99. How Fiat Money Works with Preston Pysh

all right so like i said in the introduction i'm  here with seyfadina moose and uh today we are   going to be talking about his new book the fiat  standard which i have here amazing safety amazing   book just like the first one um this is my first  question for you uh these things are these take   a love of education writing i mean you are not  doing this for yourself because this is so much   work right when did you have the idea that you  had another book in you because i mean your first   one was in in my opinion was a smash hit success  um probably the biggest book in the entire space   uh with uh the bitcoin standard so when  did you realize what were you thinking uh   when you were like you know what i think i'm  gonna do another one what what was that moment um i mean to be fair uh like i always had the idea  that i just can't get wait to get started on the   second one um i always wanted it and in fact  i started with doing my textbook principles of   economics i started doing that one first because  i had had that idea for that book for a while   so like as soon as i saw the bitcoin stand out  and people were buying it i just really thought   yep this is what i should be doing this is so  much more enjoyable for me um than being part   of fiat academia and i should just do this full  time so i started immediately working on a course   in economics which i taught at my website and then  i made it into another uh book which is coming out   in a few months principles of economics the  textbook but yeah the idea for a follow-up   was um i also started writing initially for  subscribers at an early point um like in late 2018   so some of the writing in this book was first sent  out to subscribers in 2018 um late 2018 so right   after the standard had come out um i'd already  started you know answering questions that people   are asking about the bitcoin standard by writing  these essays that i was sending to subscribers   and that kind of formed the genesis of the book  and then um you know the main topic that i wanted   to discuss was just how can bitcoin rise in this  fiat world and what is fiat world going to do   about it how is fiat world going to react are we  gonna have hyperinflation or is it have to be ugly   does it maybe not have to be ugly these are were  the questions that kind of motivated me and then   what kind of brought all together was at baltic  honey badger in latvia a couple of years ago um   um giacomo zucco gave a talk on uh  still manning altcoin apologia so he   um went and explained made the case for  altcoins made the strongest case he could   make four altcoins and i think that's a  good way of approaching uh my next book   you know study the fiat standard um as if you  were writing the bitcoin standard basically   give it the same bitcoin standard treatment so if  you like the bitcoin standard um let's take the   same toolkit that we applied in that book take the  same you know uh capital equipment that we had to   try and understand bitcoin from scratch and  apply it to understanding fiat from scratch   and i thought this would be the best preparation  for answering the question of what happens in the   clash of bitcoin and fiat let's give fiat  its own kind of bitcoin standard treatment   think about it as an economic system as a software  system almost because ultimately it is software um   you know the vast majority of fiat is digital  fiat only a small percentage is in paper form   so it is a digital currency in a sense and  um you know let's try and describe the saw   the way that this software interacts  with the real world with the meat space   kind of like what i did with the bitcoin step  this is what i really liked about the book so   um the terminology was uh bitcoin like terminology  but it was easy for me to kind of really kind   of wrap my head around how this very complex  system works by thinking of it in those terms   so um you at the beginning of the  book you talk about there being four   functions of a fiat node and you call it a  node so um could you get into some of those   various four functions that the fiat node has  and kind of describe what you mean by fiat node yeah so i think you know drawing analogy  between the bitcoin network and fiat is a   very productive way of coming at it because  you know bitcoin contains all of the um   minimum viable products for a monetary system  because it's clearly worked for moving money   around and maintaining a monetary policy for more  than a decade now so if you need to run those   things bitcoin has the software infrastructure  that you need for it it has structure   to carry out these processes so you can make  analogy to it in other systems and that can help   you separate the essential functional aspect of  the fiat monetary system from the paraphernalia   and the propaganda uh so it's it's a very kind  of precise way of attacking the question of just   if this was bitcoin what would be a node  who would be a miner how does mining work   the these are really the main questions and if  you just try and answer these with relation to the   fiat network you can then uh understand i  think and decode a lot of the insanity you   see around you in fiat world i agree with you and  i like the the way that you describe the minor   in the book so tell people who the miner is  in this situation for the fiat system yeah   so most people imagine that fiat money is  printed and it's still in the terminology   most people still use the term but in reality  the majority of fiat money is digital and the   printing is not really the creation of  new money printing is a process where   you know after the money is created digitally a  small fraction of it is printed in physical form   it's kind of immaterial to look at the printing  where the mining of fiat really happens is in the   creation of debt because fiat money is basically  debt fiat money is debt that is guaranteed by   government these are the tokens of the fiat  network so anybody can mine a new token   for the fiat network by uh getting a lending  license from uh the central bank government uh   bastard entity that is the fiat note you know the  the central bank grant is granted the monopoly by   the government to be the only one that issues  money and in exchange the central bank buys   government bonds that's the kind of elaborate song  and that's how this node works so you end up with   really one full node in the system per country  but arguably there's only really one full node in   the entire world which is the federal reserve and  there are you know all the other kind of central   banks are um in a sense uh subordinate nodes to  the full node in bitcoin you could say that um   they're pretty full nodes there's only one full  node because you know that's the only entity that   can decide on how many tokens there are in the  system and it's the only entity that can annul   and control any particular transaction so your  entire country could be wiped off taken off the   fiat network if your entire country pisses off the  us federal reserve and it has happened um so you   know somebody in your government says something  stupid and then suddenly you and your 90 million   co-citizens are kicked off the fiat network it's  very different from bitcoin you can just run   your own bitcoin note that nobody can kick you  out um but with fiat it's really one full node   and it decides on monetary policy it decides on  what the transactions work and then we have um if   you look at the different kinds of subordinate  nodes so there's like the central banks but   then there's the private banks which are really  the mining nodes the private banks and the um   central bank guaranteed financial institutions all  the financial institutions that basically function   in the uh white economy um everything that's  legalized by the local central bank is essentially   guaranteed by the local central bank and so  it can issue credit and that's how they mine   money and so when you think about it this way  when you think about the proof of work as being   general finding somebody who's willing to take  on to take your money basically that's you know   in bitcoin you need to solve the proof of  work problem you need to apply all of that   uh machine power in order to  try and figure out the answer to   the correct uh the correct answer to the proof  of work problem in mining fiat you need to find   somebody to take your money and promise  to pay you back that's it if you do that   yes yeah if you do that you don't give them your  money you're just making new money that's the   amazing thing about it like this is how it works  once a bank finds a borrower for a million dollars   for a house they make a million dollars you know  they get the block reward which in this case is a   million dollars it's whatever the lender will take  basically you create that money out of thin air   now you know you have other assets in return  backing it you have collateral but that's   extremely getting thinner and thinner as a part  of the business operation that essentially all   these entities are doing is just lending out money  so that's really how the money is being created   and now you can see why there's a very  strong incentive for people to borrow   i think that's really what explains the debt  uh really the best way to understand the insane   amount of debt that happens in the monetary system  in the fiat world is to understand that mining   fiat happens through borrowing everyone is  always coming up with reasons to borrow and lend   so i love this point and when you were making  in the book i was like oh my god this is so   good because you're getting at the essence of the  incentive structure and when you're when you're   talking about that incentive for them to mine via  issuing more debt you you start to think okay so   as as a group collectively as everybody gets  indebted to their eyeballs like what's their   next play well their next play is they have to  start dropping rates or rates have to go down   in order for them to continue to issue even more  or mine more to put it into the system and so it's   like i'm thinking about this and i'm like holy  hell like everything's just going further out on   the risk curve right like it's just incentivizing  the entire system to go further and further in   debt further and further out under the risk curve  to employ newly issued currency into the system   it was just it was such a great um you lay it  out so clear in the book it was just amazing i i   was so impressed with it um one of the things that  you did uh probably about halfway through the book   you had mentioned um something that  really surprised you through writing this   um that you found uh fiat actually did serve  a purpose for one specific thing um and that's   prob that had a lot to do with how it kind  of rose to existence over the last 100 years   so um tell us what that is and then tell us if  there was anything else that you kind of uncovered   or surprised you uh through writing the book  yeah i mean i have to say i tried to give fiat as   fair a hearing as possible you know i tried to  imagine it that it was an altcoin and i'm trying   to be charitable for this altcoin in a sense i was  trying to think of if i was writing the fiat white   paper and trying to get to sell people on this  piece of malware what would be the selling points   and i think to be fair you know the the  main selling point is saleability across   space and this is kind of the thing that  um complements the analysis of the bitcoin   standard and the bitcoin center they're focused on  sellability across time so how gold or fiat hold   their value across time and i came at that book  from the perspective of a gold bug movie who just   um would only see the massive injustice and fraud  that is involved in fiat currency which i think   is uh very true but i think kind of misses the  point that the reason that this was even possible   is because moving gold around was extremely  expensive now in in in the pre bitcoin era   this was something that us three bitcoiners  took for granted you know i speak as somebody   who was a gold bug uh pretty late into  life um it's it's it's something that's uh   it's very difficult to think about it being  the other way you know you're gonna have to be   moving money around anyway and so you might  as well move gold which is the most dense   and the most valuable and it it is impeccable  logic it makes a lot of sense but because it   is so expensive governments were able to just  basically shut this down and make it prohibitively   expensive on any kind of scale that allows for the  development of a monetary network like you can't   just run a bitcoin bank a gold bank and move money  across the world it doesn't really happen that way   um for various reasons and you know i didn't  get much into the history i tried to focus   on it in terms of you know just how it works um  and the reality is people can't get around that   it's very expensive to move your gold around it's  really expensive there's a limit on how much you   can carry with you on an airplane if you want to  send it with um couriers it's also very expensive   it's there's no banking clearance mechanism that  can function around gold and so moving gold around   was expensive and it was pretty expensive during  the end of the gold standard so you look at the   and the beginning of the book is a little bit  historical looking at the episode of the world war   one when the uk went off the gold standard you see  there that the you know they were moving gold to   the us in order to finance the war and they were  moving mountains and mountains of gold and it was   pretty darn expensive moving that gold around  is not an easy thing to pull off and on the   other hand once they kind of upgraded the entire  system to be based on the credit of the sovereign   that gold could move around much quicker so  in terms of being able to move value around   in the fiat system across space it is  faster than gold and that's i think   the kind of grudging thing that goldbugs need to  start to admit that their money loses the gold is   good at not losing value across time but fiat is  good at not losing back across space try and send   your gold bar gold boxes across the atlantic  you lose quite a bit of the their face value   which is uh which is a serious problem that  governments have shown that you know they can   make that happen it's been the case for over a  century it's it's it's entirely possible for them   so that really i think makes us understand the  benefit of fiat and then that sets up the kind of   interesting question about the framing of the  question about how fiat and bitcoin um will   interact because um it it kind of shapes the way  that we we view the the path that two of them take   because ultimately whether bitcoin is going to be  able to um resist the forces of fiat depends on   how gold-like it is in its centralization and its  ability to keep things moving around the world   and so we can look at the you know we can look  at the bar the gold set and we say that we can   say that that's not uh workable which is you had  to spend somewhere around half a percentage point   of the face value of your gold to send it across  the atlantic so bitcoin really has to kind of beat   that and i think it has a lot of headway and  room for growth without coming near that price   point because we can just move enormous amounts  of value on bitcoin already and it's very future   ready in terms of being able to move more and  more value particularly with all the scaling   solutions that you see developing all over and  all the financial infrastructure that's around it   so it i think you know thinking about it from this  perspective is what's important toward thinking   about bitcoin security against the fiat system so  one of the things that you wrote in the book that   i thought was i'm so glad that you put it in there  uh was this idea of inflation as a vector and this   is something that i know michael saylor and that's  who you attribute in the book to to the idea and   um i mean you can't find this anywhere in academia  anybody talking about inflation as a vector   vectors are too complicated for them you know  they're doing high-level physics math but   they don't like to think about cpi as a vector it  has to be a number talk to us about this idea so   people understand what that means and uh why it's  important to kind of economic calculation yeah so   you know giacomo zucco may have sparked the fire  for writing this book like he gave me the idea   of how to motivate it but the one that um applied  the finishing touches to it or the one really that   provided the glue that held the all together that  put put all of the puzzle pieces together on the   board was hearing michael say to talk about uh  inflation as a vector because that's something   that you know you can see all this money  printing happening at all the time all the time   and yet you know you have to get into arguments  with uh fiat people about the definition of the   cpi and you know how how dare you not trust  the experts and you know they're going to call   you a conspiracy theorist for not believing in  government statistics on uh price inflation and   i think you know the the the so many ways in which  you understand that the cpi is wrong and you know   i list them in the book and i discuss just how  ridiculous the whole concept is but i think um   the the the way of expressing it that michael  provided which is the idea to think about it   in terms of it as being as a vector and then  think about the different kinds of goods and   the differences between the goods and how  they react in that way and so you see that   with digital goods inflation price inflation if  you want to buy it as such if you want to say   price inflation the changes in prices with digital  goods is maybe negative 10 20 maybe 50 per year   you know things just keep getting cheaper  your google storage goes up uh the speed of   your connection goes up and all this stuff just  getting cheaper for the same amount of dollars   that you're paying you're getting better quality  and all of that stuff and of course that stuff is   included heavily in the cpi calculations you know  if you're if your laptop got faster the central   bank needs to print more money to make up for  the deflationary damage that your laptop is doing   so when you're when you're putting it all into an  into one number you're throwing in first you know   you have your computer's uh processing power  and then we also have you know the industrial   cheap trinkets that are produced at very mass  scale you know cheap plastic thing for which   really the vast majority of the cost is just  divided over many large number of goods so   the price there is kind of immaterial  it's very small and there's very little   inflation on it because these things can just  be cranked up you know when there's inflation   people want to spend more because you know people  don't want to hold on to cash so they start buying   more stupid plastic trinkets and these things um  demand increases for them but you know the stupid   plastic trinket printer just goes bur it's very  easy to get it to go to bur basically and to fight   the inflation that happens on it they do have the  equivalent of the central bankers monetary policy   and the people who run these plastic factories  just ramp ramp them up on weekends and they can   meet your increased monetary availability with  more plastic drink that you don't need but uh then   you look at food and you see with food and you see  the same kind of uh idea with the cheap industrial   food it's easy to crank it up at volumes and  so you witness lower inflation there but with   um a nutritious food it becomes more and more  complicated and if you wanted to get good quality   nutritious food you know if you wanted the kind of  good quality eggs that most americans could expect   in the 60s and 70s just as par for the  course if you wanted today you have to pay   a lot extra the price of these things has gone up  much more than just inflation and so and then you   see like there is the um because these things are  much harder to um industrialize you know there's   still the element of the cow that needs to spend  a lot of time out there grazing and eating and uh   getting sunshine you can't make easy shortcuts  around it like you can with processed food   then you get to the highly desirable goods you  know like miami beach real estate now look at the   inflation rate on that and when you think about  it this way you see that yeah like the cpi is   low if you choose to focus your consumption on  digital goods and on cheap plastic trinkets and   industrial food and not coincidentally  you so you also see a lot of um government   science that recommends that you head in that  direction you don't need to consume as a recession   and of course you need to have your  junk food in balanced moderation   and uh you need to just always be  spending to keep the economy going um so so this is the part of the book that i was  just like oh so this is how it works when you got   into the academia part so i've just looked at the  whole journaling piece and the the funding and and   never really kind of pieced it together on  like how the the institutions the academic   institutions are really incentivized my god you  made it crystal clear in this book explain to   people just give people a little like idea of like  how that rube goldberg rube goldberg machine of um   funding flows into these academic institutions and  how they're incentivized to produce these journal   articles to get through this process with people  yeah and i speak from bitter experience you know i   was a victim of the academic fiat mill for pretty  much most of my life until i you know bitcoin set   me free um the bitcoin standard really set me free  uh so the way that it works i think is you again   you once you understand it from the perspective  of fiat it all kind of lights up because   fiat is you know the underlying technology behind  fiat academia it's what shapes the entire method   of interaction that happens and the key thing  here is what happens if we apply an infinite money   printer at the top of science and just open the  spigots of money printing and we see it happening   um in you know as i was saying earlier if you  think about it in terms of inflation as a vector   so let's leaving off of the um picking up where we  left off in the previous question you know there   is an enormous amount of motivation and incentive  for governments to try and emphasize on the cons   to emphasize the consumption of the goods that  are easy to make away from the goods that are   um quite price sensitive and um you can see how  this is reflected across the board in all kinds   of industries you can see it in the food industry  and we just have so many vivid examples of you   know the department of agriculture is out there  trying to make food cheap in the 1970s you know   i wonder why what might have happened in 1970 uh  to make all the 1970s about making food cheaper   and you know you look at how they did that and  the methods they did as well it was all about   industrialization because that was about bringing  the costs down so they sacrificed the nutrient   quality because of this and then of course  you have an enormous incentive for academia   to go along with this and so academia is just  churning out one piece of horrible diet advice   after the other for the past almost 50 years  now you know everything from the cholesterol   scare and the uh idea that you know you need  to eat six to ten rations of grain per day   and that industrial produced uh industrial waste  is good for you in moderation and that everything   is fine in moderation and that you know um you  know animal meat is all really not essential   and you should look to getting uh plant meats so  there's an enormous incentive for this and that's   where all the funding comes from like there's no  free market in academia and science and so ideas   don't live and die by their success on the free  market ideas live and die by their ability to   secure and generate funding so i use the  example of food which i think has become   all right people have been laughing at it for  three years but almost everybody has laughed at it   now to the point where it's become kind of  familiar and i think people are beginning to um   admit defeat on that one that yeah clearly there  is something wrong in the idea that we should tell   people to eat this poison and that they should  worry about cholesterol and so not eat fatty   meats and instead eat industrial waste yes clearly  there's something wrong here it clears a lot of   benefit from it to be made in the fiat world both  from companies that provide this but also from the   governments that want to understate inflation  but then apply the same framework for the rest   of academia and then the rest of academia starts  to make sense the the way it would work in a free   market you would imagine is that you know anybody  can publish whatever they want and then people who   are able to publish things and write things and  teach things that are well rewarded in the market   will get more customers and will be able to grow  and scale and they'll basically command the market   this is how it works in free markets but that's  not how academia works and if you look at academia   there's very little kind of innovation happening  about it i think you know one interesting   aspect to think about is that um you know  as it has gotten and michael saylor says   this and he's absolutely correct on it as it  has gotten cheaper to uh make education you   see like all these major universities they're  not making it they're not prioritizing scaling   and teaching more people they're prioritizing  remaining exclusive that's been the case   and therefore it's much more about the  credentials than it is about the education   but it goes far beyond that because the  majority of the money that they get that   these universities get are either are from the  fiat spigot basically from the fiat printers   and it either arrives in the form of  government research grants or in the form of   a credit for tuition for students studying in  your university so basically on both ends the   customer really is the government so on  both ends the government is politicizing   the way that fiat academia works because it  is paying the piper so it is calling the tune   so you then think about this and um you know if  if you look at modern academia like you i know   you study a lot of um investors and you're very  well informed about the literature on investment   just not just in the bitcoin world but also in  the uh trad five world um like how often do you   and people like you and general investors how  often do you look into academic journals never   absolutely never absolutely never and in fact  when i see them i i almost roll my eyes like   that's probably the last place i want  to look for like sound information   right because i mean just like the cap m model  is a perfect example in the finance space at   least for like doing economic calculation i'm  just i'm looking at this model and i'm saying   there's no way i would ever invest my money  with this model like this model so broke   right but you it but that's almost like the the  gold standard for anything that's going to get   published out of academia on how you'd conduct  a calculation is the volatility of these other   things compared to this thing and over this set  duration that you just plucked out of thin air   right it just doesn't make any sense yeah and i  think um you know the the experience is shared   across all kinds of different disciplines like  really i think if you're reading nutrition science   you're probably wasting your time a lot of that is  just such an enormous time waste and i think the   same is true in economics and finance and in all  kinds of different fields because the key thing   the key point i think is that in fiat academia  the there is no cost to getting things wrong   there is a cost to not publishing my  god you couldn't say that any better   that's what it comes down to you have to get  published and you don't have to be right it   doesn't matter what you write you just have to  get it past the editor so again there's no market   feedback there's nobody actually reading this  stuff and making real decisions on it and then   saying you know those guys helped me and those  guys didn't help me and then a market learning   process emerging from this it's just about really  getting up it's like getting it out of the door   it's like selling vegetables you know you need  to get this many pounds through the door every   every week it's like you're a pizza place  and you just have to hand out these pizzas   and you have to put these papers in these  journals and so if you look at these journals   this is this is how the thing works so the fiat  spigot comes from the top to the universities   and the fiat journals have basically captured  the system they're like the real parasites in   the system what they've done is they've managed to  suck on the hosts the hosts are the universities   and by having their people which are the  administrators in the universities taking   it over while the professors and nerds are just  basically busy trying to focus on their own topic   what the corporate fiat cancer has done and the  parasites have done in the system is that they   channeled the majority of the  money to these uh journals that   produce garbage that absolutely nobody in the  entire world reads except people looking into   getting into that into writing more in  writing more articles for more journals   exactly and it's either you know the people who  want to become the parasites in the system or   the people who are volunteering to be the uh you  know the prey in the system they're volunteering   to be the host like yeah where do i sign off so  that i could spend my life writing papers so that   um you know all these journals would make money  on my behalf they make obscene amounts of money   and it is all in copyright and um um you know in  publishing for this um it's all in the copyright   so it's not even accessible so they get the  funding the money they get from universities that   are getting the funding from governments but still  they don't share their work because you know and i   think they do that as a favor for the professors  because if more people could get behind those   journals and read the kind of nonsense that's  in them um there'd be a massive problem for the   uh reputation of the uh academic mafia but so they  do it they hide these and they charge they charge   exorbitant amounts of money to sell them but they  don't care about the retail market of you and me   signing up one day to buy a 30 article the  point there is to deter people and then force   the universities to pay enormous amounts of money  for these journals so it's it's so perverse they   get the university professors to do this work  for free so all the university professors you   know in order to get ahead in your job and you  know i'm extremely grateful that i was extremely   slacking in my job because i did very little of  that while i was learning about bitcoin but they   get you to write journals articles you don't get  paid for publishing in them and they need you to   referee the journals and review the readings  and edit the journals so they have an enormous   number of academics who are just their slaves  who are working there and then the academics   produce the journal and then the universe and  then those publishers will sell the universities   the same universities where the same academics  worked they will sell them to join a subscription   for obscene amounts of money and that's basically  how the academic market works and that's why you   can't take academic publications seriously they're  not produced with because their content matters   they're produced to be grammatically correct  politically correct and then to just get volumes   of paper down the line and now it's almost all  digital but still like you know uh when i was   um considering applying promotion as an academic  like they give you a list of journals and there's   an enormous number of journals out there it's it's  it's beyond your imagination like it's it's it's   it's incredible how many journals there  are in the broad in every single field   and they're just churning out articles that are  being read by the academics for the academics   and uh well they just go into a repository right  that are then searched for the next journal that's   being written and since those are the only  creditable sources that can be used by any   academic writing it goes into this repository that  just like turns into this giant self-looking ice   cream cone that yes clicks itself right like it's  yes they're they're providing absolutely no value   to the outside world they're churning out this  relevant nonsense and they're miseducating people   by just teaching them basic propaganda in in most  topics but also like the incentive in order to   publish i think it gets even more perverse is the  idea that it is all nonsense but there is i think   it's more perverse than that because it's worse  than just nonsense there's also a very strong   incentive for it to be always driven towards panic  and scare and hysteria because that's how you get   published you can't get published and you can't  get you know paper buckets through the door of   these journal um subscribing universities without  creating important issues that require more money   for research so if you come along and you say well  i've looked into this thing seems fine to me well   that's the end of your academic career more or  less whereas if you look into anything and you   realize oh my god this is an existential threat  that's going to ruin the world as we know it   you're more likely to get more research funding  there's no market test you're not punished for   being wrong hey safe so in your book you get into  uh shadow banking this is this is a term that   i know i hear all the time uh being thrown thrown  around help us understand what it what the term   means and then tell us kind of where it fits  into the overall process the whole fiat process   yeah so i think the key thing here is that um  traditionally the way that banks created money   was through lending and that didn't happen  you know you go to your deposit bank you'd   take a personal loan from your deposit bank  and then they create money and today that kind   of still happens but that's responsible for  very little money compared to what's going on   in non-fdic insured banking sector so i think  the distinction here is that the fdic insured   the institutions are the regular banking system  and then everything that's doing banking outside   of the fdic is kind of the shadow bank and it's  an interesting kind of negative term even though   the industry is enormous and it's a very large  number of people who are doing this business today   but it is kind of a shadow of banking system  because it's doing banking without an fdic license   so and i think this is basically uh this  is where the money creation is happening   this is where all the fun finance stuff is  happening you know like your local regional bank   is out of the fun fiat games they barely create  any money they compare to the amount of money   that's being produced by large financial  institutions in the shadow banking system   so i think um this is uh you know fiat  initially the first problem with fiat with the   implementation of the fiat standard was the fact  that banks failed and so then then fixed that with   fdic insurance but then they took um fractional  reserve banking outside of the fdic short institutions gradually and slowly and so now  that's where all the real banking is happening   in the shadow banking system uh one of the one of the other terms that  i think people hear all the time they know   the organization is there but they might not  necessarily fully understand how it functions   along with this fiat system is the imf so  help people understand why the imf exists   um what it does and what its role  is in the overall uh global economy   yeah so this was i think at some point  i hesitated to include this chapter but   it was one of the earliest chapters  that i wrote for this book and um   it almost felt like it needed its own book  but i felt it must be included because this   was kind of really central to the just entire  analysis of applying this kind of fiat mining perspective to global banking and global  central banking and then thinking about   the implications of that and uh yeah when the  the the big thing here is that the imf is the   world's central bank so the imf is basically the  u.s government's incidentally very few people know   this but the imf is essentially a u.s government  agency it is funded by the united nations   with a grant uh from congress so it is um a united  nations agency and it is it has a credit line to   the federal reserve in order to you know stabilize  global market but what that has effectively made   it is the world's central bank so it lends to  central banks where central banks are in global   you know central bank nodes are always creating  debt and just like banks always creating debt   and they're always inflating the money supply and  they always run into problems and then that's the   kind of uh very strong centralizing check that  continues to ensure that you know the side notes   have to kiss the knee or central node  is that they always face a bailout   threat and so they always have to kiss the ring  and so that's kind of how the system works so as   a result really the imf and the world bank  have ended up becoming something like um   a global bureaucracy that  runs the world and i think um   to think about it from the perspective of  economics from just the implications of this   like you have very strong tendency for central  planning in very primitive economies that have   not accumulated significant amount of capital so  you're taking away the a very large amount of the   resources it's already a small country with a  small economy with very strong resources and   you're putting that in in the hands of basically  graduates from halfway around the world who don't   know anything about the country but they're  there you know to build the road network   and then you know guess what this doesn't work and  so you know what what's what fixes this is more   debt and a new expert who's going to tell you how  to spend this new money now and you know obviously   there's enough blame to go around with the local  governments and with the international experts and   with international organizations and i must admit  like with the continuous revisions of this draft   i've tended to move away from the kind of bile and  anger against those people to try to just think   constructively because um ultimately thinking  about it just in terms of incentives you've been   unleashing a force of central planning for the  past 60 years that is constantly destroying   capital constantly destroying the currency  constantly destroying ability of people to save   and putting all savings in the hands of unelected  bureaucrats from halfway around the world and   subjecting the entire country to the basic  complete command of the us and obviously you   know in fireworks resulted everywhere this has  been tried you know everywhere has been having   inflation and everywhere has been having financial  crisis and economic crisis all the time and yet um   it just continues and people just take it as an  a normal thing and it's an unquestioning thing   and i think this is one of the most pernicious  things about the fiat standard just how much   it has subverted politics all over the world to  this game of power for control of the local fiat   printer under the auspices of the central fiat  node yeah when you when you take a step back and   you're just like looking at all participants  in the world and what proportion of them are   in debt up to their eyeballs and literally own  nothing but uh have tons of debt i mean it's it's   slave labor it's uh you know when i look  back in history and i see things like   uh the the pyramids and you're thinking how in  the world how many slaves would they have to have   in order to build and construct something like  that and then i compare it to today people just   don't realize that they're the slave they don't  realize that they're so in debt there's no way   they're ever going to pay it off in their entire  lifetime they're just going to have to continue   to borrow more and it's it's a function of the  system that you're describing and wow what what a   what a crazy point we are in history when you  look at that that that uh what's the word i'm   looking for um composition of participants in the  system and you would say hey what is it 90 of them   are never going to escape the the debt trap that  they're in i don't know what that number is but   i suspect it's just unbound way higher than people  yeah yeah but you know writing this book made me   realize that i mean in a sense it's almost not  that bad like you almost have to be in debt   in fact um it's the successful winning move in the  fiance standard like the way to accept the way to   understand this game is that you win in this game  by accumulating the biggest negative balance that   you can get like you just need to keep borrowing  larger amounts of money that's how you win   you borrow larger amounts of money and then you  use them to acquire larger amounts of hard assets   yeah exactly equity real estate you know all of  the things that are witnessing very high amounts   of price inflation in the inflation vector all  of the things that essentially are you're told   that you shouldn't uh acquire um that promises  a higher yield than the interest rate that your   fixed rate interest rate that you're paying on  the on the borrowing so exactly and the thing is   the more you borrow the more credit worthy you  become the better interest rate you get so it's   just a game where you need to get into more debt  like michael saylor was really very important for   me understanding because the sailor strategy was  like the logical conclusion of what i was getting   at at the fiat standard which i was kind of unable  to really articulate and then michael sailor comes   along and it's just exactly yep this is this is  how you're in the fiat standard this is how you   win in this game you keep stacking more assets and  borrowing against them and then you get to borrow   more at a lower price because you're got better  credit and then you stack more assets and as he   says it himself he said it on my podcast uh you  know you get better at the um you get better at   the death game just the goal of life is to die in  debt you want to die you just keep accumulating   more and more debt it continues to get devalued  you accumulate harder assets that's what rich   people do and if you think about it yeah that's it  it's about figuring out how to manage debt and um   i think that's that's very important financial  uh information for most people that everything   decent in life tells you should not be true  like everything every logical thing your grandma   everything everyone tells you you know you  shouldn't get into debt you should accumulate   savings to have savings for a rainy day and uh  you know you should not spend money that you   don't have and it makes sense like it's it's not  natural for people to do this it's it's not the   natural order of life for any living organism  to be in debt it's you want to have an s you   want to be producing and accumulating excesses  as humans you know accumulate capital we for   this is civilization civilization has always  been the process of accumulating more capital   and accumulating higher and larger savings and  passed them on and um this is really kind of the   uh in your face subtitle of the book it's  the alternative to human civilization like   it's really a system where we're all dead  slaves and we stop accumulating capital and um   you know we consume away uh global civilization  and descend back to our ancestors standards of   living because consume all of our uh capital we  consume all of our corn seed effectively and we   start going hungry and we go back to our ancestors  uh living standards we get rid of all this modern   technology that we're doing we're seeing it happen  you know in in industrial technology with oil and   all that with fiat essentially trying to mandate  the essential oils that we need for survival away   and uh it's a decline in living standard uh if  we keep doing it like you can win this game if   you manage to borrow at a lower interest rate and  accumulate more capital and always make payments   but you're highly uncertain at all times that's  the thing like that's that even successful people   will have to pay in this game which is that you're  always two paychecks away from everything blowing   up in your face um six paychecks whatever but  you know the safer the bigger margin of safety   you have the more you lose track in this game  like you win by gambling recklessly um so you   have to leave yourself you have to basically leave  yourself insecure or you're not taking enough risk   you're losing in the game so it's a it it's a  horrific thing i think overall like yes so when i   do a cost benefit analysis all right yes we do get  savings in terms of you know it's cheaper to move   things around with fiat than it is with gold but  here's the upside here's the complete you know um   here's the complete upside estimate widely  optimistic estimate of how much that costs us   you know moving all this gold around is not going  to cost more than half a percent of global wealth   well let's look at what fiat costs is by putting  all of the power to print money in the hands of   governments that promise they're going to be nice  about it well let's look at the report card we've   got a hundred years now let's look at the last  system we've got strong data from the world   bank over the last 60 years for the increase of m2  every year across the world so we see the average   the numerical average for the whole the world's  currencies is 32 but the weight average for   all currencies by market value so that you know  you don't give equal weighting to the us dollar in   the venezuelan uh bolivar so that the venezuelan  valve was inflation is only to the size of its own   uh is only weight to the size of the venezuelan  economies the venezuelan [ __ ] coins market value   and the dollar is weighed much more in that kind  of scenario you see that the average inflation in   60 years was about 14 percent so about fourteen  percent is the average fiat user experience   uh put around you know pick an average fiat  user put them in average fiat country in the   period 1960 to 2015 and is even before 1970 so  we're putting in the good years of the 60s which   were still pretty inflationary even though  they were supposedly on the gold standard   but um you you you get 14 which means basically  your money loses half of its value in five years   like that's that's the kind of that's the effect  the governments can say all kinds of different   noises about the stuff but that's the reality  of it this is what they've done this is the   track record this is you know you you like  and that's before this that's before taxes   yeah 14. we're just talking about the currency  yeah yeah we're just talking about the currency   you know we we can listen to uh fiat devs and  their social media influencers and all of their   um altcoin propaganda and we've we can  give it all of kind of attention that it   needs at some point we have to just you know  stop listening to those [ __ ] coiners and just   look at the project what it does like if everybody  has enormous estimates about their transaction per   second and about their security until their  network you know hits a critical bug and   then you start listening to the bitcoin  maximalists who told you in the first place   well let's really look at it like in terms of fiat  what is the um what what what does it actually do   yes it does save us on the move with money around  but it gives us 14 increase in supply on average   so even if you look at the best cases of  fiat you know the best implementations were   tried in countries like the us switzerland  sweden and denmark those are like the four   best lowest average value of inflation they  get something like seven percent per year   which is still like 10 years to lose 50 percent  of your money that's still very fast the valuation   of the value of your money or just you know  an increase in the supply which is going to   be reflected differently in different goods but  still that's pretty bad uh you know gold could   do two percent so the enormous role i think that  money plays which i mentioned in this book and   i mentioned in the fields going standard a little  bit and i discussed in more detail in my next book   in the disposal of economics is that the hardness  of money is like a control knob of time preference   that's i think the kind of conclusion from my  two books and and the principles of economics the   really the harder the money is the more we can  save for the future the better our money is   holding on the better the money is for holding  its value for the future the more we are likely   to plan for the future the more we are likely to  give attention to the future the future the less   we discount the future in other words the lower  our time preference the more civilized as human   beings we become the more savings we have the more  capital we can accumulate the more capital we can   buy the more capital goods we can have and that's  the really the process of the isis of civilization   of going from trying to catch fish with your hands  to catching fish with a giant trawler that catches   much higher number of fish per work and  feeds many many many thousands more people   per hour of work uh produced so we have a constant  increase in the process of production under   capitalism because we're constantly lowering  our price lowering our time preference that i   mean and i think that is essentially linked  to the ability of the person who produces   to be able to save their money in uh to be able  to save their value and the money that holds on to   its value well if they lose that they don't have  a lot of time for work and production and they   can't save and they can't accumulate real capital  and you witness capital destruction you witness   the reversal of the process of civilization that's  what i think fiat is doing that's the kind of big   takeaway from the book that fiat is essentially  a reversal of the human civilization process   we're destroying the value of the money destroying  people's ability to provide for their future   we're making provision this is the thing that  keynesian idiots don't get like they tell you   well you just invest and you beat bitcoin uh  sorry you invest and you beat inflation but   investment is a job on its own whatever it is  that you need to beat inflation is a job on its   own that you didn't have to do as a gold user  you know in in the gold protocol you got paid   in a gold coin and you kept that gold coin and  it had value in it and that value stayed there   it just it stayed in that coin for many many years  later you know many decades later you could always   go back to that coin it would have that value  so that allowed you to earn extra money let's   say this year and put it aside for 10 years from  now for 20 years from now for your house that you   were planning on building in 10 years you could  always save and you could always expect the gold   would hold on to its value gold has held on to  its value throughout centuries and continues   to do even though i think you know it's kind of  getting demonetized but that's beside the point   but the point is when you had gold as money people  were able to get that now with fiat you can't   get that in order to be able to beat inflation  you have to go head to head with goldman sachs   and jp morgan and you know preston pish and all  these people who spend a lot of time spending   a lot of effort and energy into this that it's  basically really almost like a full-time job this   is the thing like it's fiat needs to be earned  twice like with with with gold you'd earned your   money and stayed earned with fiat you have to  take it to the casino of fiat markets and you   have to understand you know an enormous amount  of economics and finance and you know you need   to know what real estate's uh market is like in  your area and you should look into real estate in   other areas you need to look at the commodities  you need to look at this other world's uh other   countries central banks it's crazy you got to be  a master of risk management right then economic   translation which is your second point and that's  a job that's a job that's a job full-time job   like most people you know i think you know people  can't invest capital anymore because they don't   have savings and so investment is daunting and  investment of course involves a lot of pitfalls   like you know people will say well you can just  do uh in the investing still there's a lot of fees   inflation is very high and still figuring out  that you can just do inflation index investing   is not an easy conclusion to arrive at there's a  million other people out there telling you that   real estate is the right answer bitcoin is the  right answer this or that is the right answer   there's no easy way around it and doing it means  that you um not just it's an effect on the amount   of capital that you lose but you're also losing  labor time because you're not able to be a good   doctor because you have to figure out what the  hell the bank of japan is going to do next week   in order to figure out where to put your savings  and what to do with your stocks and your bonds and   your commodities and all of this incredible  the complex portfolio that you have that's   time taken away from your excellence as a doctor  or as an athlete or as any kind of job you know   unless you do this as job as a business you really  i i think you know you would benefit enormously   from just having a form of money where you could  expect two three percent appreciation per year   i think with current productivity it would be much  higher than it was under the gold standard maybe   three maybe four maybe five even percent per year  increase if you wanted to think about an average   price although that's problematic concept but  similar to it it would constantly go up and you   could still invest of course but you know you'd  have a lot more time and a lot more ease to come   at the investment that you understand in the time  you understand with the amount of money you can   risk and not constantly have a gun behind you you  know forcing you to invest your money or lose it   so in your book um you have a whole section  here about the fiat cost benefit analysis which   you were getting into there um i'm just gonna  i'm gonna read the four things so people know   um what they what they are and i loved how you  went through this is a little bit different than   you know when i read the title of the chapter i  was thinking oh this is going to get interesting   because i i suspected you were going to get into  like the cost of energy to mine and bitcoin and   compare it to fiat and you didn't you went  you went in a different way that i thought   was extremely thoughtful and so these were the  four main points the first one which is the   one you were talking about was the destruction  of holders wealth through inflation you talked   about the m2 weighted is 14 which is mind-blowing  to me doesn't surprise me but hearing that number   and knowing that you went and calculated that  was really uh quite interesting to me the second   uh cost-benefit analysis was the destruction of  economic calculation which we were getting into   a little bit there where you were talking about um  just how hard it is for a person to go out there   and try to do all this these risk calculations to  just protect their savings right of the work that   they've already performed uh the third one was  control to government to shape uh the economy and   society and then the fourth one was increased  likelihood and cost of conflict which is one   that i'm intimately familiar with and i'm sure  many other people are intimately familiar with   um i loved it safe uh was there anything else that  you had on the on the uh cost benefit analysis or   something else that you want to highlight with  respect to that yeah i think this is the terms   of the fiat because with the fiat cost benefit  analysis i do an analysis of fiat versus gold so   fiat saves us a lot of money on moving gold around  but it gives us a government that is basically   indomitable and can take 14 per year on average  and um is able to reshape the market and economy   and it destroys your ability to save it destroys  businesses ability to function normally because   the currency is so destructive you know look  at places like lebanon and imagine the kind of   problems businesses there have and then you've got  um and then you've got yeah the cost of complexity   is an important tool this is the thing like being  in power just means you're able to print money   you have the control node you decide what's real  money you decide who gets to print money you get   an enormous amount of power and that just has  made 20th century extremely bloody i think it's   it's something that um it's probably worth writing  a lot about you know thinking about how much   of world's wars and us foreign policy is  motivated by um is motivated and financed by   this horrible software implementation that  is the fiat network where the central bank   uh you remember you asked me for about the four  functions earlier let me let me mention these   yeah uh so the the central bank um the central  bank government the government gives the central   bank monopoly on printing money central bank  prints the national currency provides the currency   supply regulates the banking system and controls  what banks are able to do and buys government   bonds and so therefore finances government and  also get this amazing feature in our new uh fiat   coin implementation it allows the central bank a  monopoly on the clearance of international trade   because what worst possible engineering decision  could you put then could you ever make let's put   the government and all of the country's savings  and the central bank yeah sorry and international   trade in the hands of one central bank and give it  a monopoly on doing all these jobs so only it can   do this because effectively what it's doing is  that it is uh subsidizing government's spending   through using the world the entire countries  uh international trade and local uh savings as   collateral that's essentially that's like what you  see happening extremely transparently in a place   like lebanon well where you know the government  goes bankrupt and then suddenly the bank money   has disappeared and people are still asking their  bank where their money is and it's it's amazing   like watching a lot of these uh people um you  know still think that the issue is that the banks   took the money and ran away and i'm sure some  bankers of course took the money and ran away but   it's as if you know they had all this money in  the central bank and bankers just took it and   ran away with it when the reality is that money  was never either there it was just part of a   ponzi used to finance government that's where your  government is spending all the insane amounts of   money spending over the last decades that's  where your savings went and uh that's what   fiat does and that's has financed war everywhere  around the world i think um the world would be   a lot more diplomatic and a lot more peaceful  if uh governments had to take responsibility for   their spending rather than just crank up their  prisons all the time all right this is my last   question for you um what do you see debt looking  like if we would move into a bitcoin standard i think it would be um i think it would be  a heavily more equity world i think uh i i   discussed this i discussed this in the  penultimate chapter of the book i think   bitcoin basically um eats  the incentive for fiat mining   you know it basically makes it's it's like  somebody figures out a way to make sha uh ssh 256   hashing uh worthless and so now your computer  can figure out a new solution but it won't get   paid for it that's what bitcoin kind of does for  fiat it makes mining no longer profitable it makes   lending no longer like mining but it's not that it  makes mining no longer profitable it makes lending   it it separates lending from mining it makes  lending a static process that does not create   money so in order for me to lend you money i have  to take money from my hand i can't just create   money even if i'm the government's friend i don't  get to just print money because i have a license   i have to actually have i have to be the one who  pays the opportunity cost you know i'm the one who   doesn't have that money available for me to um  enjoy so that kind of world i think investment   would become equity focused i think back in a  world in which i don't see uh investors wanting   to take on uh uh take on investments that carry  equity risk without getting equity return i think   this is the key point that the fiat system kind  of distorts in that it offers you the illusion   that you can be guaranteed a three percent or  five percent or seven percent or whatever it is   that it's at the bank and the bank is guaranteed  by the government and you get the specific amount   of money which there's no risk you know we put  your money to work but not a lot of work and   therefore we guarantee you that you're not going  to risk that you're not going to get any real risk   and there's no risk of losing all your money and  you're going to get um a five percent low interest   a five percent uh no risk loan whether it's  bonds or saving deposits or whatever it is   this i think is just going to go out of business  we're just gonna have a system of deposits   where you pay in order to have  your money safely kept in deposit   available for you on demand whenever you want it  and not being involved in any kind of shenanigans   and we'd have a system of equity where because  without the government without the illusion of   banking safety provided by government central  bank monopoly nobody can guarantee that   a business will provide a return of capital you  know any business can go to zero you know it   can go to zero whether through liability whether  through natural disaster whether uh whatever it is   any business can go to zero so your investment  can be wiped out and there's no running away   from that risk for an investor and the idea  that investors should be doing this i think   is just the function of the failure of the feed  system to provide a saving function because people   don't can't save they have to go and invest  in a casino and then a casino wants to pretend   no no no it's safe don't worry you know  you'll make three percent whatever happens   and you won't lose your money no your money's  at risk so i think we'd go to a world of equity   much site islamic finance i think i don't think  uh we're gonna be dealing with interest rates of   one to three percent or discount rates uh in the  low single digits for economic calculation when we   move to something like that it's fascinating  hey so this book uh here it is again the   the uh fiat standard by safe um this thing folks  go out there read this book um the the research   the the amount of resources that you have in the  back that just i mean dude you crushed this um and   for people who are maybe listening to then people  are i'm sure people are listening to this and   saying wow i did i totally disagree with whatever  take i would seriously go read this get the full   uh in-depth laid out uh talking point and  background and research that he has for some   of these points and you know maybe it'll just  challenge whatever uh you know belief structure   you might have and just provide a counterpoint  to it safety is there anything else you want   to highlight or hand people off to i know you can  find the book on amazon and some other places but   anything else you want to highlight um yeah well  my website safedean.com you can also um subscribe   and become a member take my online courses  in austrian economics and bitcoin economics   and you can also um get a preview of my next  book principles of economics my economics   textbook which is on its way to being done very  close to getting done and uh yeah um you can   also buy the fiat standard from my website  and i'm also pretty active on twitter and   also my podcast the bitcoin standard podcast  your podcast crowd so if you're into podcasts   subscribe to the bitcoin standard podcasts we  have these seminars that are for students in   my website people sign up for my courses you can  join the seminar twice a week and then um there's   also the uh and then we have guests like preston  for instance and we just had michael saylor we're   going to be releasing it i think just today um  so yeah i look forward to hearing from you we'll   have links in the uh show notes for everybody  to check all that out and safe dean thank you   so much for coming on the show always a pleasure  thank you so much for having me preston take care you

Channel: Saifedean Ammous

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Keywords: stock market, finance, stock and bond investing, btc, bitcoin, bitcoin fundamentals, bitcoin analysis, bitcoin update, crypto world, bitcoin today, preston pysh, fiat system, academia, Saifedean Ammous, The Fiat Standard, The Bitcoin Standard, Bitcoin fixes this, Saifedean Bitcoin, Michael Saylor

Id: AiOH_nxMmmY

Length: 68min 24sec (4104 seconds)

Published: Fri Jan 07 2022