RAOUL PAL: Jeff Booth, welcome back to Real Vision.
JEFF BOOTH: Thanks. Thanks, Raoul. Thanks for having me.
RAOUL PAL: There's a lot of people who said, look, you and I need
to have a chat. So I was really keen to get this out and done. And I thought
this particular campaign that we're doing, which is, has everything
change, I thought it's a perfect time to talk to you. I think you
and I share some similar views. And I'd love to dig into that.
Firstly, before we start all of that, just give everybody a bit
of background about yourself and what you do. And then we'll dig in a bit to
your macro framework as well. JEFF BOOTH: I am a technology entrepreneur.
So now, many boards, co-founder of a number of technology companies, and a reluctant
author. So I wrote the book, The Price of Tomorrow last year and
published it in January before all of this happened. You had me on your
show. And it just-- it's playing out like a playbook of what I
talked about in the book. RAOUL PAL: So give us a bit of a [?]
of the book and the main concepts that you talked about within that.
JEFF BOOTH: So the idea behind the book is technology is deflationary,
or technology provides efficiency. Every single person who uses
technology doesn't use it to increase their costs. Both personally and in
businesses, we use it to reduce labor and to make things more efficient. The
output of that efficiency is deflation.
And so what you have-- and it's not just a little bit deflationary.
People are looking at it through a rear view mirror. It's exponentially so because
Moore's law and technology is exponential. And so it's-- and I used
an example in our last interview, where I folded a piece of paper 50
times, if I could fold it on itself 50 times. And most people don't recognize
that on 50 folds, if you could fold a piece of paper 50 times, it
would reach the Sun. And for the same reason that people don't
realize that it would reach the Sun is the same reason we massively underestimate
what's happening in technology. And so if that's true, if that
thesis is true, then what that means is technology, which was a small driver to
deflation, is now the most important driver. It's moving up and up and up.
And it also means that we're likely to underestimate by how much.
So now, look to the other side to say, what evidence do we have to say
how much are we missing. And before COVID, out of $250 trillion in debt
to run an $80 trillion global economy, $185 trillion of that new
debt has come in the last 20 years, as this is happening. That's
not-- that's a problem. That's a really big problem because it's just a giant debt bubble
and creating mispricing and everything else. It's a giant
problem. But that's not the real problem. The real problem
is it's exponentially worse going forward. And that means
to fill that hole, you have to ask exponentially more debt until currencies break.
And so economists are looking through a rear view lens of-- and I fully
expect demographics. Everything else matters a lot. So do supply
chains. So does a whole bunch of other things. But the biggest impact in
our future on this conversation by such a far stretch is what I'm talking
about. And the economies aren't wired for it. So these two great
forces are fighting each other. And all of the secondary effects, all of them,
are because as those two forces fighting each other.
RAOUL PAL: So we then start with a huge economic--
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JEFF BOOTH: all of them, are because as those
two forces fighting each other. RAOUL PAL: So we then start with a huge
economic event after you wrote the book. JEFF BOOTH: Yeah.
RAOUL PAL: Where does this now fit into your framework? My guess is it plays into it perfectly.
JEFF BOOTH: Yeah, so all it does is it accelerates it. So I'm a technology entrepreneur. One of the
companies I co-founded was during 200,000 a month last year at this time. It's now doing $8 and 1/2
million. RAOUL PAL: Wow.
JEFF BOOTH: It's an acceleration of technology
everywhere. All of those companies-- why do you think
technology is actually a store of value? Why are the top
technology companies working on network effects racing up in value? They might be too high
priced. But a relative store of value, the money is just injecting
into where can I store value. And it's actually making it happen faster
so that-- and people aren't connecting the dots on some of these things.
If you think about-- so fill a hole of commercial real estate with
more debt, right? So to prevent the prices from coming down. Yes, that might work. But people
aren't in the offices. That commercial real estate shouldn't be priced where it is.
They're on Zoom. Maybe 50% are in the offices. That means commercial
real estate has to fall by that. Or logically, you would expect a reversion
to the mean of something like that. But it's not just that. That's the first
order of consequence. The second order consequence is, as people are
working from home, and all those businesses are saying, hey, it's
OK for work from home, people are thinking that their labor isn't mobile, right?
If I can hire the-- then they can work from home. Borders don't
matter anymore. I have a company in India with 100 people
building technology all over the world. It's growing like a weed.
And you can get great talent and everything else. So now,
there's further labor, further deflation in the labor.
RAOUL PAL: And also, you know, one of things I've spent a lot of
time looking at recently is at artificial intelligence and machine learning.
It replaces so many people. Now, forget about the singularity and all of
that. But just at a basic level, tasks that take a lot of humans a lot of time just now disappear.
JEFF BOOTH: I wrote in my book-- and there's two chapters in my book
on artificial intelligence. I'm really deep on this subject and know
many of the top researchers that I call are my friends, very deep. And
how fast this is moving. And people are underestimating it by a
quantum amount. It's just staggering. You're right. It's moving that fast.
And I think people, when they look at that thesis-- and what I say is, what
is human intelligence, right? It's just error correction. What you're
doing to a whole bunch of people, what we're doing on this, and people
listening to this, are correcting errors. Maybe we're wrong. And we build on knowledge. And as we
practice, we get better and better and better. And that practice takes us
down-- we can't do everything. We practice, and we zone in, and we miss bigger
patterns because we're practicing in an silo. That's actually all that computers do. It's error
correction at scale. And that error correction is building in,
first of all, PhDs. Humans are helping error correct. And over
time, it's just error correction at scale. So it's logical to think, at one point,
we will get to the singularity. But to the point that you just made, people
are looking at the end point and saying, OK, it's not deflationary
until then. The jobs come out then. It's like, it's on a light
switch. It's exponentially more deflationary along that path. And to one day, we might
get there. One day we might not. We're going to get there. But that argument is irrelevant to the point that it's
deflationary. It creates way more efficiency. And here's the thing. That efficiency is a
savings on our time. Why are we blocking that? So if we block
that, if we try to stop that-- we won't stop it anyways. It's a way
bigger force than money printing can be. And we can talk about what's going-- I think
you and I agree on what's going to happen here. But by stopping, it we rob society
of the gain, and we force people to pay for prices that are artificially high, that will manipulate it
artificially high. We force people on a treadmill. We force society on a treadmill
to pay for those artificially high prices. And then, because we've broken the rules
of capitalism and not let things fail, socialism rises because we
have to pay a whole bunch of people more money because of a thing we created
in the first place by trying to keep prices high. And society
breaks. And it's all a waste of time. They can't-- it can't solve it because
you're fighting nature. RAOUL PAL: So how do you solve that, the issue
of slowly, over time, that rises exponentially, loss of the
need of certain skills? Now, the price of goods falling doesn't
necessarily offset that if there's no income. JEFF BOOTH: So-- but play that. So
again, if people don't see it-- it's impossible to see an interconnected
system by looking at one part. And that's where people get confused
about a lot. So people who look at one part, and they'll say, OK, my house
has to go up because that's my savings, and housing always goes
up-- without asking, would housing have gone up without $185
trillion of stimulus over the last 20 years? And you know it wouldn't, right?
You would see-- so people think, oh, no, it's just tech goods that are
deflationary. [?] in everything. It's the only thing that it's not is the
things that we're manipulating higher and asset prices because of the monetary easing
and the printing of money by warping capitalism. So what does capitalism call for and a free
market call for? Entrepreneurs racing in to make products or
services that are better for us. And unless they win, then they fail.
And what that means against technology is it means that all prices should be
falling. And as technology moves into more and more industries, prices
should be falling more and more. It's just that's the natural order of things.
RAOUL PAL: And how does that not yet go through to certain goods? Because I mean, look, it's coming,
whether it's in farming, where productivity has increased dramatically [?]
although they've flattened out somewhat.
JEFF BOOTH: I'm a chairmen of two boards in agriculture. It's coming fast.
RAOUL PAL: Yeah. JEFF BOOTH: It's coming fast.
RAOUL PAL: And so there's that area. The raw material inputs, I guess, all the things where you get
cyclical and sometimes secular price rises. And people confuse that with
inflation because we're still looking back at the 1970s. And this is
an entirely different world. JEFF BOOTH: And without monetary easing and the
amount of credit that is being created, what would the price of those raw materials
be if you allow the natural market to take over? They would fall. Right?
Look at what happened in 2008 to the price of oil. As people-- as you printed,
the price of oil just went straight up. In real terms, you would see
it everywhere. Capitalism would take its place. There is a thing--
But here's where we're trapped. There's so much debt. The policy
mistake was made a long, long time ago. And you know this. And so by decreasing
interest rates instead of increasing interest rates and letting a
recession happen, we built bigger and bigger debt holes and kept on
decreasing interest rates to the point that we're trapped.
So there's only two choices. There is choice one. And in fact, there's
only-- there is no good choices. Choice one is save currencies. Let a depression
happen, deflationary depression happen. Asset prices correct by
85%, 90%. Everything falls. But if you carry that on, banks fail. Governments
fail. The entire world goes into-- there's lineups like in the
'30s for-- it's horrific on society because of something
that happened over here that we're paying no attention to. So I'm not
arguing that we should do that. But now, look at the alternative. The alternative is actually, probably
more horrific for society. And that's what we're doing. So governments are
going to print. And you as well as I do, they can't create inflation
until the rules change. So right now, that is going into asset
prices, inflation, and everything else. But the next thing will go MMT and fiscal response
and everything else. And once inflation starts, it'll be
hyper inflation. It might take some time. And it might be-- but
currency after currency is going to fail. And I think we share a similar view. The US might
be the last standing. But as currencies fail, the feedback effects
of other currencies failing just becomes faster and faster because
trade changes hot flows of money back and forth as you warp all
sense of reality on markets. But how do you get out of it? How
do you stop it once it starts? And I think-- so you've effectively taken out the fed mandate, and you've given
it to Treasury all around the world, similar. And now politicians are in
charge of that. And do you remember when Volcker increased rates?
So after the '70s, after the gold reserve, Volcker increased rates to 20-plus and
caused a massive recession. Businesses failed and everything else. That was
against a debt that was not close to this. Government debt wasn't close to
this. The fed hadn't absorbed the risk of the government debt.
So if you tried the same thing today, the government fails. The fed fail--
so once you start that cascade, if you raise interest rates against
what's happening in the short term by-- you force it to happen fast, and then
the entire thing blows up. So we have some real challenges ahead,
no matter which pick, no matter which path.
RAOUL PAL: The other part of that I've focused on for a long
time is I have this little moniker that says, debt plus deflation equals a ticket to bankruptcy.
JEFF BOOTH: Yeah. RAOUL PAL: Because real debts rise
all the time. So in this environment, where we've got a natural order
of deflationary pressure over time driven by technology, demographics,
and few other things, it means the debt burden goes up. And so part of the
answer to that is create more debt to service your debt. We've
seen that habit. What also interests me-- I think people don't
think through, to get back to the commodity price inflation--
and we've seen it every time. You raise-- you double the cost of oil now,
it is not inflationary. It's deflationary. JEFF BOOTH: Exactly.
RAOUL PAL: All spending-- because of this debt burden, all
spending collapses. And people don't get it. They seem to think this is inflationary.
It's going to feed on itself. There is no way to generate demand
inflation in this economy, in this structure. It's impossible.
JEFF BOOTH: Exactly. It's impossible. So right now-- that's why I said
we agree-- as you add more debt, it becomes more disinflationary. It
adds deflation to everything we're talking about, as if you didn't need
more pressure, inflationary pressure. And people talk about, oh, there's Jeff, the
deflationary guy or this. All I'm-- this is otic. This is first principles.
This is understanding what is happening. If somebody says a train's
coming and pushes you out of the way of the train, that's what's
coming. Right? So we can talk about what the solutions look like and everything
else, but there is no good solutions right now. Central banks have put
themselves in a trap. And we're all frogs boiling in a pot.
And the real risk-- a lot of your listeners, OK, where can I have
safety of money? And you talk about-- and you do a really good job of that in Bitcoin
and others. I think it's a lifeboat away from what's happening
here. So I am also irresponsibly long. But I'm--
RAOUL PAL: Sorry. Just people don't get that, by the way,
because they say, but you're a deflationist. Surely it means Bitcoin goes down. I'm like, no.
JEFF BOOTH: Yeah. RAOUL PAL: Because of the outcomes.
JEFF BOOTH: Exactly. And even if that-- the real value of that will go
up. If you-- I would say beyond all of that, if you look at history and the swinging
pendulum of what ends up happening when we're in these
cycles, it's revolution. It's people on the street. You're
seeing what's happening in the US. And it's just-- those are glimmers of what's coming.
And that's why I wrote the book. I was hoping to have-- I wrote the book
for my children so that we could have intelligent dialogue about what must
be done to get to the other side because the vortex of yelling on
both sides of the aisle, when both sides, Republicans, Democrats,
everything, don't have a clue about what they're dealing with, it's--
RAOUL PAL: And nor do the central bank. They don't understand [?].
JEFF BOOTH: Nor do the central banks. And if they even if they knew
how do they get out, we need some serious dialogue on that.
Otherwise, society breaks. And so when I think about
Bitcoin, I think about a lifeboat. And I hope it goes up slower than fast so more
people jump in the lifeboat. That's it. That's my hope. I'm not-- I
could care less about the money. I care about safety, what happens to
society and everything else. And when most people are failing, they rise up
and look for-- and they blame others for that failing. And
so anytime you go through-- if you go through a depression like
we would have to go through, or you go through a hyper inflation, look at
societies that happens. You have-- it's controlled by the biggest thug.
RAOUL PAL: But one of the other interesting things is, for a long
time-- because I don't know if you've ever seen it. James Goldsmith, the famous
corporate raider and financier from the UK and a pure capitalist appeared on Charlie Rose. And it was all
part of what he was doing at the time. The WTO agreement was under negotiation. And James
Goldsmith said, this is wrong. And everyone was like, but you're a free market capitalist
with businesses all around the world. He said, you have no
understanding what you're about to do. You're about to destroy
society in 20 years' time. And you're going to create a massive deflationary wave that
makes it almost impossible to compete without moving all your
labor abroad and the rise of technology, et cetera.
That whole thing has come to pass. And people now think-- because
humans are typical, they look back. Let's undo globalization. I understand
that maybe over reliances, and we want to change trade linkages
and supply chains. OK, fine. But in the software age-- and the
profundity of Marc Andreessen's comment of software is eating the world
is still not understood by most people. They kind of think they get it, but
as a big a rabbit hole as Bitcoin is- - and it's the rabbit hole that caused
you to write an entire book about it-- is that everything is globalized
in a software world. There is no border. There are no borders.
We're not going back to manufacturing steel in the United States because we don't care
about steel any longer. We're using software. JEFF BOOTH: And that software
is-- exactly, it's digital. And you can-- everything on your phone, why
you use all the apps on your phone is they're free. And it scales across
the world for pennies instead of having to have control of supply chains to
be able to scale that. It's so different. But it's so foreign to what
people have seen their whole lives. So I understand why they get trapped.
RAOUL PAL: And so why-- so there's a huge shit fight that goes
on all day about the measurement of inflation. So there's a whole
group of people who will say, my cost of living is going up. How dare you talk
about deflation? And there's a whole group of people who will say, this is
the most deflationary thing we've ever seen, and all I can see is deflation.
Now, because we don't put in CPI the value of all of these things that are free--
JEFF BOOTH: Bingo. RAOUL PAL: Right? That's one
thing. But CPI also doesn't measure health care costs accurately and other
stuff. So how-- people that understand some of this, cost of
living deflation versus product deflation, frame some of that for people to think about.
JEFF BOOTH: That's what I would just say-- RAOUL PAL: Because people are worse off. I mean,
the poorer parts of society are much worse off. JEFF BOOTH: Well, so if you just--
well, let's start with this. The first thing I said is technology [?]? Or
does it create efficiency on an exponential scale? And the answer is yes. I don't
think anybody would argue with that.
Then the output of that has to be deflationary. And it has to
be. If technology is doing that because it's moving so fast, entrepreneurs are
taking advantage of that and driving that into society. And it's moving
not just into your iPhone. It's moving into health care, education. I'll
talk about education or health care if you want me to and how big it's going to make
a difference going forward, not backward. RAOUL PAL: Yeah, very interesting.
JEFF BOOTH: But if you talk about that, then it's everywhere. And people
think it's just in the-- the only reason people think it's just in
their phone is they're measuring-- all of the other goods are going up, and
it's because we're arbitrarily making the other things more
expensive by changing the real value of money. RAOUL PAL: I've just come across another idea that
I've never had before, just talking to you. So we understand that the poorer
sections of-- let's call the US. The UK is similar and, in fact, most of Europe as
well-- slightly less so because they're a social state-- are poorer. They see
the price of goods rising. I'm not
sure the price of goods are rising. I think their wages are deflating.
JEFF BOOTH: That's what's happening. That's what's happening.
RAOUL PAL: So it's deflation that they're seeing, and they're seeing it as inflation because their
purchasing power has been diminished by the lack of value per man hour
that they now have in this new society.
JEFF BOOTH: When you do this-- that's my point exactly. When you do this, you make labor compete.
You have-- essentially, why governments right now are racing to the bottom
of their currencies is they're trying to make their labor more
competitive and their labor not understand that they just got a decrease in
wages. Right? That's what they're doing. That's what ends up happening
because if you're in that country, you don't know-- because all your goods are priced
in that same currency, you don't know you got a decrease in wages. And that's what's creating--
And so here's a-- in Canada, where I am, but my lake house-- seven years
ago, we tore down the old cabin on the lake house. But in the
winter, we could only rent it for $600 a month. About a block away, same
type of cabin now rents for $1,500 a month. So what that means is if
somebody's wages hasn't gone up by 2 and 1/2 times, they've got a decrease
in their wages. And so no wonder they're mad. No wonder
they're racing to UBI and socialism and saying, this is
broken. But they don't know why it's broken. RAOUL PAL: Fascinating to think that. Because
essentially, the printing of more currency, even the closest-
- in the United States, where, sure, there's exports and imports.
But basically, you could survive on US goods.
Monetary printing and technology means that people's wages
go down in relative purchasing power. And it's not the demand of commodities
that we had in the '70s from this massive Baby Boom generation driving
up prices because wages followed suit. We had wage inflation. We've got wage deflation, and nobody
understands it because it's insidious, and it happens over time.
JEFF BOOTH: That's exactly it. And that's why we're frogs in a pot
boiling. And we don't understand-- when I said you can't understand an interconnected
system by looking at its component parts, all of those
people, whether I buy a house, and it goes up, and I don't question
it, would it have gone up with $185 trillion dollars in stimulus, people
that are on the bottom of that ladder, that their wages are actually going
down in real terms, and they don't know-- these are people looking at it from a component parts.
And I would-- a lot of your listeners, too, are looking at it in component
parts. And that's why they get confused on this whole thing. The
entire system-- if you just go-- I could have stopped my book at
this. Technology is efficiency on an exponential scale. And that creates
deflation, period. Nothing else matters. If that's true, then the entire way
we've built society around needing inflation is a bug in the system.
It will not work. Nothing will work. We have to rebuild against a deflationary
monetary policy, which Bitcoin will force. But otherwise, the world burns.
RAOUL PAL: So here's another question that comes across my mind is--
by doing this, we are increasing productivity. We're kind of arbitraging.
That's what technology does. Why does productivity measurement not increase?
JEFF BOOTH: Because we're masking it in the printing. The
productivity is going straight up. But we're concentrating that productivity
and wealth in all of the technology companies' hands. That's what we're
doing. What do you think's happening at Apple? What you think is happening at Amazon? What do you
think's happening at many of the companies that I'm sitting on the boards of.
And what's happening, you drive-- have any of your listeners look
up network effects and what drives that. Networks effects are responsible
for about 70% of the value of these companies we're talking about. And
you concentrate it faster because you stop capitalism from working. So
you're concentrating that inequality faster.
RAOUL PAL: It's been an extraordinary time since post-COVID.
It's ultra-accelerated. If I look at the shares of the BBB-rated, massive indebted companies, the
AT&Ts, the General Electrics, the Fords, the GMs, and
they're going down. JEFF BOOTH: Right.
RAOUL PAL: But all the technology, or all free cash flow, no debt, are doing the opposite.
JEFF BOOTH: Yeah. And it's-- again, where do you think the AI
researchers are going? Where are the top AI researchers? If you looked
at where-- because those companies have the ability to pay extraordinary
to get the best talent. And again, it concentrates. It concentrates on
the network effect. And it makes it stronger and stronger throughout time.
And then the AI takes over. And then you don't need the same labor
to do the same thing. So the efficiency is there. You just remove
labor, and it's all-- and we're pushing it to the top tech companies.
RAOUL PAL: So then, to go back to the big issue then, OK,
we've identified-- I'm going to go back to some of these industries you talked about in
a bit because I want to dig into that. But you've identified the
fact that, OK, wages are deflating. It's almost impossible to get out of
the way of this deflationary wave. And we're not benefiting because our wages-- well,
some people's wages-- if you work for Google, your wages are inflating faster.
JEFF BOOTH: Yes. Or if you've taken your money, and you put it into
assets that are inflating faster, or if you own most of the stocks that are
going up. So that's actually why [?] is driving the wealth inequality at
a rate that is unmatched in history. RAOUL PAL: So how does that get
solved for the average person, who doesn't-- who's not in control? I
mean, clearly, Bitcoin is one way. It gives you an anchor onto something
else. What else can be done here while this plays out?
JEFF BOOTH: It's the only way. Unfortunately, it's the only way.
Today, there is going to be-- so if you think about what asset prices-- let's
connect the dots on a bunch of these. If you believe that governments
aren't willing to go into a deflationary spiral, which the probabilities are
very low. They could make policy mistakes, and it could get away on
them before-- but the probabilities are very low that they allow that to
happen. So you can expect more printing all over the world. In the more
printing, you can expect housing prices to keep going up, stock prices to
keep going up, and maybe not in real terms. If you look at the next step, why
didn't people in Nazi Germany leave? Why didn't the wealthy leave? And
you could see it coming for years. So if you look throughout history--
or Venezuela or Turkey today, why don't they leave?
Because what ends up happening is all of their wealth is denominated
in that currency-- their real estate, their stocks, their gain, everything.
And leaving is leaving as a refugee. And back in those times, even
leaving as a refugee, you try to dew gold into your clothes, and
then the ship goes down, and you sink to the bottom, and everything else.
And we see that throughout history. But it's because you long for
better times, looking backwards. And you're actually-- because you have the
assets, you're sitting in that as the fires are burning, and you don't
know when-- and you can't get out. Your assets are going up. You're
actually enriching yourself as others are getting poorer. But you don't see
the break to society happening. And by the time you get out, you can't
get out. Or by the time you want to get out, you can't get out.
And so that's a lot of people today are in that boat. And a lot of
people on the wealthy side are in that boat. They're sitting there, thinking,
wow, this is not a bad thing, not looking at the consequence of why
their asset prices and everything's rising so fast, and not looking at tons
of the population doesn't have that privilege. And so you can expect,
if this printing continues, society to get worse and then get locked up in
that currency, get locked up. And then there becomes capital controls. You
can't get your money out and everything else. And it becomes really ugly.
History shows it over and over and over again. And we have evidence of this
right now. Look at Hong Kong right now. And so you start
to get to some of this. Bitcoin is an escape hatch. It's a safety.
RAOUL PAL: It's also-- what is interesting to me about Bitcoin, it
started from the ground up, from the little guy. It was not started by the big wealth.
They owned gold, and they owned property. But they didn't own
this. And this is the one thing that little guy can get.
And the genius of being able to stack sacks, as they call it, or buying
stuff, buying some-- because it's affordable because it breaks
down to small component parts-- and it's so broad, it's available to anybody,
while anything else-- If we were to say, oh, yeah, well,
obviously, Manhattan apartments, well, especially luxury apartments, they
don't go down much. Great. You need 20 million bucks to do that.
JEFF BOOTH: Exactly. RAOUL PAL: But here's something you need $1 for.
JEFF BOOTH: Yeah. And that's the thing. And it works on a network. And the
more people that trust it, the more people that trust it. And
then it builds on itself, and it builds on itself. It's beautifully designed
protocol. There's a beautiful design. And it plays on all of the things-- I talk
about it-- I talk about Bitcoin a tiny it in the book. Most of the book
sets up for why that thing is going to be so incredible because if you
look at this through a first principle lens, you know where it's going. Here's
a roadmap for where everything is going. And I looked at the interview I did
with Max on Real Vision in January. There's a bunch of comments that
says, this aged like a fine wine. And it's because if you understand
what's happening in the overall system, and what must happen from policies, or what
is the probabilities of policy response, you know what's going
to happen next, and you know what's going to happen after
that, and you know what's going to happen after that.
RAOUL PAL: I mean, as far as I see it, there's one reaction function, which is printing more money. It's
the only thing that they can do. Now, even MMT, yes, you might be able to increase
generalized productivity in the United States by implementing the right thing. But
in the end, you're still devaluing your currency to do it. And that's a hell
of a tradeoff, and it's unlikely to work. JEFF BOOTH: Yeah.
RAOUL PAL: And again, when I talk about devaluing the
currency, I don't mean in relative terms to others. I mean the whole fiat currency system,
because everybody's doing the same thing. JEFF BOOTH: Yeah, but let's just take MMT. So
what we're really doing-- so MMT is a response by governments from breaking capitalism's rules,
a whole bunch of people losing out that can't pay for their
bills. I force prices up. There's a whole bunch
of people that can't pay for housing, or medical, or food, and
everything else. And then they come back to the same government
who manipulated prices higher in the first place, and say, I need something so I
can manipulate prices higher that you created in the first place.
It's a response. So it's crazy to me that you're going to
jump on MMT on top of this whole thing. But it's going to help. It is
logical that, at some point-- because either the Fed cannot create
inflation for the same reasons you and I talked about, so it has to be something
like that. And you put politicians in control. But once you do, look
out. You're going to-- it's a path to hyper inflation and all currencies
failing. That's what's going-- that path it's going out.
And there's this belief that, oh, don't worry, the politicians will now
increase the interest rates and cause a depression. So we didn't do it
over here when the problem-- when the fire was smaller. We didn't do it
when the fire was really small because we can grow out of this forever by printing more debt. Now, we
could create this massive fire. We'll do it over here when the fire is as big as the sun.
It's just ridiculous. It's not going to happen. RAOUL PAL: Right. I'm going to ask-- I want to go
through some industries. A few people have asked about agriculture. You mentioned to it.
You've got some experience in it. I want to talk about agriculture,
health care, and education. Let's tackle agriculture. Talk to me
about deflation in agriculture. Because, again, there's a lot of people that
are like, well, the dollar is going down, or I think there's inflation coming,
I want to buy agricultural stuff. And I'm like, look at the trend over
the last 50 years. It's just gone down. And if you look at productivity, it
went up and up and up from crops over time. What is your view on this? What do you see?
JEFF BOOTH: So I'm chairman of a board called CubicFarms. And the company actually shouldn't be
public now. It's public on the TSX, the stock exchange. And it went public too
early. But I joined as chairman because the innovation is so staggering
and what's happening. And I can't give what's happening kind of
public information. But what I would say is, in a
backdrop-- what is agriculture today? You have these long supply chains that
actually are more fragile with weather dependencies, pesticides, everything
else. But the supply chains work because of the distribution function to large
retail, everything else. And so it's really hard to break that--
almost like Walmart or Sears or anything else. It's actually the
supply chain that makes it efficient. And then all of the labor comes into the farm
and everything else. And you grow these giant tracts of farmland and
everything else. But you build fragility into the system. And then you have weather events
and crop failures and everything else. And there's more fragility into the
system. And margins go down when it's our turn. They call it ag anywhere. And they've
built these, effectively, containers that have undulating paths that
grow 10 to 100 times more product per footprint into this. No
pesticides, anything else. And they're commercial scale ag units. And you can put
them together. And you could do lettuce, or this, and this. You
could put how many you want together. In other words--
RAOUL PAL: So you're making distributed agriculture.
JEFF BOOTH: You can localize that agriculture. So instead of looking
like a large supply chain, which requires-- in a world where things are
breaking, governments are breaking all over, food matters a lot.
Right? Food matters a lot. RAOUL PAL: Here's another thing for you to put
into that equation. About 100 years ago, there was something like 1,200 varieties of wheat. There
are now seven on a commercial scale globally. JEFF BOOTH: Yeah.
RAOUL PAL: S So what you've created is a huge fragility.
Now, if you look at where the wheat's produced, it's basically the US,
Canada, Australia, and Russia, and Ukraine. That's it. And we've just gone
through a pandemic now. People cannot get their heads around the
fact that you can basically destroy all wheat with one blight. And
there's nothing we can do about it. Even Monsanto didn't figure it out in advance.
JEFF BOOTH: Yeah, but even Monsanto. And then we eat that wheat with
pesticides we know are terrible for us. And it's in all of these other foods. And
we have to because there-- the bugs are resistant. Actually, I'm chairman of another board, a private
company called Terramera that makes ag inputs, essentially reduces pesticides
by making ag inputs 10 times more effective. So you need 1/10 the amount
of pesticide to make the yield better. Or it drives natural inputs 10
times more effective and makes them able to be cost effective with pesticides.
So these changes dramatically have downstream effects on cost of everything.
So when you're changing a function by 10 times-- and one of the big
costs inputs for farmers is pesticides and crop failure and
everything else-- and you reduce that by-- the downstream effects to some
of these innovations, it's staggering. So it's more
deflationary. That's one industry. But one I'd like to pick on is
education. What is-- yeah, so today, universities are really [?] where-- and they
get away with it because more people talk. People go there. More people go there. Top researchers go
there. So they can attract more talent. But what's valuable in the education?
And I would say it looks exactly the same as book stores thinking they
could compete against Amazon. It's the information.
And what's going to happen here-- Google just did it three weeks
ago, where they launched a program, a six-month program or, I think
it's $400, that they'll hire over a four-year degree. Because when you
understand what can happen, you can digitize that same content and
sell it for exactly what Google is, for nothing, or almost anything in their
content. And with that, you can attract all the best professors.
RAOUL PAL: I mean, isn't it that what Real Vision is?
JEFF BOOTH: Yeah, exactly. RAOUL PAL: It's basically applied learning
at scale from the best, smartest people in the world that you'd
never get access to. It would have been prohibitive ever to do
it any other way. And now, basically, it's bordering on free, it's so cheap for what you get.
JEFF BOOTH: Totally. And actually, if you think about that, what you're
saying is content everywhere is free. You could get-- or bordering
on free, or picked for pennies. Or what you charge for Real Vision for
the value is staggering for that type of content. Why can you do that?
Because you can digitize that content, and it can play on for years and years and
years. And you can charge people a penny across the world,
and it distributes everywhere, instead of having to go and learn
in a 30-person classroom. That's the difference.
And by the way, the technology where it's going, I saw a demo of a product that
blew me away just recently that makes the Zoom call-- we could put
other people in the room, and it feels like we're in the room. And
I could whisper just to you, and the other people couldn't hear it.
So again, people underestimate where technology is going because they're looking at where we are now,
not even where it actually really is now. They're looking at where-- they're
looking backwards. And it's moving so fast. And these
technology innovations are just-- it's staggering what it does to the change.
And why businesses don't understand it or existing infrastructure doesn't
understand it is for the same reason Blockbuster didn't understand Netflix.
The entire business model is framed around a different thing. And
when download speeds change, good night.
RAOUL PAL: I mean-- so I mean, at Real Vision, we've made no secret
of the fact that education is going to be a big part of we're going as well. There
is no reason we can't create our own university. Now, if you think of two of the big
inputs we talked about in traditional CPI, or just the cost of living for
people, there have been monopolies or oligopolies. Education, you can
only get to a certain number of providers, et cetera, et cetera.
Well, that's going to go entirely because people like us can walk in, offer a
better product at a fraction of the price. So as we move out towards something
of that sort, becomes a huge change. And it becomes massively deflationary.
Because what happens is entrepreneurs look for excess profits and try and
exploit them until so many people come in. And then the excess profits go away. And
the supernormal profits go, and you end up with a normal margin.
SAS still has like 70% profit margins. And so that means it can
destroy every business model until it gets destroyed itself by competition. So the overall
amount goes down. But we're nowhere near that yet. JEFF BOOTH: No, nowhere near that, yeah.
RAOUL PAL: So it encourages every entrepreneur to put their money into something
that generates SASlike revenues. JEFF BOOTH: That's correct.
Yeah. And then those get taken over time as more entrepreneurs come in to
compete. And that's kind of the natural evolution of things, that prices should be going down.
RAOUL PAL: Now, talk a bit about health care. I mean, I've witnessed of
some of this, with what's going on in India, where there's a
lot of cutting edge changes to health care in terms of robots having positions
in different countries, all sorts of stuff. What are you seeing there? Where is
health care going in all of this? Because right now, this is a typical
oligopoly, where they're clinging onto power, keeping up the price of
pharmaceuticals, keeping up the price of operations, et cetera.
But it feels like it's a house of cards. JEFF BOOTH: It is. And that's why it'll
be innovated away as well. But let's look at health cares through
the lens of data and AI. And let's look at why drugs cost
what they cost, just that aspect. Drugs cost what they cost because
to invent a drug, the amount of science that's needed, and then trials,
and trials, and trials. What you're doing is testing people in small batches
and then ever bigger trials over years to see what effects are going to--
what side effects. And is the drug effective? You're doing trials.
Think about that from a-- and why do you have to do that? You have
to do that because your gut biome is different than mine. So is what you eat. So is
your genetic code. So is how you exercise. So is where you
live. And all of these things, if you looked at
yourself as a data system, it's just data. And what you're doing is
you're taking humans, and you're saying, I can figure out all this. And
there's no way to do it because all these things, that your genome against
something else, again something else-- this staggering combinatorial
problem is too hard for people to figure out. So they think they can, and they
do it in small trials. And they only see a tiny bit of the picture.
And then after 10 or 20 years of these trials, you launch it to a wider audience,
who shows up differently. And the drug fails, or it has tremendous
side consequences. All that cost is embedded into our system today.
AI changes that dramatically. It sees these things. It does all these
tests. And as you have more data into the system-- I say in, eventually, AI conferences, why is Google as big as it is?
Why is Amazon as big as it is? There is no second best algorithm. The
best algorithm wins. And it consolidates data. And as it consolidates
data, more data rushes in because the outcomes are so much better.
And it keeps on going. And then health care is going to look the same thing.
So right now, all of these silos of information are in silos. And there's different
researchers in every different silo, thinking that their silo is the most
important. As you look across the silo and you put some of these data
sets together, this watch knows more about me than my doctor.
It now knows my heart rate all times. It knows how much I exercise. It knows
how much I sleep. It knows my-- it knows more about me than my
doctor. And it's native. It's getting more and more.
So if Apple said-- and I trust the privacy of their network-- hey,
Jeff, send me your genome sequence, or we're going to give you a test to
be able to do your genome sequence, and we can make your outcomes
10 times, 100 times better. If I trusted them with the data, I would
do it. Now, it's the same reason I use the watch in the first place,
because it gives me value. And there's nothing governments
can do to stop it. It's coming. And that radically changes health care.
Now, that's still is a long time out you're going to see these things
change. But if you think about US and some of the other regions, imagine what's
happening in China. They don't have to ask. RAOUL PAL: I've long argued about
the impact of big data on science, particularly medicine. Because if
you think of how we discovered cholera, what was done was to create the
right hypothesis. That's the hard thing about science. Because if you create lots
of wrong hypotheses, it takes a lot of testing, and you waste
a lot of time. But with cholera, the genius who
found cholera in London, there was all this ideas. It's airborne. It's this. It's
that. And he mapped out London and mapped out the incidences, and went to each spot, and realized
each spot happened to have a water supply. And then he realized that some
water supplies came from the Thames and others didn't. And therefore, those
two differences were probably where the issue lay. We know that so much of human illness is driven by
factors of yet which we do not understand. And we tend to do it in lab conditions as
opposed to an AI massive data set conditions. The more you put this stuff
into massive data set conditions, the more you will find the answers
much faster. And we're not doing that yet.
JEFF BOOTH: AI sees things that we don't see. RAOUL PAL: Yeah.
JEFF BOOTH: And it's understandable because we run at
of time in our brains to be able to do the combinatory-- as you have trillions of
combinations, you can't do it in your mind. And there's no way. So
you have to take shortcuts. Humans have to take shortcuts to be able to--
And then we have a whole bunch of biases on top of those shortcuts that we
think we're right and everything else. And only in time do we realize it
was a bias. It's how the human brain works. The computers don't
suffer from that. They keep on-- And actually, if you saw what's
happening today in some of these sectors in AI, how fast it's moving, it isn't
the scale we're talking about yet. But it is making dramatic differences
in cancer prevention and some of those things that-- dramatic.
It's moving really fast. RAOUL PAL: Fascinating. Well, I'm going
to ask you-- we've been going an hour, actually. I could talk
for hours. But I've got a bunch of questions from our members. So
I thought I'd ask some of these because they're always keen to have them.
JEFF BOOTH: OK, awesome. RAOUL PAL: OK, there's a
bunch of gold, Bitcoiny ones. So "why is Bitcoin, and gold for that matter,
completely correlated with the US equities? The US dollar seems to offer a
much better hedge against equity weakness. Maybe the dollar
isn't so bad after all." So I think there's a bit about
gold and Bitcoin, just a bit more explanation over that. I think the correlation
between equities you explained, which is the printing of money is driving all of them.
JEFF BOOTH: Driving all of them. I expect that correlation to
break and Bitcoin to be, at some point, to
move way to the upside, way to the upside. But the correlation is caused by all the printing.
And so if you-- on a different show, actually, the day before Bitcoin fell a
little bit, and all equities sold off, I said, listen, if there's not more
stimulus, you can expect equities to fall. Eventually, if there is no more
stimulus, equities would fall by 80%. You would have a deflationary
depression. And in that event, Bitcoin would probably fall short term too.
RAOUL PAL: Yeah, and I've always said, it's a passing correlation
because of the network effect and everything else that's going on
in it. It's a much bigger thing. JEFF BOOTH: Bingo.
RAOUL PAL: OK, more questions. This is actually a good question
because of what you've talked about. Tech is this huge thing that's going
on and software is eating the world, and all the things we're talking
about. But is it overvalued? What does overvalued mean in--
JEFF BOOTH: That's the thing. In today, all you're looking
at, everything's overvalued. The natural world, if you just said there was no printing,
there's-- first, is $185 trillion of additional debt in the last 20 years,
is there a possibility to pay back that debt? The answer is no, right? So
what it says is without that, would there be the real value.
The debt right now is-- we're going to try to inflate it away.
And that's going-- where is value? Today, it's
relative value right now. But where is free market telling you where there is [?].
RAOUL PAL: But the problem is, if we say, OK, the government's going to
keep printing, therefore, keep owning equities, but that's not
necessarily the case because equities-- I mean, they have a significant
downside risk within them embedded as well. They don't necessarily
have to outperform in this situation. JEFF BOOTH: Yeah. But if you looked at
equities in Venezuela in the currency-- RAOUL PAL: Yes.
JEFF BOOTH: Yeah. Right And that's what's fooling people. And
so that's actually why I'm irresponsibly long Bitcoin because it fools people
to think they'll always go up. And they get caught into that trap. It's
really the currency going down. RAOUL PAL: So I looked at all asset classes in the
denominator of the G4 central bank balance sheets. Fascinating. Gold underperformed
by 50%. So it didn't offset it. Most things didn't do particularly well.
Equities over time haven't done well but in periods of fast, rapid printing have done OK.
JEFF BOOTH: Yeah. RAOUL PAL: There was only one asset I
could find anyone in the world that has massively outperformed,
yet it's correlated, which is Bitcoin. I mean, fascinating.
JEFF BOOTH: Really fascinating. Really fascinating.
RAOUL PAL: Right. I think-- yeah, this is a question I'd like to
hear as well. Is UBI, Universal Basic Income, necessary in this transition period
where we-- we haven't got to a new place yet. You can't give everybody
Bitcoin. Not everyone is going to get them. So does it help?
JEFF BOOTH: So I think-- RAOUL PAL: Or maybe the other way
of saying it is also welfare state because Europe is-- well, Europe
will probably try both. But welfare states have some of those benefits as well.
JEFF BOOTH: So capitalism itself is the best. And so what is capitalism,
free market capitalism? It's where entrepreneurs race in to try to
create value for you. And if it works, you get value. And that's good. And if
it doesn't, the entrepreneur goes broke, so does the debt against the
entrepreneur, everything. So that's what it looks like.
But because we are not all equal, capitalism values different people
at different times and everything else, it's a really fine line. And you do
need kind of checks and balances to stop that from going out of control.
So I am a free market capitalist, absolutely. It's the best system. But
it's a delicate balance. And once you start manipulating it, you reinforce
it. And that's where we are today. So you have these massive
reinforcement things that are creating problems all over the world.
I didn't answer the question yet. I believe that if you add the UBI right
now, without looking at the thing that matters, you blow up the whole system
faster. The whole system-- I think you need a total rewrite of how
things look around the world. And then what ends up happening is
you probably need some sort of social safety net and checks and balances on capitalism.
That's what I believe. And that social safety net might
look like UBI. I hate calling it UBI right now because
it just says, yeah, let's go UBI right now on top of this broken system.
And a broken system will make it-- it's going to be way worse. But do I
think we should let the whole thing fail and put people on the street
and everything else? No, I don't. And we don't have good options
going forward. I suspect as Bitcoin grows-- and the same thing is going
to happen as governments. All flows of capital, if you think about it, I could
get a golden visa to Portugal right now for my family for $250,000. And there's
a whole bunch of people. So where should I go and everything else as countries compete
for capital. If this happens right now, it happens all over the world
right now. You move because safety, functioning society, and everything else.
I suspect that's going to happen on Bitcoin. And I suspect that people that
own Bitcoin are going to be able to help write the rules for what
that looks like because countries are going to be begging them to move and
everything else. And they will move to safe havens that also have some sort of
social safety net so society functions.
RAOUL PAL: I mean, yeah, and one of the reasons-- it's no
coincidence I ended up in the Cayman Islands. And it wasn't-- it was for-- I kind
of knew where the world was going, and I wanted to be in a place where-
- it's not perfect. There's some fragility in places here. But for these
reasons, it made sense to me. But also, they're also very much looking at the
whole kind of digital assets space. And what does it mean for a
country like this? You know, what is its strategic advantage?
And there was a paper I tweeted out earlier today. Europe is starting to
move very fast down this route. I think everybody's realizing it is a competition.
JEFF BOOTH: It's going to be a competition. RAOUL PAL: And you can try and fight
it. And there's a question here about government regulation. But
the regulation is going the opposite way because they will lose people and capital if they don't.
JEFF BOOTH: Well, that's the thing. So some will close it down. Some will
close it. But because it's a distributed network, it can't be closed
down everywhere. And in game theory, as some governments close it down, they actually create more
value for other governments to accept it. And so that's exactly why that
the people-- if you just carry that forward, the people that are owning Bitcoin
have a good chance to actually contribute to the new rules of how
things should function in society. RAOUL PAL: Yeah, and people don't get
their heads around the fact that this is not a corporation. There's
nobody to send a legal notice to. JEFF BOOTH: That's right.
RAOUL PAL: There's nothing you can do. JEFF BOOTH: Nothing.
RAOUL PAL: I can move, be in a different country, get on a plane.
And I can use my Bitcoin, even though you've banned it there. I mean, it
is almost impossible. It's a virus. And viruses are incredibly difficult to destroy.
JEFF BOOTH: Yeah. I don't think you're going to-- there is no
way to shut it down. I think it's going to grow. It's going to grow on the network.
In fact, people are going to realize, wow, why do I trust a piece
of paper that I know is being manipulated? Ask that question, right?
Why do I trust that so implicitly? I trust that that piece of paper that
I know is being manipulated, and I don't trust this thing that I know can't be
manipulated. Over time, people are going to realize, huh.
RAOUL PAL: So final question. Why the hell does the Fed
not understand this? Or are they too deep in the game that they can't even
do anything about it anyway, so they might as well perpetuate the old game?
What's the final thoughts on the Fed and where this is.
JEFF BOOTH: I think they understand this. I don't think they
understand how fast this is coming, but it's the same reason I said that fold 50
takes you to the Sun. I think-- and the same reason why Blockbuster
management aren't bad people-- is once they missed the path and it's
moved so fast, there's nothing they can do.
So right now, we have two really bad choices. And because
short-term thinking in political circles, we're leaning into making it worse
and being disingenuous with the population through that. And being
disingenuous is causing heat on both sides. And so, again, that's why I wrote
the book. I wrote the book-- you're not going to stop gravity.
This is going to happen anyways. And I look at the Fed like I would
look at-- and I look at a lot of people in the system. They're not bad
people. Some are. But I look at them as the executives at Kodak, the executives
at Blockbuster, the executives at Barnes % Noble, not understanding
how fast technology was moving and thinking they could stop it like
Barnes & NOBLE by putting coffee aisles in their stores because people
love the convenience of shopping for books in my store.
So it's the same thing. And so it's not bad people. It's they're
stuck in a system, an interconnected system, that they don't know how fast the
rules just changed. And so they're trying to drive that old system on its
last breaths harder and harder and harder with their old tools, and it's not working.
RAOUL PAL: I mean, it's incredible to me that the Fed have not fully embraced an understanding of
behavioral economics. Because now, with huge data sets and the ability to use AI, we can understand
incentive systems across whole economic structures. The Fed aren't even
anywhere near this stuff. They're still thinking that putting interest rates up and
down is how you create incentive systems. I mean, this is
madness. JEFF BOOTH: Madness.
RAOUL PAL: I mean, the whole computer gaming industry figured
this out years ago. You can do anything by using the right incentive
systems, all behavioral economics. JEFF BOOTH: Exactly. In fact, I
wrote about it in the book as well. The science of how our brains work
and behavioral economics has moved so much right now that it's
embedded into the products we use every day, all the time. That's actually
why the products become so addictive, everything. That's why your iPhone
is addictive. That's why the things you use are so addictive
because it's been embedded into making it addictive into the product
design of the technology. And here's the thing. I do this. I
do this for a living. I know how fast this is moving. And I know it on all
these different tangents what you can do to be able to drive that.
RAOUL PAL: Fascinating. Jeff, really, really great conversation. I
thoroughly enjoyed it. It gave me a lot to think about. And hopefully, it's given
other people a lot to think about as well. Because what I really like about
how you've brought new knowledge to old discussions is you've said, yeah,
you're all talking about this thing over here, but you're actually missing
what is probably the much bigger thing. And I think most people are.
I think people don't understand it. They don't even understand what
inflation is. I don't think they understand this rise of technology and how
it's changing everything and that the system is just not even set up to deal
with that. I mean, there's just now way. And you know, it's sad. But there
is one option. And you know, I didn't set you up for that. I had no idea
that you liked Bitcoin. But it was just like-- it was the only thing I could
see that makes real sense as a way to-- as you said, opt out. And you the lifeboat.
When I first got into Bitcoin, I presented to global macro investor people
back in 2011. This was 2013 when I did this presentation. And I
said, OK, the world's pretty fucked. We need a lifeboat. And I created
this cartoon of a lifeboat in graphic imagery and loaded some things
onto it, of which Bitcoin was the first thing I loaded in and said, you need to
row away because everything is changing. One of the reasons I'm here is tax regimes
across the world because the other function of what's going on
is taxes will go up for everybody. JEFF BOOTH: Right.
RAOUL PAL: That's coming. There's nothing going to change that
now. And so it's all of these big things that they're all coming. And people just need to
open their eyes to it and then take action early. JEFF BOOTH: You do a really good job, and your
show does a really good job of [?] some incredible people and teaching that to
an audience. So a huge thanks to you. Huge thanks to Max, your editor, who
brought me on when I first wrote the book. And so you make a difference, and you're going to make a
difference of people having a lifeboat in what's happening. So I appreciate what you do here, too.
RAOUL PAL: Thank you. Brilliant, Jeff. Great to speak to you. And I'm sure we'll get you on again.
JEFF BOOTH: OK. RAOUL PAL: There's so many topics to talk about.
NICK CORREA: Thank you for watching this interview. This is just a taste of what we do at
Real Vision. To learn more about the complex world of finance, business, and the global economy,
click on the membership link in the description. Give us 7 days to change your life. This
will be the best dollar you'd ever invest.
This is great, thanks. Kinda scary to think where the world is going
If you Google a bit, you can find Jeff Booth's book online: The Price of Tomorrow. An interesting read.
Um, this is alarming.