply increases right that's a good
situation in that case you can save your
money and 30 years from now your money
will be worth as much as it is today
now
if um if it turns out that you're saving
your money and the supply of money is
increasing at seven percent a year then
the money is cut in half every 10 years
right and so that means in 30 years uh
the amount of money you have will be cut
in half once twice three times
so you would you would have uh 12 and a
half percent of your wealth in 30 years
saving money under the Fiat standard uh
under uh under a seven percent regime
now seven percent was the about the rate
that the US was inflating the dollar
supply but in the developing World in
weaker countries uh you would see them
inflate the the money supply about
double that 14 so the half-life of their
money is five years the half-life of the
dollar is ten years most people don't
even notice 10 years is half-life except
that anecdotally
if you asked anybody in the past 20
years are you going to save your life
savings in a checking account that earns
one or two percent interest in dollars
they would tell you no I I know
intuitively the cost of a college
education is going to go up the cost of
a house is going to go up I can't just
save in dollars that generate zero
percent interest
so the so under the Fiat standard the
money supply is expanding from seven to
fourteen percent a year depending on
where you are until we got to covid and
in covid everything doubled and so you
started seeing a much more rapid
collapse in the value of fiat currency
the US dollar expanded the money supply
uh 15 to 20 percent a year and so in the
U.S we expanded the money supply maybe
40 percent and so U.S single family
homes went up in price 40 percent oh God
I think about the correlation the price
of a house is 40 higher than it was 24
months ago the amount of money in
dollars is 40 higher than 24 months ago
the number of houses are about the same
the number of people want them about the
same
makes sense
now if you go to other countries if you
look at uh currencies outside the US in
the past 12 months right the Chinese
currency is weakened seven percent
Australians down eight the euro is down
15 percent the wands down 15 the pounds
down 17 South African Rands down 18
polish a lot is down 18 and Japanese
Yen's down 24
in dollar terms what's happening
they're putting more money
right it's even a bigger issue for them
the Japanese
have pegged the 10-year interest rate at
25 basis points
and um the U.S 10-year interest rate
right is is uh more than 10x that
the Japanese Central Bank is printing
infinite yen in order to keep in order
to buy every Bond and keep the price of
bonds much much higher than they would
otherwise be so they're holding up the
price of bonds by pumping yen in the
economy and the reason as they do that
the Yen crashes against the dollar
but of course it's even crashing faster
against scarce desirable assets if you
price a barrel of oil in dollars it just
got 24 more expensive in Japan
because they want to hold up prop up
asset prices they want to Pro they have
institutions that are holding Bond
portfolios of Yen and the they have
institutions Holding stock portfolios
and if they stop printing in to hold up
the asset prices those those uh
portfolios of assets will crash
and if they crash than the inflationary
impact well if those portfolios of
assets crash then the banks or the
investors that hold them will be
technically insolvent and go bankrupt
if I'm a bank and I have 10 billion
dollars of assets and seven or eight
billion dollars in loans outstanding
then I look solvent but if those assets
are in sovereign debt and the sovereign
debt crashes by two or three billion I'm
technically insolvent it creates a
banking crisis or a financial crisis so
it gets worse than this right Tom that's
the good news those are strong countries
great
the bad news is like Sri Lanka Argentina
turkey now are those the same thing just
played out on a longer timeline
those are examples where the
government's printing even more money so
for example the cost and Turkish lira up
120 over 12 months
so the Turkish lira is crashing more
than 50 percent against the dollar the
Argentine peso is crashing in Sri Lanka
Sri Lanka crashed the entire economy and
the government how'd they do it well
first they uh they made it illegal to
use fertilizer to grow crops and they
kind of crushed the the farming business
then they um they printed too much money
under a modern monetary theory that they
could just print money so they crash
their currency then they couldn't afford
to buy fuel they couldn't buy energy or
gasoline so then they actually
regulated the use of gasoline by saying
that private citizens couldn't actually
buy gasoline
then the people rioted and they toppled
the government because if you're going
to starve me to death and freeze me to
death and then lock me
and and deprive me of my car right
you you're pretty much like ripped me
back to the Stone Age right you're gonna
freeze to death walk everywhere and
there's no food to eat
why because it got excessive government
intervention right the these ESG
policies that are totally irrational
so you can have irrational policies
let's go let's go into ESG because this
is actually super controversial yeah but
very interesting so for somebody that
doesn't know what an ESG policy is what
is ESG
it's when I decide that um the say
nuclear power is bad but solar power is
good but natural gas is bad
but
wind power is good when when you start
to decide and dictate how people will
generate energy
right and and or or when I decide you
can't use fertilizer in order to grow
food because also a green decision
yeah because fertilizers have phosphates
in them and they decide the phosphates
are bad for the water and so they didn't
want people to not use them
so as the as the government starts to
implement policies about how you will or
will not produce food how you will or
will not produce energy or heat
what happens is ultimately they drive up
the price of food
right if you don't use fertilizer then
your crop yields get cut in half
if your crop Gales get cut in half food
price doubles
if you're not allowed to use gasoline
and you have to use a you know electric
powered car
the cost of the car doubles
crop prices your food price doubles
again now it's 4X as much
if I if I double the money supply by
printing a bunch of money to give to
someone to pursue some aim that I agree
with
now the price doubles again so I've
increased the price of everything by a
factor of eight how dangerous do you
think this moment is for the U.S
it's pretty dangerous
we're the richest company a country in
the world though so the US the U.S
um has the world's Reserve currency so
if you think about the way the economy
worked 24 months ago
um
the uh the the countries like China or
sorry countries like Russia and the like
export a a trillion dollars worth of raw
materials like uh energy and metals and
the like and in countries like China
export a trillion dollars worth of
products and services
and we pay for them by sending back two
trillion dollars worth of dollars
so what we do is we export 2 trillion
worth of inflation and they export 2
trillion worth of products and services
and energy
because we run the banking system of the
world right the banking Network plus the
US Dollars the world Reserve currency
really is I need to ask because I don't
understand so when we send them the two
trillion dollars we are creating that
money in order to make those purchases
yeah so we're not just taking money that
we've already saved
let's say there's 50 trillion dollars
circulating around the world and we just
print two trillion more
now there's 52 trillion we've inflated
uh We've inflated the currency Supply by
four percent we've devalued everything
by four percent and we've traded two
trillion dollars worth of US dollars for
two trillion dollars worth of coal or
oil
or products or iPhones or labor or
something
right and and that's the way it works
right and and the reason it works out
what what is the real export the US
provides Financial Economic Security
like for example if you live in Mexico
or you live in Argentina and you've got
a million dollars are you going to save
it in the peso you're going to save it
in
the dollar right
how are you going to save your money
if you um if you export uh a hundred
billion dollars of oil from the Middle
East and we give you back a hundred
billion dollars in dollars what are you
going to do with 100 billion dollars
you buy t-bills with it so you buy
sovereign debt
that yields two percent interest
and so now if you hold a hundred billion
dollars worth of sovereign debt now if I
double the money supply it's worth half
that much right so so in essence
if I'm increasing the the supply of
dollars by seven percent a year
and if you're holding a hundred billion
dollars of my debt then you're paying
seven billion dollars a year to hold the
debt so I'm charging you seven billion
dollars
for the privilege of giving you a bank
to put your 100 billion dollars in it's
a negative interest rate right
negative real yield
if you if you do it 10 years in a row I
take 70 billion dollars from you whoa
but the question is what else are you
going to do you're going to put in gold
if you have a billion dollars what are
you going to put it in well the Russians
put it in gold we just seized the gold
you're gonna buy yacht with it
how much we might take the yacht you're
going to buy land with it
whose land land in another country
I already own all the land in my own
country right so so
um
the U.S primary export is inflation
that's what we do and it's a good it's a
good situation right we're running the
banking system and we're printing more
money that our primary export is
monetary call it monetary technology in
the form of the US dollar it's the most
desired instrument and what we trade for
it is uh is we get energy
or we get products or services in return
for exporting the doll
right right now we're on this cusp
because
we're exporting too many dollars
and uh and that causes the collapse of
other countries currencies and when
their currencies collapse their
governments collapse so the U.S the U.S
won't collapse the the first countries
to collapse will be
Zimbabwe
Lebanon
Syria right Iraq Iran right not any
country not Iran but but Afghanistan
Iraq
South America all throughout
you know
they they're they're all being
destabilized Sri Lanka
so what you have is you have this
Rippling wave of destabilizations in the
developing world you have a weakening
in the developed world
as their currencies weaken they're going
to suffer from inflation if we have
inflation that's eight percent in the US
dollar
and if the Japanese
Yen weakens 24 against the US dollar in
one year and if the Japanese have to buy
oil priced in dollars what's their
inflation rate going to be
now right now
the government the official figures
they'll tell you it's low
but and uh you can do that as long as
you as long as you define the metric but
there's only so long you can do it at
the point where nobody can actually
afford to buy gasoline or buy energy and
their cars don't run
and they can't Heat their home
right then you can you can no longer uh
persuade the public that there is no
inflation problem then you have a
problem and now the question is how are
you going to deal with it
and of course there's how does the
government deal with it uh first they'll
persuade you that they won't count this
and then they won't include have you
ever heard the phrase a core inflation
doesn't include the highly volatile food
and energy
I haven't known but there's there's
actually an inflation measure core
inflation that does not include food and
energy so first I'll try to persuade you
not to actually pay attention to the
cost of food and energy
but uh at some point I'll accept it but
I will I will pick a different measure
of food and energy I'm not going to
measure the cost of a stake I'm going to
measure the cost of a soybean Burger
right I'm I'm going to measure the cost
of of manufactured you know agricultural
grain products that are cheaper I'm not
going to measure the cost of of some
organic vegetable that's more expensive
so you'll see a distortion of that and
then at some point
you see a normalization of behavior like
there's the old world economic Forum
mean you know you'll own nothing and
you'll be happy
it's like well I've decided that eating
meat is bad for me
like so first you can't afford it now
you now it's bad for you to eat it so
I'm not really upset that I can't afford
it because it was bad anyway or
um you know if you're a patriot you're
not going to actually cool your home
below 80 degrees in the summer and
you're not going to heat your house yeah
you remember during the energy crisis
you don't remember this in the 70s right
it was your patriotic duty to turn the
thermostat down in the winter and turn
the thermostat up in the summer so
this happens in Wars too right and a war
becomes your patriotic duty to do
without
right in a war in a war I I get it you
know obviously assuming that it's a
Justified War but I would like to go
back to this idea of
um the government basically not getting
you to look at the um well one I want to
tie this back to we started this because
we were talking about the the green
mandates having a knock-on effect that
people aren't paying attention to so you
put these Draconian rules in for energy
production the one that's always
confused me again is like a total
Outsider but uh not doing nuclear energy
just seems crazy so that we can get
energy self-sufficient that seems to tie
into this idea of a globalized economy
which I think we're seeing the risks of
that play out now certainly with Russia
and the Ukraine I think that it could
potentially play out uh just as
disruptively with China but so you've
got this belief in globalization so now
I uh I believe I can get my energy from
Russia or from wherever and so we're
going to be fine we don't need to do
these you know ultra high risk nuclear
things but you start so you start
putting in these is ESG what what's the
initials
environmental social and governance okay
so you've got the ESG rules uh forcing
people to do things a certain way which
don't necessarily have all the economic
consequences that we would like very
negative
okay now as inflation starts to happen
we've got the government saying well
don't look at food and electricity which
seemed like the two things you're going
to interface with constantly uh
how do we like what is the path out of
that like that seems really high risk in
terms of
negative impact on uh uh the the
individual person really beginning to to
struggle they're gonna start asking why
am I being asked to give up all this and
then if you don't have a really good
justification then they're gonna Rebel
which gives the government an incentive
to come up with a really good
justification which makes me nervous
well the problem is too much government
and uh and and the most dysfunctional
societies are the ones that have have
the strongest most pervasive governments
because they're the ones that can
actu