THIS Is the Issue With the Legacy Financial System & How BITCOIN Fixes All of It | Saifedean Ammous

any kind of money whatever gets used is money the fact that it's used as money will incentivize anybody who can produce it to make more of it so if there was an easy way to make gold we'd all be out there looking into gold prospecting but then you know we'd flood the market with gold and then it would stop being gold and the reason that gold was money is because it was very hard to find in large quantities compared to the existing supply which i explained in more depth in the bitcoin standard [Music] moose welcome to the show thank you for having me tom it's a pleasure to be here dude i am super uneasy to make sure that i help get these huge ideas across you've written a book called well you've written multiple books but uh the one we're going to be talking about today is the fiat standard you also wrote the bitcoin standard um as i have gotten more into um understanding bitcoin and cryptocurrencies in general uh then you begin to encounter the ideas of what money is what fiat is i mean this is something i've been in my entire life but had no idea what it was if you can what i want to do is start with a brief description of what fiat is then we're going to tell people what the subtitle of your book is which i think will set us up nicely and then i have a really interesting quote from your book that i want to get into so what is fiat so the way that i wrote the fiat standard was almost like uh an imitation of the bitcoin standard it was like a knockoff of the bitcoin standard and that with the bitcoin standard i looked at bitcoin with um you know everybody's an amateur when it comes to bitcoin it's such a new thing nobody's an expert in bitcoin so i decided to just come at it from first principles try and figure out how it works look at it functionally and then tease out the implications of this thing continuing to work and operate and that worked out pretty well the book sold very well i i heard from a lot of people that they enjoyed it and they liked it and it was quite influential so then i thought for my next trick i should do the same thing for the fiat monetary system which is the monetary system that everybody uses but in a sense we've never had the luxury of looking at it with fresh eyes because you know it's like asking a fish to tablet asking a fish about what the water is like well we've always been in water it's just what we're used to so i decided imagine if um i you were coming at this civilization that was using this monetary system from scratch and you were trying to understand how this thing works or um so what what is it how does it function explaining it as if it's just another you know digital currency similar to bitcoin uh and trying to draw analogy with bitcoin and i found that to be a quite powerful analytical tool in order to understand how fiat works and it was the perfect setup for writing the sequel to the bitcoin standard since the bitcoin standard was all about how uh you know why i think bitcoin is such a big deal why i think bitcoin is going to succeed um the question that the bitcoin standard leaves you with is well then how is it going to interact with the prevalent monetary system how will this survive how is it going to grow what's going to be the relationship between the fiat monetary system and the bitcoin monetary system and in the fiat standard i thought this is really the perfect way of approaching it let's study fiat and then that will help us figure out how it would interact with bitcoin and i found that to be quite a useful framework so by drawing analogy to how bitcoin works you know bitcoin has nodes bitcoin has mining and um we have a decentralized network where everybody determines the rules if you just carry these things into fiat and then try and analyze how fiat works well you find in the case of fiat you know we don't have a distributed network of nodes we have i mean there are nodes but they're not all equal it's not peer-to-peer like in bitcoin where every node gets to dictate its own rules and then the network only works between the nodes that agree on the rules and so it's entirely voluntary well bitcoin is different well fiat is different fiat is a network where there's one sovereign node that determines the rules for everybody else and that's the us federal reserve and then there are all these partial nodes around the world that can sort of determine the rules locally you know the local central banks but then they are kind of subordinate to the uh master node that runs the global monetary system and that i think is quite um important to understanding the political situation in the world the geopolitics of the world today you know thinking because it opens up people to manipulate it because one thing i've heard you say about um if i were going to have a concern about bitcoin it would be that at some point something happens where it begins to centralize that there are fewer nodes and it becomes more likely that somebody can manipulate it and so as you start talking about the fiat standard it's like hey the entire problem with the fiat standard is that it can be manipulated now to your earlier point about this is water right um what's it brian foster wallace i'm forgetting his first name i think uh that fish don't even understand that they are in water when i before i started the journey into crypto i thought of money as a force of nature it just is a thing like gravity it it is and first principles would lead you to the axiomatic understanding that money is and it there's this paper representation of what money is that makes it easy to transfer but i had no concept of a lot of how it's entirely constructed wildly manipulated even if you assume good intent that it's it is this thing that is designed to orchestrate society and so i was like okay that was a very eye-opening introduction to things and then as you begin to peel back the layers and you realize that there is disturbing there's a disturbing setup right breaking away from gold and we'll get into that but that there is a um it's influencing society in ways that you would never have guessed because you're so used to it and i want to talk about the the subtitle of your book so if fiat money is money by decree the government says there's nothing backing this other than i say it's valuable and so as long as everybody agrees we're good i can print as much as i want i can just keep making it up because it is literally money by decree gold is money by star explosion right so it's limited because it is a metal that happens when stars explode that embed themselves into the crust of our earth and therefore there's a limited quantity so you begin to understand okay wait there's different types of money and then obviously we'll get into bitcoin and hard money and sound money and all of that but i want to give people that setup of money is not a property of nature that it is fiat is something that is created and by a ridiculously small number of nodes to use the bitcoin analogy yeah that's the um you know if we the next question is all right so there's nodes but then what about mining we know how bitcoin mining works and we know how uh well i explain it in the bitcoin standard and we know how gold mining works well how does fiat mining work so most people have the idea that it's just fiat is paper money and then the government prints it when it's needed in order to keep the economy going and that's false the majority of fiat money is digital less than 10 percent of dollars are in paper form the majority of dollars are digital dollars they don't exist in physical form so how do they come into existence and the answer to that is that fiat money comes into existence when debt is created when loans are made new fiat money is generated and this is really the key uh starting point of the analysis of the book because this is a very powerful concept once you draw analogy between lending in the fiat world and mining in bitcoin and in gold a lot of the world around us begins to make a lot of sense so any kind of money whatever gets used is money the fact that it's used as money will incentivize anybody who can produce it to make more of it so if there was an easy way to make gold we'd all be out there looking into gold prospecting but then you know we'd flood the market with gold and then it would stop being gold and the reason that gold was money is because it was very hard to find in large quantities compared to the existing supply which i explained in more depth in the bitcoin standard and in bitcoin you know we have the difficulty adjustment which continues to make mining bitcoin difficult for most people and only makes it profitable for the people who do it very efficiently the most efficient miners the ones who mine at the lowest electricity cost well in the case of fiat basically anytime a government-backed entity or central bank-backed entity is able to issue credit new money is made so what does that tell you about this is so scandalous when i came across that in the book i i literally took a note wait is it that's how loans work is this always how loans worked and money gets into the system it can you give the example that you gave in the book about how you've got a house you're about to buy a house the house exists but the money doesn't and it is going to come into existence i was like what this is still i i can't believe i'm actually understanding what you're saying correctly this seems impossible and i discovered this 48 hours ago when i started reading your book how's this true yeah well i mean uh yeah so let's say you're gonna sell me your house your house is worth a million dollars i agree with you that i want to buy the one million dollar house from you now i have two options i can take one million dollars from my money and go and give it to you in cash and then uh in that situation no debt is created and so no new money is created the money supply stays constant all that happens that i have a million dollars less and you have a million dollars more but most people obviously are buying homes by borrowing so i go to my bank and i tell them hey i found this house i want to buy it i want to borrow a million dollars forget about the down payment first for for simplicity now so let's say i'm just gonna go borrow a million dollars from the bank well the bank is not going to take one million dollars from other depositors and give them to me they don't need to do that that's the whole way in which banking works in the fiat system they will give me a loan and because they're backed by the central bank because they're a regulated financial institution that is backed and regulated by the central bank they will make those new one million dollars so the money supply will increase by 1 million dollars after that loan is generated so the bank now owns owns a 1 million loan i owe the bank 1 million dollars you have an extra 1 million dollars in your bank account which you got from the bank and i own the house so you know the money supply has increased by a million dollars it's we've devalued everybody else's money in society in order for me to buy your house and that's really very powerful when you think about it because it's like mining you know when you mine new gold you devalue everybody else's gold when you make new bitcoin you're kind of devaluing everybody else's bitcoin with the new bitcoin that you're producing and when you make a loan from a financially uh from from a financial institution that is backed by the central bank new money is created note it's not the same if i borrowed that money from my mom my mom takes one million dollars from her bank she gives them to me that doesn't create any new money my mom is not backed by the uh central bank to issue those loans great news if you're watching this episode that means you're actually doing the work to research this new world of finance cryptocurrencies nfts web3 all of it seriously i commend you most people are going to write all of this off without even looking into it and that means that most people are going to miss out on what could be in my opinion one of the greatest wealth transfers in history now look it's incredibly important that you do your own research i cannot see the future i just know that something very important is happening right now and it warrants you taking the time to look at it to do the research now if you're excited at all about learning about all of the changes then i invite you to join my special community of like-minded people on our discord by going to impacttheory.com forward slash discord since you're watching this video and learning about crypto and the future of the blockchain you should know that this really is the future of impact theory about nine months ago we decided to pivot because i can see that this is where the world is going and this is truly the moment of disruption that we've been looking for and discord really is the best place for you to begin to engage with that side of impact theory we've launched our first flagship nft the impact theory founders key and our holiday feature narrative mary mods which is also an nft project and i promise you you're going to be blown away by what we're doing we've got a lot more planned for years to come we have a long term very aggressive very fun roadmap so if you want to turn this learning into action i hope you will join us in our discord community at impacttheory.com forward slash discord all right back to today's episode so all right hold on this still i understand the words you're saying it seems impossible that this is true so how what are the guard rails on a bank because uh what was it charlie munger that said tell me the incentives and i'll tell you the outcome so as i hear that a bank can now because they're going to get the fees from servicing that loan and that means they're incentivized to loan as much as they can because it they literally get to make up the money and then take a a pull off that who limits that well what limits that is the central bank the central bank doesn't just allow them to go out and give loans to everybody although it might look like it at times there are and the central bank is is per country yeah every country has its own central bank more or less that all use this same idea but yep basically yeah this is the 20th century for you so the central bank puts regulations on what uh who on who can borrow and how they can borrow and what they're able to borrow and so you know there are criteria they're not just gonna give a million dollars to anybody although you know recently it looks like it aren't they yeah but i mean generally you're gonna have to have some income and some kind of um some kind of way of demonstrating that you are able to make those payments back and that's kind of the uh political restraint on uh fiat mining that the central bank doesn't just allow anybody to do it and that if a central bank uh if a bank issues too many loans then the central bank uh will punish it in certain ways you know it'll have liquidity problems that it might get liquidated and go out of business but in reality the real check on this is the fact that if you just issue too many loans you have a lot of insolvent borrowers and then those borrowers don't pay you back and then that causes your um you know that causes the money supply to contract so the way that we limit the growth of the fiat money is that credit creation is in itself self-correcting and that's the important insight that we gain from the austrian school of economics and the austrian business cycle of the austrian theory of the business cycle which is that banks want to create as much credit as they can and they do but then that just means many more people have money and are investing and have resources and that leads to central banks and that leads to a bubble and then that leads to a collapse and then when there's a collapse you know i can't pay back my loan to the bank well that reduces the money supply now because the bank is gone now yeah the money's gone now and the bank has the house so i'm homeless the bank has the house the bank needs to sell the house but obviously now that we've had a credit crash and the bank can't issue as much credit as it used to before when it tries to sell that house there won't be as many suckers as me like me willing to buy the house so they're probably going to get a lower uh price for it so they the one million dollar house is gonna sell for something like half a million dollar house and so this kind of process of boom and bust is what's limiting the credit money system from continuing to grow and that's kind of the equivalent of the difficulty adjustment in bitcoin and that it limits the growth of the money supply so that it's not hyperinflationary and in fact when we've seen examples of hyperinflation we have seen hyperinflation under this fiat monetary system in fact it's the only monetary system that has seen hyperinflation but when we do see hyperinflation it's not through credit creation it's when the credit creation gets out of hand and then the government wants to bail out its buddies and then they crank the actual physical printing presses that's the case in lebanon right now like the actual physical bills have gone up in circulation uh the physical bills in supply the supply has gone up by about seven fold in the first two years since the currency began to devalue so they've gone seven fold and so the price of the currency has dropped more than 90 percent um but yeah but generally yeah that's the case in zimbabwe and that's the case in venezuela because what happens is that you know you keep doing this what governments do is they keep playing this credit creation game like like an addict taking another hit of crack all the time and then you know the come down keeps uh getting worse and worse and then to ameliorate the come downs they start printing money once you get into the phase of printing money that's when it goes to the dogs basically all right there's a few things i want to anchor around for people that are like me where they have enough information to follow along but they need some of these breadcrumbs put together um so i had read your whole book and because i i do everything audio i actually hadn't seen the sub headline and i thought ah after reading this i need to see like the sub head of this and so uh i will read the sub headline which is the debt slavery alternative to human civilization okay so then it's like all right wait a second the the is this a good alternative like what are we talking about here and i want to uh read a quote from your book which you you said earlier but i think this quote really sums it up getting others is a quote from the book getting others in into debt is the fiat standards version of gold prospecting so the whole way that the fiat system gets more of this very coveted thing is to get as you just walked us through people to take on debt which creates these debt cycles which i'd heard about but didn't understand and so we are in this sort of forever boom and bust constantly pulling levers like trying to engineer the system and i'm curious to hear what what's your sort of final take on the fiat system because you you i don't want to put words in your mouth but you were basically like i want to look at fiat because it's done some good things so where is the sort of good where does it start to break down what's your final edict on the fiat standard having read the book i think i have a pretty good idea uh but what what is that the final take on this and what do you mean by that debt slavery alternative to civilization yeah so historically all through human history what humans have done is we've always looked around and used things as money and naturally whether through our reason or just through evolutionary selection money ends up being the hardest thing to produce that's why the whole world was on a gold standard by the end of the 19th century because the hardest thing to produce will hold on to its value much better than everything else is that why it's called hard money it's hard to produce exactly yeah that's what it is it's hard to produce and easy money is easy to produce so the harder our money the more reliably we can provide for our future you know you earn money today and if you if you're experiencing you throughout your life and the experience of your family and friends around you is that you save one hundred dollars today and then next year you expect it to be worth 102 for instance you're likely to save quite a bit of that money more that much more than you would save if your experience was that if i saved those 100 next year their value is going to be something like let's say 85 dollars right so by saving if you lose money from saving you're less likely to save you're more likely to spend that money today if the money is likely to appreciate you're more likely to save for the future so historically we've always moved toward harder money and that has led us to constantly save more because that allows us to provide for the future and that is the basic building block of civilization one of my favorite economists hans hermann hopper says the lowering of time preference is the in it was is what initiates the process of civilization and lowering time preferences refers to the idea that you um your time preference is the degree to which you prefer the present to the future and everybody prefers the present to the future because the present is certain the future is uncertain so if i gave you um you know choice between having a house today and having that house 10 years from now you obviously would prefer to take it today you wouldn't want to wait to 10 years so if i gave you the same choice between the same amount of money the same purchasing power today or in a year you prefer to take it today but there's the the higher your time preference the more you prefer today and the more you discount tomorrow so the less you care about tomorrow so as we develop the ability to have a stronger harder money we are able to provide for our future more we start discounting the future less we start caring about the future more we start providing for the future more and that makes us more you know more future oriented and so we become more moral we become better humans we become more civilized we accumulate more capital and we save more and we invest more and then you know the more we save the more capital we have available for investment the more we invest the more the productivity goes up the more our standard of living increases that's really the process of civilization that's really i'd like my best metaphor for it is to think about the fisherman who goes from trying to catch fish with his hands to building a fishing rod that's capital you know you have to sacrifice time fishing with your hands in order to spend that time building a fishing rod but then the result of that is that you can now have a much higher productivity after you've made that initial sacrifice and then you build a small boat and then you build a fishing net and then you build a bigger boat and then you build currently you know our civilization has advanced to the point where we have giant trawlers that last 100 years and continue to fish for 100 years you know people 100 years ago were giving up consumption to build those gigantic boats that are still in use until today so that's the process of civilization and it's a process that's spurred by the hardness of money the harder the money the more we are able to provide for our future the more we invest in the future the more capital we accumulate and that was basically the process of humanity up until the turn of the 20th century and then fiat really came along and provided us with an alternative to this where now you know gold's supply increased at around one and a half to two percent per year and now fiat's supply increases around something like 14 per year on average some currencies increase a lot more some currencies increase a lot less for the best currencies you know the us dollar in the euro and the yen and the swiss franc these currencies increase every year around seven eight nine ten percent or so um some currencies increase at 100 or 200 or so like you know the lebanese and venezuelan currencies but if you counted an average market weight it's around 14 or so so we go from 1.5 per year increase in the money supply to 14 per year increase in the money supply so that and that is happening because of the massive incentive for mining fiat through issuing debt and that's really the subtitle of the book we move from a process of human civilization where everybody is saving and accumulating wealth in hard money in order to have a better existence in the future to a process of debt slavery where everybody's getting into debt because debt is mining money that is creation of money so you have a huge incentive to go and borrow for buying your house to go back to the original example because when you buy it with your own money you're not creating any new money but when you buy it with the central bank with the bank's money new money is created so you and the bank come out ahead in that game because you're essentially devaluing the money of everybody else in society so that means everyone is in debt individuals are in debt corporations are in debts governments are in debt everybody's borrowing everybody's indebted to their future everybody's a slave essentially and that doesn't change it's not like you know if you if you get richer then you know you snap out of this game and you're secure on the contrary the richest people are the ones who borrow the most and so everybody is in debt and everybody has that insecurity of debt everybody has payments to make at the end of the month and if they don't make them they lose their business they lose their home they lose all kinds of different things so we move to the system of universal debt slavery basically and that's really what i try and explain in terms of what fiat does and i mean this is obviously a very high price but i do try and think about you know what the benefits of it are and to be entirely fair there are benefits to the fiat monetary system over the previous thing that it replaced which is that gold is very expensive to move around and that's why fiat was able to replace it it wouldn't have replaced it in a free market because the cost of moving gold is still much cheaper than this enormous cost of you know destroying human civilization and turning everyone into debt slaves but the fact that moving gold around was so expensive meant that governments could get away with banning you from using gold ultimately you had to in order to use gold as a trade as a medium of exchange as money for trade as the world became more globalized by the end of the 19th century all of people's money was centralized in banks and then all of the banks were centralized in a central bank that was just an inevitable outcome of the fact that moving gold around is expensive and so you need to have all of that gold centralized in central banks and therefore in the early 20th century when governments got into wars in world war one they all went off the gold standard they all confiscated their government their citizens gold and they all issued more paper than they had gold in reserve and since then they've gone off the gold standard and it's now been an entire century of uh this insanity and i think it has been enormously enormously catastrophic for humanity i think we take it for granted um you know we think that this is just human nature but i think um there's a reason that a lot of very bad things that happen in the 20th century aren't such a prevalent part of human nature before i think this i want to get into what that is but first i want to i want to ask a hard question which is if hard money is so good how did it get replaced by fiat and is it really just because it's hard to move from place to place or is it the combination which you were stating just now which is the government comes in and squashes it basically because you said it's not a free market so they're manipulating it somehow breaking down that free market and leveraging that it's hard to move from place to place like and ask i'm asking the same question in a different direction has bitcoin solved the only real issue well i guess two issues uh that made the previous take on hard money gold vulnerable which is that it's easy to move across time and space and it's hard hard hard meaning that you there will be 21 million units and that is it period full stop absolutely yeah that's kind of you know thanks for ruining the book i guess but uh trust me when people get into it and they see you detail like explaining the fact that you have a whole like section talking about how fiat destroyed food there is much more in the book for people to discover i mean it's like literally crazy i could have unless we read it in real time uh we would not be able to destroy the the number of ways that you you break down the hey this is water thing this thing that you don't think is a problem or that you don't even notice let's start looking at it uh it's terrifying and we're gonna go through some of it but i want i want to answer that question to see if i'm really understanding the fundamental issue here i think you know i i i i that that's that's really what it is so the bitcoin standard my first book focuses on uh bitcoin saleability across time bitcoin's ability to hold value across time and that's that's what made gold that's what made gold money which is the fact that it is the hardest money its supply increases at only around 1.5 per year and so therefore gold is excellent at holding on to its value and that's why the bitcoin standard has many examples about how hard their money eventually drives out easier money all throughout human history the fiat standard focuses on saleability across space on money's ability to hold on to its value across space as money as you move money around and that was gold's achilles heel because and in the fiat standard i look at this i look at how expensive it was to move gold around and i look at the example of world war one when gold was demonetized effectively when those countries moved off the gold standard we see that the cost of moving gold around across the atlantic for instance was around point five percent somewhere between point one to one percent of the value of the gold that you move around so that means that an a um a bar of gold um costs a bar of gold to move across the atlantic 100 times roughly 100 to 200 times you move it across the atlantic you have to pay as much as the whole bar of gold that's quite expensive you know and so that necessarily means that you can't just keep moving gold around you have to centralize it and that in my mind is the achilles heel of gold that's what makes it uh vulnerable it's not that governments went door to door and put guns to people's head and forced them to hand over their gold in the majority of the world that's not the case at least definitely wasn't the case then you know the the most important advanced economies of the world in the early 20th century they didn't do this in the us in france and europe and germany that's not how it happened but the gold was already there in a central bank it had to be in a central bank because you had to have the system of batching the transactions effectively and doing periodic clearance rather than moving the gold around with each transaction the advantage that bitcoin has well two advantages the first one is that it is even harder than gold so gold is always increasing at one and a half to two percent which means that the supply of gold the global stockpile of gold doubles roughly every 50 years or so 40 years 50 years the supply of gold will double whereas in uh bitcoin um gold bitcoin supply is never going to double bitcoin supply is uh stuck at 21 million and that's it we're already almost at 19 million so we only have another 2 million to produce over the next century or so so bitcoin supply is completely inelastic completely irresponsive to demand and then in the finance standard i compare also the saleability of bitcoin across space well with bitcoin you can move the equivalent of a gold bar which is around 700 000 right now you can move 700 000 across the atlantic with bitcoin currently for a few cents i know this is going to go up but it still has an enormous enormous enormous margin to go up before it hits anywhere near the cost of moving gold around so i think there will be um you know solutions for scaling bitcoin that are going to improve it but improve the cost of moving bitcoin around but still it's so much cheaper than uh gold and it's so much harder to confiscate than gold that i think it has a much much much better chance of defeating government centralization than gold okay so um now that i think we've laid the groundwork for people understanding what the fiat standard is what i liked about your book is there's two you can sort of break the human experience i'm not sure what the right word is for it down into really two big chunks you've got financial and cultural and in the book you detail the ways in which both of those are tremendously impacted i have a quote sort of that covers each section from your book and i want to read the first one uh now which was just it literally stopped me in my tracks and this i'm going to re it's a long quote but i want to read the whole thing so that people understand the financial side of this the implication of having a system that inflates over time and uses boom and bust cycle versus something that um deflates over time and it when you hear that i'm just going to read the quote because the the the first time you hear the numbers the the one that is bad sounds good and the one that is good sounds bad and it's i think a huge part of how people end up getting lost in all of this all right this is a quote from the book the average u.s house price in 1915 was 3 in 2021 it was 269 039 that is a compound annual growth rate in the price of the house at a rate of 4.18 over 107 years had the fiat standard adopted a fixed supply in 1914 so not inflating and prices declined by two percent per year instead the average american house today would cost 411 dollars and i can hear people panicking because that sounds terrible with a much smaller supply of the dollar prices would be far lower than they are today incomes would of course also be much lower but the decreasing price of goods means that they become more affordable over time and that saved money buys more goods every year 411 dollars in 1915 could have bought your great grandfather 12 of a house but if he had saved it and passed it on to you it would buy you an entire house today your grandfather's pocket change would be enough for you to live off of today a world of decreasing prices would provide people with a strong reason to save for the future and one can only imagine how much better living standards would be today had humanity not been afflicted by inflationary fiat all right help people understand why on earth they would want their house to be worth 411 dollars today that just seems so impossible and so counterintuitive and so zero-sum like if bitcoin can't be inflated then if i get some bitcoin it means y'all [ __ ] you get no bitcoin or at least not those so it seems to somebody who grew up in a fiat system it seems bad why isn't it bad well i mean if you think it's bad then why don't you just go move to venezuela or lebanon where your house is going to be worth 10 billion of the local uh currency so you know if you're trying to collect zeros next to your house valuation move to zimbabwe lebanon venezuela go where the hyper inflation is and you'll have the most valuable house obviously people don't care about how many zeros you attach to their um to prices of goods you know people care about the purchasing power of money and this is this is really one of those very very very um obvious insights but you have to basically um be part of or subscribe to the ideas of the austrian school of economics to um be willing to just accept this very obvious thing that any human being with half a brain will accept um you you have to you know like what do you prefer would you rather have 10 or 100 yens well 100 yens are worth a lot less than 10 so people prefer to have the 10 it doesn't matter the exact number what matters is the purchasing power what can you buy with it and so the choice is not between having a you know in in a world in which your money your house would have been worth 400 um your day-to-day transaction would be done in cents more or less so you know we'd have one cent bill and it would be probably worth something like the 100 bill today and then we'd have in some units that are smaller and then the cent would be divided into smaller and smaller units and that's fine so then yeah you could have your house be worth 400 million uh of the smaller unit of a cent or whatever it is um but the the point is that in that world where the money appreciates every year you know four generations of your family going back to 107 years ago every one of your family for the last four generations every year they had the choice of saving money that every year was going to be worth a slightly more the next year so think about your family over the last four generations and i think pretty much everybody no matter where you are in the world everybody has gone through you know you everybody's family has gone through a period in which they witness their savings um essentially um get wiped out either it would happen suddenly you know bank failure or bank collapse or financial crisis or it happened gradually through inflation but everybody has seen this and everybody has learned their lesson not to save everybody has accepted the idea that you shouldn't be saving and so everybody has been living in debt and everybody's been financially insecure and then because of that that doesn't seem true now i obviously have read your book so i know what the punchline is but i think it's worth explaining to people because i was taught to save my mom taught me to save and yet as you and i think a lot of people will feel that way but as you actually look at what society does versus what your mother may have told you to do the evidence starts to mount that people really really discount the future but give us a couple examples of how we can see that the statement that we've all been taught not to save is true well i think a lot of parents teach their kids to save but and it's pretty bad advice like if you save in the fiat standard i mean if you save money if you hold on to money you're witnessing it basically lose its value by five ten fifteen percent per year and uh you know the the kind of actionable information from understanding the fiat so you know when you read the bitcoin standard you come up with the conclusion their inescapable conclusion that you need to buy bitcoin you need to be long bitcoin because there's only so many and the world is going to find out and the price is going to go up well when you read fiat you come up with a conclusion that you need to be short fiat in fact you realize that that's basically how people get rich on a fiat standard in fact you know you look listen to people like say kiyosaki who wrote a rich man poor man you look at a lot of the successful businessmen the way to get rich is to accumulate hard assets and accumulate higher cash yielding assets while accumulating also debt you want to have your liabilities be things that are scarce and you want to have your ass sorry you want to have your assets be things that are scarce houses companies real estate stocks bonds etc and then you want to have your liabilities be fiat you want to have all dollars so in fact it turns out you know saving is good for building character for young people but really once you get into the real world you know you don't just save up to buy your house and people who do that end up really paying a lot more than if you just take a loan when you take a loan to pay the house you're shorting the dollar and then you benefit from the inflation because the value of your loan repayment goes down especially true in the case of hyperinflation you know i have friends in lebanon who had the loans to buy houses and then with the collapse of the lira collapse of the local currency now their loans are 95 discounted they have to pay them back in a currency that is so they kept they keep the house and they just have to pay very very little amount of money so the people who didn't take out loans and saved money in the bank got marked out and that's happened all over the world it happens very quickly during the case of hyperinflation but it's happening slowly today around you like imagine if you have your money in the bank if you've been saving what is your bank giving you in terms of interest point two percent one percent two percent best case scenario well you're losing every year five or ten percent or so because uh look at the price of the house that you want to buy especially if you want to buy a nice house in a nice neighborhood look at the price you know can you save up here's the question can you actually save up to buy a house in miami beach think about how much income you need in order to save up to buy a house in miami beach versus how much income you need to buy it in debt if you buy it with debt you get the short contract on the us dollar and then your repayments are going down over time and so the house is just continuously getting cheaper and cheaper you know you live in it today and then it gets cheaper if you try to save up for it i mean you need to have astronomically high income to be able to save in a savings account that appreciates it one percent while the miami beach house that you want is appreciating at 5 10 15 per year so help me understand something because as you're saying this i'm starting to think okay what do i need to take loans out on like how do i uh you know get myself in a better situation the catch is though that if i'm still getting paid in the fiat it's the the two are tied so it's going down like my purchasing power is going down at the same rate that my loan is technically getting cheaper so it ends up feeling like a wash so i guess i'm going back to then your earlier point i have to have a hard asset that's going up in value so i've got that i can't just have my my short on the dollar i have to have something over here that's going up so as this goes down i'm laughing because it's getting easier and easier for me to pay it but the key is to have to have both you can't just have one or you can't just have the debt i guess the this was like the kind of breakthrough insight that made me tie the book together when michael sailor came into the bitcoin world and started talking about how he's really what his strategy is and his idea of why he's borrowing in order to hold bitcoin and when he explained you know this is what rich people do if you're rich you have hard assets you have an old building you have real estate you have a factory you don't need to work in a fiat system you just are constantly refinancing and your loans continue to get cheaper and you continue to take out money and the goal you know is to die with a lot of debt like this is how you win in the fiat game you win by accumulating the most debt but you have to always and this is the this is the tricky part like this is all right so this is the kind of uh great um side of it is that you know you just keep clocking up more debt and running up a bigger tab on the bar and then you die and you win basically but of course the risky part and that's that's why i think you know it's not a universally good thing the risky part is that um at any month you miss a payment you risk losing all of your assets so well not any month you know it's going to be a few months but if your business has a few bad months you might miss the payments you could lose the business and that's why basically i think you know it's it's um everybody's just massively insecure and everybody is heavily discounting the future because the future is so much more uncertain in this world as opposed to a world in which we just accumulate savings that appreciate because in that world where you're trying to accumulate a positive score it's you know you're running up a score in terms of let's get as much gold coins as we can the more gold coins that you have the better you sleep at night the more secure you are the less you have to worry about whether your business is going to make it this month or not or whether you're going to end up being homeless or whether you're going to lose your business but in a world in which you have um in a world in which you have debt and you're just running up more and more and more debt the more debt you're running up the more insecure you are this episode is brought to you by peak where plants and science intersect go to peaktee.com impact you'll get five percent off your first order and use code impact at checkout to get free shipping enjoy the episode yeah it this game is is a very complicated game uh i never thought that i would need to pay attention to this and now i'm realizing how important it is to really understand how money works and finances which is why i've been doing more and more shows around it okay so i think we're starting to understand the financial implications of fiat and how people have to really understand how the system works in terms of inflation being problematic your purchasing power is going down the sort of ultimate dichotomy of what you're talking about but it's a risky game in the end now i want to start getting into the cultural implications you make a really strong case in the book that in fact earlier you alluded to it and you were like yeah that's the 20th century for you i want to read another quote from the book around the cultural implications it just happened to be one specific example that you were giving and then we can sort of extrapolate beyond that um but it really reading your book really impressed upon me how much of what i again think of culturally as just being the reality of the way that the human world works and that there is no alternative and seeing that hey a lot of things can be traced back to having an easy money system basically so here's the quote uh again it's lengthy but i think worth reading perhaps the most pernicious effect of the fiatization of the modern university is the destruction of the scientific method what passes for science now is a mix of government propaganda corporate advertising make work welfare programs for nerds and research papers that amount to meaning free irrelevant irrelevant irrelevant gibberish this sad state of affairs persists and survives because government intervention has removed the market test for success with funding for research primarily coming from government bureaucrats academics don't need to worry about real-world profitable applications of their work irrelevant research bears no cost for the researcher or his institution and with universities afforded an effective subsidy through subsidized loans for their consumers the market test for success is removed and universities and the geeks populating their offices are free to drift into a world of insignificance and corruption a world with little regard for truth the most obvious manifestation of this is the mushrooming of entire fields and departments specialized in producing completely inconsequential and incoherent noises and marketing them as scholarship what passes for humanities in the modern university has degenerated into an endless sea of angry grievances and rabid victimology consisting almost entirely of politically corrupt platitudes and zero substance the end result is heaps of graduates with zero marketable skills but a strong talent for finding ways to take offense at everything these departments continue to grow and the professors in them continue to get paid because they face no real market test and can continue to secure financing from the world's biggest money printer while railing against inconsequential imaginary and historical evils how is that if let's let's assume that we can get people to agree some people how is that the result of fiat money well um it's obviously the result of fiat money in my mind because um universities today don't operate in the market and that's that's really the key point in a in a free students can decide which college they want to go to how's that not the free market well because their choice of the choice is not which college they go to the choice reading is whether they should go to college or not and that's a choice that's heavily skewed by two ways in which the money printer intervenes the first is that the money printer heavily subsidizes student loans which you know sounds like one of these um and one of these you know apple hood and mother uh um no wait motherhood and apple motherhood and apple pie kind of ideas which are just always you know how could you be against it you know universities are great and the reality is no you can actually be against university i taught at university and i've been to universities and i spent a lot of time and i'll tell you um i i've spoken to many students where i ask them when they're finishing their university you know you've just spent all this amount of money of your father's money on university and you still have no idea what you want to do you know you could have just gone and worked in this field where you're interested for four years earning whatever you could have made and saved your father's money and now you'd have all of that money to start a business wouldn't you better off wouldn't you be better off and many of them have said yeah i would and the same thing applies obviously if you take on loans you know you end up with four years of no marketable skills or little marketable skills and then a big loan so the reason this is uh this seems like a good idea is because the concept of opportunity cost is destroyed by fiat and this is a theme that i keep returning to throughout the book the idea of opportunity cost is central to all economics everything has an opportunity cost everything sounds everything is a great idea if you don't think of the opportunity cost you know going to university for all of your life collecting university degrees until you're 90 years old is a great idea you know yeah let's do a phd in physics and in mathematics and in linguistics and in chemistry and and and and and do them all you know who could hate knowledge well but there is an opportunity cost every time you're doing a phd you're not doing other things you're not starting a business you're not earning money you're not having a job so you fiat allows us to basically suspend our conception of what opportunity cost is instead of because it's removing the market like how is it how is it doing that what is the mechanism by which it creates that incentive structure a we can't save our own money so you your money if you just put it in the bank it's losing value so you don't want to save money and b the government can just basically bring money into existence if you just give them a good idea that appeals to them so if you do something that sounds good for the government you can get infinite amounts of money for it and there's really no cost to it so they're able to make more money out of thin air and that's really what distorts all of those things in a free market with hard money the universities can't just continue to teach irrelevant nonsense all of these econ departments teaching fantasy economics keynesian economics they can't continue to teach all of this nonsense because you're clearly producing people with a very delusional perspective on the world and when they get out into the world they can't succeed with these ideas but if you're being paid to do it by somebody who has a money printer who can just make as much money as possible as is needed in order to continue to keep this out happening nobody's really paying the cost or the people who are paying the cost are society at large and so i'm not tracking this so uh how how is the government paying the schools does this only count for governmental schools does this also cover private schools is it because the loans are easy to get like in what way is the government two main ways the first one is loans to students so this is enormously subsidized very low interest rates and that's just massively tempting for people to get in because you know you can take out essentially you know a couple hundred thousand dollars when you're 18 years old i mean and that's the government mining for fiat to get people into the government mining fiat because you know education is uh motherhood and apple pie and um the other aspect of it is that the majority of university income comes from uh research grants government research grants so um the the role of the government in financing universities is enormous you know tuition fees are only a small chunk of university income and universities that rely on tuition fees are just uh they can't compete with the big universities that get government money for research so that's you know that's and i discussed in in detail in the chapter on fiat science i think you know if you wonder why is it that you know every day there's a new headline about coffee causing cancer but also protecting from cancer and wine causes cancer while also protecting from cancer and tomatoes can cause this while actually protecting it's there's an infinite supply of money to be churning out these studies um because you know people some think that this science is a good thing so um if you're in an academic position there's no cost to publishing something that is wrong but there's a very high cost for not publishing and so because of the high cost for not publishing because you lose your job you have to publish in order to keep your job so everybody's just it's a big giant um rat race where everybody's you know they're running on this mill where they're producing all these papers that nobody reads and nobody cares if they're right or wrong there's no sense of you know let's actually figure out is coffee good for you or is it not does it cause or protect from cancer does it make you live forever or does it kill you on the spot nobody cares you can publish papers on with all of these conclusions as long as you are um you know as long as you're just basically adhering by the kind of superficial standards of these papers so there's no sane kind of sense of what's the real opportunity cost because there's no market test there's no test of all right well this guy said this in this paper let's take this out into the real world and see if it actually works in that way you don't have to have the market test the market test is not applied to this and that's why you can get all these insane ideas come out of universities today and you know i begin by knocking on humanities because that's easy and everybody does it but i think you know humanity is not much better than the natural sciences because really i mean people are freaking out about the idea that cow farts are going to boil oceans and that's university research and they're freaking out about all kinds of things it's it's a constant stream of hysteria because if you have concerning hysterical findings that suggest oh no you know the earth is going to be destroyed then you are more likely to get funding there's no opportunity cost to the people providing financing they don't have to think about whether we are better off directing our resources toward this researcher or that researcher in the sense of which one is going to give us a more accurate answer they are thinking about it from the perspective of the the you know if this is concerning we need to give all the resources that we can and that's why research budgets just continue to mushroom and the amount of research that is produced continues to mushroom and the research is always headed in the way of more hysteria and more concern and more calamities you know it's chicken littleism basically as an idea because um that's the motivation if you if you go into research and say well i've looked into cow farts and i've concluded cow farts are not going to destroy planet earth well guess what you don't need more funding to study cow farts anymore that's it that's done but if i look into cow farts and i think oh no cow farts are going to destroy the planet well now i need a much bigger research budgets to look into them and i read a research center and i need to hire a whole bunch of people to look into it with me and so we see how this is reflected in many fields where we go all through these hysterias where everybody is always fascinated by this and uh of course that also helps with that also will inevitably be driven by the agendas of the people funding it it's ultimately political it's ultimately government money it's bureaucracies that are that have political goals and objectives and so they push funding toward the um kind of hysteria that they want to hear about okay so i'm going to uh see if i can reiterate all of this there are some pretty uh aggressive claims so all right you've got the government is printing money they can print as much as they want they mine uh fiat by getting people in debt one of because we're talking about universities but it really is just one of the examples you use in the book so we're just going through this example as one way fiat distorts incentives which then have these huge knock-on effects so they mine for fiat by getting people in debt one of the the sort of easy targets because it's motherhood and apple pie is education so let's make education nice and cheap so we subsidize the loans so the loans have a very low cost students take out then these massive loans to go to school but which could be a good thing were it turning out people that are extraordinarily gifted at things that the world cares about deeply and that really matter and move the needle in a meaningful way for humanity but we don't end up with that result because there is a an incentive that i don't know if it was originally tied to fiat or not but a decision was made that publishing is good okay so to keep your job you must publish i'll say i'll say the issue here is that you know think about the example of soviet cars why did soviet cars suck because they were produced in the same way that modern research in modern american universities is produced it's from the top down imagine you know it's the same thing you have a committee of people that decide which car factory is going to get funding and then they allocate the cars to the consumers whereas in non-soviet countries you know compare east german cars to west german cars in west germany mercedes or bmw they had to make their own cars and they had to come up with their own decisions and they had to then get the consumer to willingly take money out of their own pocket to pay for the car so that forces them to make cars that are good that don't suck that convince the consumer to come up with something that to come up with valuable money and pay for it but in the soviet union when the money comes from above the you know you don't even have to posit and this is kind of the key insight from austrian economics when it comes to socialism is that socialism is not an incentive problem it's not just that you have corrupt people it's not that you have lazy people socialism is a calculation problem this is the economic problem of socialism and it's something that most socialists cannot come to terms with even if you solve the incentive problem of socialism it is not uh it is not a workable system because it's not possible for the east german car factory to figure out how to make cars properly unless they get feedback from the customer unless they put the cars out and the customers willingly pay for them and the customers have a choice between their car and all the other cars and they choose this model rather than that model and then the and then the producer asks themselves why is it that they like this over that one let's focus on the things that they like let's get rid of things that don't they don't like let's focus on the things that we can make profitably if you can make something profitably that's telling you that you're using your capital productively so when you sever that process so that the money doesn't come from the consumer the money comes from above from basically the money printer you end up with shitty east german cars and you end up with shitty academic journals that produce all this pseudoscience and babble basically wow that was a really good way of explaining that okay that uh that certainly hits home central planning is an idea that runs through the book and why do we have the temptation towards central planning and how is a hard money like bitcoin or maybe to you bitcoin is the only thing that's going to make this happen how is that going to solve the problem does it shift incentive structures what what does that look like yeah i think it's it's it's all about the figurative printing press it's all about the ability to make debt into money um so what happened in world war one and the first couple of chapters of the book a little bit more history which looks at the way in which that monetary system was installed in the west during world war one you know later on in the 1930s a con artist by the name of john maynard keynes came along and wrote a bunch of stupid books about uh why this actually is a better way of running the monetary system but this is this is really just like the the the fake excuse that you come up with after you've already you know so you've totaled your father's car and then you go to your dad and you tell him you know that i actually i think this is better for you you don't need the headlights let me explain to you why cars are better without headlights um but you know they went off the gold standard in 1914 1516 there was never a an admission it was it was totally surreptitious it was manipulative it was a lie it was um done by central banks behind people's back and there was never an honest admission that hey we're going off the gold standard there's always nowhere on the gold standard we're coming back to the gold standard we're just suspending redeemability for a bit don't worry about it everything's going to be fine we're just fighting a war what example did he give for why it was this car is better without headlights well basically it's it it's it's um it's extremely stupid i have to say like i and i mean this not just you know to throw away a gratuitous insult it's a very well earned insult it's the idea that uh if you have a recession which was the case in the 1930s because they had gone off the gold standard for 20 years and had been trying to um trying to basically pretend that they were still on the gold standard while they were off the gold standard that causes recessions you know you you have um complete dislocation in the in the labor market and in all kinds of products markets where people are unable to invest and spend money in a way that is um um the the the you know that that meets uh market demands and so you have you know just like you if you had price controls in anything you get shortages and uh surpluses you had price controls over wages and labor and so that's what led to unemployment so the same answer would have been get rid of those shortages and stop the inflation and then you know it's gonna mark prices will adjust and people will go back to work just like they were working before 1914 when you had the gold standard for 50 60 years and you didn't have these um massive economic problems that occurred after abandoning the gold standard but effectively what they did is they broke the gold standard and they blamed the gold standard for why it didn't work so they what he said was these this unemployment is caused by a an insufficient amount of demand people are just not spending enough money and they're not spending enough money because we're on the gold standard and the way to fix it is for the government to print a whole bunch of money and hand it out to people and then that you know it's like getting an engine going you know you crank the engine and then it gets going so if we just throw in a whole bunch of spending the engine will get going and then we'll have more money um circulating in the economy and then that leads to more people being hired and then when people start getting hired more and more they'll start spending more and more and then the economy kicks into gear isn't that true though like i get how it devalues the money but if you're if you so you made an argument earlier that i completely buy into which is when you go to a fiat standard you discount the future and therefore people spend money so it may be a horrible reason to do it but if you do create this thing where people are discounted in the future the money is going down in value money's there to be spent you will create until the bubble bursts you will create this sense of like word i've got money i'm going to spend it so didn't it get the engine going just at a huge cost it gets a destructive engine going it gets an engine going where we save less we destroy capital we consume capital it's basically eating the seed corn that's the thing so you know if you sold all of your properties today yeah you could spend a lot of money this week like you could throw the sickest party of your life if you sold everything you owned and that's that's really the logic there so the the same kind of classical economist what they were saying is get back on the gold standard and then prices will fall where they uh will adjust to where they need to be and people will spend money as much as they need to and um you know markets will clear and the world will work as it did now did you look at it closely enough to know why the unemployment actually was happening yeah the reason unemployment was happening was because of the inflation so the the the part that the keynesian skip is the part of the history which i focus on in chapter one which is that the money supply in england more than doubled during the period between 1914 and 1920. so the money supply doubled and the suspen and the redemption of gold the redemption of the um british pound into gold was suspended so you couldn't buy gold from the central bank you couldn't just go and give them their paper and take gold because they had so much gold paper outstanding so they'd inflate the money supply and they wanted people to believe that they didn't inflate the money supply so they wanted to keep wages and prices as they were but obviously that's impossible that's like trying to um square a circle because people are uh you know there's more money out there so prices are rising and then uh because prices are rising people are unable to buy a lot of the things that they want to buy and so you end up with shortages you end up with surpluses you end up with problems in the labor market worker businesses can't hire workers because they can't sell their goods so all of this would have been solved if the bank of england just said you know what sorry we messed up we were fighting a war with the evil germans we had to do this we did an inflation we're sorry let's revalue the pound you know if they just revalued the pound it said all right it's let's go back to a gold standard but we have to evaluate it like i think it would have been 20 30 percent less revalued compared to gold exactly so the the price of gold one ounce of gold was about four pounds at that time four and a quarter pounds 425 so if they'd just gone back to a gold standard at one ounce of gold with five pounds then you know it would have sucked for people who had savings um but it would have been just one time hit and then you're back to building on a solid foundation you're back to having a a free market economy where prices reflect fundamentals and where wages will adjust in a way that gets everybody working but as long as they were trying to manipulate this as long as they were trying to hide that deception they continue to suffer from the problem of unemployment and then and and like the really the really scammy thing about it is that what you're doing by printing money is the same thing as you would do if you just let the wages fall and keynesians are the only people stupid enough to think that uh people people would rather earn less money with more numbers or less value with more numbers than um you know the same amount of value or with uh smaller numbers it's it's it's ridiculous it's the same example that we were mentioning earlier about the house the keynesians are the only people who would tell you know it's better to live in a house that has a lot of zeros next to its valuation they're the only people who would move to a higher inflationary economy because that would mean that they could buy a house that's worth a lot of trillions of dollars it's it's nonsense so you know the workers needed to take a pay cut and that was the result of the inflation if you didn't want the workers to take a pay cut you shouldn't have done the inflation but the government's because they it was a democracy they had elections they didn't no president or prime minister anywhere in the world wanted to be the one to go up and say hey guys sorry the minimum wage has to go down you have to start earning less that's just political suicide so what you do is you print a lot of money and then the real wage drops even though the nominal wage stays the same and so you know your salary was 100 let's say and it used to be that well if you just take 80 everything would go back to normal and the economy would revive and we'd be back on a gold standard well let's just print twenty percent more money and now your hundred dollars are worth eighty dollars and now we didn't give you a pay but you still get the hundred dollars exactly you just don't get the hundred dollars of value exactly that's really all that's the keynesian scam in a nutshell and like keynes admits it and and and it's it's the book i think is is is an absolutely pathetic uh intellectual exercise of just equivocating and um trying to justify this and trying to find ways of um [Music] making this explainable unacceptable by somebody who just um clearly had no understanding of economics in any meaning really interesting so i buy the argument what i will say is that as you have pointed out you've got it will be more palatable and so when you're what i i know virtually nothing about austrian economics but the little thing that i do know which is that it's an acknowledgement that humans derive value subjectively in their minds now it might be based on something but ultimately you need that subjective layer it seems to me again i know even less about keynesian economics than i know about austrian economics but it does seem to even though it's gross and i don't like it that they're taking advantage of this that keynesian economists are saying look it's just reality like people aren't going to respond to that and people would whether they should or not they would rather have a house that's valued at you know 269 000 than 411 dollars it just is and if you ignore that fact you're going to ignore it at your own peril and while i actually think they are wrong and i in my limited economic my limited ability to understand economics um find myself gravitating towards your argument i can't help even as i invest into bitcoin i cannot help but have unease about what happens societally at least through the transition you know maybe just like you said hey just suck it up it was you were getting a hundred dollars you're going to get 80 value no matter what so let's just call it 80 i worry that in that moment there is in that moment i don't know if that's a year i don't know if it's 10 years but as we transition to a hard money standard because you've said over time societies that can always do move towards hard money and it certainly seems like we're moving towards hard money now but that there will be a reaction and there will be a reaction from some people there will be a reaction from governments and while it's gross at least as you present the keynesian side that is gross i'm with you i don't like it doesn't feel right but there they are hinting at a truth of human nature that is going to we are going to have to deal with reconcile something when people start getting real upset that their money isn't worth what they thought it was i think that's um that's that's incorrect because the the reality is they try and present it the keynesians always try and present it as if they're out there looking for the little guy but the reality is they're just looking out for the big banks and the government they're looking out for the people in power to keep everybody quiet like hey let's just keep not even that not even that not even that because the real the people who would really get hurt from this the people who would really get hurt from the kind of so what what we're arguing against is here's the thing like again it's it's it's the cane it's the fiat idea of opportunity cost not existing that even makes the debate frameable in these terms if you're going to inflate if you're going to have the ability of the government to just get off the gold standard and continue to inflate it's not like you're just going to solve this problem once and for all and then it's over then the the you know this inflation is going to lay the groundwork for the next bubble with the next credit expansion when then we get the next uh um crash and then that would require the next set of adjustments which is going to require more credit expansion so the choice is not you know we just take the pain once um and then we solve this problem and we prevent social unrest it's we get into this problem we get into this world where government and the banking system have the ability to constantly make more and more money to their benefit while presenting it as if it is to the benefit of the working class while constantly screwing over the working class who are constantly going getting laid off and going through these business cycles that's one side of it on the other hand we have an actual example of what happened when you know this kind of unpopular um supposedly catastrophic and apocalyptic path was taken and that was what happened in the us the us did not do what the british did in 1920 after the war the u.s actually did go through a recession in 1920. the u.s went back on the gold standard in 1921 or 22 i'm not sure exactly i mentioned in the book and then it suffered a short and sharp recession and fortunately for the us apparently at that time president calvin coolidge was a guy who knew how to have fun and had more pressing things to do than go and destroy the economy with keynesian insanity so he was throwing parties and um enjoying himself in the white house while the recession basically it was a painful recession that went on for a few months but then after that recession was over the economy recovered and then you had a massive boom in the 1920s so britain on the other hand continued to suffer through this pain of constantly seeking to lie about the fact that they went off the gold standard and couldn't go back on the gold standard throughout the 1920s and so its problems continued to get exacerbated throughout the 1920s and then what they did effectively was export their inflation problem to the us beca and i discussed this in detail in the book the british central bank bank of england basically convinced the french and the american central banks to inflate their own money supply in order to prevent the flight of gold from england to the us because in the u.s in england okay you couldn't redeem your pounds for gold but you could redeem your pounds for dollars which you could then redeem for gold in the us and then ship your dollars to england so people continue to do that and they would sell there and that would cause the gold to leave england and so the english somehow convinced the poor american really simpleton central bankers that the that the way to fix the problems of england was to have inflation in the u.s and that's what led to the big inflation of the 1920s which led to the great depression which led to the stock market crash of 1929 and then the great depression so we have the test of that we had we've had these examples many times across history where you have the quick sharp painful recession for a few months and then life goes back to normal and everybody recovers and on the other hand you have the system where we're constantly inflating more and more which is what happened in the 1930s both in britain and in the u.s and that serves people in power people in government and of course it serves banks because you know the the biggest creditors are banks the biggest borrowers are banks they're the ones who benefit the most from the devaluation of the currency because they're the ones who owe the biggest amounts of money wow okay so the plot thickens uh as you were explaining all that i thought okay then if people been playing all these games with money this whole time and smart people already sort of understand the game and bitcoin is a better gold than that all sort of fingers point to gold as being uh it should give us examples of what bitcoin is going to look like in terms of how it settles into um the the basket of offerings if you will so if we know that we're deflating the currency over time it's value and that we want hard assets why isn't gold because like there's a a picture being presented of like yo bitcoin is going to be worth a gazillion dollars like this is crazy just hold it but that didn't happen to gold it hit some sort of threshold and then it just sort of wavers so is that because gold is still deflationary at two percent a year and that creates that gives it that sort of ceiling or is it that bitcoin is only ever going to match gold and so we're just replacing that and it's you know i mean look it's interesting it's very valuable to be trillions of dollars but it's not going to be that thing that just like keeps eating more and more asset classes because if people didn't react to gold like must have it why would they react like that to bitcoin because again it goes back to the point about gold's spatial saleability gold just can't play the role of money as long as governments don't let it play that role it needs central banks it needs complicated settlement infrastructure and all of that in order for that to happen uh you know you need the permission of governments you need physical infrastructure to allow governments that gov in physical infrastructure to be allowed by governments to operate and so that's why today you know um and in the fiat standard you know i look at where if you want to think about what is gold's what is bitcoin's potential uh gold is just the first uh the first wrong of the ladder really because gold is not what people use as cash today like how much of your portfolio or the average person's portfolio is in gold today very little some people hold significant amounts of gold but the vast majority don't and you still hold cash but your cash really in in a sense there are two things that you can hold in your portfolio you can hold cash or you can hold investment investments are equity that yield a return and they have a risk so that's the risk part of your portfolio cash is something where you are trying to be conservatives you don't want to you don't want to take a risk with it you want to just hold on to it the point of it is that it holds on to value so what do people use today that is not meant to offer risk that is meant to hold on to value physical cash is one thing a saving account is another gold is one small thing but the major one you know the major part of people's portfolio that plays the role of cash is bonds bonds because they don't have equity risk so you're you're you have senior uh creditor uh you know if you if the company that is issuing a bond goes bankrupt the bond payers the bondholders get paid before the stockholders so that's why people want to hold bonds and of course government bonds you know you get the government being able to print money which makes things easier for you so in a sense gold can't fulfill these functions because governments want their bonds to replace the function of gold that's really the kind of scam they want you to hold their bonds because that just gives them money allows them to print money allows them to finance themselves allows them to find us all the stupid [ __ ] that they like and so we have you know the total uh gold uh market in the world is something in the range of around 10 trillion dollars but the total bond market is somewhere in the range of 100 to 140 trillion dollars or something like that so exactly so man maybe i just have not been paying close enough attention but the bond as the governmental dirty trick of creating a gold-like safe thing uh whoa okay that's uh one that's exciting from there's a bigger asset class that people are already using for this thing because when i i listened to michael saylor a lot and again maybe i just never heard him say it or wasn't paying attention somehow but haven't thought about that people often talk about you know is it going to start eating into real estate because real estate is used as a hard asset and i was always like but real estate you can live in so there's like a thing i just can't see real estate ceasing to be a thing um but bonds i can see bond ceasing to be a thing yes that's kind of one of the uh one of my conclusions of my analysis in the book that i have why in in one of the final chapters i basically argue bitcoin's going to end this entire barbaric idiotic practice of bonds i think bitcoin is going to eat the bond market i see no reason for bonds to exist in a bitcoin world i think bonds exist because borrowing is the equivalent of mining and bonds are debt and that's why bond issuance is so profitable but this has just been abused to a point right now where i mean uh you know governments um highly highly irresponsible governments have bonds that are trading in the billions it's it's insane that people give them this money and it's it shouldn't be the case um if you look at say for instance you know the us government is at a triple a rating but if you looked at its balance sheet and you were if you treated it as a corporation and you looked at its balance sheets and i discussed the details of this you know like what a bondholder if you told them all right look at the numbers let's say you knocked out three zeros from the numbers and um you turned it from trillions to billions and he told them here's a corporation let me see what you think of their uh their rating they would not be a triple a rated uh bond they would be junk bond they'd be you know b plus sorry b minus or double b or something like that depending on which rating but they'd be junk firmly in the junk category and that's the us government and then you know you look at the rest of the other governments they all be um subjunct they would not even get on the bond market if it was like that and i think um simply because they spend so much more than they make exactly and the only reason that they can get into bonds is because everybody is counting on their ability to inflate their money supply and devalue their people so the bond market is just it's evil through and through wow uh when you say it like that it is um it doesn't sound good man this is crazy this is crazy i have stepped through a door that uh i did not see coming um so as i walk through this door and i have more and more realizations like this that the bond market is i'll say potentially evil i have i'm just so new to me as a concept uh but ooh i don't have any arguments against it as you explain it but i mean look at it today you know you're even the best bonds are not keeping up with inflation like even if you're taking on risk with bonds and you're getting high interest rate you're not keeping up with inflation so the entire practice is just falling apart and uh holding on to bitcoin is so infinitely better and it's so much more secure and it doesn't have default risk it's uh that's that's that's the real jackpot you know gold is just going to be the small little appetizer that we have before devouring the bond market i think whoa i'll be turning that into a clip uh jesus man okay so now my next question and this is the one that uh i think about maybe more than i want to this does this happen peacefully because it doesn't seem like the government is going to let go of their ability to create bonds uh and other things just the ability to print the ability like saying out loud that the government or anybody is using debt as a mining mechanism to bring value to themselves like whoa don't you think at some point that there is going to be i mean china's obviously already said [ __ ] this like no crypto for you or at least no non-governmental crypto uh does bitcoin take over peacefully uh you know i don't have a um i i don't have a um a crystal ball i don't know um the the kind of uh conclusion of the book is and and the really powerful thing about remember when we we've started this discussion i told you you know approaching uh fiat from the lens of um how i analyzed bitcoin would be the best way to try and appreciate this question of how is it that bitcoin um arises and i think i came up with a very very important conclusion from this which i think is pretty original i don't think anybody else has uh mentioned this before which is that what we are doing with fiat is that we're monetizing debt and what bitcoin is doing is it is monetizing a hard asset just like gold but with wings it can fly very easily so this means that with uh as as a goal as bitcoin continues to get monetized we our demand for holding on to debt and our demand for needing to get into debt are both reduced so people think all right well bitcoin rises that means that everybody dumps the dollar and the dollar goes to zero but that's only one side of the story the other side of the story is that as bitcoin rises people don't get into debt and therefore don't issue debt and therefore the issuance of the dollar declines as well so not only does the dollar's demand decline but also the dollar supply declines and so i think there's a case to be made that this is uh an upgrade this is this is a technological upgrade this is the free market coming up with a genius solution to the problem that is this fiat cancer that the world has because it's going to we're going to witness the bitcoin economy appreciate more and more and we're going to witness the um fiat economy um basically drift into more and more irrelevance the supply of fiat is going to contract because people are going to be issuing fewer debt less debt fewer bonds you know people are not going to want to hold on to bonds so you you think you know if you extrapolate michael saylor and you extrapolate el salvador you extrapolate all the bitcoin holders they're taking out bonds from their portfolio and they're buying bitcoin so they're reducing the demand for the issuance of bonds they're reducing the demand for the insurance of more debt and they're causing so there's no reason that that should lead to a massive collapse in fiat it is just going to lead to the bitcoin economy growing and appreciating while the fiat economy stagnates and the value of fiat continues to do what it is always supposed to do which is shrink in real terms and in fact the reason why i think i mean i if i were to make it the optimistic case and i have known to be delusionally optimistic before i'm a liverpool fan who spent 30 years thinking liverpool are going to win the league every year um but then they did win it after 30 years so it's not entirely you were right yeah i was right yeah so to make the kind of delusionally optimistic uh case here is that um the people who have power in the world are all in debt the people who have money the people who have wealth are all in debt and perhaps you know maybe bitcoin is taking away their ability to print money but bitcoin also devalues their debt and that's a great thing so if this you know if we just the next 20 years are just a continuation of what we saw in the next in the last 10 years all of the world's most powerful people are going to witness their debt liabilities uh wither away into tiny fraction of what they are in real terms and the best way for them to do that you know that's a great thing so they will hold less and less and they can accumulate dollars uh sorry they can accumulate bitcoin and as they accumulate bitcoin you know they benefit from the bitcoin appreciating and they benefit from their debt devaluing that's the michael sailor strategy so as more and more people do this we reduce the supply of dollars we reduce the demand for dollars and we reduce the value of dollars and that works out fine for um the people who have power and the people who have influence and the people who have money and the government's even like you're basically giving everybody uh that jubilee that's kind of the argument that i put in the last chapter bitcoin can be the global debt jubilee because it's i'm just gonna make that worth less and less and less and it's going to allow us all to upgrade one at a time you know as we grasp what is going on one by one we upgrade uh into a superior technology i think we'll have you know we'll have hyperinflations we'll always be having hyperinflation but when we do have those if they're not going to be caused by bitcoin they're going to be caused by insane governments like the lebanese and venezuelan governments doing what insane governments have always done but um [Music] i think the long-term perspective here is that um in the long run i think bitcoin just continues to grow and fiat continues to wither away but i have to say that was the kind of idea with which i started writing the book but then the whole cove insanity happened and now i think with all this noise being made about the central bank digital currencies that makes me um less delusionally optimistic about that scenario because i think central bank digital currencies take away that property of fiat as being debt and turns it into just basically the equivalent of the money printing remember i was saying earlier that when you get hyperinflation it's always when we was it's always when the government just stops um it's always when the government shifts to cranking out new physical pieces of money well central bank digital currencies are the equivalent of running the printer but digital printer and there's no restraint in terms of the credit creation that goes on and there's it's just straight up inflation with credit creation with credit money with fiat money you know the the credit creation leads to a boom and then there's a bust and the money supply contracts and so that is a restraint on the growth in the money supply but if you're just printing out money and handing it to people and um buying their votes essentially which seems to be the case of what's going to happen i think things are likely to get uglier and fast why would that make things uglier because there's no business cycle there's no restraint there's no uh uh there's no so we won't get the bus it will just be inflation inflation inflation inflation exactly so since most of the money that's injected back into the system is done digitally anyway i think earlier you said 10 physical 90 digital um why is removing the 10 of the physical so potent potentially that i don't understand that um it's not about the physical it's it's about the fact it's it's not that you're removing the physical part it's um the the converting the physical to digital is inconsequential it's the fact that um well it's inconsequential in itself but the important part is that it allows you to replace the credit dollar with straight up central bank digital currency and so that currency now exists it's basically physical but it's i see so before because the money wasn't real anyway when the value disappeared because you couldn't pay your house poof that money is now out of the system and so there was a constant sort of rebalancing but now we're making a physical it's digital but it now exists i can track it it's a it's a thing on a blockchain presumably that now will go on forever so there's no check to make it evaporate exactly whoa okay interesting save uh yeah this is very intriguing and terrifying and exciting i don't want to lie i'm more excited than i am scared if i'm completely honest and like you i may be delusionally optimistic but that is uh that's interesting i have no ability to prognosticate about what is going to happen in that scenario it is something very interesting to think about um man your book blew me away absolutely incredible your interviews are always amazing where can people find out more about you follow along on this crazy journey my website safedeen.com you can buy my books from there and you can sign up for my website where i offer uh courses in economics and the economics of bitcoin and economics in the austrian school tradition so you can join the membership on my website safedeen.com you can buy the books from there and i'm also pretty active on twitter at safedeen and there's also my podcast the bitcoin standard podcast amazing awesome dude thank you so much for joining me this is incredible i hope this is the first of many and speaking of first of many if you haven't already be sure to subscribe and until next time my friends be legendary take care peace

Channel: Tom Bilyeu

Views: 216,439

Keywords: Tom Bilyeu, Impact Theory, bitcoin, fiat currency, cryptocurrency, crypto, fiat currency vs gold standard, gold standard, Saifedean Ammous, the fiat standard, the bitcoin standard

Id: Gbr_Uz_NdZ4

Length: 96min 44sec (5804 seconds)

Published: Tue Dec 14 2021