{ "episodeId": "SLP145", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "rahim_taghizadegan": { "name": "Rahim Taghizadegan", "role": "guest", "tag": "RAHIM" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.91, "text": "Hi and welcome to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today, for episode one hundred and forty-five, I've got an interview with Rahim Taghizadehgan about his book The Zero Interest Rate Trap. But first, a word for the sponsors. This podcast is brought to you by Kraken, one of the world's leading Bitcoin exchanges. They are one of the longest standing Bitcoin exchanges in the space. base, they're consistently rated the best, they offer a high quality platform with some of the best liquidity available in the industry. They have high trading volume and low fees, with no minimum or hidden fees. 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It comes in a wheel shape, it masks the words of your seed, unless you open the padlock tamper evidence seal, so you know it's been opened. CipherSafe are changing up the stainless steel alloy used so the product provides more corrosion resistance, and otherwise it scored an A on heat and crushing on a recent round of physical seed testing. Make sure that you or your loved ones have access to your bitcoins if an accident occurs. The orders are going out in early February, so go and order yours at safesafe dot io. So today for the interview with Rahim, he is an Austrian economist from Austria, and so we talk about that in the interview, and Rahim joins me to talk about the problems with central banking and the social consequences of fiat money. So if you've enjoyed some of my earlier episodes on Austrian economics, or perhaps episode fifty-one with Guido Hulsman, I think you will really enjoy this This interview, we talk about some of the problems with central banking, what governments are unable to do under this environment, what impacts that has on the capital structure of the economy, and importantly, what are some of the social consequences of fiat money? So here is the interview. Welcome to the show, Rahim. Thanks for having me. All right. So, Rahim, I had the chance to, read your book and, I was looking into a bit of your background. I think you've got a very interesting background. On your profile, you list yourself as the last Austrian, Austrian economist. Can you tell us a little bit about that?" }, { "speaker": "rahim_taghizadegan", "time": "04:34", "start": 274.35, "text": "Well, yeah, the reason is more unfortunate is that the Austrian school disappeared in Austria, and the last members of the Austrian school, most of them moved to the United States, some elsewhere. But it was only in the US that the tradition has formed again from people really claiming to be members of the Austrian school. And I, I got to go to the United States, quite a long time ago already as a nuclear physicist at the time, and, I was studying economics on the side in Austria, and I never had heard about Austrian economics, so, it just, it, it grabbed my attention in the United States as somewhere read or heard, people talk about Austrian economics, and at first I thought it was Economics of Austria, but then I realized it's a whole tradition that really had disappeared in academia in Austria. So then I had a chance to learn from the last, representatives of that school, and, interestingly, they were German, German, speaking, like Hans-Hein von Hopp, he became one of my teachers, and there was another student of Hayek, who remained in Germany, was Roland Bartha, but he didn't teach at university, he was, entrepreneur and independent scholar, but- He got to be my second teacher, and so then I immersed myself in this tradition and I tried to bring it back to Austria and, since then I've been teaching Austrian economics at university as well in Austria and, I'm the last one doing that, so that's how I consider myself the last Austrian, the Austrian economist in the direct tradition." }, { "speaker": "stephan", "time": "06:08", "start": 367.56, "text": "Certainly an interesting story. And, Rahim, tell us a little bit about Scholarium and the institute. What's that about?" }, { "speaker": "rahim_taghizadegan", "time": "06:14", "start": 374.35, "text": "Yeah, about, twelve years ago, I, founded an institute with a colleague, of mine. And, what made us found an institute was that we were a bit frustrated at the university. I mean, it's not much better than, elsewhere, mainstream academia, in particular in the social sciences, and, back at the time, there seemed to be an economic- Crisis looming and, some Austrian economists really had good timing back then, and I was fortunately, among them. So there was quite an impetus to start, as a research, an educational institute, entirely privately funded, by people who saw some real value in it and got some real value out of it, during, the last, economic correction, because, business cycle theory turned out to be quite useful to understand the dynamics, and even to try to apply it For investment, decisions, so that, that was the impetus for the institute. It has grown, quite a bit over the time. We now have a full-time study program, and we try to bring back the Austrian school as it was meant to be as an interdisciplinary research program. we try to be a little bit of ideology, so it's really about a deep interest in how the world works and how human beings work, and we combined it with the other traditions that arose out of Austria at the time, in psychology. And, political philosophy, and so on, history as well, so that, that's what we try to do, and I think Vienna is a really good place to do that." }, { "speaker": "stephan", "time": "07:48", "start": 467.71, "text": "We have this book, The Zero Interest Rate Trap. Do you want to set the scene for us a little bit around why you wrote this book?" }, { "speaker": "rahim_taghizadegan", "time": "07:57", "start": 476.9, "text": "Yes, of course, because there's a lot of talk about monetary policy at the moment, in Europe, but as well, in the United States, and we've seen- the Fed, taking the lead before in lowering interest rates and going for quantitative easing and so on after the last economic correction, and the ECB has more or less followed suit, but in Europe it seems to be more traumatic because, more or less the euro, the whole currency and the whole project of the European Union now depends so much, on this kind of monetary policy, and, if there's failure of this project, it'll have a lot of political implications, so there's some political- The turmoil already in the European Union, quite a few member states going their own way, we have this huge conflict about the mass migration, coming to the continent, so it's m- a lot more politicized, maybe and, a lot more crisis in different areas seem to be affected here by monetary policy. it's not too different from the United States where you also have this kind of polarization and in the political debate, but, there's a larger diversity, in Europe, so, more aspects are affected, and, that moved us into not only understanding this kind of monetary policy, but, also, its societal and political implications, and that hasn't been ana-analyzed so far, this deeply, and that's what, what we try to do with this book." }, { "speaker": "stephan", "time": "09:29", "start": 569.42, "text": "So for some of my listeners, they-- not all of them were into Austrian economics before getting into Bitcoin, some of them came into Bitcoin And now they're learning a bit of Austrian economics, right? And so for some of those listeners, I would typically recommend that they would read a book like, What Has Government Done to Our Money? By Murray Rothbard, and, that they should read The Ethics of Money Production by Guido Hulsman. and I think those books together will help give some insight into like why we ended up in this problem today. And also, I think The Ethics of Money Production by Guido Hulsman also touches on, some of these cultural and spiritual impacts of- Of inflation on society, and I view your book, it's, it's kind of also touching onto some of those points and expanding on in a further direction. but for somebody who may not be as familiar with the Austrian story around, okay, why is central banking, a problem? can you spell out some of the, the reasons why an Austrian economist is skeptical of central banking?" }, { "speaker": "rahim_taghizadegan", "time": "10:31", "start": 630.76, "text": "Yes, because we see, money as a, a social device which will help interaction, foster peace. Interaction, and so we're wary of any kind of intervention, in, in prices and interest rates and prices, well, any particular money. And there's, very few historical laws, but it seems to be one that's, that's almost without exception. I think there are only two exceptions in history, the monetary base has been debased, by those in control because it's very tempting. It's like a hidden tax, so it has been done all around the world in almost every epoch. and, one of the m-main outcomes, of this intervention has been the, easiness, to finance wars. So there's been a lot of destruction to this, kind of intervention, and money in this kind of hidden tax and transfer to the plunderers of society and basically unproductive, or even destructive, ventures, so there's a quite of a historical backstory there, but we are now reaching a new terrain and, this turns out to be quite, interesting, in many senses. I mean, most economists, particularly from the mainstream, wouldn't have thought it impossible, to reach the kind of state of monetary policy that we're in right now. and I think the deep understanding of monetary theory, by Austrian economists, in particular Ludwig von Mises, and of course, Carl Menger before him, helped a lot more in understanding what's going on and really analyzing it, because not much has changed in the idea, in the ideologies around Funding, monetary topics. We are right back at the same discussion that we had in the nineteenth century between Karl Menger and the representatives of the historical school. and those representatives were mainly following, Mr. Knapp, Professor Knapp, who claimed that money is always a creation of the state. It's just a legal entity, so it's just by fiat, it's, it's a convention set by the state, and that's everything you need to know about it. So, and Menger of course had The other approach of looking how certain goods are discovered by people in directions to have a higher liquidity, a higher marketability, so he's looking at really the dynamics of exchange and interaction and, and the spontaneous discovery of market participants and, it's not really a story about the history of money, it's a story about the function and the ontology maybe of money, and it's really important to have that point of view as well. Doesn't say that Knopf was wrong in everything, but of course- It's a negation of this kind of really understanding empathically what people try to do with money, what are the potential uses, functions, and problems with money. You don't get all the part of the story and it's basically the people side of money, and you only get the conventional side, and that leads to political hy- hypocrisies, I call it, and then we can see in particular the ECB policy and the EU policy is kind of technocratically trying to steer things. They can really understand and they can really control in the end." }, { "speaker": "stephan", "time": "13:38", "start": 817.99, "text": "Right, yeah. And so it's like you've got the charlatan state theory of money, and then on the other hand, you have the Austrians who are saying, \"No, no, it's actually spontaneous. It's coming, it's a bottom-up thing. It's not like we explicitly agreed, 'Oh, this is the most saleable, this is the most liquid.' It's, it's just over time, it just emerged, right? \" and so we see that, and we con- we contrast And then you look at what, say, a Keynesian might be thinking, and up until, you know, recently, his-historically speaking, they, they would have referred to it as the zero lower bound, right? So what, what are they referring to when they talk about, \"Oh, the zero lower bound,\" and why are we now actually going past that?" }, { "speaker": "rahim_taghizadegan", "time": "14:25", "start": 864.95, "text": "Well, to Keynes, the interest rate was a kind of liquidity premium, so we really won't have thought about zero interest rate, neither, and of course, it's a bound, but it seems Logical bound, right now, it's that, we've had a real negative interest rates for quite a while, that just means the depreciation, of, of money and purchasing power that people don't realize. and what, the central banks are reluctant to do is to go to nominal negative interest rates, because, and I think it's quite likely there'll be a psychological barrier, it'll, I mean, even for people with no idea about money, that's what they understand is nominal values, and if they see Nominal value of the savings decreasing, they might panic, they might withdraw money from their banks, they might go into cash or other assets, of course. And, of course, that's been going on for a while, but it might, may have this self-increasing tendency, which then leads to a flight of money, and that'll be really bad for the change rate of the currency which goes first, for negative nominal negative interest rates, and, it'll be good for wealth assets again, but, yeah. That's, that's, I think what central banks are afraid of, they have get another kind of dynamic, which is, self-increasing by itself and can't be controlled anymore." }, { "speaker": "stephan", "time": "15:44", "start": 944.24, "text": "Yeah. And, and interestingly, I note in the book, and you talk about central banking and the impact that they have on society, and you point out there's actually a study by, is it Elijah Brewer and Julapa Jagtiani showing that commercial banks actually tried to invest money to reach the status of being systemically relevant, which is like a very, in their view, that's Irrational, but from the system point of view, that's very irrational. Can you outline a little bit around what, what is that, what's that meaning of the systemically relevant and why they're trying to play that game?" }, { "speaker": "rahim_taghizadegan", "time": "16:13", "start": 973.38, "text": "Yeah, because more or less, central bank monetary policy has been with just produce, the fiat money to buy off any assets, and they've become the last bad bank of the system, buying up all the toxic assets, as they call it, in order to stabilize the system, but of course, it does they create incentives Reckless behavior, and, the focus of big institutions like banks and big corporations, and so on, not to do productive work, innovative work, but somehow trick the system. And everyone, in a way, has to trick the system. I mean, that's how, how you make money by investing is you try to trick the system, you try to anticipate what central banks will be doing, thus you render futile what they're doing, and then so it's like anticipating a second order thing, where this increased liquidity we- Go in which assets, and you can make a lot of money by being good at anticipating it, but that, means that more and more money has, less of a productive, function, as quite kind of a way, to just like try to game, the system." }, { "speaker": "stephan", "time": "17:21", "start": 1040.58, "text": "I think, maybe tying back to some of that point around the zero lower bound and so on. So obviously from an Austrian perspective, we're skeptical of some of these ideas, but someone who's coming from, say, a Keynesian point of view, they might There's this output gap, and we need to lower the interest rate to try and, kind of juice the economy or stimulate, and so that is the-- that's sort of like a Keynesian paradigm, and we're sort of stuck in that paradigm. How would you-- Is that, would you say that's like a fair way to summarize it, or how, how are you thinking of that idea? And how, how would an Austrian come back to that and say, \"Well, no, actually, that's not right.\"" }, { "speaker": "rahim_taghizadegan", "time": "17:59", "start": 1078.64, "text": "Yeah, I think Keynes, if he was alive, he'd, he'd be surprised, and I don't think you can really call Keynesian what we have now, the paradigm. It's a kind of neo-Keynesian mixture with monetarist, ideas and of course a lot of modern monetary theory now coming in, lately. so it's a kind of mixture, and I think it's a technocratic perspective, which, for which is all quantitative aggregates, of money flows, and someone being on the lever and just- increasing money there and decreasing money there, and that of course misses the picture what all this thing is about, what all the economy is about, and that's, fulfilling the preferences of people, and, the more you intervene there, the less it fulfills this function, and the more it becomes a futile project of just, employing people, by paying them slips of money or dig-digital, kinds of money, which they then spend senselessly, and so on. And that's not what the m-- was meant By the analysts of the Austrian school, I mean, Mises gave a very good definition. He thought that the, market, the market economy is where the consumer and the saver decide about the production structure, so and it's like every cent they spend, is, is, is, a, a, a voting, as, as a vote that they give on, on the market. and I think, we've seen less and less of that, so I wouldn't call Economy, even, it's a kind of a, a mixed, economy where more and more of the productive structure isn't determined by the preferences of the consumers, and particularly savers, which of course is the other side, of consuming. If you can't say no, then you're not really sovereign, and it's all about the sovereignty of the consumer and, and the saver, and that's, what's really worrying, me, we, you get a kind of reaction towards what's perceived as a market economy, perceived And factor is less and less. So" }, { "speaker": "stephan", "time": "20:01", "start": 1201.1, "text": "it's very ironic, but people look at the system today and say, \"Oh, look, it's late capitalism,\" when really what we have is a very strong amount of government influence and interference in the market for money. Now, I think an important point that might be good for you to explain for the listeners is just that point you were making around the structure of production, right? So it's not that, goods are just magically, created, right? There's a structure to that, and can you explain a little bit around that and the- role that interest rates form in coordinating that structure." }, { "speaker": "rahim_taghizadegan", "time": "20:32", "start": 1231.94, "text": "Yes, most people think that capital is money, but it's only a part of a structure. Capital is actually a structure, in Bava we call it a roundabout production. so you take a roundabout way, and the structure means a combination of very different aspects, and a lot of them are mental aspects, as ideas, as experiences, your talent, which you have to match somehow, as in the puzzle piece, you match it with the material. Material goods around you, the capital goods around you, the tools, potential tools, but there's nothing objective material about being a tool. A tool is something you perceive as a tool and you know how to use as a tool, and that forms a quite complicated structure where every person should try to be, best fit as possible, as in a puzzle and producing, what people will prefer in the future. And you see there's an intertemporal aspect in that as well, and that's very important. It's, you have to be, you have used before you can consume, you have to have the structure around before it's even realized by the market that it's of any value. So it can be without value, it's nothing objective that you can see in the material goods, it's how those tools are used and how in the future people will decide the results of the use of these tools turns out to be, and, this intertemporal coordination is very important because, when waste happens, it means there's a lack of intertemporal coordination. And, and interest, the interest rate is a price, for, or the price that enhances this kind of intertemporal co-intertemporal coordination in the capital structure. That's why any intervention with interest rates has a more pernicious effect than, a price intervention, because usually price intervention is a price for some good, so it disturbs just one market, but if you have intervention in the interest rate, it disturbs the whole intertemporal adjustment of the capital structure. And, the downside of that is potential capital consume, which means if it feels as if you're wealthier than you are in the long run, and then there'll be bills to pay in the long run, there'll be corrections in the long run, which are, negative surprises to many people. And that's of course what the crisis is about. It's a whole lot, it's a cluster of negative surprises, a cluster of errors that's revealed, and an error always means, that there's waste going on, that, way have been used up already, and that means poverty to some people, it means frustrations to many people, it means change of life plans, in a negative way for many people, and that's really what you wanna avoid, and that's why there needs to be an intertemporal coordination in the build of a capital structure." }, { "speaker": "stephan", "time": "23:18", "start": 1398.25, "text": "excellent. And so it's basically making that point that you might have a kind of- False prosperity, because you think you're really rich, when in reality you are kind of chewing down your capital stock, or you are consuming your capital stock in ways that are just not efficient, right? Now, I've heard, the great Bob Murphy make an example, it would be like saying, you know, you're living in a hut, and instead of using like normal firewood for the, for the fire, you like take your, you know, really nice wooden couch and you throw that in the fire, right? And we're kind of, it's like that would be a We're not allowing the natural way of the market to drive the production and intertemporally order it in a way that is more efficient for us. We're actually taking these things and just like, kind of wastefully throwing them. Maybe a, a modern day example might be something like a company like Uber, right? So there might be a lot of drivers who aren't necessarily taking into account the depreciation and amortization costs of their car, but they think they're earning money out of it. And yes, they are earning money out of it, but maybe they're not Accounting for all the correct costs. Yeah. Is that a good analogy you would say?" }, { "speaker": "rahim_taghizadegan", "time": "24:28", "start": 1468.27, "text": "Yeah, that's, that's a very good example. Yeah, a lot of the capital consumption is actually increased profits taken out of companies, it's, too high a salaries, not taking into account depreciations, and so on. so yeah, that's what capital consumption looks like. And then of course, a lot of the transfers, happening in political systems, a lot in the pension systems, huge problem with that in the European Union, There's a lot of pre-consumed wealth, which somehow sets your mind, and then there we are up for some really bad surprises in the future." }, { "speaker": "stephan", "time": "25:03", "start": 1502.87, "text": "Right. Yeah. And we'll, we'll get into some of that. I would also love to talk a little bit around the situation with government bonds, right? So as, as you point out in your book as well, I think you even make a point that there are some Argentinian, what's called Methuselah bonds, and they're like a hundred-year bond, and yet anybody who has any vague idea of history" }, { "speaker": "stephan", "time": "25:25", "start": 1524.79, "text": "Decades. Why would anybody trust a one hundred year bond?" }, { "speaker": "rahim_taghizadegan", "time": "25:29", "start": 1528.71, "text": "Yeah, ac-actually the best performing asset, in the last year was the hundred year Austrian bond, because, Austria of course, has a high credit, rating, because the Austrians are perceived to be very good payers of taxes and, and that's basically what it's about. But, in a, in a sense, bonds have become a kind of base money, so it's just, it's like money, but it's not having Risk in it, you just have the state default risk, and once the state really controls monetary policy and you've got international organizations coordinating like IMF and so on, this risk is deemed to be much lower than any kind of banking risk and of course any kind of entrepreneurial risk. So when people, tend to become wary of maybe underreported entrepreneurial risks, then they go for bonds as well, so we've seen this kind of bond bubble, but it's really- Really just going for base money, in a sense, it's like a default account now, because in the last economic crisis, we've seen that central banks are taking every, making everything it takes to buy up bonds when the price is falling down. So it's perceived as a systemically relevant asset which will always be protected, so it looks like the safest asset, and at the same time, it produces, high yields, if you see the appreciation of the bond Bonds, so it's really been, been a star for investors, bonds. And I think it's the last few ways to really make lots of money is to make the carry trades, is to get the zero interest money and then buy up bonds with higher interest rates, as in Argentina, for example, we get a few more percentage points, and if you have very long credit lines, you basically get free money, out of that, and that's the reason why investors also happy with those kind of bonds." }, { "speaker": "stephan", "time": "27:22", "start": 1642.21, "text": "Right. And so it's, it's essentially a big levering- Leverage play, and we might say that it's only in this fiat money world that you can achieve that kind of leverage, because it's only in this fiat money world that credit is that available. And if you contrast that with, say, a hard money world, there's not gonna be that much credit available, and therefore they won't be able to play these leverage games, correct?" }, { "speaker": "rahim_taghizadegan", "time": "27:45", "start": 1665.02, "text": "Sure, sure. What, what kind of real saver would put his money, to test there and just get an upside of a few percentage points, maybe one, two percentage points? points, but take the whole downside of speculating in Argentinian bonds or, who knows what, and, and leverage the speculation, into those kind of things." }, { "speaker": "stephan", "time": "28:05", "start": 1684.62, "text": "Right. And when we're talking about the overarching system of government bonds and funding the government, essentially what we're- There's probably two main ways you can lose out of that, right? So one way is that if a government were to repudiate its debt, and if you are a bondholder, then you lose out in that scenario. Or the other way, and probably the more common scenario, is that they, they do repay you, but they're repaying you back in fiat dollars that have gone down in value over time. So can you spell out a little bit of your thinking on that?" }, { "speaker": "rahim_taghizadegan", "time": "28:35", "start": 1715.1, "text": "Yeah, of course. That's, that's the way it works, and the likelier way, I" }, { "speaker": "rahim_taghizadegan", "time": "28:44", "start": 1723.5, "text": "Of which the, the debt is held mostly by powerful outsiders, and not inside the country. If, your citizens are holding your debt, then they basically are free to do, whatever you like. And to prevent political turmoil, usually it's better to go the hidden way, and that's just inflation, depreciation of the currency, and that's why, states really like that kind of financing, and it seems effortless, and that's where mo-modern monetary theory goes, basically. Saying, okay, we're already there. I mean, if you can produce as much bonds as you like, because you'll always have the central banks buying it up, if private investors aren't buying it up, then basically just means money production, and that's correct. I think a lot of the analyst, analysis of the modern monetary theory turns out to be correct. It's not because the models are right, it's because the world has, become like their models and as crazy as their models, so a lot of the analy-analysis is correct that if you only The debt, you just produce as much as you need, and that's basically everything you need to know about money." }, { "speaker": "stephan", "time": "29:51", "start": 1790.91, "text": "Right. And so the, the challenge is that most people don't understand that they're really just losing a lot of money against the inflation. So they might have store some of their wealth in bonds, but then in reality, their real purchasing power is just going down over time." }, { "speaker": "rahim_taghizadegan", "time": "30:06", "start": 1805.96, "text": "Yeah, the big problem is that historically, bonds and stocks were inversely correlated, so you could play safe, and you usually had a mi- mix between bonds and stocks, so you combat depreciation by holding stocks, but you have some safety of the corrections by holding bonds, but that doesn't, hold out anymore because right now bonds and stocks are positively, positively correlated for the first time, in history, and that makes it really difficult for the average investors. And of course, you're losing money by, leaving it on the bank account, but now it's not even sure you'll be protected from the next correction if you go conserva- Inevitably investing, just trying to keep up with the depreciation of the money, you may lose even more. And if all, if all assets go, go along and, and correlate, and that's the big problem in investing right now, basically, almost every asset is correlated, and, that's why every asset has been appreciating, and people are looking for more and more exotic assets, and, that's also where the Bitcoin story, comes in as one potentially not yet correlated Assets, and every correction in Bitcoin which is not correlated to a stock exchange correction is a very good sign for the long term Bitcoin investor because it may show that it's inversely correlated, but we can't be sure about that of course, that we'll only see in the next correction." }, { "speaker": "stephan", "time": "31:30", "start": 1889.56, "text": "Right, I see. and how in your mind does that change the way people think about their cash balance, right? So r-right now, okay, when you're living in a hard money world, then you, yeah, your cash balance is more meaningful because Because you, you have more certainty over that, right? Like whether that's gold or, let's say, in, in enough time, people are holding Bitcoin and they consider that their cash balance. But nowadays, it's like you can't hold too much in your cash balance, they have to keep some in stocks and bonds and so on, because they feel like they're losing pace against inflation." }, { "speaker": "rahim_taghizadegan", "time": "32:00", "start": 1920.0, "text": "Yeah, even nowadays, a cash balance is defined as being in bonds. It's, of course, as a regular investor, an institutional investor, cash means being in, monetary funds and those are short government bonds actually, and we've seen that those assets are protected, are even better protected than the bank accounts, it's like a limitless guarantee by central banks, and that's how almost every investor keeps cash nowadays. So the meaning of cash has totally changed." }, { "speaker": "stephan", "time": "32:31", "start": 1950.54, "text": "Right. A-and I think you make a great point there as well, and this ties into the point around government debt, because- This whole architecture and scenario that we're living in today, it helps fund government debt because now we're holding, something that helps the government basically palm off its costs onto the rest of society. Can you articulate a little bit there around why this bond system now and this fiat money world helps fund a lot of that government welfare and warfare state?" }, { "speaker": "rahim_taghizadegan", "time": "33:04", "start": 1983.79, "text": "Yeah, every government bond is a claim on future tax payments. So if you hold a government bond, you're actually holding a claim against yourself on your future self and your kids, your grandkids, if you have the Metuseland bonds, and so on. so that's really challenging and morally challenging in a way. so more or less the market seems like, which is not really a market, my, my teacher Roland Pata called it, the money social, money socialism. And this kind of money socialism forces you to hold claims against yourself Has a cash balance, and that's, really odd, and that of course is great, for, government financing. It hasn't never been as easy as that, even in times where there's no real economic growth, governments are overflowing and tax revenue and decreased, financing costs, for the debts already, so they have lots of money on their hands, and of course they are eager to take over more and more functions of the market economy and- Of a functioning society, and that's another really bad downside of this kind of zero interest rate policy, it leads towards, a kind of statism where the state is seen as the gap filler in every kind of way, not just output gaps, but every kind of social gaps, of market dysfunctioning apparently, which of course is money socialism dysfunctioning, and so on, and we should be really wary of that." }, { "speaker": "stephan", "time": "34:29", "start": 2068.99, "text": "Yeah. and as we have seen over this last- A few decades, you make this point about interest rate asymmetry, and so you're saying that the rates are being lowered more sharply than they later have been raised in each cycle. So can you elaborate on that?" }, { "speaker": "rahim_taghizadegan", "time": "34:45", "start": 2084.76, "text": "Yeah, it is like the interventional spiral, that we've seen in politics. It's always easier to go one way than repeal, the errors you've made before, and it's a bit similar with, decreased interest rates, decreased interest rates make more people and politicians dependent on easy money, and it's really- Hard to withdraw, a drug from a dependent from an addict, so that's more or less the reason why it's more difficult to increase interest rates. the market already anticipates lowering interest rates, then even a stagnation of interest rates, is like a bearish sign, so you have to increase the dose, higher and higher of the kind of easy money to just keep the thing going, and, it seems out of the question right now in Europe to increase interest rates because- Because, the, the tensions aren't decreased in the political area, and everyone is afraid, of course, that the euro may fail and that the Brexit was only the first, big challenge, and, right now with the UK going out of the European Union, we have a majority of the more southern, more spendthrift, countries, in, in, Europe, and of course, it's not all in the interest to have increasing interest rates, because- That would end this spending bonanza that's going on, and have a Chris-like, Chris-type correction, happening there as well. and of course, Italy is already threatening to leave the euro, project, to have their kind of even more depreciating currency they had before To make it even easier to, continue with an unsustainable system they've become used to." }, { "speaker": "stephan", "time": "36:29", "start": 2189.17, "text": "Right. And, I think also another point you make is that, it's like a monetary hot potato, and each Fed chair is passing on to the next, so, so central bank leader is passing it on to the next one and saying, \"Okay, now it's your problem, you deal with it.\"" }, { "speaker": "rahim_taghizadegan", "time": "36:43", "start": 2203.16, "text": "Yeah, definitely. But that's, that's short termism, and we see it in politics, and now we see it in monetary politics as well. And, Point of central banking is to combat the short termism of people on the markets, so you should have more long term oriented monetary policy, but it's kind of hot potato. Monetary policy, of course, is the definition of short-termism. we see we can increase interest rates, so we just, keep on going and see where it goes and see how the next one will cope with it. and we've had a change already to, Ms. Lagarde, in, Europe, which was quite- Quite, well observed, shift. And Ms. Lagarde is quite intelligent, bright person, but very pragmatic, technocratic, personality, French politician. And, what every central banker is trying to do is to come up with more innovative ways to avoid going for negative, nominal negative interest rates and do whatever it takes to come up with ideas to produce liquidity without the markets realizing it, without people anticipating it, and somehow still keeping in control. So, Ms. Lagarde is really interested in digital currencies, and I think she'll go for the kind of, central bank digital currency way, which is like- The hottest idea among central bankers right now, who think they somehow can copy the success of Bitcoin and make it their own and use the hype surrounding it and the coolness and innovativeness surrounding it to somehow hide behind, their very uninnovative, very uncreative kind of monetary policy." }, { "speaker": "stephan", "time": "38:22", "start": 2302.09, "text": "Of course. And with this monetary policy, I think it's also-- we have to talk about the social consequences. Now, l-listeners who have read, Gita Holzmann's The Ethics of Money Production There's a chapter there about this, and I think your book, Rahim, actually expands on some of these ideas and puts them almost into more context for today of what are some of these social consequences that we are seeing? Because usually when you have, You know, like a low interest rate, what should that normally signify versus when we've got an artificial low interest rate? And can you expand a little bit on what some of those social consequences are for us in society?" }, { "speaker": "rahim_taghizadegan", "time": "39:00", "start": 2340.09, "text": "Yeah, actually a lot of credit goes to Guido Hirschmann, who's a very esteemed colleague, and, German speaking, as well, of mine, and, in his ethics of money production, he pointed out the distortion, the societal distortion by inflationary policy. And of course, we've gone from there and, Deepen our analysis in not only looking more detail, how these effects look like, but also, we've seen differences, not just an inflation, that's going on, it's kind of really, interesting, serious policy, monetary policy going on, which, is unlike, past inflations, so they're, differs a bit, in the detail, the more kind of interesting paradoxical tensions happening within society. Then it would be an outright, inflation, going on, and, we've looked into that, in more detail, and we could, analyze a lot of the polarization happening, right now, in politics, but also in society, it's really, correlated to the kind of monetary policy. in a zero, zero interest rate on the market, question if that could ever arise, if we'd have a tendency towards a zero interest rate, it means that people wouldn't expect Distinguish between future and past, and, it's only thinkable in a very theoretical way, it's people who have a very ascetic lifestyle and they really forsake, the present life, and, wouldn't care, about retaining anything, For themselves, so they'd be willing to give up all their savings, all the money for basically nothing, because they say it's better for someone else have it, better it's used elsewhere than for myself. so there's no kind of inclination for consumption. And of course, we see it's a totally different, picture, at the moment, as increasingly consumerist society, but still the market gets the signals as if, there'll be so much money available for investment And because no one wants to con-consume, and, as if there was money, for an infinitely long term investment periods available, so you get a very strange distortion of the productive structure, which shows a big mismatch with the actual preferences of the population, without people really realizing it, and that's a lot of tension happening there, and a lot of the capital consumption happening, for example, the increase in burnout rates, among em- Employees, the increase of seemingly bullshit jobs, as David Kaper calls them, and he doesn't really analyze it, so he just, coined the term, and of course gives this kind of anti-capitalist, reasoning for it, but it doesn't make sense if a market economy is about matching the preferences of people, it wouldn't make sense that you have people going voluntarily, for jobs that don't make sense. You can only explain that through this kind of distortion of the production structure. And of course, the debt has become a way- Of life for people so they become really dependent and going on, with paying the rates, which are of course are anticipated for the future as if the present would go on as it is, which means they keep their job, they keep the purchasing power and the house, retains its value and so on and so on, and that, kind of leads to an, Way of life is really dependent, debt, a servant in a way, and makes people very reluctant to go out of the way to be critical, and you have a lot of these ne-yesays, running along, and you see even a change in mentality happening." }, { "speaker": "stephan", "time": "42:48", "start": 2568.15, "text": "Right. Yeah. And I, I think it's, you, you really put it well there when you were saying it's almost like the- \"Quote on quote signal\" is that we're all ascetics and we don't need that much, and we're-- but then in reality, what is driving is the complete opposite, where it's complete consumerism. And, in your book, you spell out some nice examples, so it might be good to talk through some of those just to help make that a bit more real for people. And you, you point out here, there's this whole phenomenon now with travel and Instagram and airline miles, right? So airline miles are a huge thing, everyone's got a credit card, and they're" }, { "speaker": "stephan", "time": "43:24", "start": 2603.94, "text": "Of those airline miles. Yeah, that's, actually," }, { "speaker": "rahim_taghizadegan", "time": "43:27", "start": 2607.4, "text": "banks buying the airline miles and credit cards, and they see it as a kind of, trigger spending, so by traveling, you try to copy that kind of consumer heavy consumer's lifestyle, and, they'll hope, hope of course, you get a very cheap flight, but then you continue spending and trying to get the perfect Instagram photo from the infinity pool as everyone else, gets it, so it's kind of- Kind of avalanche of spending happening there, and it's of course credit card companies, making money, you know, only on the fees, but also on the overspend, overdraft, really high interest rates. I mean, the last remaining high interest rates are there, by people, consuming too much and not really anticipating that increased consumption and going overdraft on their credit cards, and so on. And of course, there's kind of short termist consumerism, which I don't think on- Consumption is bad per se, I don't think traveling is bad, it's just we try to understand why is it happening to such a, a large amount, why it's becoming so ubiquitous, why is it so obvious, why is more and more of advertisements going for that kind of consumer spending, and then of course you can only explain by explaining where the money comes from, because, in the long run, a fool and his money is parted, always. So if you spend more than you take, you'll be just You shut out of the market as a consumer, you don't have any more cents, any more votes to spend on the production structure, but of course, there seems to be an infinity of new votes being added to, to this kind of voting process, and that explains why more and more entrepreneurs, try to go for this scale-up consumerist markets and where there are a lot of paradoxical business models where you don't have the, actual consumers spending the money, but you pay with, Attention spans and so on, and you try to go all this, backward hidden way, roundabout way of, getting most money out of the consumer scheme that's happening, and, traveling is one of the fields where that's happening." }, { "speaker": "stephan", "time": "45:40", "start": 2739.65, "text": "Right. And I think you make a good point as well that a lot of the actual revenue for airlines now comes from those frequent flyer programs because everyone's trying to chase those points, and then it's like the revenue is coming from like the credit card companies almost. and now another point I wanted to touch on And you mentioned this as well around the business model, right? Because in the normal capitalist world, the entrepreneur is trying to serve the consumer. But in one point you make in your book is that actually now entrepreneurs are sort of serving lenders and egos. They sort of, many of them have this desire to leverage the reputation of being a serial entrepreneur, and it's, they try to get bought out by some really even bigger company, and they're sort of surviving off of that." }, { "speaker": "rahim_taghizadegan", "time": "46:21", "start": 2781.11, "text": "Yeah, yeah, that's, that's one of the main problems, that it's not really a market- The economy when you don't have the link between serving a consumer, the real consumer, and serving him long term if you wanna have a long term business, a sustainable business, by going for leveraging as much as possible to the past, to the first, And, of course, by leveraging, you have all these kind of potential laws being even more extremely enforced, as being number one really pays out, if you scale on the global scale, so and then of course, entrepreneurship changes in a way, it's, what an entrepreneur is like, what is perceived like, what are the most popular entrepreneurs who are, deemed to be successful. Of course, a lot of, all of the attention by the media is very short termist. You don't look at Track record, you don't look, into if someone is really being in the business for long term serving c-customers. It may be a success story that's a one year old and the next year it may be, known as a fraud to everyone and build just as big a story, so we have this kind of Theranos-like scams, increasing where you just, you try to leverage your personality as a startup entrepreneur and you try to take out as much as possible of that. It means Access to venture capital, access to, leg-legitimacy, attention, and so on, and, I, I don't, I don't think it's bad per se to have an entrepreneur who's focused on the more short time spent attention spent consumer, I think that provides value to a lot of people, of course, but it's bad if you have this kind of density and all the whole focus of being an entrepreneur shifts to that field, because then I'm afraid of the long term consequences and the perception of people And maybe you have more and more young people saying, \"Oh, I don't wanna be an entrepreneur, it's like being a scam, a scammer or something. I wanna be-- I wanna do something serious.\" And maybe that's one of the reason why a lot of millennials say they'd really like to work for the states, for, for government jobs, they're looking for government jobs, not only because they seem to provide a long-term stability and safety, but also because they seem to be more moral, make-- seem to make more sense, and Very worrying sign, we're seeing here. It's not those young people being statist, that's, per se, it's they react towards a distorted market economy, distorted jobs that they find on the market, and, yeah, react this way." }, { "speaker": "stephan", "time": "48:54", "start": 2933.52, "text": "Yeah, and as you say, it's like subsidizing of the present by the future, and, it's like these capital consumption entrepreneurs are just arbitrating from the future to the present." }, { "speaker": "rahim_taghizadegan", "time": "49:04", "start": 2944.35, "text": "Yes, yes, definitely. I mean, they, they're just doing what they're supposed to do Signals, signals that are sent to them. And in a sense, I wouldn't blame the entrepreneurs, still entrepreneurs creating lots of value, and of course, having this kind of value in entertainment is amazing, is an expression form for artists, and the best artists of our time, of course, right now, are in this kind of short-term entertainment, producing amazing series for TV or streaming, and so on. So there's a lot of value created for people. It's just I don't think, it's- Should be a larger proportion. I would like to see more of creativity going to fields that really bring forth humanity in the long term, and so on, and this kind of arbitrage is really distorted, caused by distorted signals on the pseudo market and, first of all, by distorted interest rates." }, { "speaker": "stephan", "time": "49:59", "start": 2999.16, "text": "right. A-and actually, you talk about another idea that, we might be seeing an increase in political correctness as well, and that there's more- Conformism as a result of separating the short term benefit, from long term consequences and social costs. Can you elaborate a little bit? What are you getting at there?" }, { "speaker": "rahim_taghizadegan", "time": "50:18", "start": 3018.11, "text": "Yeah, more and more people are kind of living in bubbles, because the whole life happens in bubbles and educational institutions, which in a way are separated from the real world and are as well beneficiaries of, this kind of monetary policy. There's been a boom in educational institutions, Also private, education, but of course certified by the states, is a kind of fake market happening there, and then going on from, your educational institution, until your mid, your mid twenties already, to a job in a big corporation or something like that, where you're insulated, from, really serving consumers as well, because they-- those are not sustainable structures, they are bubble structures, so you remain in the bubble for a very long time. Time and remaining in the bubble, being insulated from real consequences for real people, of course, fosters this kind of mindset, which, just focus on your kind of level and, and, and, and the place you're working at and, and you realize this kind of, egotistical, institutional interest, where you're in, and of course that helps along, and then you have the conformist pressure, of course, that I mentioned before, by probably being in debt all Already, by starting out a life, in the United States, even starting, being in debt by spending time in the edu-educational institutions in Europe, it's more, government debt that seems, that so it'll be your future tax spending and has to cover it anyway. So it's not that different the situation, it's a bit more obvious in the United States, but then less obvious at the same time because this kind of, credit financing is subsidized by a large degree and un-unseen un-uh, un-understood degree, by most people. so it's similar systems where, in, different, fields, you see these misalignments, and mismatches. so being separated from reality and being a conformist, leads to this kind, of thinking that, pervades even universities right now, where you have mostly it's the, the, they call it the middle power, the, the middle sector at the university, administrative staff really running things And they are, small mind bureaucrats basically going along, indebted bureaucrats, who spend time in the same educational institutions, never being out in, in the real world, and just clinging onto the jobs and clinging onto every kind of power they can get, and so I don't think it's about ideology if you have this political correctness at campus right now, it's about conformity, trying to cling onto power, having something to control other people with, and trying to assume a kind of- Administrative responsibility, to construct a kind of safe haven around people and just, perpetuate the kind of bubble there in, and get more and more people and money, spent in those bubbles." }, { "speaker": "stephan", "time": "53:21", "start": 3200.83, "text": "Yeah, yeah. A-and, I, I think we've got to talk about the devastating impact on savers. Now, you have a great example in your book where you talk about this baker analogy, right? And so this idea is, okay, imagine we had a price control of zero for bread. Well, it's not that bread would be free, Bake, less people would become bakers, right? So it's like, why would you be a baker if you're not gonna get anything for it? And now you say, well, in this analogy, what about savers? Because if you give people basically zero return or negative return for saving, what does that do to saving? It just annihilates them. The harvest isn't enough of the, the amount that they've saved, they have to now consume their seed. Can you articulate, some of your thoughts on that?" }, { "speaker": "rahim_taghizadegan", "time": "54:01", "start": 3241.16, "text": "Yeah, that's a prediction by Keynes that actually turned out to be correct, but what wasn't correct was what he thought would go along with it. It's the euthanasia of the saver, that's what he called it, because he thought that the saver in the sense of the hoarder is really an unproductive part of the economy, especially old people holding onto the money, not investing it, and that's a very, wrong point, very wrong interpretation of the economy, because you ha-- you have to hold liquidity to have this intertemporal coordination. Bitcoin future, and, the present going on. so you need always people providing liquidity, to the markets and holding onto liquidity on the markets without any negative impact for people. And in order to make investments, in particular long-term entrepreneurial investments, you need to have liquidity available, because you can't do these investments in small pieces. You need to, you can't hoard in small pieces. That's why hoarding is that important to the small- Saver, and that basically was the way to go on saving in the past, and this kind of saving, has disappeared under a lot of pressure, it disappeared because it doesn't make sense anymore, of course. There are still old people trying to save that way, but they lose all of their purchases." }, { "speaker": "stephan", "time": "55:17", "start": 3316.61, "text": "So I guess in terms of, where we're at and where we're going What are some of the potential ways out of this zero interest rate trap?" }, { "speaker": "rahim_taghizadegan", "time": "55:26", "start": 3326.46, "text": "Well, the likeliest way is really the modern monetary policy way, and that's just, really, go without any kind of remaining independence of the central banks, just make the treasury produce all the money they need, and then just have the state fill all the gaps. So, with private employment, disappearing in that kind of, economy, and I think it'll be triggered by losing trust in money. You ca- of course, you have a decrease in investment, decrease in division of labor, And you basically go, into full blown kind of socialism. It's not direct socialism, it's a new kind of socialism. but I'm not that pessimistic because I think we have, so that's the way where it goes, on policy wise, but that's not, I think, necessarily the way it goes on the global level, because every step you take in this direction, increases the signaling power of the distortions on the market, so people react to it, go towards- Other assets. So immediately, if you pursue the kind of policy, you need to have strict capital controls. You have to control every kind of spending and assets, and that of course becomes obvious for people, and you have new assets coping with that, new entrepreneurs coping with that. I think one of the main reasons Bitcoin has appreciated that fast, as no asset, in the past, as really the best performing asset in history so far, was due to Chinese Cable controls, because the Chinese of course have been all going on with the same kind of monetary policy, but they have, that, Communist Party in power, which, deems to be more able to control people so they have really tight capital controls and Bitcoin has been one way which really, in the proven way, has allowed people to kind of, escape these kind of capital controls and shift the savings out of, the Chinese system. and I think, we'll see an increased value of those kind of assets and those kind of solutions, and then of course, makes futile any kind of monetary policy that's happening. It may even mean that people- go out of government money, fiat money and, start counting in new assets, and so on, try to keep the savings out of the system, and even try to keep part of the investment out of the system and so on, so that increases the pressure, and I don't think, heterogeneous political, area like Europe can really keep up with that kind of pressure, because you're always too slow if you have to coordinate between, If different nations, different nation states, so of course, I think if they pursue the kind of monetary policy further, it will, they think that they are easing up the pressure and the conflict potential, but actually they're increasing it on a long term. So we'd rather have a, a destruction of the euro and the whole European process than continuing this kind of monetary policy. So I think it'll become obvious, the failure of this kind of monetary policy, and I think the jurisdictions that can- Hold out and realize the potential and really offering a money that you can save in, will be the winners, of this, kind of shift that's happening right now. And of course, within Europe, right next door to Germany, we have Switzerland, we have Liechtenstein, with their own currency, and their central bank of course tries to keep up with the inflation rate, of the euro, because people are used to somehow have, stable money and they just look at the fiat money. Money, money to compare it with, but, it's already crazy what the Swiss National Bank has to do in order to keep up with the depreciation of the other currencies. So they're one of the biggest investors in Facebook right now, for example, because they just keep on buying dollar assets and they keep on buying euro assets, and of course, they buy up the best performing assets, because they aren't stupid, in a way. But it's, it becomes more and more absurd that you have the central bank then, buying all those kind Just keep up with the depreciation, of the other currencies. So there might be a stopping point, they might go for two different Swiss francs, one Swiss francs that may stop depreciating, and so on. And we see it's a really interesting times to be alive. I think we see a lot of entrepreneurial solutions. I think we have, see a lot of jurisdictions stepping out of line with other jurisdictions. so I'm really optimistic in, optimistic in the long run, that this kind of distortion, may- We" }, { "speaker": "stephan", "time": "01:00:17", "start": 3617.46, "text": "have a natural end. Right. A-and, I guess just to summarize the way I'm thinking of what you're saying, it's like as these central banks continually accumulate more and more of well-known large public companies, it's almost like a nationalization of some of these big companies. And, as someone like, say, Hunter and Hopper would point out, that, you know, it-it's just increasing the politicization of society because now you can't just run a business, you have to run the business, and that business is also very highly in- influenced by the government, and so it's kind of like a backdoor nationalization or backdoor creeping statism over time. And so we really are faced with that choice of, do you want to save in the government money and be a part of that whole government system, or are you gonna start saving some assets outside of that system, whether that's gold or Bitcoin or some of these other, ways of kind of doing that? Yeah. So look, I, I think, we're, we're coming to the, the end of time, but, Rah Make sure you tell my listeners where can they find you, and I think for my listeners, I do wanna recommend, definitely recommend reading the book. I think there's a lot of great insight in terms of social consequences of fiat money, as we've discussed today. So, Rahim, make sure you, let them know where they can find the book and find you." }, { "speaker": "rahim_taghizadegan", "time": "01:01:34", "start": 3694.67, "text": "Thanks a lot. It's the zero interest trap. it's called, you can find it on Amazon and I hope in bookstores a-around," }, { "speaker": "rahim_taghizadegan", "time": "01:01:45", "start": 3705.2, "text": "and, it's, Been translated to English. Another one was the Austrian School for Investors, you may want to check that out as well. apart from that, I'm mainly speaking and writing, lecturing in German, but you can find some YouTube videos in English as well, a few of the lectures I did in English." }, { "speaker": "stephan", "time": "01:02:02", "start": 3722.87, "text": "Fantastic. Well, thank you very much for joining me. I've really enjoyed chatting with you. Thanks a lot. Bye-bye. So I hope you enjoyed that. I'm currently in Austin, Texas, so look out for an interview next week with Will Cole from Unchained Capital. Also next week, we've got Advancing Bitcoin, the developer conference that's on in London, 6th and 7th of February. So if you haven't already got your ticket, go to advancingbitcoin.com and use the code Livera. There are still some last minute tickets available. And for those of you just around, make sure you ping me on Twitter or give me an email, we might be able to do a meet up for listeners As always, check out the website, get the transcript, and the show notes at stephanlivera dot com. Thanks for listening, and I'll see you in the citadels." } ] }