#1194 Dr. David Andolfatto | First Central Banker To Present Bitcoin Publicly

Dr. David Andolfatto is the professor and chair of the economics department at the Miami Herbert Business School at the University of Miami. He was the very first central banker to ever give a public presentation on bitcoin. In this conversation, we talk about bitcoin, federal reserve, economics, why bitcoin may be something that the world needs to pay attention to, potential risks, central banks, what David learned, intersection between economics, markets, legal, technology, bitcoin, USD, and why you should pay attention. ======================= Pomp writes a daily letter to over 235,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. David Andolfatto is the professor and chair of the economics department at the Miami Herbert Business School at the University of Miami. He was the very first central banker to ever give a public presentation on Bitcoin.

• 0:45Anthony Pompliano?

  And in this conversation, we talk about Bitcoin, the Federal Reserve, economics, why Bitcoin may be something that the world needs to pay attention to, what some of the risks are, how exactly the central banks work, what David learned at his time there, and where exactly economics, markets, legal, technology, Bitcoin, and the US dollar all intersect, and why you should pay attention. I really enjoyed this conversation with David, and I hope you guys enjoy it as well. Once you get done with this, go ahead and jump on Twitter and let us know what you liked, what you didn't like, what you agreed with, and what you disagree with. The feedback is always helpful and helps us make these conversations better. Here is my conversation with David Andolfatto.

• 1:31Speaker 01

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• 1:58Speaker 02

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 2:22Anthony Pompliano?

  All right, guys. Bang, bang. I've got David here with me. David, you were the very first central banker in the world to give a public presentation on Bitcoin, which will make you very popular with our audience. But I thought a great place to start the conversation is just how did you come across this weird decentralized digital currency while working at a central bank?

• 2:39Speaker 03

  Yeah, I think my earliest recollection is reading, I think, an op ed piece by Paul Krugman, in fact, where he was highly critical of the endeavor. And, and, and that got me to dig into the, into Bitcoin to see what he was talking about. And initially, I have to say, I shared Krugman's skepticism, but after, after opening the hood, so to speak, and digging into it, I found that it was something really, really quite interesting.

• 3:09Anthony Pompliano?

  So you wrote a blog post, I think in 2013, and then you followed it up and you went on a tear in 2014. You did like five presentations or blog posts and you were kind of really exploring it. And I think giving what I would call a good faith effort based on some of the presentations. And what I appreciate about in hindsight, looking at that stuff is you were complimentary in certain cases, you questioned certain things and said, look, I don't know if we have an answer for this yet. And then you were critical in other cases. And so in order to understand Bitcoin, I think we got to kind of go back and look at it from the view of, you know, what is the role of money? What's the role of the central bank? And so given that you worked inside of these organizations, one thing that you hit on over and over and over again, where I think you were comparing Bitcoin, the dollar, gold

• 3:54Anthony Pompliano?

  and other assets, is this idea of money having to be stable in short periods of time.

• 3:59Speaker 03

  Correct.

• 4:00Anthony Pompliano?

  Talk a little bit as to why is that so important in your mind?

• 4:03Speaker 03

  Yeah, that's it's a bit of a subtle point, right? I mean, that for what's important for a monetary instrument, I think, and I think most monetary theorists would agree, is the short-run stability of its value. You need to meet payroll by Friday. Say it's Monday, you need to meet payroll by Friday. You want to, that payroll is a fixed amount of whatever. It could be X number of dollars or Bitcoin or whatever. You want to be sure that that money is there and worth what it's worth on Friday. You're, you know, if inflation is running at 5%, I mean, 10%, I mean, you're going to lose a little bit in purchasing power,

• 4:44Speaker 03

  but not that much. What's more important for you to manage cash flow is the short-run stability of the monetary instrument. Ideally, I mean, you don't want to lose over the long run as well, but there are certain trade-offs. And so I've argued that, for example, gold and Bitcoin are not really well-suited to serve this role, just because their demands can be very volatile and the purchasing power can fluctuate over very short periods of time, making managing payments very difficult. That's not to say that gold and Bitcoin might not be good as long-run stores of value or great hedges in some cases. So I try to make that distinction and see how.

• 5:28Anthony Pompliano?

  So you basically are pulling out, okay, there's this like long-run, what historically so far has been a appreciation of purchasing power with gold and Bitcoin. Dollar and other fiat currencies have lost purchasing power over the long run. But I think you highlighted this short-run stability and used the example of, you know, if it's Monday and you got to make payroll on Friday, there's a fixed kind of debt, if you will, right? Or a fixed amount that you've got to pay. And if your money is worth two times that on Monday, it's worth 50% of that on Tuesday. On Wednesday, it's worth, you know, 150%, and it's kind of fluctuating. You almost don't know if you're going to have the money on Friday to be able to pay it. It sounds like there's two solutions that I would highlight. One, which I think is kind of what you're getting at, which is like you have short run stability

• 6:12Anthony Pompliano?

  of the assets purchasing power so that whatever you have to pay on Friday, you have that and it doesn't change throughout the week. The second would be to actually have a similar unit of account. So if I'm holding Bitcoin, but I have to pay in dollars, the US dollar exchange price is obviously super volatile, right, of Bitcoin. Now I use super as it could fluctuate 5% in a day, 10%, whatever. But if I have my payroll in the unit of account of Bitcoin and I have Bitcoin, does that take away the short-term volatility risk?

• 6:44Speaker 03

  Yes, a little bit because you eliminate the exchange rate risk that's inherent in any, you know, when you have, for example, obligations denominated in some foreign currency. Suppose you're in, in South America and you denominate that in US dollars, you subject yourself to exchange rate fluctuations. What you're talking about is imagine now, however, society where say Bitcoin or gold is actually the unit of account. And, and that does mitigate a little bit the, that problem, but not entirely. And, you know, we've had kind of quasi experiments of this sort in the past, gold standards,

• 7:23Speaker 03

  for example, where, where, you know, what, again, what we witnessed was especially during times of crisis, what you see is this kind of flight to safety phenomenon where people just rush into the safe asset, in this case, gold or Bitcoin. And the effect of this is to dramatically increase the price of Bitcoin relative to goods. And, and so again, you know, producers or, or, you know, workers who are, you know, being paid in this object are, have their debts denominated in a nominal Bitcoin.

• 8:02Speaker 03

  Let's say, let's say I, you owe a thousand Bitcoin, but suddenly there's this increase in the demand for Bitcoin because people are freaking out and that drives the purchasing power of Bitcoin, you know, doubles it. You're going to have to work a lot harder to discharge that Bitcoin debt now because the purchasing power of your labor now is much lower. So. That is the argument that, you know, it doesn't, that argument, letting the Bitcoin or the gold or this hard money be the unit of account does not entirely eliminate the problem that I'm highlighting here.

• 8:40Anthony Pompliano?

  So dollars, I think for most people, they would agree, it solves the short-term volatility problem. If I owe, you know, a thousand dollars on Friday, it's Monday, if I have a thousand dollars, I'm likely to still have that same thousand dollars that I can pay.

• 8:53Speaker 03

  Correct.

• 8:53Anthony Pompliano?

  Does the same kind of issue get solved even though the dollar gets depreciated over time? So when you talk about, you know, kind of hard money appreciating and having to work harder, right, because the purchase power is increasing, what is the impact when the dollar is actually losing value? Let's say if there was a massive quantitative easing or something like that where the purchase power was eroding?

• 9:15Speaker 03

  Well, you mean during a time of crisis?

• 9:17Anthony Pompliano?

  Correct.

• 9:18Speaker 03

  Well, I mean, in fact, you know, the Fed was founded in 1913, precisely, I think the language actually says to provide an elastic currency. That is to say, during a crisis, what happens is there's a tremendous flight to safety and that that flight to safety asset can vary over times, but in recent times, it's been the US dollar and US Treasury. And, and look, if, if there had been, perform the hypothetical back in 2008, let's say the financial crisis, and let's try to imagine that the Fed did not engage in quantitative easing, that the Treasury, that the government did not run those very large deficits supplying the, the US Treasuries that the global economy was demanding, I

• 10:00Speaker 03

  conjecture that we would have witnessed the mother of all deflations. We, we saw interest rates on T-bills go negative. People were so, so in need or desirous of places to store their money in a safe place. And there's not many safe places you can go. And so I think that it's, it's usual to think about that counterfactual.

• 10:25Speaker 03

  This is the short run, right? This is the whole point of of the elastic currency is to supply the currency that's demanded in the short run to alleviate the elevated demand. But then, at the same time, once that elevated demand has dissipated, to then contract the currency. I think a lot of skeptics are always, what they're critical of is that that second part doesn't seem to come to play. And so ultimately, this manifests itself as a lower purchasing power for the currency going forward. And that's that's kind of a legitimate criticism. But again, conceptually, we have to separate out these, you know, short run versus long time term stabilized value of the monetary object.

• 11:07Anthony Pompliano?

  So when you talk about short run versus long run, does, is it possible for one asset to serve both cases? Or is it a classic trade off of if you want something that's stable in the short term and you want to use this kind of elastic monetary policy or variable monetary policy to address short term issues, you have to just understand the trade off is long term, you're likely to have issues? Or is there an example of an asset that's been able to serve both over history?

• 11:32Speaker 03

  I think that the US dollar could, in principle, serve both purposes. For example, it would depend, it would depend on the following. For example, Congress could make an amendment to the Federal Reserve Act, which is the act that established the Fed in 1913. Our elected representatives in in currency could mandate that the Fed follows a hard money policy over the long run. They can do that. So in principle, it's possible. As a practical matter, I don't think it's going to happen for a variety of reasons. But I think it is possible for, you know, this elastic currency to operate. Certainly, I can show it mathematically. The question is really boils down to political.

• 12:16Speaker 03

  I don't think Bitcoin can do it because its protocol is a hard money protocol. I'm not criticizing that. I'm just describing the supply is essentially fixed or grows on a fixed schedule. Conceivably, there might be other protocols. I do know that there has been experimentation of cryptocurrencies that do provide that elastic currency function. And you could kind of program the elasticity in, along with the hard money policy into the code. I think that's conceivable, and I do think people have tried to work on that. I'm not so sure how successful they've been yet.

• 12:51Anthony Pompliano?

  Yeah, people are going to try for sure. Take me inside the room at a central bank during, whether it's a moment of crisis or kind of these short-term decisions, right? I think from the outside, the average American doesn't even know the central bank exists, right? They're just like, hey, I'm going to work, I'm going to make money, I'm going to go home, do my thing, and I just want to live my life, and like, what's a central bank? For those that are a little bit more maybe knowledgeable or interested, their view is that there are people who go into basically a conference room, there's a bunch of data that's presented and kind of consumed, and there's some, I call it guestimating, right? In terms of, okay, we're looking at data, I think the central bank knows that the data

• 13:30Anthony Pompliano?

  is probably a little bit lacking in terms of immediacy, because it's not real-time data. And then two is, every central bank I've ever talked to is like, very well aware of the complexity and difficulty of trying to use, you know, data that happened 60 days ago to make a decision today to try to forecast what's going to happen in the future. But was that your experience? Like, what happens in those rooms?

• 13:53Speaker 03

  Well, gosh, those rooms, I mean, so I was a senior vice president at the St. Louis Fed. So the St. Louis Fed is one of 12 regional feds in the Federal Reserve system, and that is centered at the Board of Governors in Washington DC. In times of crisis, I have to say, it's really the Board of Governors in DC, along with Treasury and the administration, that kind of, you know, take hold. The regional Fed presidents typically play a more important role in the day-to-day conduct of monetary policy in the eight federal open market committees, the FOMC meetings that are held each year. But here, let me walk you through what happens. I'm working there, you know, I'm an advisor to Jim Bullard. Jim Bullard has, there's a Board of Directors, like, the Board of Directors is what appoints

• 14:38Speaker 03

  the president of the regional feds. These Board of Directors are bankers, regional, they're local banks, they're people from the community, they could be, they're not just bankers, but business people and social workers. It could be a wide variety of people on this board. And the president meets them with them on a regular basis and they report on their business, what's going on, what's going on with the regional banks, you know, what's going on with my business, what am I seeing? And so the Fed president gets a lot of firsthand reports from his board members. That president also has a lot of contacts in the region. I think Walmart is headquartered in the in the St. Louis district. So you're talking to the CEO of Walmart. Tell me you don't get information about what's happening in

• 15:21Speaker 03

  real time, talking to the CEO of Walmart. He gets a lot of information. On top of this, we have in St. Louis and other branches, but in St. Louis, we have three regional branches, one in Louisville, one in Little Rock, and one in Memphis. They each have board of directors populated again by local representatives of the community. You know, I've been down there, you talk to them, they have go arounds, they report on their business, they report what's happening around the the local economy. The Fed president gets all this information and then he's briefed by his staff, myself, for example, we have regular FOMC briefings. And then there's counsel, we, a small group of us will meet

• 16:02Speaker 03

  with the president and kind of disseminate all our or process all this information and think about what it might apply for, say, interest rate policy at the upcoming meeting. Then they all gather at the FOMC eight times a year, all of them in this room, along with their assistants and a few other people in the room, and they discuss, they have an economic go around where each Fed president and every board member reports on local conditions, especially the Fed, regional feds are reporting on San Francisco Fed will report on the Western District, etc., and New York Fed, etc. They have an economic go around. And then they have, the next they have a discussion about what the appropriate policy action is. So, yeah.

• 16:46Speaker 03

  There you go. I mean, that's just a little bit of a, you know, there's a lot of stuff going on. I mean, it's not perfect, but I think that they're the Fed presidents, the FOMC, the ones who are undertaking the monetary policy decisions are about as well informed as anyone. And New York Fed in particular will have direct a lot of information on Wall Street and what's happening in financial markets. So I think they're about as well prepared as anybody in terms of the information they have available.

• 17:15Anthony Pompliano?

  So I've gone through probably too much of the data in terms of people have asked me questions over the years. I'm like, I don't know the answer. Let me go and read documents or figure it out. And I think there's three parts, maybe that'd be interesting to get your perspective on. The first is what I'll call kind of CPI calculation, right? And so it's changed over time. I think that every person I've ever talked to that's been involved in trying to figure out how do we measure inflation essentially, super good natured, trying to do it. It's very difficult to do and they will even go as far as to say, look, there's like 10 different ways we could do it. What we're trying to get at is a specific way to measure it so that it can be used

• 17:56Anthony Pompliano?

  as part of monetary policy, help inform the general public, help inform business owners, et cetera. And so it's not just, you know, measuring only one way because that's the only way to do it. It's actually, no, we know multiple ways to do this. What is the right way to do it for what we're trying to accomplish? I think it's an important kind of call out. And so as I kind of went through this, one of the things that surprised me is there's a couple of hundred people who physically go into stores, right? And they're manually inputting the data and the part that, you know, kind of is the headline grabbing part is somebody one time went and they said, I talked to that person, I interviewed them and they got, you know, eight page printout of exactly like the Campbell's soup, low sodium, whatever, to make sure they got the right one. And, and you start to realize like, again, there's the theory, but then in practice, like if you send

• 18:40Anthony Pompliano?

  someone to the store and you say, hey, go get the price for X good, well, take just soup alone, right? It, there could be Campbell's soup, there could be other brands, there could be low sodium, high sodium. Like, there's all these things.

• 18:52Anthony Pompliano?

  When you compare that to, you know, maybe in the real estate market, we have Zillow and Apartment.com and these guys, they have data, that data tends to be what they claim to be real time. I don't know, you know, kind of how real time. And sometimes these data points match, right? Kind of the Bureau of Labor Statistics and these private companies, sometimes they don't. Does the central bank look at the private company data sets? Do those companies give them the data? Or is it pretty much what we see with like the BLS and the CPI calculations? Like, that's what they're using as well?

• 19:22Speaker 03

  Yeah, that's, it's a good question. I'll tell you honestly, I don't know exactly. I've never myself personally got into the details of actually collecting the data. Of course, I, along with most economists, are aware of all the pitfalls that you described.

• 19:38Speaker 03

  For, for your listeners, by the way, there's this thing out there called the Million Prices Project. I don't know if you've heard of that. I mean, this is a private endeavor to calculate cost of living, these price indices. And I'll just have to say, what they come up with doesn't look a lot different than what you see from the official statistics. The recent episode's a little bit different because of the real estate, the, the manner in which owner occupied rent interest into the CPI, how it's calculated. I think there's a general recognition that, gosh, we need to do a better job here. And availing themselves to like Zillow, the real time data, data that's, that's potentially available, I think would be an excellent idea. I'd be surprised if they, they aren't trying to do it.

• 20:22Speaker 03

  I can't report to you exactly and say that they are, but I would be very surprised if they're not. They're always looking for ways to improve and to get the measurements right. And, and you're right, we, I know that the Fed doesn't just look at one measure. I mean, I know that they have the official measures, the PCE headline measure, but they look at, they look at all sorts of measures. And one of the nice things is, is that most of the measures you look, look at are essentially most of the time telling you the same thing. And you can't really fine tune things too much in terms of policy. You kind of really have to try to identify trends, I believe. And, and, and, and these indices do, do, I think, at least give

• 21:01Speaker 03

  Us that, but I would be all in favor of using whatever high frequency data is at our disposal to improve the methods for sure.

• 21:10Anthony Pompliano?

  Yeah, it's interesting because obviously CPI, there's core and kind of all these other official metrics. You mentioned the million prices project. I think historically people on Twitter have loved to go to shadow stats, which there's questions around, you know, kind of the accuracy of that. There's a new measurement called trueflation that is trying to get at using on-chain data. And so I do think, you know, in the United States, we've been very fortunate that we've actually, most people have lived through low inflation environments. Right. And so unless you were kind of really locked in and paying attention, kind of, you know, in the eighties or so, then you never thought about it.

• 21:48Anthony Pompliano?

  Right. So for 40 years or so, we've lived in this low inflation environment. Now compared to some other countries around the world, this is, you know, one of the most important things to them. They really understand inflation and currencies and things like that. But over the last three years, now all of a sudden people kind of poke their head up and say, hey, hold on a second. Let me, let me learn more about this inflation thing. And so naturally that leaves us some of them saying, well, maybe I could measure it better, which is, you know, again, interesting. I don't know if they can or can't, but it feels like having more data points available is better for the people making the decisions, right?

• 22:18Speaker 03

  Absolutely. And I do think that they, you know, like I said, I'd be surprised if there aren't people working very hard to incorporate that information.

• 22:28Anthony Pompliano?

  So one of the other pieces of this is, once the central bank is kind of consuming all of that data, there is a human decision-making process, right? It's not formulaic in the sense of one plus one equals two, and no matter what anyone says, one plus one equals two, and that's what we're going to do, right? It is very much, as you described, the intake of information, the synthesization of that information, and then a human is making that decision. One of the things that attracted me to Bitcoin was this idea of like an automated central bank, right? Which like now with the rise of AI, everyone's like, oh shit, is my job going to get automated? But it's this idea that like Bitcoin's not consuming any information, right? So it's kind of alleviated itself from that responsibility. And instead it's just saying, look, we are going to have a pre-pro-

• 23:11Anthony Pompliano?

  Programmed, you know, kind of programmatic monetary policy. I don't care what happens in the world like we're going to operate on this. Maybe that's better, maybe it's not, right? You can opine on that. But the idea that there's no humans participating is fascinating to me because I don't trust my friend to give me a suggestion. I go to Google, right? I don't trust my friend to give me directions somewhere. I go to Google Maps.

• 23:33Anthony Pompliano?

  And so it does beg this question of like, you know, should we just dump all the data into some kind of formula or some kind of computer program? And rather than the individuals themselves making the decisions, like, could the software do it better? I don't know. What do you think?

• 23:48Speaker 03

  Well, I mean, truth be told, I mean, in our economic models, when we write down policy functions that are go by these names like the Taylor rule. If any of your listeners are familiar with that, you can Google it. I mean, the Taylor rule is basically a formula, mathematical formula that purportedly describes in qualitative manner, the manner in which interest rate policy is set. High inflation tends to elicit rate increases. A weak economy tends to elicit rate cuts. And so in our economic models, they take exactly that form. I want to push back a little bit, though, here in saying that it's not like Bitcoin is completely divorced from human interaction.

• 24:30Speaker 03

  It was a human who designed the protocols. I kind of view it more like the constitution, a legal framework, a set of rules that govern the way certain things are done. It was a human. Humans designed these things. And indeed, it's not as if Bitcoin is not alterable. I mean, in principle, I mean, in fact, my understanding is early on, you know, certain bugs were fixed by patches by the core developers. I mean, it's like you want the community actually to fix things that go wrong.

• 25:00Anthony Pompliano?

  It would be bad to have errors and not fix them.

• 25:01Speaker 03

  Constitutional amendments. I mean, these are, you know, we need, we, humans have played, still have played a role there. But I understand what you mean. It's like, okay, once we've got kind of the right, you know, I don't know. It's like a human designed a car, but now we can program it to drive and we just let the car bring in data and it can navigate itself on its own without error.

• 25:23Speaker 03

  And I think that's a really interesting idea. I wonder how far we can push it.

• 25:29Speaker 03

  In our models, I mean, what happens in our models, our mathematical models and I and listeners, I mean, we all have models of the way the world works embedded in our heads.

• 25:42Anthony Pompliano?

  Yes.

• 25:43Speaker 03

  They're not as well formulated or as explicit mathematical models, but they're there. Nevertheless, we're going to design something relative to solving a problem that according to the way the world works in the model we have in our head. Well, you better be damn sure that you got the right model. How can you be so sure? I mean, that world is very complicated things. It's been my experiences that you write down something that is a great solution to a particular environment, but that environment you didn't account for X, Y, or Z, the unknown. Then what do you do? You need some discretion. You need somebody with wisdom. You need somebody you can trust. You can, you need, you need somebody to accommodate those unforeseen events.

• 26:26Speaker 03

  You can't, I don't think, program every contingency into this model. At least not yet. I mean, I think if you could, you'd basically be God.

• 26:36Anthony Pompliano?

  Yeah.

• 26:37Speaker 03

  We're not there.

• 26:38Anthony Pompliano?

  What you're highlighting is actually not, not something that I think is too far outside of the world of finance. I mean, George Soros, this is basically his like philosophical view of the world, right? Is this idea of like imperfect understanding? And he really hammers on the idea that like, even though you can look at a set of facts, you cannot simply evaluate just the facts. You also have to evaluate how will people perceive those facts and what actions will they take, which will then influence the environment and the situation. And so, you know, he kind of separates out somebody who is kind of evaluating or thinking about it versus somebody who is participating in the environment. And so even the model itself, if it doesn't account for what the model is going to do,

• 27:20Anthony Pompliano?

  you kind of get into this very, you know, meta world, if you will, of the model's impact actually has to be programmed into the model also.

• 27:26Speaker 03

  No, that's absolutely correct. I mean, we were fond of saying in economics and I think in social science in general, that the data does not speak for itself. I mean, let me repeat that. The data does not speak for. Itself, it's impossible. You need an interpretive framework, a model, a way to organize your thinking. This is what we all have in our brains. It's nothing to be ashamed of. It's we, we, we try to do the best we can, all of us, every, every day. And this includes policymakers at the FOMC. They're not infallible. But hopefully, you know, we learn and these institutions evolve in a way that helps serve the broader community. But exactly, you're right on point.

• 28:07Anthony Pompliano?

  So I want to go before we talk about the first presentation that you did publicly. I want to talk about the blog post that you wrote in 2013. You wrote, it was titled, Why Gold and Bitcoin Make Lousy Money? And we talked a little bit already about this desirable property of monetary instrument is that it holds its value over short periods of time.

• 28:23Speaker 03

  Right.

• 28:24Anthony Pompliano?

  But you later said, it is important for a monetary instrument to hold its value over long periods of time. I'm sorry, is it important for a monetary instrument to hold its value over a long period of time? I used to think so, but now I'm not so sure.

• 28:35Speaker 03

  Right.

• 28:36Anthony Pompliano?

  And so I thought that was very interesting because you basically are saying, look, one, you're changing your mind a little bit, right? Which, as you kind of think more about this stuff, hopefully you do change your mind. You would be a bona fide genius if you got it right on the first try. But talk a little bit as to how you view the long-term sustainability of purchasing power for money and the importance of that or the lack thereof.

• 28:55Speaker 03

  Yeah, you know, so, so early on, I mean, my, my initial thinking was, you know, I mean, why on earth would you want the monetary unit to depreciate in value over time? I mean, I, it's, it's a metric. It's a way we measure things. Why, I, we don't change the length of a yard, the length of a yard or a meter, depending on your audience here. I mean, we don't change it over time. A meter doesn't shrink. And there's a great deal of utility in principle of having a metric that retains, you know, that remains stable over time. So ideally, why not just a constant price level? This permits relative prices to change. The price of apples relative to oranges can change, but the overall price level should remain fixed over time.

• 29:38Speaker 03

  This is kind of how I, I thought. And there's still a lot of merit to that argument. I guess over time though, I mean, it kind of, I come to appreciate a kind of.

• 29:51Speaker 03

  Practical matters, I mean, you know, our elected representatives, you know, are at the power to tax and to do whatever. I mean, this is to make transfers to fund infrastructure, the interstate highway system, NASA, whatever. And they typically finance, you know, these endeavors through taxation. And we submit to it implicitly, either explicitly at the ballot box or implicitly. It's part of our contract of, you know, civil society. Now, if the government has to tax, and I know a lot of your listeners might shut off right now, but I mean, suppose that they have

• 30:33Speaker 03

  to tax, the question is, you know, how do you do it? We have income tax, wealth tax, consumption tax, inflation tax? I mean, why should the inflation tax not be a part of that mix? This is especially the case, in fact, in developing economies that don't have well-developed tax collection systems. How do you fund a public school or public roads in an economy that doesn't have a well, you know, it's very difficult to collect taxes. And yet, in principle, there's a public project that needs to be financed. You know what? I'm not going to be such a hard ass to say I want a stable price at all costs. I can kind of see the merit of increasing the money supply to hire a few construction workers to clear the road and build a school and to grow

• 31:17Speaker 03

  some corn to feed the kids and give them free lunch. I don't know. If that's going to cost me 1% for a year, my purchasing power, I mean, the government could tax me directly through my income tax or my wealth tax, land tax. If they do it instead by increasing the money supply and financing it in that manner, I can kind of see, well, you know, as long as the monetary unit maintains a stable short-run value, as I say, I mean, it still serves its purpose to facilitate payments. And, okay, it loses a little bit of its value. I just consider that a part of a tax. What? I don't like it? Go in and call your congressperson, your elected representative, and rail against it. But

• 32:00Speaker 03

  The grand scheme of things, if I see two, three, four percent inflation, I'm not going to get terribly excited. I don't necessarily like it, but I mean, it's, I can see how that that's how my thinking kind of evolved along that dimension.

• 32:14Anthony Pompliano?

  So this is interesting because I think a lot of people don't think that way, right? And don't see it as a tax, obviously. For those that do, I've seen two different groups respond. One is, I think, kind of your camp, right? Which is, okay, I might not like it, I understand it. And if it's one or two percent, it's not 20% or, you know, Argentina 100% or whatever it is at the moment. There's another camp that goes, wait a minute, we fought wars, like, you know, no taxation without representation. Like, oh, we didn't elect these people, we didn't, you know, subscribe to that monetary policy, whatever. How do you kind of balance out what I'll call like the explicit taxation, right? Which is always seems to be going up over the long run, right?

• 32:57Anthony Pompliano?

  Never, never seems to kind of come down, although there are short term tax cuts. Versus this more like implicit type taxation. Cause it has the effect of a tax, but it is not explicitly a tax. And so how do you think about that from like the intersection with politics and kind of representation?

• 33:16Speaker 03

  Yeah, it's a very good idea. And by the ways, I just, I want to mention too, even if inflation is 2%, 3%, it's not like people do not save their money in cash. They save their money, like right now, interest rates are 5%, T-bills and stuff. We, we, we only save a very small fraction of our wealth in zero interest bearing securities. So again, that, that, that tax is, it's not something that would I go crazy about. But good point, you know, I mean, people have brought this up. I mean, at least, you know, in a gold standard regime or a hard money regime, if the government wanted to finance something, it would have to go through the legislative process explicitly.

• 33:58Speaker 03

  And kind of vote, you know, and, and, and so taxation with representation. The way I can reconcile this is, you know, the, the Federal Reserve, first of all, the Treasury is part of the government.

• 34:13Speaker 03

  Secretary Janet Yellen is part of the administration. The administration, we elected the president.

• 34:22Speaker 03

  So, you know, she's operating under the, under the guidance of an elected official.

• 34:29Speaker 03

  The Federal Reserve itself was established by Congress in, in 1913. There's a Federal Reserve Act. It prescribes the Fed's mandates and the available tools of the Fed.

• 34:43Speaker 03

  And the Federal Reserve Chair is required twice a year to testify in front of Congress. Once in front of Senate, once in front of the House. And he takes, or he or she takes some very, very difficult questions. So there's some accountability in, in that sense. Even though the, the Board of Governors are, they're appointed by POTUS, ratified by the Senate. There's some representation there. The Fed President's a different matter. They're, they're elected by, by boards.

• 35:11Speaker 03

  But at the end of the day, I would say that there is at least an implicit,

• 35:19Speaker 03

  you know, representation there, the sense that although the Fed, Fed officials are technocrats, that at least, you know, they, they are accountable to elected representatives. And it is within the power of the American people.

• 35:35Speaker 03

  The pressure they are elected representatives to modify the monetary policy in the way they see fit. Again, if you do not like inflation even at 2%, if you want 0%, lobby your Congress, many of your representatives, and get them to change the Federal Reserve Act that restricts the Fed in that manner. You, you're not necessarily going to like the outcome, let me tell you, but I mean, you can do it.

• 36:01Anthony Pompliano?

  Well, like, let's just say, can I play off that hypothetical, right? So somebody calls up the Congress person and they say, hey, I don't like this. And enough Americans do it where Congress says, oh, we maybe we need to pay attention to this. And Congress decides that they're going to make a change. Is change, change the Federal Reserve Act? Is it remove current officials at the Fed? But like, what, what do you, what do you think is within the, maybe kind of mandate or, or within the tools that Congress then would, you know, use if they thought that the American people really did want change and they wanted to represent the American people in that sense?

• 36:35Speaker 03

  Well, I mean, like I said, they could explicitly be more specific about what they mean by price stability. So the Federal Reserve Act does, you know, one of the prime mandates of the Fed is price stability. And, and, and more recently, full employment. These are kind of notoriously difficult to define, especially full employment. But price stability has recently been interpreted by central banks around the world as low and stable inflation, 2% per year as measured by PCE. You can, I mean, you can change that. You can say, no, I'm sorry, we're going to have it like 0%. I mean, you could actually do that. And then we're going to give you the tools to achieve that mandate.

• 37:19Speaker 03

  I mean, that could be done in principle.

• 37:23Speaker 03

  The fact that it isn't done suggests to me that, you know, this is, there's a lot of problems in the world. And, and the Fed has been relatively successful. I would argue, I'm sorry, people out there. It's a very complicated world out there. It's very difficult. The Fed has limited tools, by the way. But if you take a look at the history of inflation in the United States, say, since the Volcker era, we've by and large had low and stable inflation. You said yourself, people weren't even paying attention to inflation until recently. And the recent bout, I mean, I have a very good explanation for what happened. And it starts with COVID.

• 37:58Speaker 03

  But by and large, you know, relative to other countries and relative to other periods in history, it hasn't been too bad. Surely there are bigger fish to fry, I would say.

• 38:09Anthony Pompliano?

  So one of the things that I hear a lot in the Bitcoin community, and I think is a fairly valid argument, is you mentioned earlier that most people don't keep their money in, you know, zero interest type assets, right? And so cash ends up being a thing. I think that's true for business people, people in finance, people who understand some of these problems, pay attention, things like that. I went and I looked one time at the percentage of Americans who have no investments. So whether they're living paycheck to paycheck, or they could be making millions of dollars a year, they just stick it all in cash, right? And it blew me away, it was 50%.

• 38:43Speaker 03

  Yeah.

• 38:44Anthony Pompliano?

  Now, maybe that number is off, let's call it 10% either direction, but it's a big number, right? Whatever that number ends up being. Those are the people that seem to be affected the most, obviously by inflation, because whatever money they do have, whether it's a lot or a little, is being eroded away over that long period of time, stable in the short term, but eroded over a long period of time. How much of that do you think is really what's getting at like wealth inequality and some of these like longer term trends that I would argue are very clickbaitable, you know, kind of headline grabbing things that people want to yell and scream about? They're real problems for sure, but there definitely seems to be a disconnect between, you know, the data points and yelling and screaming about it versus like what's driving this stuff? And so is that one of the main drivers?

• 39:29Anthony Pompliano?

  Is this like long-term devaluation of the currency for a big portion of the population?

• 39:33Speaker 03

  Yeah. I, great question. I don't think so. I got two answers. One is I think what people really get concerned about in inflationary environments is not so much the level of inflation, but the change. So we came out of an environment of pretty low and stable inflation and then suddenly it went up. And that creates a great deal of angst among people. You're worried. You see the cost of living go up, rise very rapidly and you become worried about whether your wages can keep up. And this is, this is the angst that I think it's not so much the level of inflation as the change. You're worried about whether you can keep up. Once inflation settles into a range, people adapt.

• 40:18Speaker 03

  And you see, okay, inflation was 10% this year. Yeah, but I got a COLA, a cost of living adjustment. I'm going to get 10%. So over long periods of time, you wouldn't be so concerned about inflation for that reason. A problem, of course, is high inflation, it's tend to be volatile inflation. So it's just one reason why we want low inflation. What about savings? I mean, as you mentioned, most people aren't so sophisticated that they're investing in T-bills right now. They're in bank deposits and I think last time I checked, even my Bank of America account, I think I'm getting 0%. I mean, I'm not very happy. In fact, I think I'm going to start moving. I don't like banks. I said that in my 2014 talk, by the way.

• 41:03Speaker 01

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• 41:31Speaker 03

  Uh, so, um, I said that half joking, but, uh, so, in this case, it's kind of interesting, right? So, this is now, we're not talking about, um, sudden changes in inflation, but just inflation at some level, say 5%, 10% that whittles away the purchasing power of zero-interest-bearing wealth, which is, as you mentioned, a large fraction of our, our, of the citizenry holder wealth in this form, and doesn't that constitute a big tax on their savings? And isn't this what the people complain about? I'd argue that that's right. I mean, people do complain about that, but we can't miss the big picture here. One question is, is what's generating that inflation?

• 42:13Speaker 03

  Now, if you take a look at the, uh, the CARES Act, the, the American Rescue Plan, these types of fiscal policies, they're very clear. I mean, for the most part, these policies, uh, transferred, uh, large quantities of money to the bottom half of the income distribution. I mean, I didn't receive a check, uh, but a lot of these people did receive checks. Okay. I mean, that's partly what's driving the inflation, apart from the supply shocks and, you know, war. So, uh, people at that end of the spectrum should acknowledge, perhaps, that they are net recipients of transferred, uh, income that are partly responsible for generating the inflation. They get the checks, they can go spend the money. That drives up the cost of goods for me, too.

• 42:57Speaker 03

  It's just like me getting taxed. I mean, it's part of my and probably your, you know, we're losing purchasing power. They're losing purchasing power as well, but at least they're getting compensated through the transfer system that's part of our social contract in this country. Uh, I think people tend to not... Look at that. They look at the cost of living, but they don't think about

• 43:18Anthony Pompliano?

  Yeah.

• 43:18Speaker 03

  The income support they're getting.

• 43:20Anthony Pompliano?

  Yeah, I think a big part of it too. And again, like you can spin numbers a million different ways, but probably the the most salacious view of this for sure is like, hey, we gave people $1,200 and 9% inflation. Like, if you take a step back and you do the math, you don't have to have that much in savings, right? To realize like, hey, that's a bad end of the trade.

• 43:39Speaker 03

  Yeah.

• 43:39Anthony Pompliano?

  Now, I don't think that the people who said, let's give out $1,200 checks.

• 43:43Speaker 03

  Yeah.

• 43:43Anthony Pompliano?

  We're calculating and then 9% inflation and like, we're gonna, you know, we're gonna come out better here, right? I don't think that there was that sense.

• 43:50Speaker 03

  Yeah.

• 43:51Anthony Pompliano?

  I do think that a lot of times the fiscal policies, especially in moments of crisis, are all about, we have to do something, right? And, you know, I remember at the time during kind of Q2 of 2020, I think I either tweeted it or I wrote kind of a longer piece. I can't remember. Basically being like, you know, there's a question at the moment of should we do anything? Or should we do nothing? Right? So there's like a binary, do something, don't do something. And then if we choose we should do something, then there's a whole bunch of, you know, options, kind of a buffet of options, if you will, that we can pursue. And at the time, I think I was more worried just about like, the do anything is almost guaranteed to be an error, right? Just because it's nearly impossible. How do you walk up and you have,

• 44:36Anthony Pompliano?

  you know, 3,000 different options? We're not going to get it right. Now, looking back, it's interesting to ask the same question, right? If we had done nothing, what would have happened? Now, we'll never actually know, right? But I think it's very clear that the impact, especially on the on the monetary policy side of cutting the interest rates and things like that, it served as a great catalyst that ended up taking us from what was really a massive liquidity crisis out of that pretty quickly.

• 45:02Speaker 03

  Yeah.

• 45:02Anthony Pompliano?

  And so how bad would that have gotten? Would the free market have solved that problem in a couple of weeks, a couple of months, a couple of years? We'll never know. But it is very obvious that the Federal Reserve stepping in had this impact. The fiscal policies, I think, are harder actually to underwrite because where the funds went is sometimes very obvious. Some people got a $1,200 check, some people didn't. There's industries like the airlines that kind of got these, I think they were called loans, but eventually it was just like, oh, you don't have to pay this back type thing. And the government didn't get equity for it and kind of, you know, there was this transfer of money without, you know, kind of a reciprocal value given back.

• 45:46Anthony Pompliano?

  But then also it seemed like there was a whole bunch of money that got put out. And I don't think you know this, but at one point we literally live read through some of these bills. There was crazy stuff in here, right? Which every political bill has it. And I used to be somebody who was like, oh, all the pork is nonsense and you just got to go. And I have a friend who I put in high regard and he said, it's the single most important part of those bills. And I said, what do you mean? And he said, well, think about this. If you are in a position of power and influence and are elected official for any period of time, whether it's, you know, one term or many, and you have to work with your colleagues.

• 46:28Anthony Pompliano?

  In order to get things done, it is all about finding some sort of middle ground. And so what ends up happening is the pork is like the greasing of the wheels to get some of this done. But if it just came down to one single issue, he was like, you'll never get anything done because you'll just constantly have these battles and there's no room for anyone to give. And so I'm not a hundred percent on board with kind of his view of the world, but I think it now, at least I understand more of the trading that goes on. And so when you read through this stuff, you're like, man, we're, you know, one of the, the one I remember is the federal government was essentially authorizing the purchase of marijuana to test driving high. Right? Scientific study, we got to figure out whatever.

• 47:10Anthony Pompliano?

  And I remember, first of all, immediate reaction was like, we have people in our audience that will do that for free. We don't need to go buy with government funds. But, but the second part was like, wow, this is a very small part. I mean, like literally non-material, no one's even talking about it. But if you add up enough of these, it becomes a material part of the bill and that money is inflationary and things like that. And so sitting inside of a central bank, how much is there worry or conversation about the fiscal stuff versus just a complete focus on the monetary policy?

• 47:41Speaker 03

  Well, that's, that's a great story. I mean, politics is amazing, you know, I, it's, it's, you know, I've read a lot about history and, and these issues. I always start to put things in perspective, first of all, and go, you know, look where we're sitting. Look at this technology. I love this air conditioning. We do live in a pretty civil society. You know, we, there's 350 million of us, all very different. It's kind of like Charles de Gaulle when he said, how, how can you expect me to govern a country with a thousand different Jesus? I mean, it's like, we're actually, you know, let's all step back and kind of be grateful, a little bit, you know? Okay, so now, now, now we can, now, now we

• 48:23Speaker 03

  can criticize. Okay, so monetary policy, it's funny, I, I've got it a little bit reversed from you. I mean, I'm, I'm, apart from the initial March 2020 Fed intervention that kind of calmed the financial markets. And I have to say that the Fed really learned from the 08 crisis. When a crisis hits, I mean, you just forget, you just go in there and you do it. I mean, if there's this, this is one thing we learned is you, you open up the fire hose. And indeed, I wasn't aware of these companies like Boeing, for example, actually availing themselves of our emergency lending facilities. My understanding is that just the announcement that these facilities were available calmed down the corporate bond market and that permitted Boeing to actually raise funds privately, for example. And so

• 49:06Speaker 03

  I thought that part of the Fed intervention was, was very good. I, I wasn't a big fan of the interest rate cut, to be quite honest.

• 49:14Anthony Pompliano?

  Why not?

• 49:15Speaker 03

  I, I, because I, interest rate cuts are for, to stimulate aggregate demand. And I did not interpret the COVID shock as an aggregate, deficient aggregate demand. It was a negative supply shock. This was a huge sectoral shock where we actually asked large portions of the economy to go home, stay home. Leisure and hospitality got crushed, for example. And this was part of the effort to slow the spread of the pandemic, if you recall, kind of flatten the curve. Now, you're sending, you know, a good sizable portion of, of your fellow Americans home and asking them that for the sake of public health, public safety, please stay home. Oh, and by the way, you're not going to be earning income and stuff? You're not going to be able to feed your families? Are you crazy? Are you crazy? I

• 49:57Speaker 03

  mean, the fiscal response, the CARES Act was absolutely the correct thing to do. And I think the counterfactual is well known. In fact, we have a counterfactual just in the financial crisis where, you know, the banks, the financial system was largely quote unquote bailed out. And there's a broad perception that the American household was not. I mean, the American household suffered through a great foreclosure crisis in, you know, I mean, people were losing their homes. And there was a perception that there wasn't that sense of urgency to help out the regular American. Oh, you're going to step in and save the bankers who actually caused this crisis, but you're not going to help the American homeowner? And we saw what this led to. We saw the visions in our society that this led to, the populist

• 50:41Speaker 03

  politics. We saw the damage that this did. And I think that this was the lesson that was learned in 2020. That we're going to go in and gosh, it's going to be ugly, but we got, it's better to get somebody fed and there's going to be some pork slushed around. I mean, it's going to be higher inflation, but this is not the time to quibble about it. We can worry later about, you know, having a contingency plan in place to deal with a similar crisis that's bound to happen again. But you can't, you don't ask these questions when you're in the trenches. In March 2020, things looked pretty scary, right? Good question about what would have happened without the intervention, you know. My goodness. I mean, yeah, the private, the market always solves these things, right? I mean, how many

• 51:23Speaker 03

  people are going to die? How many people are going to go hungry? I don't know. It's a very difficult counterfactual. I think that by and large, though, I think that the government through the CARES Act, which I thought was brilliant, I'm less of a fan of the subsequent, but I think it was absolutely necessary to do. I got to work from home. A lot of people didn't get the privilege of working from home. I think ideally, I would have been willing to be taxed to transfer some purchasing power to those that were affected adversely disproportionately by the pandemic. Now, it so happened that the government chose the inflation tax instead of a direct tax. But either way, it was the

• 52:06Speaker 03

  right thing to do. And it was not just the right thing to do, but also it's a smart thing to do politically. And it's, it's something that, you know, contributed to the social stability. I mean, I think.

• 52:20Speaker 03

  If you hadn't done that, we might have people coming, you know, with, with pitchforks and torches.

• 52:27Anthony Pompliano?

  They did.

• 52:27Speaker 03

  Yes, well.

• 52:31Speaker 03

  Sorry, that was a bad example.

• 52:34Speaker 03

  So I think that the Fed made a mistake lowering interest rates. That the fiscal policy response was, you know, to a first approximation adequate or done correctly. A lot of ugly stuff in there, as you allude to, perhaps they overdid it a little bit. The consequences are an elevated inflation that, by the way, is starting to come down. So all in all, we came out of this. You know, this being the COVID pandemic and the subsequent war that's ongoing in Russia, Ukraine, pretty well, especially relative to other countries and relative to the hypothetical of what might have transpired

• 53:17Speaker 03

  had the government not supported the private sector. I give kudos to the private sector as well, by the way. This is not just the government. This is, this is us working together, private, public sector. We did a pretty good job, all things considered, and it was a terrible tragedy what happened.

• 53:33Anthony Pompliano?

  So I want to take kind of that view of the current events and let's go back to your 2014 presentation. And in it, you say two things pretty early on in it. You say Bitcoin hopes to, one, achieve long-term price level stability, we talked about, and two, drive transaction costs to zero. And then you follow that up with it is a stroke of genius, a monetary system governed by a computer algorithm. Now, the reason why I pulled that out is because it's very interesting to me. It almost feels like at the time you were like, this is clever. You're not necessarily saying it's going to replace all fiat currencies in the world and, and, you know, kind of take over and be the next global reserve currency. But I think that separating out, hey, this is clever versus what is the impact on the world

• 54:18Anthony Pompliano?

  and kind of the competition of other currencies is important. Do most central bankers understand that it's clever? Do in conversations, do they at least acknowledge, hey, this Bitcoin thing is actually pretty smart? I don't think it's going to be successful, you know, competing with fiat currencies or whatever. But just like that first point, do most of them get there? Or is there still lacking in your conversations of that at least kind of agreement?

• 54:42Speaker 03

  I mean, in the early days, that recognition was completely absent.

• 54:48Speaker 03

  But you know, there are some very good researchers in central banks around the world, the Bank of International Settlements that get down and then they agree. You don't hear about them on the news. They're just nerds like me, just working away and they can appreciate kind of what's going on. Yeah, but at the time, I mean, you know, when I came to realize what was being achieved, which essentially to me, the was the solving the double spend problem for for digital money systems, basically, without the use of a delegated or trusted record keeper. I thought it was, I just went, holy cow, this is like amazing. First of all, it turns out that there was nothing individually in built into the protocol

• 55:30Speaker 03

  that was unique, but it was the way in which it was combined to kind of solve this problem. And gosh, I still consider it to be a stroke of genius. And it's pretty cool. And by the ways, it reminded me a lot of what we talk about. You know, I think the reason why I recognized the genius because I saw in it primitive versions of what I call primitive blockchain or primitive consensus mechanisms in in primitive economies. Like I, I think this idea of consensus, you know, keeping record of a community's history, for example, through consensus is something we do all the time in friend networks and family.

• 56:13Speaker 03

  And I kind of noticed that the spirit of the endeavor was was to go back to this system where record keeping was done just. But by word of mouth in small communities, everybody knows what's going on in a small village. There's no designated record keeper, you know, and and so I really did appreciate what it had accomplished. And you're right, whether or not I thought that this was going to replace the the dollar, I don't know. I actually thought that it was a step in the direction of moving transactions cost to zero in terms of moving money. I am a little bit less hopeful that they'll go to zero because it's still an inherently very difficult problem.

• 56:57Speaker 03

  But that that was the the hope I saw that that that this endeavor was potentially going to help solve.

• 57:05Anthony Pompliano?

  So you also later on in the presentation, you supposedly call out a long tradition of new currencies competing with old, which I thought was very interesting, right? That that was almost like a very Bitcoiner thing to talk about. And you said probably the most important aspect of this technology revolution is the threat of entry into the money and payment system. It will force traditional institutions to adapt or die. And if you fast forward to 2023, I mean, that is almost dead on in terms of what's happened, right, is you have central banks around the world who some of them are like, this is absolute nonsense. These people are idiots. You have some countries now, very small number, but but some countries saying, well, maybe we don't want to replace dollars or anything, but maybe this actually does have some value and and we'll start trying to figure it out.

• 57:50Anthony Pompliano?

  You have some public companies now saying, well, maybe this is good for my treasury. Again, not a lot, but a couple. And then you have estimates between 100 and 250 million people, depending on who you ask around the world, who say, hey, this deserves to have some portion of my economic value, right? Whether it's 1% or 99.9%. But it is competition at the end of the day. And I would argue maybe it's as close to free market competition as we get because it's not warring centralized institutions that kind of can conspire or price fix or like you have one that is fully decentralized enough. This free market asset. What is your kind of view now, having seen, you know, nearly a decade of that competition

• 58:33Anthony Pompliano?

  play out, like, should we have more competition? Or do we reach some point where like, there's too much competition and hey, everyone calm down?

• 58:40Speaker 03

  Yeah, I see the, and you, by it, are you referring to Bitcoin specifically?

• 58:45Anthony Pompliano?

  Bitcoin specifically, yeah.

• 58:47Speaker 03

  As opposed to more broadly, yeah. So, yeah, uh, more, I, I view it more like a Darwinian competition. It's, it's unavoidable. Uh, and I am, like many Americans, now, actually, I'm Canadian by birth, so, but I mean, uh, you know, we, we do need to be wary of concentrations of power, concentrations of power. Uh, they're, they're great for coordinating, great coordinating devices. There's this trade-off, in my view. We need, the fundamental problem of large economies is how do we coordinate behavior amongst each other? And it's useful to have these central nodes, these coordinating mechanisms. Problem is that the power becomes concentrated. And, uh, and for this reason, I, I thought, you know, the evolution of something like Bitcoin, for example, I mean, this is kind of good.

• 59:32Speaker 03

  I mean, this is the threat of this. It's going to force, um, some governments to kind of perhaps, you know, if, if certain governments are abusing their power of the inflation tax, you know? This is different than just the US dollar. Now, any kid with a cellphone can download an app and like, start exchanging in Bitcoin, and it's going to be very hard for the state to, to kind of ban this activity or enforce bans, that this might serve as a, as a, as a useful way to discipline, uh, governments, uh, you know, currency competition. I, I still think that that's the case. And, and as well, also for our, our financial firms, you know, Bank of America, JP Morgan, I mean, all these big institutions, they have a lot of economic power.

• 1:00:15Speaker 03

  And, and, um, and, you know, it's, I think that, you know, the correspondent banking system is, is kind of clunky and there doesn't seem to be much. I don't want to go too hard on, on, on the global financial system. It has evolved and improved relative to when I was a kid. Uh, so we, we, for all the kids out there, I, I remember traveling to Italy with my mom and having to go with traveler's checks, if you can believe that, and, and, and I won't go into the details of how difficult that was. Now I travel with a credit card. Okay, I guess I get ding fees and sometimes it's tough to send money to my friend in Cyprus or something like that. But you know, the evolution of the appearance of these competing protocols I see as a useful

• 1:00:59Speaker 03

  way to keep us on our toes. I do think it's useful and I do welcome it, or whether there can be too much of it, I'm not, I'm not sure about that, but some is certainly good and healthy, I think.

• 1:01:11Anthony Pompliano?

  Is that a view that you see popular inside the central banks? Or is that a unique view and maybe one that colleagues, whether at, you know, US-based kind of Federal Reserve and central banks or internationally may not share?

• 1:01:28Speaker 03

  Well, I'll be, I'll be honest with you. I, I, I think that probably most people don't share this view in governments and these institutions. I don't know what it is if they select for people who are more inclined to kind of apply the heavy hand of government, or whether it kind of mold, the culture molds them in that direction. I'm not sure. It's a very strong instinct a lot of us have, by the way. So myself, yourself probably too, as you know, we, we're engineers. We, we like, we like to think of like, solutions to problem. And gosh, if, if only people would listen to the way I would design things, you know, it's, it's an instinct that's kind of in a lot of people. But there are people

• 1:02:12Speaker 03

  that populate these institutions that kind of have similar views to me. And I'll give you a good example. I mean, we just had Federal Reserve Governor Chris Waller come to the University of Miami to give a talk on central bank digital currencies. And, and the title of the talk was demystifying central bank digital currency. Now, here we have a Federal Reserve Governor, appointed, nominated by the last POTUS, ratified by Senate. He's you know, very powerful position. And he's saying like, what the heck? Since when, since when does the Fed come in? And since when is it in the American tradition to have the government compete with private firms? I mean, this is just not something we do in America. We don't say that the government should

• 1:02:54Speaker 03

  create a car factory to compete with General Motors and Ford. We don't do that. You know, we don't, we, we, we, we see the government as a partner, as a supporting agency to help support. The Fed supports the private banks in managing the payments. It's there as a lender of last support to regulate. But we don't actually necessarily want to get into the business of handling retail trades. And that's something that the private sector does very well. And so this is a high level Fed official expressing this view. So the view is not absent. By the way, as I came up with a counter example, that the US Postal Office is actually

• 1:03:34Speaker 03

  in the Constitution apparently, but not that I had set that up as a model for central bank currency, but, but that's, to answer your question shortly, no, I don't think the view is kind of well appreciated or popular, but it is there.

• 1:03:46Anthony Pompliano?

  Yeah. Central bank digital currencies, let's talk about them. Scares the hell out of me and many other people when you start talking about privacy. One of the things that I use to really highlight what I perceive as the dangers of them. Or you can have, you know, the surveillance state. You can have the whole social credit system that everyone likes to point, you know, to China or whatever. But also even things that seem maybe less harmful, but I think still could be abused are things like personalized monetary policy. Right? If all of a sudden I could say to one person, hey, you're going to have a currency that experiences low inflation. And somebody else is going to have one that experiences high inflation. And it's based on your savings rate or on your, you know, spending or consumption patterns.

• 1:04:31Anthony Pompliano?

  And again, we've never had the technology to do that, but you know, you give that technology to someone. It could get kind of weird pretty quickly. And I think we always hope that people would kind of use it for good. And there's probably a lot of reasons why you could do positive things with it. Also a lot of bad stuff you could do with it. So those are like the negative side effects or the negative possibilities. The positive ones, and I think the first time that I ever saw someone in the United States government talk about a, I think called digital dollar, not central bank digital currency, but digital dollar was actually during COVID when it was introduced in one of the early drafts as one of the legislative bills. And they basically were saying like, we need to be able to, you know, deposit immediately the money into someone's account. And so using this digital dollar would allow us to do that

• 1:05:12Anthony Pompliano?

  rather than sending checks, blah, blah, whatever. Now, interesting that it made it into the first draft because there was no digital dollar at the time and it wasn't possible to be used. But you can see how people will come up with a litany of different use cases as to where it could be helpful or beneficial. Do the harmful kind of dangers outweigh the positives? Or like, how do you kind of view these assets outside of the government just usually hasn't done this? But if they did evaluate it, like, how do you look at it?

• 1:05:40Speaker 03

  Yeah. Gosh, great questions. You know, well, first of all, Chris Waller, Fed Governor Waller's perspective is he has a very nice paper called, um, Central Bank Digital Currency, A Solution in Search of a Problem, I think it's called. And so you just mentioned one, oh, gosh, this would be nice. We could send digital money to people during the COVID pandemic. Well, I mean, you can do that right now. Have everybody open up an IRS account or a bank account. I mean, why can't you do it through conventional payment rails? You know, he, he goes through the paper, you know, financial inclusion, you know, all the litany of things that a central bank digital currency would allegedly solve. And he, we're already, either it had already been solved. We have real time payments Fed Now, the clearinghouse is real

• 1:06:24Speaker 03

  time payments. And there's other ways to solve these problems rather. The central bank digital currency seems like a pretty clumsy way to solve these problems, according to Governor Waller. So there's that. In terms of, on the other hand, in terms of you and many others are afraid of the kind of the information that might be available to the government. First of all, keep in mind that the Fed would never do this unilaterally. It would only, it would only act with the authority of Congress. So it's Congress. Again, you have to go and let your Congress, your representatives in Congress know how you feel about this and get your feelings expressed. So the Fed's not

• 1:07:05Speaker 03

  going to implement anything like this on its own. But if it were, I mean, how do you deal with privacy issues? Well, that's actually, you know, it can be done. I mean, people might not trust the solution, but one, one, one, there's different versions of central bank digital currency. So one version is what they call a synthetic version, where in fact, you wouldn't tell the difference between what your regular bank account and a central bank digital currency account. You'd have an account at the Bank of America and it would be called your CBDC account. And it would be not a claim against Bank of America, the way your regular bank deposit is, it would be a direct claim against the Fed. So a fully insured account with the

• 1:07:47Speaker 03

  Federal Reserve that's intermediated by the Bank of America. Bank of America would be the one observing your transactions the way they do right now. And so the government would not have in this version of CBDC, the type of information that scares the heck out of a lot of people.

• 1:08:04Anthony Pompliano?

  Is there an argument to be made right now that 100% of deposits are insured by the US government, even though the FDIC is only 250?

• 1:08:12Speaker 03

  It certainly seems that way. That's, I was hoping you weren't going to get into this issue.

• 1:08:20Anthony Pompliano?

  We can leave it at that, but it does beg this question, right? Of like, again, maybe kind of Waller is hinting towards this, but some of the things that people are trying to do, like insurance or kind of who your counterparty is to some extent, in some way, maybe we already have part of this system in place, even though it's not explicitly said. And the bank failures that we've watched over the last, you know, couple of months, maybe it's actually highlighting the system works a different way. And not in a negative light, actually, for the American citizen, it works in a more positive light because it means more of their deposits are insured. But it is different, right? Than I think kind of what the system was said to do.

• 1:09:03Speaker 03

  Yeah, the recent episode is kind of strange in many ways, like Silicon Valley was very odd in many, many ways. They're, you know, the depositor, the depositors weren't, you know, I think they had 10 major depositors or something like that, not a very well diversified depositor base. You know, they took the hedges off, but they didn't follow a very prudent asset management. They took the hedges off of their, you know, duration risk. They did a lot of things wrong. One thing that I heard is, you know, what with these days, especially with the lack of diversification in the depositor base was how rapidly the deposits evaporated from these banks,

• 1:09:44Speaker 03

  from Silicon Valley, just the volume. Now, in principle, that shouldn't be a problem, because if Silicon Valley has, you know, if they're being properly regulated, their assets are sound. They might be illiquid a little bit, but that's what the Fed's discount window is there, expressly there to say, hey, listen, people are panicking, you have good securities, we'll lend you against this good collateral. My understanding was that the deposit outflow was so large that the discount window could not handle the volume.

• 1:10:14Speaker 03

  But that's, that's the answer to that is to fix that side of the window to make sure that the window can respond and the volumes necessary, you know.

• 1:10:25Anthony Pompliano?

  I think the number, I may get this wrong, so somebody will correct us for sure. But I think the number was 40 something billion dollars was withdrawn in the first day on that Thursday.

• 1:10:35Speaker 03

  I think that sounds right, and I think even more after that. So I mean, the volume was incredible.

• 1:10:40Anthony Pompliano?

  I mean, I wrote an entire piece, I called it a digital catastrophe, right? It's basically actions in the digital world that now benefit from the speed of communication, but also the speed of action and the lack of friction to doing some of this can have a very real negative impact in kind of reality.

• 1:10:57Speaker 03

  Well, I was, I was thinking about this question. The problem is not the speed. Speed is great. The problem is the discrepancies in speed when systems are communicating. So here we got the speed on the depositor side to withdraw, but the corresponding speed on the this, the lending side was not there. You've got the, when the speed differentials are different, it's like you're going 100 miles down, down a highway and somebody's traveling at 20 miles an hour. That's the danger. If everybody's going 100 miles an hour on the autobond, that's not so problematic. So it's not, I don't think it's the speed per se as much as it is the

• 1:11:30Anthony Pompliano?

  Comparative speed.

• 1:11:31Speaker 03

  Yeah. So we, we, so in the evolution, as we evolve, I mean, things, you know, we're not all coming up to speed at the same rate. That leaves us vulnerable as it did in this last crisis. But I think that once you come up to speed, I think the high speed is not going to be a problem.

• 1:11:45Anthony Pompliano?

  Yeah. The, the other piece of it that is, is fascinating to me in that specific example is obviously, everyone's heard, you know, hey, you used to have to get down to the bank, stand in line, you know, you could talk to people, but you're pretty much talking to people who are right next to you, right? And so information doesn't travel in the same way. Twitter obviously had a very material impact here. But somebody in the, in the Bitcoin world, a gentleman named Nick Carter, who you may or may not know. He pointed out that, listen, you know, some of the talk track of, I think Janet Yellen and a few others after, basically said, look, we never accounted for the speed of this happening and, and kind of the dissemination of the information and all the stuff.

• 1:12:28Anthony Pompliano?

  And his point was like, look, computers been around for a while, right? You know, his cell phone's been around for a decade, you know, or, or 15 years or whatever it's been now. And so he, he, he basically was like, look, again, yes, if you've never seen it before, it's hard to kind of predict every individual nuance. But to basically be like, oh, we never thought about the fact that people can withdraw online versus going in, uh, standing in line. It's hard, right? And, and then you get the emotion laid into and all this stuff. And so what are maybe some other blind spots?

• 1:13:00Speaker 03

  Oh, my goodness.

• 1:13:01Anthony Pompliano?

  That you're like, you know, this is something that we maybe need to pay more attention to, or, or maybe people aren't thinking about they should be.

• 1:13:10Speaker 03

  Well, it's a great point, you know, it's to be fair, I guess, and I try to be fair. You know, people like Yellen, Powell, they're fighting a lot of fires. I mean, and, and they're human and the people working for them are fighting fires. And you're human, you, you just have a limited bandwidth. And in retrospect, when a crisis like this happens, you go, though, of course. Thanks, Nick, for pointing that out. Where's your blog post kind of highlighting this before the event? Nick, if you're out there, maybe he's written it, he's going to show us.

• 1:13:49Anthony Pompliano?

  There's a 50 50 shot Nick wrote about it before it happened. If there's one person that may have actually written about it, Nick would be the person.

• 1:13:55Speaker 03

  Well, I'll be impressed if he has. And, and, and so we need to listen to people like, like Nick. So for myself, my, the blind spots for me are, are the inner, well, basically fighting fires. I mean, it's like in the lack of formulating contingency plans going forward. So for example, I, I forgave it on our discussion about the monetary and fiscal interventions during COVID. I kind of forgave fiscal policy and monetary policy for being crude and for being not well targeted. And there's some pork and stuff like that, but it's what you got to do in a crisis. It's better to err on the side of caution. I can forgive you for that. I mean, what I can't forgive you for is why aren't we getting policies in place for the next pandemic?

• 1:14:41Speaker 03

  For the next crisis, where, where are the people sitting down? Listen, the next time this happens, and there's going to be a next time. How are we going to deal with it? That's, I think, an example of, of, you know, that this is where I am most critical of policymaking. It's not, not, not the, the actions are taken in the, you know, in the, in the trenches during the war, the battle, but formulating a strategy going forward for these types of one-off events.

• 1:15:11Speaker 03

  Yeah, I don't I I I don't know what to say. I try. I do my part. But it just seems like people are so consumed with what's happening right now that there doesn't seem to be enough resources devoted to these types of questions like, where are the weak spots? What would we do in the in the event this or this happens? I mean, I I wrote a recent piece, actually in support of a central bank digital currency for a potentially for an event, for example, that I think policymakers should at least discuss. What is this event? Well, the emergence of these decentralized autonomous organization stable coins, kind

• 1:15:51Speaker 03

  of like the DAI, less tethered, tether is not quite fully DAO, but I mean, it's less regulated. But imagine something like a DAI-like object that or or or some sort of blockchain-based endeavor that kind of permits firms in the global supply chain to finance payments. You know, rather than go through the conventional American banking system, they go through this kind of unregulated structure, and it's going to be very hard to regulate by definition. And and why might this be a problem? Well, I mean, why a lot of tether, for example, holds a lot of commercial paper. What if there's a run on tether and and there's a fire sale of commercial paper? Is the Fed going to have to step in? Is the Fed going to have to like bail out tether and unregulate?

• 1:16:34Speaker 03

  You know, these are questions. Maybe a CBDC that's available to firms globally, you know, they can open up accounts, finance their their international trade and their suppliers along the global supply chain. Maybe offering a competing product might be a way to discourage tether-like objects from becoming too large and becoming a systemic risk. For example, very few people think like this. I mean, I I don't know why. I mean, they're just.

• 1:17:03Anthony Pompliano?

  Why? Why should I buy insurance? Well, I'm not going to need insurance.

• 1:17:07Speaker 03

  I mean, in fairness, in fairness, the general public too does not think about these things. They're concerned, why is my why are my eggs going up like them? You know, there is inflation is the worry right now. And so you can see. You know, just policymakers are really trying to fight the fire that's kind of in front of them. And I think that I wish that more effort would be taken to thinking about these types of events. And you know, maybe we should hire a Nick to come and help us out.

• 1:17:35Anthony Pompliano?

  Nick talks to enough central bankers where I don't know if they like him or not, but he's talking to them. One other thing around central bank digital currencies as kind of a variation of it. A couple of years ago, this is 2018, 2019. I got very, I felt the curtain got pulled back on a potential strategy for corporations. And it frankly worried me, right? I said, Hold on a second here. I'm not a genius, but I can put two and two together and see how there's a path to us getting into a world that we don't want to be in, right? And so the idea was, I think it was JP Morgan at the time had come out and they had this JPM coin. And their thought process was, we're not going to offer it to retail. We're only going to offer it to our corporate kind of partners. It'd be easier

• 1:18:17Anthony Pompliano?

  to move money cheaper, all the things that these promise. And they were going to back it with dollars. Seems pretty reasonable, right? Hey, it's basically just this digital thing. We're moving around, it's backed by dollars, JP Morgan, just with corporate partners, no retail. Okay. And I started thinking, well, if I was JP Morgan and I was sitting there, and I'm not suggesting that Jamie Dimon is thinking this way, but if I was running that bank, and Jamie said, Hey, be the most evil person you possibly could be. Well, I would get my corporate partners to start using it. Then I would get my retail customers to start using it. And I would get as much of the world using my JPM coin as possible. And then I'd wake up one day and I would just unpeg it from the dollar. Right? Similar to coming off of the gold standard. And now I've got a money printer,

• 1:18:58Anthony Pompliano?

  right? And here we go. And I can now use JPM coin, very similar to how a central bank could, you know, create and destroy money. I'm not suggesting that that is what they're trying to do, or where we could go, but you could see any bank potentially getting into this situation. And so my point was like, not really big, a big legislation guy, but like, we might want to put some rules in place to prevent people. If you come out and you say, Hey, we got a coin, or a stable coin, or whatever, and it's going to be backed by something, you can't later change your mind and unpeg it. Right? Is that a worry? In terms of the central banks, not only competing with these decentralized things, but these private companies creating their own currencies?

• 1:19:37Speaker 03

  Is that a worry? I mean, I'm sure you can find, you know, a central bank is populated by thousands of people. So I'm sure you'll find somebody who's worried about stuff like that. I'm not worried.

• 1:19:50Speaker 03

  I think it's wonderful if I can move money more efficiently with JP Morgan. That's great. I mean, you know, I've seen the advances in payment technologies over the decades, and most of them have been private sector initiatives. If you take a look at M-Pesa project in Sub-Saharan Africa, take a look at WeChat and Alipay in China. I mean, you know, I mean, the private sector does provide these solutions. Now, one of the fears, though, is that, you know, will a country lose its monetary sovereignty? I don't know. I don't think so. I mean, you know, first of all, how much... You're still in charge of regulating, so JP Morgan's still going to submit to regulation.

• 1:20:33Speaker 03

  Okay. And by the way, there's no way that they're going to de-peg JP Morgan coin. It's just going to be a regular bank deposit. Or they're going to suffer the consequences of their charter revoked or something. But what about the fear of a sovereign? And probably, maybe this is more like, take a smaller country like Canada, I guess, where I'm from. You know, suppose people stop using the Canadian dollar in Canada, and they start using the US dollar, let's say, or JP Morgan coin or Bitcoin. I mean, I don't know. You know, I can still imagine a regulatory body that's kind of governing the way banks issue deposits, and there's still going to be regulations about how their assets are structured,

• 1:21:15Speaker 03

  how their liabilities are structured, their capital ratios. At the end of the day, what about monetary policy? Well, I don't know. You still have fiscal policy. How about a state contingent consumption tax? So you don't want to raise interest rates, raise the consumption tax to cool off the economy. You want to stimulate the economy, lower the consumption tax. I mean, there's other mechanisms that one might use instead. What about the loss of seniors, the inflation tax? Yeah, okay. What is that? I mean, how much do you derive from that? That's a very small fraction of the total budget. Yeah, you'd lose it. So what? I mean, replace it with other taxes. Life will go on.

• 1:21:51Anthony Pompliano?

  What about a country like El Salvador, right? So obviously in the Bitcoin community, there's a lot of people paying attention to this experiment. And now it appears that maybe the IMF and others are also paying attention because I've seen reports that as they're issuing various bailouts or kind of loans to other countries, they're saying, hey, you can't do anything with crypto as a kind of a clause in those contracts. But El Salvador is unique in that it's dollarized, right? So they lost their own currency, I believe, in a civil war. And when they use dollars, dollars seem to work, right? You and I go to the ATM, we can use dollar, everything's great. They didn't replace the use of dollars with Bitcoin. They kind of just said like, well, what about both?

• 1:22:34Anthony Pompliano?

  And so they said, we're going to keep dollars as kind of a national currency. And we're also going to add Bitcoin. And that's also going to be legal tender here in our country. It's interesting, right? I think maybe the biggest benefit to them so far has been tourism. A lot of people going to visit tourism has exploded in the country, right?

• 1:22:53Anthony Pompliano?

  But how do you think about an experiment like that where they're basically trying to use both? And I'll caveat this with, I have a piece of information the audience probably doesn't have, which is the second to last slide in your 2014 presentation is you basically, I think the quote that you used was a match made in heaven. And you have a picture of Janet Yellen and a picture of a robot and Satoshi Nakamoto is made underneath it. And kind of this idea of like, is that actually maybe where we started the conversation? The dollar is a great short term kind of store of value and a use for as a medium of exchange and will continue to be strong. And then this idea of Bitcoin maybe is like the long term solution that people can use?

• 1:23:32Speaker 03

  Yeah, I think there's, there's that. I guess in that slide I was getting, I actually had like Ripple in mind at the time was in my head because it was a currency agnostic kind of payment rail is the way I understood it at the time. And, and one way to view this is, is one, one service that Bitcoin is, you know, what does, what does Bitcoin offer that people value? I mean, for me, permission, permissionless access and use. It offers.

• 1:24:01Speaker 03

  You know, a hard money policy and a pretty cheap payment rail, or hopefully cheap. And so, you know, to the extent that in a country like El Salvador, people have difficulty for one reason or the other. See, the banking system is not well developed, the people are not well connected to the banking system, there's many unbanked. They, gosh, you know, why not accept Bitcoin as legal tender means that the government will find it perfectly acceptable for you to pay your taxes in Bitcoin. Gosh, I don't know why people in the Bitcoin community get excited about paying taxes. I've never seen such excitement over paying taxes in that community, but that's what it means. At the same time, there's the payment rail.

• 1:24:46Speaker 03

  I mean, it's a wonderful thing, you know, now that the central bank, the government doesn't really have to go through the effort of trying to build the payment rail, you know, it's a lot of effort involved. The, you know, because a money and payment system is essentially a database management system. You have to worry about communications, keeping communications secure, keeping, making sure the accounts are kept safe. Bitcoin solves all these problems. Why not let people avail themselves of this payment rail? If it serves that purpose, and at the same time, you can have the domestic legal tender and the, is it? I don't think the US dollar is legal tender there, is it? Don't they have the, it is?

• 1:25:24Anthony Pompliano?

  Yeah, so my understanding, and I could be wrong, is they lost the currency during a civil war. And so they adopted the dollar, dollar has great benefit, but it's hard, it's dangerous.

• 1:25:36Speaker 03

  I'm a big believer in coexistence and because it's actually characteristic of history, by the way, as I've mentioned. There's been a long history of local currencies coexisting with a dominant, you know, national currency. Even in the United States in paper form, I mean, the.

• 1:25:54Speaker 03

  The Ithaca Hour, for example, in Cornell is at Cornell there. Ithaca, New York is a famous example. And so, yeah, why not? Why not try this experiment? See if it works. I'm not sure how well it's working right now, by the ways. But I mean, what's, what's, what's the harm? I mean, I, I, I think I'm, I'm happy as a, as a social scientist. I'm very excited to see this, but uh.

• 1:26:17Anthony Pompliano?

  Well, it would, it really, in some degree, it's like, um, it goes back maybe to the Soros's view of the world of like, Bitcoin's success or failure is something that many people evaluate as Bitcoin's success or failure. But by El Salvador adopting it, they are betting on the success of Bitcoin. Being the first country to publicly adopt it has an impact on the success of Bitcoin, right? You get into this kind of circular world where maybe actually if there are people who want to see the success of it, the thing that they can do is to adopt it because it helps drive for the success. Now, the risk with that is the reflexive nature of everyone keeps doing that.

• 1:26:57Anthony Pompliano?

  And you risk, you know, again, Soros with the bust side of the boom bust cycle. But again, it appears that, you know, at least that one country, and again, it's a small country, but that one country does see this as a viable option.

• 1:27:10Speaker 03

  I think so. And, uh, yeah, I like that Soros take on it. The other thing I like is I like, I like to see redundancy as well. I mean, I don't see why we have to rely on one single system. I mean, if, if it goes down, you, you would like to avail yourself to the other. So you can imagine people holding a Bitcoin account, a US dollar account in Europe. But why not? You might lose a little bit in terms of efficiency, but you gain in, in, in robustness. And by the ways, I just want to point out that even if Bitcoin were to fail in the, in the, in the narrow sense of the, say, the token goes to zero and nobody uses a protocol. I would still say Bitcoin's been a success for the inspiration that it's, uh, instilled out there. There's many, many, uh, projects out there that I would call that are not strictly speaking. They don't use proof of work.

• 1:27:54Speaker 03

  They don't use the exact type of Bitcoin protocol, but they've motivated many, many people to think kind of outside the box. And they, and I call them Bitcoin inspired projects. So I think Bitcoin has been a success, will be a success, kind of irrespective of what ultimately happens to the value of its underlying token or use of its protocol.

• 1:28:12Anthony Pompliano?

  That's a great point. So we talk about El Salvador and as I was sitting here thinking, I said, wait a minute, they're using dollars and they're using Bitcoin.

• 1:28:22Speaker 01

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• 1:28:50Anthony Pompliano?

  Well, I know another country that uses dollars, right? The United States. Is there a world where you think the US should make Bitcoin legal tender and say, it's not a replacement, but it's a, you know, a both situation. It's dollars and Bitcoin?

• 1:29:02Speaker 03

  Yeah. Um, you know, there, there is a branch in the economics literature that recognizes the role of the US dollars, the global reserve currency and sees it as kind of a net negative for America. Like there's can be too much of it. Um, it's, it's, we, we do benefit from the seniorage we extract from the rest of the world, but there's this thing called the Triffin dilemma. Yeah. You can, you can Google that as well. It's kind of a double edged sword. And some economists like Michael Pettis in particular have argued that it's led to a Halloween out of, it requires us to run current account deficits, which basically hollow, which basically means you're going to lay off all the manufacturing workers

• 1:29:46Speaker 03

  here, let them fend for themselves and import, let China manufacture all the goods. And by the ways, is that really a good idea? Uh, and so should we kind of encourage de-dollarization? For example, by permitting, uh, say Bitcoin to be a, a legal tender, kind of encouraging the use of some alternative currency. Um, I think that the, the advocates of the side where there's too much dollarization might be in favor of, of something like that. Uh, although to be honest, I don't see this ever happening anytime soon, but you, one can see the logic of it. Uh, yeah.

• 1:30:28Anthony Pompliano?

  I wasn't planning to do this, but now I'm interested in your thoughts. I want to paint a picture of a potential path. I'm not saying this is the path that I even would bet on, but I think it's an interesting thought exercise. My view of the world is that the single best place to be as a country is to be the owner, producer and controller of the global reserve currency for a whole bunch of reasons. There's downsides that, you know, as you just mentioned, but I think most countries aspire to have that control. The second best place is to use a currency for the rest of the world that no one controls. Right? Like if you're not in control, you kind of don't want anyone else to be in control is maybe a very generalized framework.

• 1:31:10Anthony Pompliano?

  Now, in that world, if the United States actually does suffer from kind of global dollarization, and there would be this argument for de-dollarization. Other countries around the world, if everyone began to use a currency that was separated from any nation state. So, you know, use Bitcoin as the example, but could be a whole host of things people could create, but let's use Bitcoin. In that world, does it actually create, one, less violence? Because now you're not fighting over using currencies in these kind of violent interactions. But two is, do you now actually, similar to GMT time, right?

• 1:31:54Anthony Pompliano?

  Where the entire world can look at one time system and use it regardless of geography, et cetera. Do you start to standardize across the world? And now you essentially would replace the foreign currency markets. Now, I don't actually think in this scenario they go away. It kind of would be like the euro and maybe some of the underlying currencies, right? But it's an interesting way to look at like, is there a world where actually it's a net positive to every country to adopt a global reserve currency that is not tied to a nation state? What do you think about that?

• 1:32:27Speaker 03

  I can see the merit of that argument, right? I think that the special drawing rate, the IMF special drawing rate would be an example of that potentially as well. And again, you know, there's the issue of coordinating on a, when I write down my economic models, it says one currency, please. That's the most efficient thing. Robert Mundell, Canadian economist who won the Nobel Prize, where his work in part on optimal currency areas kind of explains there are circumstances where you might not want just one, but a few. But, you know, you can kind of see the merits, kind of like having a consistent yardstick, the idea just as.

• 1:33:10Speaker 03

  Now, the second thing is, how do you govern this currency? How are the payments processes going to be Bitcoin, for example? Or we could imagine a Bitcoin-inspired protocol that doesn't, isn't quite as hard-assed than monetary policy. It potentially be net beneficial.

• 1:33:28Speaker 03

  Whether or not it would lead to greater peace, I mean, I don't know, Tony, I think you have a much more optimistic viewpoint than I do. I think we'd find different things to fight about and we'd find, you know, I've often railed against Bitcoiners who kind of, you know, believed or expressed a belief that, you know, that strangling the state of this, of this, the source of seniors and inflation tax would lead to peace. I go, no, it's just going to make them build tanks and come after you physically and take your property physically. It's actually, it might even promote violence. So it's not entirely clear. I think that we should focus more on kind of, you know, governing ourselves in a more sober and kind of adult-like manner.

• 1:34:11Speaker 03

  And, and then, you know, this type of vision that you have, I can see the merits of that, actually. I mean, I could see how that could work.

• 1:34:19Speaker 03

  And why not have it as part of, you know, I mean, I have an option. Imagine you and I have an option of, when we do have this option, and I imagine, say Bitcoin, for example, does become very popular, suppose as a global medium of exchange. Sure, why not? I still probably want to hold a US dollar-based account as well. I don't see the United States not letting US dollars be legal tenders. I would still pay my taxes in US dollars. I'll still pay the Canadian government in Canadian government dollars. So there's always going to be a, a demand for, for these different currencies that can serve the needs of the different constituents. Again, I'm a big believer in coexistence. If this vision of yours was to actually transpire, I, I think it would be a good thing, actually.

• 1:35:03Speaker 03

  But I don't think it would end violence.

• 1:35:07Anthony Pompliano?

  I think the violence component is one area for sure, where I think Bitcoin rising in popularity even to global reserve status. Every global reserve status change that we have seen has been at the hands of some violent weapon. Right. It used to be bows and arrows and eventually now with the United States military doing it. But in a weird way, fiat currencies and the changing regimes has always been about who had the greatest offense. You went to some other land and you were able to basically take over. Right. And you had military victory on their land and therefore now you are the dominant military. And so you get to put the global reserve currency in place.

• 1:35:53Anthony Pompliano?

  In the cyber world, it's not all about offense, it's actually about defense. And so in that way, my thought process has always been, and I'm actively looking to have it disproven. Right. Like this is something where it's like, man, this is interesting, but I don't think we have enough time to really kind of yes or no it. If defense is the most important thing, actually the strongest defense will then lead to the global reserve currency. And nothing is more defendable or decentralized or stronger than the Bitcoin network. And so could it be the first global reserve currency that rises to that status without ever shooting a bullet, dropping a bomb? You know, creating any sense of violence.

• 1:36:35Anthony Pompliano?

  And that doesn't stop violence from, you know, Russia, Ukraine, I don't think is necessarily happening right now over a global reserve status of a currency. So not all violence goes away, but in some way a global reserve currency being established with no violence is like fascinating to me.

• 1:36:52Speaker 03

  I see. I'm trying to think of counter examples to that statement.

• 1:36:57Anthony Pompliano?

  This is why I like talking to you because I knew that's what you were thinking.

• 1:37:00Speaker 03

  I don't, my, my knowledge of history isn't that great about it, but I know that, you know, I think that in recent memory, I mean, we've had three global reserve. Things that operated like global reserve currencies, dominant global currencies, the most recent being the US dollar. And prior to that, it was the British pound. And, and prior to that, my understanding it was the, the Dutch, of course, the Netherlands had, the Netherlands, of course, was a tremendous economic power. I think in the 17th century, if historians out there can correct me on that century, the, the Dutch were, as far as I know, were not, I don't think, I guess they did colonize here or there, but they

• 1:37:44Speaker 03

  weren't a mighty global power, but they were a mighty commercial power. And so I don't know if that's a kind of a counter example. My point is, is that these, these two things seem hard to separate. It's true. It's true that the British Empire was the most powerful militarily, but they were also the most powerful economically. Likewise, it's the same is true of the United States. But I wonder, I wonder if those two things are necessarily wedded. Maybe so. I'd have to think about it. But your, your, your insight here about defense being so attractive in that, you know, there's no, there's no elected

• 1:38:27Speaker 03

  leader of Bitcoin. There's nobody who's gonna go out and fight on, and, and use Bitcoin, the power of Bitcoin seniors to finance global conquest, that this is just a protocol, just by its sheer a design, and the properties in its design is going to attract people. And it's going to be become powerful precisely because it's, it's, it's very peaceful. In fact, it's agnostic and it's just a robot. But that would be very interesting to see that emerge for that reason. Do you think that was a reasonable shot of happening? And if so, what would be your timeline for something like this? Timeline is impossible.

• 1:39:09Speaker 03

  We might not be around to see it, but who knows? Who knows what might happen? I mean,

• 1:39:18Anthony Pompliano?

  My memory will fail me here, but I think it was 2017 or 2018. There was a couple of countries, for some reason, I want to say like Argentina and name whatever other country, that decided to do some test settlement of bilateral trade in Bitcoin. Now, before everyone gets excited, this was like $10,000, right? This was like, literally didn't even matter for either country. But just the fact that they were even willing to try it, announce it, et cetera, was interesting to me. UCL Salvador, obviously, doing this. We haven't talked about mining and kind of some of these very oil-rich countries that may actually use it as some ability to monetize some of that energy in a much more cost-effective way.

• 1:40:02Anthony Pompliano?

  One of the kind of negative sides of some of this is I had a gentleman from the economics department of Harvard who was saying, "Look, Bitcoin, after the sanctions on Russia, now enters the conversation as a sanctions hedge for many countries." Along those same lines, there's a report, I will say it's unconfirmed because I haven't been able to find the exact source material, but it was pretty popular by a number of people I trust on Twitter, that there has been an explosion of ASIC, kind of Bitcoin mining hardware, orders inside of Russia. And so if you basically, you sanction them off, you don't let them really kind of engage in the energy markets, they have surplus energy, they want to monetize it, well, one

• 1:40:43Anthony Pompliano?

  great way to do it may be through an apolitical, you know, kind of monetary system where they can literally monetize it at the point of the energy production. You know, you kind of start seeing some of these data points, you know, like, "Look, again, it is nearly impossible to predict the future." In fact, I would argue it is impossible to predict the future, but there's enough data points that suggest countries will, more countries are going to embrace this in the future than less. And so if that is the path, well, maybe actually Bitcoin is the first technology of our lifetime that's been globally adopted by individuals before nation-states, right? If you think of most technologies, whether it's internet, computers, whatever, it's like the military, the nation-states, then corporations, and then finally someone got the, you know, the PC to be on everyone's desktop, right?

• 1:41:27Anthony Pompliano?

  And they got the costs down and all this stuff. There's like no nation state, right? I mean, literally, you're the first central banker in the world that I think either you or I know of to do a public presentation on Bitcoin in 2014. Five years of individuals around the world running around trying to figure out what this thing was. And frankly, some of them got it right. Some of them, you know, there's the classic tweets that go viral all the time where the guy's like, so glad I sold my Bitcoin at $3. Right? It's now 50 cents. So, you know, this stuff's hard, even if you're early. But it does kind of point to this world of like Bitcoin will become, in my opinion, more important in the future. What does that mean in terms of the day to day usage? I have no clue. Right?

• 1:42:09Anthony Pompliano?

  And I think that's maybe where I differ from some folks in the Bitcoin community is I think they are adamant about, you know, 100% it is going to be the global reserve currency. I'm probably in the camp of like, there's a higher probability I would assign to it than many other people I know in finance or technology. But I don't know if I would be comfortable saying 100%. Right? I don't know. What do you think?

• 1:42:31Speaker 03

  I mean, I would never say never, first of all. And I don't think it's likely within my lifetime, which admittedly is not that long for you youngsters out there. But, you know, you'd have to ask the question. You know, first of all, I think it's ironic that the ability of Russia to avail itself of this is not exactly something I'd call to promoting peace. But anyways, you'd have to think, you know, about certain countries, about their political institutions, how they're set up and the propensity of the local, of the representatives or tyrants in some case of their propensity to permit their citizenry to utilize this

• 1:43:16Speaker 03

  technology. Oh, but how are you going to prevent it? I mean, you just access it through the internet and blah, blah, blah. Well, and they can't appropriate it either, right? Not directly. Well, I'm afraid, you know, if you've got a desk bot, I mean, I think can take some pretty, pretty dramatic measures. I mean, they, they, they won't know your private key, but you know, they'll, they'll, they'll take your daughter and string her up in a tree and then you, you'll have a choice. You can submit your private key or not. It's true.

• 1:43:46Speaker 03

  You know, so I don't know whether...

• 1:43:51Speaker 03

  You know, for these reasons, I mean, these, these base human instincts, or these, these jurisdictions, where you, you get these governments that are just tyrants, are probably not going to permit Bitcoin to become universal in the sense that perhaps some people hope. And even if it did become universal, like I said, it's a Bitcoin will not solve the problem of despotism or tyranny. But who knows? I mean, I can, I see the argument that you're making and I, and I share with you, I, I think it's going to spread. And, and if, and indeed, like I said, even alluded to earlier, even if Bitcoin itself doesn't spread, but I do believe it will spread, adoption is still relatively early,

• 1:44:35Speaker 03

  that Bitcoin-inspired projects will, will spread as well. So I, Bitcoin itself, I don't know, let's see, let's see if these Bitcoin masks, these turn out to be right.

• 1:44:45Anthony Pompliano?

  The last thing I want to talk to you about is the University of Miami. So you and I met, sometimes it was friendly, sometimes we were debating ferociously, all sorts of different things on Twitter. And then one day you messaged me and you said, by the way, I am coming to the economics department at University of Miami, which is right down the road. And I was like, oh, this is amazing. And talk about why, why take that job and what are you trying to do with the, the economics department there?

• 1:45:11Speaker 03

  Yeah, yeah, so you know, I, I'm a, a lifelong academic, have Italian roots, just like yourself, and we talked about that over coffee. Yeah, I made my way from pretty humble beginnings to, to, you know, I lost my job during the 1981, 82, my construction sector job during the 1981, 82 recession that Paul Volcker engineered and, and that made me go back to school to kind of discover what, what, what was that all about? And then I made my way through the Canadian academic system, I was a professor of economics in Canada for about 20 years. And then I made my way to the Fed in 2009 during the crisis, very exciting to, to be

• 1:45:53Speaker 03

  there, to consult and to experience what was happening there. I got to meet Paul Volcker, by the way, and, and let him know that he was responsible. For me being there. Thank you very much. But you know, I had a very good run at the Fed. I met some great people that just it's it's you know, I my respect for the institution. I mean, it has its flaws. Don't get me wrong. I've been very critical of of the Fed as well. I think it's important for all you out there to criticize the Fed for the right reasons, not the wrong reasons. And I had a great run 13 years, but I learned a lot.

• 1:46:29Speaker 03

  Being a you know, a policy advisor at the the highest level at the Fed. I was a lifelong academic and I thought that for for my final act, what I'd like to do is to come back to university. My first love and to transmit to the new generations, kind of the accumulation of knowledge that I I have both through the literature and my experiences at the Fed. And I I really wanted to have an opportunity to to teach the next generation what I what I learned and to to. And this is and so when the opportunity in Miami came up, you know, I I leapt at it and I I came as Chair of the Economics Department, which is located in the Miami Herbert Business School, the University of Miami.

• 1:47:09Speaker 03

  And and we're trying to build a department that's relevant, policy relevant, that we have top researchers that contribute to the literature, but that also are are based in reality that are interested in contemporaneous policy issues. We we just sponsored that talk by Federal Reserve Government Governor Chris Waller on a on a very topical issue, central bank digital currency. These are the types of events we want to sponsor was free to the public to come and meet the governor, Governor and ask questions. We are growing, we are recruiting, and we were thinking of reconstituting our master's program, which I think went defunct after a few a few years ago. And we're thinking about how to model that. We're thinking about what needs there are in the DeFi community in particular.

• 1:47:54Speaker 03

  We have a fabulous Department of Business Technology in the Business School. We have a fabulous Business Law Department. We're thinking DeFi is a space where economics, law and technology kind of naturally intersect. What type of courses might we offer to students?

• 1:48:10Speaker 03

  I recently talked to one of the chief economists at Amazon, by the way. See, he noted to me that Amazon, a few years back, came to the realization that they needed some macroeconomists that the global factors are kind of 90% of what matters to Amazon now that they're big global economy, uh, company. And so we're thinking, how can we tailor this, this master's program in a way that serves the students' needs? The needs of the community in Miami, which we are very bullish on. We think Miami is just, especially the DeFi community, the area you're in.

• 1:48:46Speaker 03

  So I'd love to have feedback. I'd love to meet people to discuss ideas. If you have ideas for internships, collaborations, talks, if you'd like me to come and give a public lecture or whatever, I'd be very happy to do so and to develop a relationship with you.

• 1:49:02Anthony Pompliano?

  We'll put you on the podcast circuit of Miami. You'll have your whole day hooked up.

• 1:49:09Anthony Pompliano?

  My last question for you is, you've been doing this a long time now. What is your single best memory at the intersection of your work, economics, finance, markets, et cetera? Like, you've met all these amazing people. You've had all these moments. Like, if you could point back to one thing that you're like, man, that was fun, what would it be?

• 1:49:27Speaker 03

  Oh, gosh, there were so many.

• 1:49:31Speaker 03

  I remember, I don't know, one, one memory stands out, actually. I remember, uh, my colleague Jane Irrig and I working on, uh, in, in, I think it was early 2019, uh, recommending that the Fed adopt the standing repo facility, that it would help, uh, for a variety of reasons. And, and, and we wrote that article to, there was, you know, completely ignored. Uh, and in the fall of that, the year, um, uh, we had this mini repo tantrum. And I was in a, in a vehicle, actually, going to an FOMC meeting. I was a jet. There was, um, Jim Bullard, myself, I was accompanying Jim Bullard, and I think Neil Kashkari and Mark Wright.

• 1:50:12Speaker 03

  And as, as we're heading to the FOMC meeting, uh, the news of this event transpired and, uh, Kashkari turns to me in the back and says, geez. We should have adopted your standing repo facility. I thought that was, that was satisfied.

• 1:50:31Anthony Pompliano?

  Yes, that's why I wrote the article and did the work.

• 1:50:34Speaker 03

  And then I remember Jay, Jay Powell came to the, the Fed, you know, and he said, oh, I'm going to be at the Fed. We should meet up and, and he gave a talk. There were about 60 people there and, and the talk. And I, I never went to seek him out, but you know, he's, there's a big ball of people around him. And I just was in the corner, um, yeah, with my, my wife there talking. And then, uh, uh, the Chair Powell comes up and says, oh, David. He shakes my hand. Just wanted to let you know that I, I really appreciate your work on the standing repo facility. I think you're just doing it fantastic. Yeah. I'm going, you know, that's very gratifying for him to, he's a super nice guy, by the way.

• 1:51:14Speaker 03

  I mean, he didn't have to do that. And he went out of his way to, to, and I think, by the way, that's an important lesson for all of us to kind of acknowledge the people who are working with us to let them know when they've done a good job. So these are, that's a couple of highlights for me.

• 1:51:28Anthony Pompliano?

  That's amazing.

• 1:51:28Speaker 03

  Yeah, yeah, it's fun.

• 1:51:29Anthony Pompliano?

  The, uh, riding in the car with, with those guys must've been, must've been a blast. I always wonder, uh, do you just sit and talk about economic policy the whole time? Or do they talk about other things?

• 1:51:42Speaker 03

  It's not just about economic policy. You'd be surprised to learn that, uh, you know, we're a fun group of people as well. We have a wide, wide variety of interests. It's not just economics. We are, we are econ geeks as well, but, uh, we, we do talk about other things.

• 1:51:56Anthony Pompliano?

  What do they say? Make, make economics fun again?

• 1:51:59Speaker 03

  Exactly. That's our motto.

• 1:52:01Anthony Pompliano?

  All right. Well, listen, thank you so much for taking the time to do this. Where can we send people to either find you on the internet or find out more about what you guys are doing at University of Miami?

• 1:52:08Speaker 03

  Well, thanks a lot, Tony. This is a lot of fun. Listen, you can, you know, I'm out there. Like you just Google my name, you're gonna, it's gonna come out. That's the easiest thing. But I'm at the University of Miami, Miami Herbert Business School. And if you just Google my name, I think is the easiest way.

• 1:52:24Anthony Pompliano?

  Awesome. And you are a fantastic follow on Twitter. It's a, it's a good dose of, uh, hey, wait a minute, maybe we should like think twice before we tweet some of the stuff that, uh,

• 1:52:31Speaker 03

  Well, I love following you as well. You're a great source of ideas and, and, uh, it's just a lot of fun that I'm so glad we got to meet in person.

• 1:52:40Anthony Pompliano?

  Absolutely. All right. Well, thank you so much. We'll do it again in the future.

• 1:52:42Speaker 03

  Thank you.