{ "episodeId": "SLP398", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "ansel_lindner": { "name": "Ansel Lindner", "role": "guest", "tag": "ANSEL" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:06", "start": 6.14, "text": "Hi, you're listening to Stephan Livera podcast, sure about Bitcoin and Austrian economics. The question today is, is it inflation or deflation? Ansel Lindner, Bitcoin podcaster and writer over at bitcoinandmarkets dot com, joins me to talk about his framework, and we chat about a range of things, inflation, deflation, the money stock, money supply, credit cycles over time, and what Bitcoin does. For the world. This show is brought to you by Swan Bitcoin, and Swan is organizing a conference, Pacific Bitcoin, in November this year, so keep an eye out for that. If you have friends who are new to Bitcoin, this is a great opportunity to bring them along to the conference, where people can learn about Bitcoin and also chat and meet other like-minded Bitcoiners. There's an awesome range of speakers who are coming: Alex Epstein, Lynn Alden, c j Wilson, Jeff Booth, Mark Moss, Alex Epstein, Pierre Rochard, just to name a few, and there's more coming. This Week filled with events, educational opportunities, meetups, coworking, and parties. So come and join us at the inaugural Pacific Bitcoin Conference in LA, November tenth and eleventh, twenty twenty-two. Go to pacificbitcoin dot com and use the code livera for a discount on your tickets. Are you a Bitcoin builder or are you a Bitcoin merchant looking to take payment with Bitcoin and the Lightning Network? Voltage can help you out. They have constructed the leading enterprise-grade Lightning solution for Bitcoin builders. Now, this can apply to You whether you want to scale Bitcoin nodes instantly by the thousands or whether you want some quality inbound liquidity easily with Voltage, you can go to the website and it's really fast. You can set up your Bitcoin node, your LND node, or your BTC Pay server node in the cloud very quickly within minutes. What was once a headache is now simplified, so go and check it out for yourself. That website is Voltage dot Cloud. If you're looking for Bitcoin hardware security, you can't go past CoinKite dot com. Now they Are well known for the coldcard, but they've got a range of products. They've got the TapSigner, they have the BlockClock. These are all kinds of different devices that you can use all as part of your different security setup. And interestingly, they've got the TapSigner, which they are, collaborating with the Nunchuk team to have NFC support. So this is an interesting development in the world of multi-signature. Now, of course, the really cool, device that you want to have is the BlockClock. They've got different versions. They've Jack Dorsey and the former prime minister of Thailand have this in the background while they are having their interviews. So if you want yours, go to coincard dot com, use the code livera to get a discount on your cold card or some of your other Bitcoin merchandise. And now" }, { "speaker": "ansel_lindner", "time": "02:44", "start": 163.98, "text": "onto the show with Ansel. Ansel, welcome to the show. Stefan, great to be here. It's an honor" }, { "speaker": "guest_2", "time": "02:50", "start": 170.13, "text": "to be here. You share my love of Austrian economics, so great to be here." }, { "speaker": "stephan", "time": "02:54", "start": 174.27, "text": "Yeah, look, I, I think for some of us who were-- well, I presume you were into Austrian economics even before you got into Bitcoin. I mean, it, it just feels like this perfect synergy of ideas. So, you know, I, I've been chatting with you in the background and always, interested to see your take on things as well, because there's this whole debate going on right now in the world" }, { "speaker": "stephan", "time": "03:17", "start": 197.42, "text": "Probably be an interesting spot to start. So, I guess from your" }, { "speaker": "ansel_lindner", "time": "03:22", "start": 201.77, "text": "perspective, what does this debate or idea look like? Okay, jumping right into it, right in the deep end here. okay, so" }, { "speaker": "guest_2", "time": "03:29", "start": 209.07, "text": "inflation versus deflation. I, I would define inflation, I think you would agree, as an increase in the money supply, and deflation is the opposite of that. I see right now we are at the end of a multi-decade credit bubble, and so the end of that credit bubble is going to be deflationary and not Inflationary. A lot of people like to say QE is money printing and, government spending is money printing, but I don't think that's the case. I think money is printed, when banks make loans, and so that's not QE and that's not government spending. The end of this credit bubble will be deflationary, and that's Bitcoiners don't like to hear that." }, { "speaker": "stephan", "time": "04:08", "start": 248.44, "text": "Yeah, that's really interesting because I think I, I probably slightly disagree, but kind of also agree on, on other points. So I mean, the way I'm seeing it is obviously- Obviously QE is a form of money printing, but it's just that that's not the dominant form. I think it's that the loan, the credit expansion is the main form of money creation or inflation in this case, in the Austrian definition. So to be clear, we're talking about the Austrian understanding of inflation, which means money creation or debasement also, whereas in the mainstream, they're thinking of it more from a CPI point of view, consumer price inflation, which is a different-- I guess we can call them as two different kinds of inflation. So back to this whole- question around inflation, deflation, and money supply metrics. Maybe that's also a good spot to just get your view, how are you considering the money metrics? Because there are different ones, right? There's M zero base money, there's M one, M two, M three, et cetera, and some of these metrics get discontinued over time as well. So could you just give a bit of an overview how you are looking at this in terms of the different money metrics?" }, { "speaker": "guest_2", "time": "05:12", "start": 311.5, "text": "Yeah, measurements of money. This is a, a common one that people like to throw at me on Twitter because, I don't think M2 really matters. M1 doesn't matter. None of these things matter because they don't measure the shadow money, they don't measure the eurodollar money that's offshore. If we're in a dollar as global reserve currency and the US is twenty percent of global GDP, that means, you know, M2 only really can even hope to capture about twenty percent of reality. Eighty percent of reality is offshore. So I don't think that M2 is useful. It's actually kind of work- less Than worthless because it distracts us from looking at the shadow system and trying to look at measurements that we can, where we can see what the money, what's going on with the money supply. So we can't observe it directly, but we can observe it through interest rates and, both in euro-dollar rates and US Treasury rates and bond rates and all of these things, spreads, we can see what's happening with, the money supply that way." }, { "speaker": "stephan", "time": "06:13", "start": 373.4, "text": "And so a common name that gets thrown around with the Eurodollar is Jeff Snyder, as I'm sure you are aware as well. Yeah. I'm curious, where would you distinguish your views from, say, a Jeff Snyder?" }, { "speaker": "guest_2", "time": "06:26", "start": 385.72, "text": "Okay. yeah, I think Jeff is, brilliant at what he does, but I would say he relies pretty much solely on his Eurodollar thesis, where I kind of, I rely on Austrian thinking, my understanding of Bitcoin, and, and Bitcoin, I would say it's important to understand cryptography You know, crypto anarchy and, and those types of things, de-decentralization. And then on top of that, I also add in some geopolitical thinking on, like, geographic determinism, and that would be Machiavelli, Caplan, Friedman, Zion, those in that kind of school. so I add all those things together plus the Eurodollar system. So, I agree with Jeff on probably seventy-five percent of things." }, { "speaker": "stephan", "time": "07:10", "start": 430.06, "text": "Gotcha. Yeah, because that's the other component. Obviously, I think there are parts where, I think a- lots of Bitcoiners would disagree with Jeff because he is coming from this idea that all money supply should be elastic, whereas obviously, as Bitcoiners, we're, we're going the other way. We're saying, no, it should be inelastic. It should be twenty-one million and no more than that, of course. but I think there is an interesting component there around understanding what's going on in the banking system outside of the US, because the US regulators, Treasury, et cetera, they don't have as much of an insight into what's going on outside in that rest of the world. And so, I'm curious, how do you try to assess what's going on in rest of the world?" }, { "speaker": "guest_2", "time": "07:51", "start": 471.08, "text": "Well, I start from my framework that the Eurodollar system is a credit based system, and so everybody, you know, I, I wouldn't even call it a fiat sys- it's not fiat money, because it actually has backing and that's the credit. So when you, when you make a loan, you also make an asset So it's actually all money today, at least the national currencies, are backed by that asset that's printed with the money. So, the loan on the asset side of the balance sheet. So it's, it's credit based money. It's every dollar in the world is someone else's debt. And I forgot where I was going with that, so what was the question? Right." }, { "speaker": "stephan", "time": "08:30", "start": 510.31, "text": "So let me, yeah, so I, let's, I guess taking it back to how, let's say, the traditional Austrian is reading it, like, let's say you just read Mises or Roth Idea that, okay, there's base money, there's monetary reserves at the, by the commercial banks held, at the Federal Reserve, and then because they are, when they issue out a loan, that's the creation of new money, and then when somebody is paying down a loan, that's, in a sense, destruction of money. And now, in the, I guess if you just read the typical, textbook sort of level answers, it will be, okay, there's a reserve ratio, and that's the amount to which they can, you know, print more. Now This idea, like my friend Vijay Boyapati, who's written about this idea that actually maybe they're being more constrained more by capital requirements, things like Basel, Basel three and so on, where they say, \"Oh, okay, you're only allowed to-- you, you have to maintain certain ratios in terms of capital.\" But then layering on, there's this whole Eurodollar idea of all this money happening that's outside of the US system, and so then it just becomes very difficult to even put our finger on exactly what are we even counting here from a money supply point of view in" }, { "speaker": "guest_2", "time": "09:41", "start": 580.76, "text": "Right. we're, we're not really counting anything, it's all backed by credit, and, we can tell if there's a problem in the credit market because of interest rates and because of financial crises and that kind of thing. So, we know that the market is healthy if there's no financial crisis, and we know that the credit market isn't healthy if there is a financial crisis. Everything is interwoven, everybody's debt is owned by somebody else who is rehypothecated thirteen times, and everyone's so closely integrated that, no, Like today we can't even count the supply of gold really, because there's all these paper receipts on top of gold, right? And then it's rehypothecated and lent out and used as collateral in some loan and, and et cetera, et cetera. So we can't really measure the amount of gold either. It's the same with dollars in the world. all we know is that when there's pressure in deflationary pressure in the economy, we're gonna see it in interest rates and we're gonna see it in, financial crisis that happens" }, { "speaker": "stephan", "time": "10:40", "start": 639.88, "text": "Sort of make the point that the money supply metrics are just highly misleading, that if you look at M1, M2, and so on, they're just going to mislead you the wrong way. And it's-- I think there's a lot to this because they'll be changing classifications as well. So even in twenty twenty, there was a big reclassification on M1, and so that also can lead people astray because then e-everyone's out here saying, \"Oh, look, they printed forty percent of the dollars in twenty-- in, in, you know, in that year or To sort of disentangle like what's actually going on. so I mean, bringing it back to your point around looking at credit markets and looking at, okay, if there's a problem in the credit markets, that's how we can, let's say, infer some understanding of, if there's a problem or not. I'm curious then, how would you distinguish between a genuine change in people's time preference? So, you know, in the Austrian understanding, there's Mises, he talks about the PTPT, the Pure Time Preference Theory of Interest, and so the idea is if We having a very high interest rate, and if we're very patient, I have a low interest rate because I'm patient, I guess all things considered. So in your view, how would you distinguish the time preference part of that from what's going on out there in the world?" }, { "speaker": "guest_2", "time": "11:55", "start": 715.21, "text": "Well, I, I don't agree with that, I agree with the interest rate fallacy. So as people are fleeing towards more safe and liquid assets, they push the price down. So it's kind of the opposite. When, when your time preference increases, you're going to run Run into safe and liquid assets. And when your time preference, is longer, then you're able to, you know, you're willing to carry more credit, you're willing to expand credit into the economy, and so interest rates will go up because, money printing is the same as inflation is the same as growth in a credit based system. Does that answer the question?" }, { "speaker": "stephan", "time": "12:30", "start": 750.49, "text": "Right. I think I probably don't agree, but okay, I'm curious to, to understand, because wouldn't you just naturally demand A higher, like, 'cause I guess what we're talking about here is all other things equal, because maybe what you're getting at is maybe not everything else is equal, that maybe you're going, like, what we're talking about here is people will change what assets they hold, as opposed to, for the same given scenario, what interest rate would you charge to relinquish your control? Like, so as an example, if I'm lending you a hundred dollars, and I'm a very patient man, I might only charge you, Ansel, two percent for a one year's worth of time using Patient man, I'd say, \"Ah, no, I, I want you to pay me twenty percent interest rate. Pay me twenty dollars for this freedom to use my hundred dollars that I'm relinquishing, I'm giving up control, right?\"" }, { "speaker": "guest_2", "time": "13:20", "start": 799.64, "text": "yeah, on, on a micro scale. But on, on a macro scale, you have competitors, right? And so I, you can get-- you want the most return on, on your money, so you will go to the person that's willing to pay the highest interest rate. So, yeah, maybe on, on a Alternatives, that's the case, but once you put it into a broad global market, you're gonna have a, a competition, and there's gonna be, i-it's gonna obey different dynamics. Like I said, if you have a, a booming economy, you don't necessarily need to hold safe and liquid assets, you can hold riskier assets that, that yield, that have a higher yield. And so the demand for those treasuries or those bonds will go down because people don't wanna hold 'em, they can hold something that's higher yielding, and the interest rates Go up, but in risky times, the demand for safe and liquid assets increases, and that, that's on a global scale. And it's also, I would tinge it with, there's a difference between credit-based money and commodity money, because in commodity money, the dynamics would be different, because you can always default back to the basic commodity. In a credit-based money, there's nothing to default back to, right? That's why we have to bail out, do all these bailouts and all this government spending to, to reflate the bubble, because if it does deflate, we're in a Mad Max scenario, and they can't let that happen. So there's different dynamics in a, of pure credit based system and a commodity system I see." }, { "speaker": "stephan", "time": "14:51", "start": 891.08, "text": "And so I think, yeah, what you're getting at there is just deciding or trying to explain why people are holding different assets, given the interest rate or given what their choices are. And I think part of what you're getting at there also is around that question of safety. What do we really view as safe? Obviously, if we were speaking a year ago, it would seem-- like obviously, maybe you and I wouldn't have been running to all the \"quote-unquote\" DeFi or the C-- CFI platforms that were gambling out on these DeFi- Things, but a lot of people would just thought, \"Oh, look, you can get whatever eight percent or twenty percent on Anchor or whatever, whatever thing.\" But once they realize, \"Oh, wait, that's not safe. I'm running back to safety.\"" }, { "speaker": "guest_2", "time": "15:32", "start": 931.55, "text": "Yeah, I think it, it was, this, this recent NFT bubble and DeFi bubble was Just a mini Austrian business cycle, right? Credit expanded, we had a boom, and now everything collapsed back to, hopefully, back to more, sound, valuations. so yeah, I would agree with that." }, { "speaker": "stephan", "time": "15:50", "start": 950.3, "text": "Yeah. Okay. And so then I think it's also interesting to get this, get your views around central banks and how they are responding, because I know you're, you're big into this component of it. So let's start, in the US. So We're, we're looking at this whole idea of the Fed saying they're going to raise rates. What's your view on that? Are they going to continue on that pathway? Are they going to walk it back eventually?" }, { "speaker": "guest_2", "time": "16:20", "start": 979.94, "text": "I, I don't think the Fed is in control of anything. They will follow the market. Their, they, their main tool is jawboning and, and expectation management, and they rely on this Fed mythology, the mythology around the central bank, that they're all powerful, that they can control interest rates, that it matters if they do QE and all this stuff. So, they, they depend on-- you know, it's pounded into people that don't fight the Fed. so that's just an example of the mythology that's around The Fed that gives them this ability to kind of massage where the market is going. But in this case, I think they will be forced to pivot when the market dictates that, and it's getting closer. I mean, I tweeted probably last month when the, the three-month, Treasury bill was still below the Fed funds range, and I said, \"Well, if it doesn't get into the current Fed funds range, there's no way they're gonna raise it again.\" Of course, then it has since, with Fed expectations. The, the rates have come up into that, the current range, and so I do think that they will be able to raise rates again. But if the interest rates don't move, then the Fed must pause or must pivot. They are always following the system, and eventually they will face a financial crisis, right? Like, September of twenty nineteen, the repo rumble, or when TARP was getting passed back in the Great Financial Crisis. These are things where twenty-four hours make a big difference and the entire system- is freezing up, the Fed will be forced to act. So, yeah, that's, that's what I think. And I, I do think it could come before the end of the year, but we'll see." }, { "speaker": "stephan", "time": "17:58", "start": 1078.15, "text": "So if that's the case, this idea of jawboning, meaning the central bank governor or the president and so on in various countries, they sort of have this power to just talk the market up or down, then what does that mean for, I guess, the other asset, investable assets that people are typically going into, whether that's bonds or equities or even Property." }, { "speaker": "guest_2", "time": "18:20", "start": 1100.5, "text": "can you clarify that? What, what exactly do you mean?" }, { "speaker": "stephan", "time": "18:23", "start": 1102.85, "text": "Yeah, so as an example, like, do you believe that they can jawbone the price of, well, I guess pre- like, we're primarily, we're talking here about bonds, right? Because if the idea is, hey, they can jawbone something by saying, hey, this is what we wanna do with the Fed funds rate, and therefore, probably the most closest connection to that is the bonds, right? Because that's, that's probably the most close alternative, because it's, I guess What some people call \"moniness,\" that there are different levels of things that people would call money, and there are-- and it, it kind of comes back to that idea of safety as well, because sort of, you know, in terms of university finance, your finance lecturer will tell you, \"Oh, the ten-year bond is the risk-free rate.\" Of course, we all have our disagreements with that, but I suppose from what your point of view, you're saying that the, the jaw-burning part of it is that they can influence the bond market in that way." }, { "speaker": "guest_2", "time": "19:15", "start": 1155.1, "text": "They can influence," }, { "speaker": "guest_2", "time": "19:19", "start": 1159.36, "text": "Market sentiment, but market sentiment will always have to obey reality in the end, right? So, yeah, just like they, they've said recently that they can't affect the supply side, they can only affect the, the demand side. so they, they're saying they're like, \"We have to actually obey objective reality, \" and that's the, the supply-- We, our powers only extend to the minds of the people because that's the demand side. So, yeah, that's what I think that they follow the market. And you made a good point there about The differences and the functions of money and monyness. I think that's a interesting topic that I think we can all agree that the unit of account is the US dollar, at least the global reserve currency unit of account, but medium of exchange is a little bit different. Like, can we say, like in repo transactions, we have cash and cash equivalents. Like, what exactly is the medium of exchange here that we're dealing with? And also the store of value. The, the store of value isn't dollars, the store of value is treasuries. So when you Money in this euro-dollar system, you're trying to measure all these different aspects of munniness and how much they are, actually considered US dollar. They're all part of the dollar system and they all kind of function in this big credit, global credit market." }, { "speaker": "stephan", "time": "20:35", "start": 1235.27, "text": "Yeah, fascinating to think about. And so then if the government wants to, let's say, monetize its debt, because in some way the government and, say, the Federal Reserve and the Treasury can sort of act in a way- To help the government have a cheap cost of capital, and that's what actually funds a large state. So I'm curious your view, like, how much power do they realistically have there? Or are you saying, in a way, they, they have limited power in terms of jawboning, but actually the market and the reality of the west, the rest of the world, this whole broader euro-dollar system is actually what drives their ability to do things or not do things?" }, { "speaker": "guest_2", "time": "21:12", "start": 1272.4, "text": "Yeah. So, I, I don't agree necessarily with the definition of monetization of the debt, like the, the Said buying, buying it. I think that treasuries are useful in and of themselves. They're, they're usually, most treasuries aren't held for the coupon, they're held for the utility in the market. So I can trade them for cash, I can, use them to form chains of collateral, et cetera, et cetera. so they're, they're very valuable. And when, by law, the banks are forced to participate in QE, they have to do that. they wouldn't want to, because they want those Than reserves at the Fed, because reserves at the Fed are, are inert, where Treasuries aren't inert. And, so I, I don't agree with the kind of saying that it is, monetizing of the debt. It's actually deflationary. It's adding a deflationary pressure because as you take useful collateral out of the system, you're increasing the, the stress in that system, right? Because you're, you're decreasing the amount of liquidity by taking the useful collateral out, and that's what happens in QE. And you can look at this in- In, in, interest rates. So when QE is-- Well, I'm not prepared with the exact dates, but it's kind of the reverse of what we would expect, right? QE is supposed to push down interest rates, but usually when QE is happening, interest rates are rising, and when QT is happening, interest rates are falling. So, yeah, that's how I describe that." }, { "speaker": "stephan", "time": "22:41", "start": 1360.62, "text": "So in your, in your hypothesis then, are you saying that's because the market is moving against the Fed and the jawboning, is that the market, the reality is moving, is pushing It this way despite what the Fed is doing?" }, { "speaker": "guest_2", "time": "22:52", "start": 1371.95, "text": "Yeah, I would say the Fed jawboning is a dependent variable. It's, it's not an inde- independent variable. So they are jawboning in a certain way, they have a certain narrative because the market is a certain way. So the market isn't following the Fed, the Fed is following the market. They're dependent. If, so whatever their narrative is, is because that's the way the market is. So QE actually is kind of a, it, it symbolizes stress in the system, right? so if If I'm a risk taker, if I'm a large financial institution, and there's QE going on, I would say, \"Well, the Fed thinks it's really bad out there, so I'm not gonna extend credit, I'm gonna, you know, only extend credit to the most credit-worthy borrowers. I'm gonna pull back, you know, increase, increase my lending standards, pull back on the amount of, risk that I have on my balance sheet, et cetera, because the Fed doing QE actually says that it's bad, and the only" }, { "speaker": "guest_2", "time": "23:50", "start": 1429.56, "text": "Quantitative tightening, then they're saying, \"Hey, it's good out there. So, it's, it's reversed and the Fed is dependent on the market conditions.\"" }, { "speaker": "stephan", "time": "23:58", "start": 1438.41, "text": "Right. And so what about this whole idea about the notion of being, a lender of last resort or the notion of bailing them out? and so the other idea I'm thinking here is if there are commercial banks who have made bad loans, right? And the, the typical example is the two thousand and eight with the mortgage backed securities, they had all this bad- loans that they'd stuffed, packaged into a security, and this idea that the government is essentially bailing them out. So do you agree with that idea then, or do you dis-- Are you disagreeing with that idea?" }, { "speaker": "guest_2", "time": "24:30", "start": 1469.55, "text": "Well, I think they can bail them out, but the way I think the bailouts work is that it's balance sheet mechanics. So they, they take a debt or an asset on the, the bank's balance sheet that is un-- non-performing or underperforming, and they swap it for a reserve, another asset, a reserve. Held at the Fed. That's what QE is. They take, supposedly they take, underperforming assets and they replace it with more safe assets, which the res-reserve held at the Fed is the, pretty much the safest asset you can have because it's at the Fed. So where, where was I going with that?" }, { "speaker": "stephan", "time": "25:06", "start": 1505.73, "text": "Back to the show in a moment. Are you one of those people who leave your coins on the exchange or with a custodian? I know there are people out there. Make sure you think about storing your coins on keys that you control. Unchained Capital can They can do a concierge onboarding. This is a personalized service to guide you through that process of setting up your cold storage and withdrawing to keys that you control. They ship you the hardware, they walk you through the setup on a video call, and they help you with withdrawal, and there's even some ongoing support afterwards. So if you are one of those people who has been putting it off, well, stop it, take that time now, get it done sooner rather than later. So go to unchained dot com slash concierge and use the code livera to get your concierge onboarding program Capital. For those people in the Bitcoin mining world, Brains dot com is the place to go. They have a range of educational content and they have Brains OS Plus. This is firmware that you can install on your ASIC mining machine. So go to the website and see which models are supported. It's as simple as going there and seeing which models are supported, and if your model is supported, you can download and install this firmware. You can use it to auto-tune and improve your efficiency by as much as twenty percent. You can mine on any pool or you can point your hash rate Towards Slush Pool and get zero percent pool fees. And also, Slush Pool is renaming to Brains Pool, so all of the branding will be under the Brains name. So that website is brains dot com, that's b r a i i n s dot com. And now back to the show. So basically, I guess, I think I, I think I get where you're going though. I, I get, because I think, as I understand you, it's, yeah, like, I think we pretty much agree on that idea that they are basically taking this toxic, toxic asset off the commercial bank's balance sheet and saying, okay, I, the Fed, will hold that, and you have, you know, this, these bank reserves instead, and you're able to now use that for your loans, credit creation. And I guess in Really want the Treasury, is not the having bank reserves. Correct. So central bank reserves, to be clear." }, { "speaker": "guest_2", "time": "27:09", "start": 1628.66, "text": "Yeah. So the, the reserves when they're on the bank's balance sheet, they're, they're supposed to, you know, QE is supposed to make the bank's balance sheet look better so that they will go out and lo- lend. So the inflation that they want is the bank lending. So th-this is QE is balance sheet ma-uh, magic, I called it at one point, balance sheet magic on the backside, making banks want to go out and lend into the economy" }, { "speaker": "guest_2", "time": "27:34", "start": 1653.73, "text": "Supposed to work, but it, it doesn't because it's, pulling collateral out of the system and it's telling the system that we're in bad times. And so the, the, as long as QE is happening, it's pulling collateral out and it's also signaling to the market that there's a financial crisis approaching or that is in, in progress. And so, the banks will be hesitant to lend." }, { "speaker": "stephan", "time": "27:56", "start": 1675.61, "text": "Yeah. And so how do you view the limits on lending for commercial banks, right? So in this scenario? Scenario, they've got these additional, they've managed to, you know, palm off the non-performing loans. And so is the limiting factor for them creditworthiness, like they're not able to find enough credit-worthy customers to actually give a loan to?" }, { "speaker": "guest_2", "time": "28:20", "start": 1700.3, "text": "Yeah, but I would put it at the bank's creditworthiness. So the bank will, on their balance sheet, you know, they're constantly in the repo market, sourcing, sourcing cash, lending collateral, doing all these Things and, their, the limit to their balance sheet, the limit to how much they can expand their balance sheet is their credit worthiness in the interbank system. And as soon as their credit worthiness in the interbank system goes down, then they, they won't be able to expand their balance sheet as much. So, I wouldn't say it's the borrower at all. It is all banks. It's all bank centered." }, { "speaker": "stephan", "time": "28:57", "start": 1736.75, "text": "Gotcha. So it's almost like an upstream problem that, it, let's say they, if they look really good to the people lending them money, then they are in turn able to issue a lot more loans and have a lot more customers and therefore grow a lot faster, whereas if they are, if they don't have a good reputation, then that's where they can get into trouble." }, { "speaker": "guest_2", "time": "29:15", "start": 1755.02, "text": "Yeah, and then they own each other's debt, right? And they have credit default swaps on each other, and they do all this stuff. So some, maybe not major five big bank in the United Bank of America or something, and so they can use kind of Bank of America's credit rating to help them access capital and help them expand their balance sheet. but everything is interwoven and dependent on each other in the interbank system. so that's, that's the problem when you have a financial crisis, a, a deflationary shock in the system, it can all go down." }, { "speaker": "stephan", "time": "29:50", "start": 1789.6, "text": "And so then curious from your perspective as well, because even in the Austrian world, there are people with differing views here. Do you view- Fractional reserve as being, fractional reserve banking as being a bad thing, or do you sort of see a role for, let's call it, in the, like some people who call it free banking? So where, where are you at on that kind of question?" }, { "speaker": "guest_2", "time": "30:09", "start": 1809.06, "text": "Oh, I try to not put, some sort of moral judgment on it. I think that, there will be people that fractional reserve, that's a fact of nature, and we can put restraints on it, or there will be more restraints on it, depending on the form of money. So Bitcoin or a commodity constraints on fractional reserve banking, but if you have a credit backed money, there are no natural constraints to, to fractional reserve banking. So, I try not to do a moral judgment on that." }, { "speaker": "stephan", "time": "30:38", "start": 1837.56, "text": "I see, yeah. So, yeah, I think there are different approaches even here, like even in some of the debates where, you know, some Austrians will sort of say, even setting aside the fraud question of whether it is fraud, I think personally I am in the camp of saying it is fraud, but even if we set that aside, there are those Will we tend to one or the other? And there are some who believe that, okay, that reserve ratio will naturally-- it may be at two percent or five percent of the bank's balance sheet, whereas others in the, let's say, the full reserve camp might believe that naturally markets in a, in a, you know, under a sound money system will be up near a hundred percent and it will be near a full reserve system. And so I think I fall into that camp where I believe naturally over time we will just kind of be near that full reserve because people will just- Get wrecked, and then they'll learn, and then people will sort of understand the difference between holding bona fide Bitcoin on chain that you hold in your, you know, in your wallet versus trusting an IOU. And I think in, in some sense, that's where this, this whole insight of not your keys, not your coins comes from." }, { "speaker": "guest_2", "time": "31:43", "start": 1903.24, "text": "Yeah. I think that's dependent, like you, you said, how the free market will tend one way or the other. I think that's dependent on the kind of climate that's out there in, in the market. So if we're We'll tend towards full reserve if we're a period of peace and prosperity where people can get wrecked and bounce back easily, and there's a lot of excess credit and it's easy to get credit, and things are growing very quickly, I think people will tend towards fractional reserve, more fractional reserve. So, I think that you can't stop it from happening, it's just as kind of dependent on the global macro environment that's around you, what the free market will tend towards. I" }, { "speaker": "stephan", "time": "32:23", "start": 1942.88, "text": "see. So in your view, then, there's this almost legend of people saying, \"Ah, the, the Volcker, the Volcker way of fixing things is to just have the interest rates really high, and that will let the market normalize.\" So would you count yourself then as a non-believer of that story?" }, { "speaker": "guest_2", "time": "32:43", "start": 1963.08, "text": "I think the- Yeah, I would say I don't, I don't believe in the Volcker myth, but I am less hardcore about not believing in it than Jeff Schneider is. I think there is, the, the central bank has an easier ability to, influence things, in that direction than the other direction. So, there's something to be said about the Volcker myth, but really the, the whole, inflation of the '70s, you know, the, the great inflation, I think is, That was at the birth of the Eurodollar system, and there was so much space to expand this credit into. I kind of think of it at like maybe twenty or thirty year blocks. You know, you have the Western Europe was the place where credit expanded, then we had Japan was the place where credit expanded, and then we have had China, where the place, where credit has expanded in the last twenty or thirty years. So, now we're kind of out of places to expand, and, the '70s was just like the initial phases of This system getting kickstarted." }, { "speaker": "stephan", "time": "33:43", "start": 2023.48, "text": "I see. So then, are there any comparable historical periods in your view to where we are now in the twenty twenties? Are there, yeah, are there any educational historical financial periods for us?" }, { "speaker": "guest_2", "time": "33:55", "start": 2035.03, "text": "Not as a global system. I think that this post World War II was the first ever global liberal order that we've seen, where the US was the hegemon that guaranteed free trade, set up all these international institutions like the UN, the IMF, the WTO, the World Court. All of this stuff was set up and we had free trade reigned. So that, that doesn't have a parallel in history. You might say a certain period of the British Empire was similar, but, you know, the British Empire- Didn't trade too much with the French Empire and, and the Dutch Empire, they, they had their own trade networks. So, yeah, I would think you, you might be able to find some corollaries if you dive into maybe like the internal British Empire and how that, how the, how the credit expanded in there and, and credit and contraction and stuff, but, not a global order where we can go continually go to the next country and find a new market to expand our credit into. But now we're at the end of that, and that's why I think, you Of this credit bubble is happening because we've run out of places to expand this, euro-dollar credit system, so it's, it's gonna go the other way, it's gonna contract." }, { "speaker": "stephan", "time": "35:05", "start": 2104.98, "text": "I see. And so then taking what we've spoken about and also what you touched on at the start, where at the end of this big cycle, what are your expectations then for the end of this cycle?" }, { "speaker": "guest_2", "time": "35:17", "start": 2117.11, "text": "Well, I think, I guess, a characteristic of the Eurodollar system that Jeff Schneider doesn't talk about at all is this global order that the US had. and we had this air, this era of peace and prosperity, and of course, we had expeditionary wars for the US and stuff, but we didn't have global war. We didn't have war between the major powers. So, this was a general era, era of peace and prosperity in the world. Now the US is pulling back. We're, we're deglobalizing the US presence. And this isn't a conscious thing, it's, it's a natural thing where, you know, the US has hollowed out its manufacturing base, it's, hollowed out its culture, its values, and all this stuff, and, and so we're kind of going to re-shore all this and clean up our own house. Now, that's bad news for the rest of the world, because the US was the one that was imposing this world court, this UN, this, trade, WTO trade, rule-based world order. When, when the US pulls Man, it's going to really affect the world's ability to carry credit, so credit is going to shrink dramatically, in all of these, these countries. And I think we go back to a world where, geography matters a lot more. That we're gonna go back to our historical norm. So, the, like this thing with Ukraine and Russia right now, that, that's one of the most fought over parts of land in history of the world is Ukraine. it's not a coincidence that that was the first big flare-up. When the end, at the end of this US-led order, because we're gonna go back to normal historical norms. So, areas that are war-torn in the last two thousand years, they're gonna go-- and they, they've been peaceful for the last fifty because the US imposed order, they're gonna go back to being war-torn again, and that's gonna affect their economies, of course, affect the ability for the US to carry-- or the, the world economy to carry credit, while the US becomes more insular and takes care of our own house." }, { "speaker": "stephan", "time": "37:19", "start": 2238.83, "text": "So it's almost like we're going to see a bit of a shrinking of, the economy in some ways, and let's say the living standard that people have become accustomed to will have to drop, sadly." }, { "speaker": "guest_2", "time": "37:32", "start": 2252.42, "text": "Well, it depends. I think some things will shrink and other things will, will expand or grow. we'll get back to better values, you know, we'll get back to, I mean, I look at demographics as a result of like just piss poor culture and piss poor values in the world. so, you know, we will get back to family, nuclear family stuff, regional government, localism, and so it, it's not that our standard of living will decrease, i-is that we will change our standards of living and, that, That's what I see going forward. I'm, I'm very optimistic, I'm super optimistic about the United States, but I am very optimistic for a lot of other places in the world, because they will, you know, get their culture back, they'll get their, their traditionalism back, and I think that's good for people. It's, it's the reason why those cultures developed in the first place is because they were healthy. So I think, you know, we'll see a rise in health, we'll see a rise in, happiness in the world," }, { "speaker": "stephan", "time": "38:32", "start": 2312.18, "text": "So it may be that, the cultural gains, make up for some of the purchasing power losses in certain cases. I, I guess what's important for us to also- Do is to separate what we want from what we think is likely, of course. So, so of course, you know, people bringing back family values and, that, those aspects definitely appeal to me, but I think for me, I, I'm sort of seeing the end of this fiat degeneracy cycle and not sure how much more, they can kick the can, because that's the other component of it as well, because it's difficult to sort of say, \"This is it, this is the end of it,\" because we don't really know how much longer they Took five, six decades to fall, it may be that they-- and again, not speaking about what I want, I'm just kind of speaking about what I think is likely. We don't know. So I guess to put that into a question, in your view, how likely is it that they can kick the can and keep the, retain some semblance of the, current world order?" }, { "speaker": "guest_2", "time": "39:34", "start": 2373.74, "text": "Yeah, so that's, Part of my theory about how this ends, right? This ends, I think that the current system ends in a deflationary grind, a post-GFC normal, just low growth, low inflation going forward. They can kick the can pretty much indefinitely without an alternative. So I think that's where Bitcoin comes in. Bitcoin is that alternative that offers, like, think, you know, if you're in a, a geriatric deflationary economy, which is the old US dollar credit-based system, and you see- See Bitcoin, which is this new technology, w- on a S-curve of adoption, and that's where all the green shoots are, and that's where, all the vibrancy is. You're, you're gonna slowly move over to that new, new system. So I see, the arrival of Bitcoin as a way to get out of this trap, this, this, trap that didn't have an end, before Bitcoin came along. Like, think about, Japan, you know, they've been in this low growth, low, inflation environment" }, { "speaker": "guest_2", "time": "40:36", "start": 2435.54, "text": "That, to expand that to entire world, would be in a low growth, low inflation environment too for another thirty years. But I think Bitcoin gives the alternative, gives us something to build a new economy on." }, { "speaker": "stephan", "time": "40:48", "start": 2448.23, "text": "Sure. so I guess there's two main points. So firstly, I wanna ask about, so bringing it back to that whole question of, are we in inflation or deflation? And as you've said, we're in a, you're saying we're in a deflationary environment. So I'm curious then, what's your view on where CPI, consumer price Over the short to medium term, like, do you see CPI normalizing soon?" }, { "speaker": "guest_2", "time": "41:11", "start": 2471.23, "text": "Okay, well, I think that most of CPI is due to a supply shock. I'm not gonna say that there's no inflation because I, I think that there is mild inflation out there. I mean, you have to, you know, a credit based system has to grow a little bit because you have to repay principal and interest, so the, the, the amount of money has to grow if it's not collapsing. so I do think that there's some inflation, but if you look at Between, say, two thousand and ten and, two thousand, and eighteen, that is the average that we're gonna return to, eventually. That's just the minimum amount of inflation to keep the wheels from falling off and stuff like that. recently we've had high CPI because, mainly because of supply chains. But there, I mean, there's, there is, there's nuance here because You know, if you have government spending, you're pulling demand forward, and that makes banks maybe think that there, there is this booming economy, and so then maybe they will lend a little bit more after government spending happens, after a rescue package happens. So there is maybe a little bit more inflation after government spending, but it's leaving a big gap of demand in the future, and so they will very quickly see reality and pull back on their lending and go into a, go back to normal, go back to a, just a mild Inflation." }, { "speaker": "stephan", "time": "42:33", "start": 2552.82, "text": "I see. So in your view, then, it's the CPI, the current high prints that we're seeing around the world, whether that's in the US, the UK, other places, you're saying that's mainly driven by supply chain issues or the web of supply, the places that people can supply, borrow or, sorry, buy things from is being impacted because of trade around the world, obviously because of the hysteria and obviously because of the u- Russia-Ukraine war, but in your view, you're saying you anticipate that to normalize sooner than later, let's say?" }, { "speaker": "guest_2", "time": "43:02", "start": 2582.18, "text": "Yeah, I think there will be echoes, so there'll be volatility. A kind of an analogy is if you think of like a, a tank of water, and it's a timeline, right? So from front to back, it's a timeline, and the, the water level is your amount of demand or growth in the economy, and government spending is like putting your hand down there halfway down the, the, the water tank and pulling it forward. So you're pulling forward all this demand, but then what happens is it sloshes back the other way. And then you get some volatility, but if you wait long enough, yeah, it'll just turn back to normal, once all those perturbations have played themselves out." }, { "speaker": "stephan", "time": "43:40", "start": 2619.6, "text": "I see. So you're seeing it like a displacement theory, if you will. I'm also curious on, obviously, we're all bullish on Bitcoin, so I think probably the main challenge, right? If I was a skeptic, I might be thinking, \"Well, hang on, you two, Bitcoin is pretty small right now. It's something like four hundred and fifty billion, as a total market. That's Eleven or twelve trillion, you know, equity markets are probably what ninety, hundred trillion or more, so what's your response if, if a skeptic were to ask you that, why, you know, why would, why would Bitcoin be the answer?" }, { "speaker": "guest_2", "time": "44:15", "start": 2655.18, "text": "Yeah, and I, I agree with that criticism actually. I've been saying, for the last few years that, Bitcoin's market cap needs to expand. I, it's not a, right now, it's a theoretical alternative at three hundred billion dollar market cap. it has all the right characteristics to get to where it needs to be, but, you're not going to move a trillion dollar market over to Bitcoin right now, you know, or multi-trillion dollar market. So Bitcoin's market cap needs to expand to-- I, I put the mark around gold, so ten to twenty trillion needs to be the market cap before it is seen as a major alternative and before the, the, you know, snowball really picks up a lot of speed." }, { "speaker": "stephan", "time": "44:55", "start": 2695.25, "text": "Yeah. So what does the process look like then, for people to get there? Is it enough people getting burnt? In the fiat system, is it people who are in high inflation, because not just the US, right? They may be in a country where they actually do have a lot of inflation, or their c-- very high CPI. do you see it like they'll be the ones to adopt Bitcoin first, or is it more like, you know, high net worth people in America and other places who will be the ones buying most of the coin?" }, { "speaker": "guest_2", "time": "45:21", "start": 2720.89, "text": "Yeah, I think, well, there's a couple different routes. Like I talked about the S-curve of adoption," }, { "speaker": "guest_2", "time": "45:32", "start": 2731.7, "text": "That way, but also I think that there is-- we've, we've been talking about this a lot on Fed Watch, the podcast that I do with Bitcoin Markets, with, Bitcoin Magazine, is that there's a fragmentation risk in Europe, right? So that's the, the threat that- Say Italy leaves the euro, and that's really a scary prospect if you're going against George Soros, right? So George Soros is famous for attacking currencies. Well, if you launch a new Italian lira, not backed by anything, it's just backed by the credit of Italy or something, then it's, it's gonna get attacked. So in this fragmentation that we're gonna see over the next, few years in Europe and elsewhere in the world as they might wanna move away from, say, a dollar-based system, to launch their own currency. They're gonna have to back it by something. So I think they will turn, most places will turn to Bitcoin, but we could also see them turn to gold, things like that. So, I think the fragmentation risk is actually bullish for Bitcoin." }, { "speaker": "stephan", "time": "46:31", "start": 2791.2, "text": "Yeah, interesting, because in a way, rather than, fending for themselves, they can sort of opt into this open, neutral network, and anyone can join it. And there's also the freedom aspect of this also, because many people in, let's say, our camp are rightly wary of, let's say, entities like Like the World Economic Forum, and we see that as an entity who's driving a lot of authoritarian control, and obviously those of us more in the libertarian camp are looking for alternatives to that. So I'm curious if you have any thoughts on whether, let's say, the WEF and these, and these other related entities are actually going to drive Bitcoin adoption." }, { "speaker": "guest_2", "time": "47:10", "start": 2829.71, "text": "Well, let me just talk about the WEF first. I think a lot of these, these, kind of Marxist theories, the Marxist, organizations out there, they thrive Live in a credit based system because there is a lot of excess abundance, right? And if we go into hard times and we go into a worldwide recession, we get away from credit based money and go to a harder money, then th-there're-- those ideas and those organizations will have A very hard time staying in existence. So I'm not really worried about the WEF long term, but I, I don't like their current policies, right? and I think we, we can kinda see them flailing a little bit. They're, they constantly are losing. They lost, I think, really, I, I think that they lost during the coronavirus. They- People accepted their, lockdowns and things for the most part, but they didn't like it, and I don't think that's gonna happen again in the United States. It's not gonna happen again in many countries in the world, definitely not Russia, it's not gonna happen there. But, so I think that they, they wished that they would have gotten more buy-in from the world, and they didn't. They kinda failed that. It, it, it hurt their reputation, it hurt their ability to do that in the future, and, so I see that as a loss, and I see a lot of this ESG stuff right now as a big loss, because with Russia, and the European Union facing these high energy prices, and they've, they're only doing that because, buying into this globalist- Dogma of ESG and climate change and stuff, that, I think they're really taking a hit in their reputation as well right now. So that, that's what I would say about WEF and, and even the UN, 'cause I saw that the UN just, like approved some charter or something that was in conjunction with the WEF, then now they're gonna work together to push this ESG stuff. So I, I think that when we get to Sounder Money, we won't have to worry about those things." }, { "speaker": "stephan", "time": "49:11", "start": 2951.2, "text": "Right. and I'm- I'm also curious then, in a hypothetical Bitcoin financial system, do you see that, like, Bitcoin would stop the creation again of some of these problems?" }, { "speaker": "guest_2", "time": "49:26", "start": 2965.61, "text": "Oh man, that's a good question. I think it will for the medium term. I'm talking fifty, fifty years, hundred years or so, but eventually we'll get into, a system once again that's really inflationary, really credit based, and things will expand and there might be war, war might- Change, so instead of being, you know, actually kinetic stuff, it's more cyber war. So I, I don't know, but I think that Bitcoin can usher in a period, at least fifty to a hundred years, of very sound money, very sound values, and so I think that's, that's what we're gonna see. But long term, yeah, there's gonna be cycles in, in human history. hu- humans go through these long, broad cycles, and Bitcoin isn't gonna cure us of our human nature or anything like that. There's always gonna be murderers There's always gonna be, countries that want to drive their tanks across borders and stuff. There's always gonna be that kind of thing, but Bitcoin gives the world a better base which to, build off of." }, { "speaker": "stephan", "time": "50:26", "start": 3026.18, "text": "I see. And so, and I think it's definitely fair to say, at least in that fifty to one hundred years, it's gonna make warfare a lot harder. Like, let's say we were on a Bitcoin standard, obviously funding that war is gonna be a lot more difficult, if you have to actually get the, raise the funds for it in a Bitcoin context. Absolutely," }, { "speaker": "guest_2", "time": "50:45", "start": 3045.21, "text": "absolutely. yeah, the, the warfare won't be at the, in the place where it's, you know, economically vibrant. I don't, I don't think the US is American war or anything like that. The, the war is gonna be in Eastern Europe, it's gonna be in Central Asia, it's gonna maybe be in Africa or something, these places that are going to be, economically less vibrant anyway, and they're, they're not gonna want to, they're not gonna want Bitcoin, because Bitcoin puts these restrictions on the power to inflate the money and, and have war. Like, if I, here's an example, if I am living next to a guy that, you know, is constantly thr- Threatening me and constantly like throwing stuff over my fence, maybe firecrackers or, you know, he puts a sign on my house like I'm gonna, break in at night and I'm just terrified, right? And that, that's what a lot of these countries when they, they're living next to their mortal enemies that have been in these ethnic conflicts for thousands of years, they hate each other. Now, those, those people don't want sound money because they can't inflate to keep their, their, protection racket going. So they, they have a reason to- Inflate money, I think, but the, the more peaceful, prosperous areas, are gonna turn to Bitcoin." }, { "speaker": "stephan", "time": "52:02", "start": 3122.04, "text": "And it'll remain to be seen, but it could also be that those countries and areas or zones, regions operating on sound money will just be so much more productive that their technology would be vastly superior also, so they would be much more able and capable to defend themselves against attacks and, also to make it less profitable to even go to war there. Yeah, because it's just cheaper to trade with them instead of attacking them. It's kind of like Bitcoin mining. It's eventually, you, you know, if you're trying to take on all these Bitcoin mining machines, it's, it becomes, it comes a point where you can just earn more from being an honest miner than trying to attack the network." }, { "speaker": "guest_2", "time": "52:41", "start": 3161.02, "text": "Yeah, absolutely, and I think we've seen that exact thing happen in history, right? Like China's century of humiliation, they were extremely weak, even though they had a big land empire. The, the British like conquered them with twenty-eight men or something. I mean, it was ridiculous the, the difference in power that these two places had. So I think we'll return to things like that. Places in the world will be extremely weak and p-places in the world will be extremely strong. That's like kind of the rule of human history, and we're just gonna go- Go back to it. Like, like I, I keep coming back to, the last fifty, seventy-five years has been a bubble. This has been a bubble of peace and prosperity, and that's not gonna happen. not every place is going to benefit from this coming change that we're gonna see in the world, but I, I would say most places are, and that's gonna, it's gonna follow kind of the, the rhythm of history in a way." }, { "speaker": "stephan", "time": "53:33", "start": 3213.44, "text": "Yeah, that's really interesting stuff. So, I guess, a-any, closing thoughts, Sort of see, so I know CK is big on the sovereign individual, I'm curious actually, do you have any thoughts on whether Bitcoin enables that kind of vision?" }, { "speaker": "guest_2", "time": "53:51", "start": 3231.34, "text": "I think Bitcoin will enable that for people, certain people, certain individuals, but not on a broad scale. I think that, like, I am-- I hate to say it, but I don't think Bitcoin is gonna be good for, a lot of these poor countries that people think like Bitcoin is gonna serve the un-unbanked and it's gonna bring, savings to Africa, it's gonna bring savings to these places. I don't, I don't think that's gonna happen. I think that Bitcoin is going to pool into the places where it's treated It's gonna pool with the most able people. You, you could, I mean, like we just talked about there, there is going to be a greater inequality between nations under Bitcoin. I don't know if that's a good thing or bad thing. I, I try not to make a judgment call, I just try to use my, kind of framework to try to predict what's gonna happen." }, { "speaker": "stephan", "time": "54:40", "start": 3280.22, "text": "Excellent. Well, I think that's a good spot to finish there. So listeners, make sure you go follow Ansel. You can find him on Twitter, his handle is at Ansel, thank you for joining me today." }, { "speaker": "guest_2", "time": "54:53", "start": 3292.85, "text": "Thanks, Stefan." }, { "speaker": "stephan", "time": "54:54", "start": 3294.23, "text": "Get the show notes at stefanlivera dot com slash three nine eight. Thanks for listening, and I'll see you in the Citadel." } ] }