127 - Is this the End? | Lyn Alden

✨ DEBRIEF ✨ | Ryan & David's Unfiltered Thoughts on the Episode https://shows.banklesshq.com/p/127-lyn-alden-debrief Lyn Alden is the Founder of Lyn Alden investment strategy and is a leading expert in macro markets. She focuses on long-term debt cycles and how it’s impacting crypto, fiat, bonds, and equities markets. This is Lyn’s third appearance on Bankless. Each time she’s on, it usually means something is breaking in the macro markets. And something definitely is. Lyn thoroughly explains everything from whether we’re repeating history to what would turn this recession into a depression to whether or not we’re going to be okay. Don’t worry, Lyn shares her advice on how to be exactly that and more. Her superpower is to provide clarity during unclear times and this episode is no different. ------ 📣JUNO | Crypto Friendly Banking https://juno.finance/bankless ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: 🚀ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool ⚖️ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum ❎ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across 🦁BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave 🌴MAKER DAO | DECENTRALIZED LENDING https://bankless.cc/MakerDAO 🔐LEDGER | SECURE STAKING https://bankless.cc/Ledger ------ Topics Covered: 0:00 Intro 6:12 Is this the End? 11:08 Debt Cycle Arc 15:40 The Dollar Milkshake Theory 20:05 Historial Analogs 30:35 How Do We Get Stable? 38:30 Weak Market Links 48:24 Raising Rates 55:03 Deflation & Softer Landings 1:00:19 Fed Meme & Competency 1:07:52 Recession vs. Depression 1:13:06 Markets to Watch 1:18:15 Are We Going to be Okay? 1:22:58 Energy, Food, & Fertilizer Markets 1:29:21 The New Normal 1:36:02 Mental Health 1:38:37 Closing & Disclaimers ------ Resources: Lyn Alden https://www.lynalden.com/ The Death of the Dollar Dominance https://youtu.be/_Kqcrz3u8rQ Inflation in 2021 https://youtu.be/dyDsQ-XCoNo Fed Meme https://twitter.com/cobie/status/1542562195573297153 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

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

• 0:00Speaker 00

  A group of elders gets in a room every six weeks and determines what the price of money will be. And it doesn't matter where you are in the country. I mean, this is a country of 330 million people, 50 states, very different markets. And they kind of set the nationwide price. And then also because with the global reserve currency, this has international ramifications. And so I just think that the model itself is kind of antiquated. And that as software each the world and as we kind of go through a somewhat inflationary crisis, I think the shortcomings of that model are kind of being laid bare.

• 0:33Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman and we're here to help you become more bankless. Once again, guys, the bankless journey has veered into macro territory because we've got some big questions. These are tumultuous times in macro markets. And we brought on Lynn Alden, who is the perfect person to tell us more about this. And our basic question for Lynn, David, was, are we going to be okay? And her answer was, kind of, it depends.

• 1:06David Hoffman?

  Not really.

• 1:07Ryan Sean Adams?

  It's complicated.

• 1:08David Hoffman?

  Maybe not.

• 1:09Ryan Sean Adams?

  The big question is, how are we going to get out of this? And this is what we asked Lynn, a few things to look out for in this episode. Number one, what's the checkmate for central banks? What do they come to an end of their capabilities? Number two, why crypto is the only honest market left? Lynn makes the case for that. Number three, is this capital R recession going to turn into a capital D depression? And number four, a theme of this episode is what decade are we in? Is this the 1940s, the 1970s? Or, oh my God, is it the 1930s? I hope not. Number five, we end with some tips on how to prepare, just basic life advice,

• 1:50Ryan Sean Adams?

  what you should do to store your value with your career, even in kind of your family world. David, this is just a great episode for us. I think put a lot of missing pieces together for me in all of the craziness that has been the last three months, maybe the entirety of this year of 2022. Macro markets, we've had wars, we have inflation, we have the Fed doing all sorts of craziness. Now we have a recession. What's that going to turn into? We get into all of those subjects.

• 2:20David Hoffman?

  Yeah, the fog of war for macro markets and even crypto markets right now is really, really thick. Everyone's confused. Multiple people from multiple different parts of the world have stated that this is some of the hardest times, the hardest market like sentiment to invest capital. No one knows how to invest or where to invest. People are just, they feel frozen. They feel like they have paralysis and that's because the macro markets are so confusing. There are so many different things at play. And so we go through a list of them just with Lynn Alden. We talk about the choices that the Fed has made and the choices that the Fed has left to make. And how there's not really very many tools in the tool belt for their Federal Reserve.

• 3:00David Hoffman?

  So those choices are kind of fixed. And so when we fix that steering wheel, where does that trajectory take us? And then we go into the macro, the external forces, commodity prices, energy prices, food prices. Those things are kind of fixed too. There's not really much influence or choice that we as humans have over these things. And so when we blend all these trajectories together, where do we go? And so that's ultimately where we conclude with this podcast. And then we finish off with, like you said, Lynn's advice and her advice was grab your bear market buddy. Because you know, you need to not go alone into into the bear market. And so that's what I'll say now is as you go listen to this, grab your bear market buddy because you might, you might need it.

• 3:43Ryan Sean Adams?

  Listen with a friend. Send this to a friend. Guys, in all the chaos that's going on, I think you'll get a rare breadth of signal from this episode because Lynn is always clear of thought and will help you shape the next decade and your outlook on it. We're going to get right into the episode with Lynn Alden. But before we do, we want to talk about these awesome tools for going bankless from our sponsors.

• 4:07David Hoffman?

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• 5:35David Hoffman?

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• 6:19David Hoffman?

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• 6:35Ryan Sean Adams?

  Bankless Station, super excited to introduce Lynn Alden. She's back again on Bankless. Anytime Lynn comes on the podcast, you know there's something going on in macro and today is no exception. Lynn is the founder of Lynn Alden Investment Strategies. She's a leading expert in macro markets, focuses on long-term debt cycles and how that's impacting everyday markets. Of course, a ton to discuss on crypto, on fiat, on bonds, on equities, on whether Jerome Powell is going to steer us off a cliff or whether we're going to be okay. And so Lynn, we want to find out what is going on. My first question to you, first of all, welcome back to Bankless. It's great to have you. And then could you answer the question, is this the end? Like, are we all going to make it? I think a lot of people are worried. I'm worried myself. What's going on here?

• 7:20Speaker 00

  Happy to be here. Thanks for having me. I think we can divide it into a couple of different timeframes. And so in the kind of the big macro scale, I've been using the framework of Ray Dalio, the long-term debt cycle. And so in that, in that conception, it's the end of something big, right? But of course, the end is a long process and it can be a decade-long process. So I think that basically, you know, with the long-term debt cycle, every several decades, when you reach a massive amount of debt, when you go down to zero interest rates and you have kind of just massive amounts of debt in the system, usually go through some sort of currency devaluation and system change, right? So it's not the end of the world, but it's the end of an era, basically. And I think that's something we're seeing in a number of markets.

• 8:03Speaker 00

  But you know, to get less doomy than that, if we focus more on the near term, we're in a cyclical downturn. And not all cyclical downturns become recessions, but some subset of them do. And so when we look back over the past, you know, let's say pre-COVID, we had like a 10-year-long economic expansion in the United States. We still had three cycles within that decade-long period of accelerating growth and then decelerating growth. And it just that the decelerating growths never became negative growth. It never became an outright recession, even though you had a couple of near misses there. And so what we've been in over the past more than a year now is a decelerating growth environment.

• 8:45Speaker 00

  And then combined with the fact that this one is so inflationary, you know, kind of leading up to that, that this one is becoming more severe and is kind of starting to look like a recession, at least by many indicators. So it does not look like a recession in terms of employment yet, but by most other, especially leading indicators, it does look more recessionary. And tying this into crypto, to the extent that I'm here, historically, when you look at the Bitcoin and crypto bull markets, a lot of people tie it to the Bitcoin halving, which I think is relevant to some extent, but also actually matches up very, very closely with these economic accelerating and decelerating environments. And so, for example, we can use

• 9:28Speaker 00

  the purchasing managers index. It's kind of a go-to macro indicator for economic acceleration or decelerating. It looks like a sine wave over time, and they average roughly three-year cycles. And it just so happens that all the Bitcoin bull runs were during these rising PMI environments, and all of the downward or choppy sideways periods were in declining PMI environments. And of course, that, all of crypto kind of goes up and down together, maybe with a little bit of a lag. And a lot of what dictates the PMI environments is also liquidity conditions. And so, central banks and kind of dollar liquidity around the world, generally, you know, one of the big questions was, for example, why is Bitcoin not serving as an inflation hedge? And of course, that would extend to any sort of finite token.

• 10:13Speaker 00

  Why are these things going down when you ironically have high inflation of fiat currencies? And there's actually really good charts out there that show Bitcoin in particular, I use that one because that's what most of the macro people will look at, because that's the biggest, most liquid one. And you'll see that in rising global M2, so rising global money supply year-over-year, Bitcoin does very well in that environment. And now, we're actually in a period where money supply is growing more slowly than it was a year or two ago. And you have multiple central banks, mainly the Fed, kind of pushing back and strengthening the dollar compared to many other currencies. And so, when you translate all that back into USD-denominated global M2 growth, it actually kind of came to a standstill. So ironically,

• 10:56Speaker 00

  now that price inflation is happening with a lag from monetary inflation, and some central banks are actually fighting back, it makes more sense as why we're seeing kind of downward price action in a number of assets, including Bitcoin and cryptocurrencies.

• 11:09David Hoffman?

  Lynn, you focus on like these long-term debt cycles and you're really, really good at placing us in history, or at least like talking about what parts of history rhyme with our current phase. So I kind of want to pick your brain as to like where we are in the arc of this long-term debt cycle. And for just for added context, we brought you on, I think our first episode with you was episode 48, January 18th of 2021, and we titled it "The Death of the Dollar Dominance." And this was basically a prelude of things to come where the dollar was really just going to lose its place as like the king of, you know, global currencies. And like we've seen events, you know, especially lately, where you kind of see the writing on

• 11:51David Hoffman?

  the wall. And then we had you on in August for episode 76 titled "Inflation in 2021." This was when inflation really started to pick up, which was one of the things that we kind of predicted with that dollar dominance. We were going to see dollar inflation. And now here we are in July of 2022, and there's that like GIF, that famous internet GIF of that truck, and it's hurtling towards the wall. And like you just know it's going to crash, but then it cuts, and then it's going to crash, and then it cuts again. It never actually crashes. But that feels like the question that Ryan started with, like, are we at the end? This feels like with just like extreme inflation, extremely high interest rates, this kind of feels like the last hurrah before we really start to see like the actual

• 12:35David Hoffman?

  just reduction of the dollar dominance. Would you agree with this arc? And just overall, where are we on this arc, this long arc of the global debt cycle?

• 12:46Speaker 00

  Yeah, so global debt cycles are kind of correlated to that global reserve status, but not necessarily the same thing. And so in the last kind of long-term debt cycle, we did see the transition from UK having global reserve currency to United States. One point I've been making for a while is that, you know, Now, there's really no country large enough to have the only global reserve currency. That was kind of actually anomaly that persists in history. It's not something that necessarily has to repeat over and over again. And then I think we're heading towards a more decentralized type of system. And I think that was somewhat accelerated by the, you know, the events you've seen in Ukraine. Right. So you have Russia initiate a war and then, and then the West responds by cutting off their foreign exchange reserves. And then you kind of, you know, everyone kind of realizes around the world at the same time that wait a second.

• 13:30Speaker 00

  You know, the money like aspects of these reserves are maybe not as money like as people thought, right? If they can be censored, if they can be confiscated, uh, you know, whether or not you agree with the reason. Uh, that now gives an incentive to a number of countries to be like, wait a minute. I mean, we're holding liabilities of countries that we're not necessarily fans of. Um, you know, what does that mean? What should we hold instead? And so I do think that we are now, we are starting to see, for example, gradual shifting away from treasuries by Russia was obviously early to do it. China's been doing it since 2013. Um, you know, Japan has been a big buyer of treasures, but now they kind of had to protect their own currency. So they're, they're not really buying treasures anymore either. And you've seen, for example, some of the economic forums Putin has called for kind of, you know,

• 14:14Speaker 00

  alternative payment systems, uh, you know, cooperation with some of the other peers like between Russia and China or Russia and India. For example, India's actually stepped in, even though India's more of a, you know, somewhat of an ally to the West. And, you know, compared to China or Russia, they stepped in to buy massive amounts of Russian crude. And so I do think we're seeing a little bit more of a multipolar world emerge rather than a, you know, a unipolar world. You know, just kind of a US dominated global order. I think it's shifting into, you know, kind of a more multipolar, you know, multiple centers of power. And right now we actually, the dollar index itself is very strong. But that's in large part because it's heavily connected, you know, it's heavily based on the euro and the yen.

• 14:56Speaker 00

  And Europe's obviously having a very specific energy crisis, more so than even the rest of the world. Uh, and Japan's doing yield curve control with a very tight cap. And so basically it's, it's one of those things where. You know, it's not that the dollar is weakening right now. It's actually quite strong, but the the global demand for it, especially among foreign central banks, is drifting towards that more decentralized model. And if anything, over the past decade, we've seen a mild uptick in gold usage among central banks, because, you know, I would see something like Bitcoin or these others are nowhere near big enough or or stable enough that for most of them to be interested. And so gold is kind of the, you know, the self custodial inflation protected asset that they could turn to if they want to, you know, hold money for a long period of time and not have counterparty risk.

• 15:42David Hoffman?

  So we have central banks that are definitely following the reducing the dollar dominance playbook. But we have the DXY, the Dixie, which is like the dollar strength index, having like, I think, 20 year highs or just really, really strong right now. And so I want to ask you about the the dollar milkshake theory, which I'm pretty sure you're familiar with, the idea that before there's a collapse in the dollar, there's a significant strength in the dollar, because so many debts are dollar denominated, both inside the United States and outside the United States, that even if we are on the precipice of like a total reduction in dollar dominance in the world, first, people have to buy dollars to pay back

• 16:23David Hoffman?

  their debts. And then the big like crash and reset happens. Do you ascribe to the dollar milkshake theory? And do you see that as the evidence of what's going on in the macro markets as supporting that theory?

• 16:37Speaker 00

  So I think that the the theory has a lot of merits. And I've actually met and discussed and debated with, you know, the person who proposed that theory, Brent Johnson, you know, my acquaintances with him. And, you know, when people and macro people debate that theory, you know, the ones that understand it, it's not so much they disregard this theory. The question is, how does that theory end up? And so basically, for people that aren't familiar, that the point goes that, you know, United States is global reserve currency. That doesn't just mean that central banks hold it. It also means that it's the it's the currency that most offshore debt is denominated in. So if a if an entity makes a loan to developing country, either their government or a large corporation there, They often don't want to do it in their local currency. They'd rather do it in a harder

• 17:21Speaker 00

  currency, and that could be dollars, euros, yen, things like that. And dollar, of course, is the disproportionate one there. And also, it's not even mostly US entities that are necessarily making those loans. Entities in Europe, or Japan, or China, will go out and make dollar-based loans to, you know, a country in Africa, or a country in South America. And so, as a result, the world outside the United States has, according to the Bank for International Settlements, something like $13 trillion in US-denominated debt. Now, that's somewhat offset by the fact that the whole world outside of the US has something like $50 trillion in US-denominated assets, right? So, the US has run these gigantic structural trade deficits, actually about,

• 18:06Speaker 00

  you know, $14 trillion worth of trade deficits over the past, you know, call it 25 years, or something like that. And they take those dollars, and then they buy US assets. So, they buy treasuries. When those started to become kind of worse investments, they shifted to buying US stocks. They buy US real estate, and things like that. They kind of pile it into financial assets. And so, when you, basically, when it comes down to the dollar milkshake theory, the point is that if there's any sort of disruption in dollar cash flows, the strength of the dollar goes up dramatically, because all of that debt represents demand for dollars. And so, they have to, basically, they have a short squeeze. They have to buy dollars if they want to cover their own debts, or try to service them. Now, where that theory,

• 18:51Speaker 00

  I think, becomes somewhat self-defeating, is that if the dollar spikes too much, like what we're seeing right now, and what we saw back in, actually, in March 2020, during the, you know, kind of the worst of the COVID crash, it starts to cause, ironically, US recession, global recession, global liquidity problems, and then those foreign entities start selling US-denominated assets in order to get dollars. So, you start to get problems in the US treasury market, liquidity problems, because the foreign sector stops buying, or outright starts selling them in order to get dollars. And so, you know, first it hits other countries, but then it ricochets back into us. And I think that right now, we're kind of in that phase where it's frickishing back into us.

• 19:30Speaker 00

  And that's an environment where almost nothing other than dollars does well, including US assets, US stocks. You know, multiple things start selling off. And then, of course, Bitcoin and crypto is being so volatile and a smaller market. They generally, you know, there's some of the earliest things to fall, they get crushed. But even things like, you know, equities, real estate, gold, just assets around the world sell off. Because basically, this unit of account is strengthening so much and causing kind of for selling.

• 19:59Ryan Sean Adams?

  That's interesting. Yeah, it's interesting how interrelated all of these things are, Lynn. And, you know, you talked about sort of subscribing to Ray Dalio's Long Term Debt Cycles overarching thesis. And I've recently read his book, Principles for Dealing with a Changing World Order, where he kind of looks historically at other empires and kind of the rise and fall of their monetary systems as well. And so you kind of wonder if this is sort of part of the fall of the US as a monetary leader. And I think you're indicating that, well, before that happens completely, there might be an erosion, right? And there might be some, you know, some pluralism in terms of the monetary instruments used.

• 20:43Ryan Sean Adams?

  But I'm curious if you could kind of ground us with any historical analogs here. So is this like, is this like something that happened in the 1700s? Should we go back to other, you know, our history of other empires? Or even, I've heard so many people talk about this as the 1940s. Maybe that's a good analog, you know? Or others have talked about the inflation of the 1970s. Some people, when you start using the recession word, people immediately think back to 2008, which was in most listeners, I guess, every listener's life, lifetime who's probably listening to this. And it also feels like, hey, if things get really bad, if the recession, the R word turns into the D word, are we entering a 1930s type time range?

• 21:28Ryan Sean Adams?

  So are there any historical analogs for this that come to mind for you? Or is this just the 2020s, it's completely independent thing and brand new?

• 21:39Speaker 00

  So it's a good question. I mean, I think that that quote that is either correctly or falsely attributed to Mark Twain is really applicable, and I've used it a number of times, which is history repeats. History doesn't repeat, but it does rhyme. And so analogues, I think, are actually really useful. But of course, there's no perfect analog. And if you go back far enough, technology is totally different. And so basically, 2020s are their own thing. But we still learn from periods of history. But I think that the base is to understand different analogues, so that one can then see how they're different from that. If they don't study history at all, they're completely blindsided. They think it's all unprecedented, whereas actually, there were rather similar environments. And so I think we can divide that into two parts. One is the, you know, you mentioned Dalio's principles of, you know, the focusing on that

• 22:23Speaker 00

  global reserve and rising and falling empires. And then that's different from maybe this current macro environment, even though I think they're related. So in that book, what one thing he does, he actually, he'll, he'll take an empire, and he kind of goes back in history. So there's, you know, kind of the, call it the Chinese one, the United States one, the UK, you know, the Netherlands. He goes back in time, maybe 500 years or so, and he tracks these handful of empires. And he grades them on multiple scales, right? So there's like, their, you know, their education, their military power, their economic size, their, you know, their global reserve currency status, basically the acceptance of their currency by, you know, their various trading partners and other countries around the world. And there are

• 23:07Speaker 00

  some that are more leading and lagging than others. So education, for example, is a rather leading one, where that starts to rise before many of the others, and then starts to fall before many of the others. Whereas the other ones, you know, because of network effects and momentum that is, you know, takes a long time to turn around, those are more lagging. And so global reserve currency is actually one of the most lagging ones, where all those other things come into place first, and then their currency gets wildly accepted. And then even as some of those other ones start to clearly deteriorate, the global reserve currency is kind of the last one to roll over, because there's still so much network effect and usage for it, that it's, you know, it's the incumbent. It's very hard to displace until All the other pieces are there.

• 23:48Speaker 00

  And so Dalio often points to China as kind of the rising power compared to the United States, which is in many ways compared to, you know, the United States was the rising power compared to the UK. I think that there is some accuracy to that, but I mean, I don't think that, you know, translates into, you know, 20 years from now, we're all using yuan, right? I think that's, that's not what that means. I think that ultimately we're going towards, again, a more bipolar type of world, you know, maybe a tri-polar world, whatever you want to call it, but not this kind of unipolar world. I mean, after World War II, which is maybe the closest analog, because that was the rise of the United States over the, over the United Kingdom, you know, most of the world was devastated and the United States was kind of like almost untouched, right? And so we were rebuilding our allies, we were helping rebuild some of our enemies.

• 24:32Speaker 00

  I mean, we, you know, we had kind of the last intact manufacturing base. And that was kind of a, you know, becoming like a hyperpower status, which is, which is pretty rare in history. And so I, you know, outside of something like that happening, I think that the era we're going into somewhat more decentralized, somewhat, you know, different poles. And just you have the relative diminishment of the United States. I mean, we have something like, what, four or five percent of the population at our maximum height, we were like two thirds of global currency reserves. And that, that's kind of inherently unstable system. It's kind of, it's hard to maintain that level of dominance. And I think we're naturally drifting towards where is the population standard? Where are these different sources of power? And so I do think that we're headed in that direction.

• 25:16Speaker 00

  And then tying it into historical analogues and other areas, like what is, where, what is this inflation similar to? What is this economic environment similar to? I have been using the 40s as the closest comparison. And the reason I've been doing that is so when people think of inflation, they often think of the 70s, right? So they just go, that's the, that's the one they think of. But the environment was quite different and the causes of inflation were quite different. The one similarity I think was the shortage of energy. But outside of that, you know, most of the money supply growth in the 70s was you had a demographics boom. You know, the baby boomers were entering their home buying years. You had a lot of bank lending happening. And so, you know, when commercial banks make loans, that increases the broad money supply. And then of course, on top of that, you had some fiscal problems, but the deficits were actually much smaller.

• 26:00Speaker 00

  And a lot of that broad money supply was happening because of the banks. You also had pretty low debt as a percentage of GDP. And so, you know, Paul Volcker, for example, the head of the Fed at the time, could raise rates to double digits. To try to purposely put the US in a recession, stabilize the dollar for international creditors and go from there. So I think it's both the causes and solutions to inflation were quite different than what we're seeing today. And actually, I think a closer analog is the 40s, which was you didn't have a lot of bank lending. You didn't have a lot of demographic expansion, but you had after the 30s, actually, let's go back to the 30s. So you had this, obviously, 1929 crash. And you had a decade-long depression. And you had rising populism,

• 26:43Speaker 00

  you know, both between countries and within countries. And that took different forms. I mean, obviously, in Europe, you had the rise of Nazism. And that obviously contributed to global conflict. You also had populism in the United States, multiple other countries, because of that tough economic environment. And then eventually, when you ran into the 40s and you started to get that conflict happening and you worked out a lot of leverage in the system, you had huge fiscal expenditures, right? Because a lot of it was to fight the war and to rebuild things after that period of stagnation and populism. And so the inflation that we saw in the 40s was very fiscally driven. It wasn't bank lending driven, it was very fiscally driven. So you had a sharp increase in the money supply.

• 27:26Speaker 00

  And you had very high public debt to GDP, which means that the central bank couldn't raise rates to double digits because you'd bankrupt the federal government. And so they just held rates low anyway, despite significant inflation. And you had this huge fiscal-driven inflation. And I think that what we've seen over the past, call it 15 years, has kind of been a replay of that, where we had the 2008 crash. In many ways, I have a whole bunch of charts out there that shows it's very similar to 29 crash in terms of it being a private debt bubble that unfolded. And then throughout the whole 2010s.

• 28:03Speaker 00

  We had what in many ways was a mild depression. I mean, emerging markets, basically, they had, you know, almost no, you know, except for China and a couple others, most of them had no dollar-denominated GDP growth over a very long stretch of time. I mean, if you look at their stock markets, they've gone sideways in dollar terms for 10, 15 years. You know, many of them have not had, you know, kind of substantially new highs in dollar terms. Even in the United States and elsewhere, you had unusually slow GDP growth. You had rising populism and tensions in the United States and Europe and many other countries. And so, you know, going into this, we're very, very leveraged. And then we have, you know, the pandemic, and we have, you know, this very levered system hit by an external catalyst. And so we have something that looks like wartime finance

• 28:48Speaker 00

  in response, you know, trillions and trillions of dollars printed, ends up being very inflationary as one would expect. And so I think that in many ways, the 2020s are resembling the 1940s, but then there are some differences. So in the 40s, going back to Ray Dalio's conception, the United States was a rising power. We were running trade surpluses. Now we look more like the UK looked in the 40s. We're structural trade deficits. We're kind of the incumbent power. We're, you know, we are more deindustrialized due to kind of shipping our supply chains overseas. And so there are a bunch of differences, I think. But I think that people should be familiar with the 40s if they want to have a, you know, kind of a decent macro framework here.

• 29:28Ryan Sean Adams?

  So is there a vague way where this plays out like the 1940s, except the US is the UK? Something to that effect?

• 29:36Speaker 00

  Well, I think in terms of the UK had a diminishing share of global GDP in that time. And I think that that that could play out for the US somewhat similarly.

• 29:46Speaker 00

  In in all of my kind of 1940s comparisons, I have, you know, obviously, the first thing people think of is like, wait a minute, World War. And I'm like, I'm not saying that's going to happen. I was like, not making the kinetic comparison. Unfortunately, that that's gotten more direct with, you know, obviously, recent, recent events where you have more kind of, you know, kinetic conflict happening. But I do think that this is a time where, you know, we go through transitions. And right now, it's Europe, I think, that's most at risk for a lot of things. But I do think that the United States, I mean, at probably at the end of this decade, Is going to have less of a unipolar grip on global financial markets than it had, you know, going into this decade. I think that there's more catalysts for countries like Russia

• 30:28Speaker 00

  and China, and then even countries like India to develop just alternative systems and alternative stores of value.

• 30:35David Hoffman?

  Having a more decentralized money system definitely seems to fit into the theme that we've been seeing. There's less globalization going on. Our supply chains are broken. People are moving manufacturing like to be more domestic and also kind of more or less fits into the crypto side of things. Like, yeah, we also like our money to be internet based and not based in any one particular geographic region. And so it's really helpful just to like, kind of take these like decade and almost century long timeframes just to really place us into history. But also, at the same time, Lynn, like, the markets seem, the fog of war around markets seems so thick right now. Like, we are not looking five, 10 years long investing horizons. People are looking

• 31:18David Hoffman?

  at like, what is the Fed going to do next week? So I want to zoom in here and start to get a little bit granular as to like, how we get out of this, like, that we're in a disequilibrium right now. Everyone understands that whatever the financial or economic state of the world is, is not normal right now. And we would like it to go back to being normal. Whatever normal is, we're probably going to be, it's probably going to be a new normal, but that's fine, so long as it's stable. And so my question to you is like, we have a few paths ahead of us. How do we get to like, a stable path? What does that stable path look like? What is this new equilibrium? So we have like, the Fed's going to raise interest rates or lower them. So like, what are

• 31:58David Hoffman?

  the paths ahead that the Fed have? Like, what are the reasonable outcomes that the Fed's choices are going to make in the next like, three, six, 12 months?

• 32:08Speaker 00

  So my expectation for, you know, several months now is that the Fed's going to raise rates until it breaks something. And I think we're kind of entering the phase where things are starting to break. Nothing's kind of broken so much they have to pause now. But I think that, you know, basically, they were late to respond. And now I think that they're kind of making another mistake, which is responding super aggressively too late when they've already kind of missed their window. So, you know, we already have, you know, economic decelerating activity, and then they're tightening into that, which is actually historically very unusual. And, you know, they're basically because their credibility is on the line, you know, Jerome Powell's legacy is on the line, where, you know, they have a long-term 2% inflation target, and they're looking at like 8.6% official inflation levels, higher

• 32:51Speaker 00

  if you look at a number of important categories. And so it's understandable that with employment so low and industry rates so high that they're going to try to fight it. The problem is that the source of inflation is largely outside of their control. So a lot of the inflation happened not because of Fed actions, but because of fiscal actions. And number two, they can't really do anything about the supply side, right? So the lack, you know, the lack of energy, the lack of certain commodities, things like that. And if anything, if you tighten too much, you can ironically make it harder for for many companies to bring on new supply. And so I think that they have a very limited toolset. But nonetheless, in order to preserve their own kind of legacy and kind of purpose, they're trying to use

• 33:34Speaker 00

  the tools they have. And I think they're going to basically use them until it gets messy enough, because they can't create new supply. But one thing they can do is try to suppress demand. And that can potentially lower prices. But then ironically, that comes at the cost of a recession. And, you know, kind of checkmate for a central bank is when they have high inflation, but for one reason or another, they cannot raise interest rates. And so, for example, in 1940 United States, you're fighting a total war, you have 130% you know, federal debt to GDP, you're running massive deficits, and the Treasury Department just says, Look, you know, we're not going to lose this war. So you're not going to raise interest rates. And you just can't, you just can't do it. And so that that was an example where they just said, Look, you know, inflation is running

• 34:18Speaker 00

  Hot, but we're going to cap yields anyway. So at one point, the 42 had 19% year-over-year inflation, and they still didn't raise rates because they just couldn't. And it wouldn't even really matter because the source of inflation was a decision to print a lot of money, build a lot of stuff and fight the Nazis and things like that, right? So it's just a different type of inflation than what you see in, say, the 70s. And I think that right now, there's a number of central banks that are essentially checkmated, where there's too much debt in some of their areas. Like, for example, Italy has 150% debt to GDP. Japan has 250% public debt to GDP. And so they can't support 5, 6, 7, 8, 10% interest rates.

• 35:02Speaker 00

  And so their central banks, the ECB and the Bank of Japan, are basically saying, "Look, we just can't raise rates right now. So we're just going to hold rates low despite the fact that this is happening." The Fed has a little bit more leeway. And so they're still in the phase where they're at least trying to raise rates from a very low level to try to combat it. But again, I think that runs into the whole dollar milkshake thing we discussed earlier, where if the Fed is kind of an outlier compared to a number of other developed countries, and you see a dollar strengthen too much, then you ironically have foreign entities sell treasuries and start causing problems in US capital markets and the US economy. And I think that ultimately forces the Fed to probably stop tightening by next year,

• 35:46Speaker 00

  even if inflation is still kind of running hot or is quick to bounce back as soon as they do. So I think the new normal for this decade is probably going to be this kind of cyclical inflation, where it can go away for periods of time, but then it's quick to return once the conditions are ripe for it. And I think that, in many ways, the past few decades have been unusually disinflationary in the sense that we basically had more money supply growth, but lower inflation than you'd expect from that money supply growth. Because we had a lot of levers we could pull to prevent wages from rising and to kind of push that inflation elsewhere. And as a large part due to globalization, right?

• 36:30Speaker 00

  So we'd push a lot of our manufacturing to cheaper places in the world, so that we basically had that big offset. And when you combine that with Moore's Law and technology and things like that, we had a rather disinflationary period of time. And I think that we've kind of run out of rope. For that path, both for just geopolitical reasons and just kind of populism reasons and then just due to, you know, kind of the, the natural limits of how much you can do that, I think we're now kind of in a process where we don't really have that ability to push inflation elsewhere. And so money supply growth more readily results in inflation for us going forward in, in developed markets. And then in addition, commodity cycles kind

• 37:13Speaker 00

  of go through these kind of 10 to 20 year cycles where it takes years and years to bring on these big commodity resources. And so you have this period where, you know, prices are low, nobody wants to invest. Eventually you kind of work through the existing supply, you start to get price increases, you start to get inflation. And then a lot of new capital comes in and builds up all this new supply, eventually overbuilds, it takes many years. And then that's, you know, you know, the, the high prices end up being their own cure for high prices. They bring a lot of capital, then you have oversupply at a period of lower prices. And I think the past, you know, call it 10 to 15 years, we've been in this commodity disinflationary cycle, oversupply. And I think that that's mostly behind us now. So I think

• 37:55Speaker 00

  that, you know, going forward the next, you know, call it five, 10, 15 years, I think we are in a, it just inherently more inflationary environment because we're not oversupplied with energy and most commodities. And we don't have those offshoring disinflationary levers that we had. So in some ways, it's not that this is highly inflationary, although it is, it's actually that the past decade was highly disinflationary, it was unusually disinflationary. We had unusually strong levers to offset some of our monetary growth and we don't have those levers anymore. So I think there's going to be more correlation between money supply and inflation, but of course with a lag.

• 38:32David Hoffman?

  I want to get just a little bit more clarity on what you mean by the Fed is going to raise interest rates until something breaks. And when you, when you said that, my mind immediately went to the crypto markets, which are like things, a lot of things broke in crypto in the last month. We have like 3O's capital got liquidated, that had contagion and Voyager, like Celsius is underwater, a bunch of just like smaller crypto banks are, are going under. Like blockFi is distressed. So if we're looking at the crypto industry as like a litmus test, like, well, a lot of things just broke in crypto. However, crypto is still very, very small. So if we're taking this to the larger financial market and you're saying that the Fed is going to raise rates until the larger financial market starts to break, like, what's an example of

• 39:16David Hoffman?

  something breaking in the financial market? Is there any like weak link that sticks out to you? It's like, oh, that's going to go first?

• 39:23Speaker 00

  I would say treasure market or credit markets, for example. You know, one of my macro friends, Luke Grom, describes Bitcoin and crypto as the last functioning fire alarm, meaning it's one of the last free markets. And so it's kind of like the car in the coal mine. It responds quicker to changes in liquidity than other markets that are larger and more managed, right? So the fact that you've seen so much carnage among all this leverage and all these things wiping out, I think is a precursor to what we're seeing, to a lesser extent, in macro markets. Because the central bank is not going to rush in and do anything with crypto. All of that is just on its own. It's going to survive or die on its own based on the merits of the projects.

• 40:02Speaker 00

  And so, I guess analogues are good here. So if you go back to 2018, right? So the last time the Fed was raising rates, they were raising them through 2017. You had a strong economic environment. You had, you know, kind of the incoming fiscal stimulus because they did tax cuts that were not offset by any sort of, you know, other spending cuts elsewhere. So they're basically just putting more money into the economy. And you had a rising economic environment. But again, this generally goes through cycles. And so by the time you got into late 2018, you were kind of out of stimulus and you were kind of slowly rolling over in terms of economic activity. You're starting to get slower growth. And the Fed was hiking rates.

• 40:45Speaker 00

  And Jerome Powell described it as being on autopilot. He's like, we're just going to keep doing this. We're going to keep reducing our balance sheet. We're going to keep hiking rates. And eventually, credit markets broke. And by credit markets, I mean that corporate bonds, basically corporate, you know, corporations have need for refinancing their debt, issuing debt to do operations, things like that. And especially in the weaker markets, the non-investment grade, the junk bond markets, that market completely froze for like six weeks. Nobody was able to issue debt because the yields were messed up. The market was liquid. Nobody wanted to, you know, no one, no one in that environment was like, you know, I don't want to buy right now junk bonds, right? So the whole

• 41:26Speaker 00

  market froze. And so a lot of people saw on the surface that the S and P 500 went down 20%, which was, which was of course, a notable event. I mean, it's a pretty big correction. But that's not why the Fed jumped in. They jumped in because they saw credit markets, which are much more tied to the economy and much more tied to corporate solvency and liquidity, totally break. And so, you know, they had to basically pause and say, you know, you know, we're going to be data dependent. We're not going to autopilot. We're going to, you know, start adjusting. A couple of months later, they were already kind of trimming their rates a little bit. And this was all pre-COVID. This was in 2019. And then you had the repo rate spike. That's another thing that broke. So interbank overnight lending markets broke. The Federal

• 42:07Speaker 00

  Reserve had to come in and reliquify those. So they had to end their balance sheet reduction ahead of schedule and start expanding their balance sheet. And then by March 2020, when you were full on in COVID, you had a massive crash. You had the dollar spike, the milkshake theory is playing out. You had foreign sectors selling treasuries. So the Federal Reserve had to come in and buy treasuries to reliquify the market. So you had the treasury market break. So those are examples of things in financial markets breaking that are, you know, closely tied to the functioning of the US economy that the Fed is basically forced to jump into. And some of those things like the treasury market or the repo market are something that is, you know, if they break, the Fed will literally have an emergency meeting and fix it in like

• 42:50Speaker 00

  hours or days, right? That those are, those are like the core of the system, you know, credit markets, you know, those can break for weeks and then the Fed will be like, okay, we have to figure out what's going on here. Whereas like something like crypto markets are still on the periphery. That you know, they can break and the Fed will just keep tightening until one of those closer markets starts to break. And as I, as we're having this recording, Treasury market illiquidity is getting pretty problematic. So it's pretty volatile market is pretty illiquid. So we're starting to see signs of stress in the Treasury market. It's not completely broken like we saw in March 2020, but it is getting quite messy. And we're also seeing rising spreads in corporate bond markets. So we're starting to see more distress in those markets.

• 43:34Speaker 00

  And neither of those markets have gone to out like outright breakage, but they are getting weaker. And I think pointing to the fact that, you know, the market is starting to realize that by next year, maybe even before then, the Fed's probably going to find it harder, hard to continue tightening regards to what the inflation numbers are showing us.

• 43:51Ryan Sean Adams?

  This is so fascinating. By the way, Lynn, and to Bankless listeners, I can't believe this content is free. All right, this is the beauty of podcasts. All right, so like in, in previous decades, in, normal people would have no access to this level of analysis and this kind of information, much harder to prepare. And the, the, the kind of analysis that we're getting Lynn is just helping me think which with much more clarity about the rest of the 2020s. So, you know, thank you for everything you do. And it's so cool that like with the internet age that we're living in, all of this is, is free. Anyone can listen to this, but Lynn, there's a

• 44:25Speaker 00

  That's also, just to jump in, that's also why the analogs can be tricky, right? So you're looking back in the 40s and they were essentially doing what's called financial oppression. They're holding industries below the inflation rates. You know, people didn't have ready access. People couldn't rattle off what's the inflation rate, what are interest rates? You know, they would, they would check their like weekly newspaper if they were into the markets. But you know, basically the information traveled very slowly. And a lot of what was happening was only known in hindsight as we dissected what happened throughout the whole banking system. Who was buying what? How is this being managed? Whereas now in the age of information, you know, people are updating each other with like memes on the internet about what's happening in real time and spreading that out.

• 45:03Ryan Sean Adams?

  We have a meme here that we want to talk to you about, but like, is, is this also why things seem to be happening so fast? Like, it feels like we're, we're, we're living through like decades in the course of years and the whiplash. That we've seen lately has felt like we've lived through several big decades just in the past three or four years. Do you think that ties into the thesis of like, things will actually happen at an accelerated rate with the highs and the lows and everything from here on out?

• 45:29Speaker 00

  I think partially that's it. I think that there's two things. One is that when things start to break, basically, at the end of a long-term debt cycle, you have to kind of a phase change in the way the system works. You get more volatility and more whiplash. So that's number one. We kind of saw similar things in the 20s, 30s, and 40s. But number two, yeah, I do think that the spread of information means that markets can adjust a lot quicker. And so you get a lot of kind of wild action. And that's actually, I mean, that's part of why those crypto banks had so much problems. Even the ones that weren't outright insolvent, they had bigger bank runs than most banks would ever experience because all of that money can move faster. And so that's kind of the whole point of the space. And so you had bigger bank runs and more liquidity

• 46:14Speaker 00

  problems. And it all just kind of becomes contagious right away.

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• 48:49Ryan Sean Adams?

  So this is fantastic. And to your earlier point about the Fed is like one takeaway I had while listening to you, Lynn, is the Fed doesn't care about equities right now. It definitely doesn't care about your crypto asset prices. Doesn't care at all. But when things start breaking in credit markets closer to treasuries, that's when they're going to start caring. But one thing that I can't quite square in many of the macro people we've heard from and talked to lately is this. So Dan Moorhead from Pantera Capital put out a memo recently. And you called the recent actions of the Fed, the rate raises like a 0.5% increase, something like this. And what are we at now, Lynn? Is it like 1.5%, 1.7%?

• 49:34Speaker 00

  1.5% and we just had a 75 basis point increase, which was the biggest in, you know, something like 25 years.

• 49:40Ryan Sean Adams?

  So the biggest in 25 years, the biggest in a long time, you called that aggressive. But Dan Moorhead in his, you know, in his commentary was like, that's not aggressive. What we need to be doing is 5% like or higher. We like, that's, that's how much catch up we have to do because the Fed hadn't been doing anything since the signals were there of like a year ago, let's say, summer of 2021, we should have been doing more, the Fed should have been doing more. And so rates have to increase to like 4%, 5% maybe higher. And so I hear that sentiment from some macro people. And then I also hear like the other, it seems like, you know, unstoppable force meets immovable object sort of thing. Like

• 50:25Ryan Sean Adams?

  at 5%, the US's interest rate payments have got to be absolutely crazy. And like to your point about breaking, like what has broken in the world economy at 5% levels? God knows. God knows what crypto prices look like, what stock prices look like, and what credit markets look like. And how does the, the US actually service its debt and pay its debt? And this is something I can't quite square. Can you, can you help bring some insight here? How is it possible that we need to raise rates to 5%? Why are some macro people saying that? Why are others saying like, you can't possibly raise rates to 5% because if you do, the US won't be able to service its debt?

• 51:08Speaker 00

  Yeah, it's a good question. I think that, I think that actually comes back to why studying periods of history is so useful. And so back in 2020, I started writing about the inflation that was likely to come from this increase in the money supply and also expecting that interest rates would be slow to rise in response to that high inflation. Basically, we'd have a large and normal gap between inflation and interest rates. And that's actually what we've seen. I mean, the Fed is, you know, even though they, they just had, you know, their first 75 basis rate hike in a long time, they're still the furthest behind inflation they've ever been since 1951. Since basically the end of the whole 1940s inflationary period. And so basically, they're basically further behind inflation that they have ever been since

• 51:52Speaker 00

  the last long-term debt cycle ended, right? So, and I think that's why historical analogues are important, because if anyone was using the, you know, the 2000s mild inflation environment, or the 1970s inflation environment, they had expected higher interest rates in response to that higher inflation. Whereas if I think you're looking at the amount of debt in the system, and you're looking at kind of the low threshold of interest rates where things start to break, you would more readily expect that policymakers would have no choice but to have, you know, basically have an inability to close that gap. And I think that that's what we're seeing playing out, and it's normal for macro people to be wrestling with this viewpoint, because it's such a, it's not something that happened in their lifetimes.

• 52:35Speaker 00

  And so really, you have to go back to history books, and you have to kind of look at bottlenecks in the system, and start trying to judge what break, what is the order of which things break? Because as you point out, if you go up to 5% interest rates, that sounds responsible. That's like, we should have positive real rates. I mean, if we have high inflation, we have to raise rates. That makes sense for a lot of people. But as you pointed out, that breaks basically everything. So, you know, not just stock market going down, but housing market breaks, probably the foreign sector has to rapidly start selling treasuries, treasury market goes completely liquid, like it did in March 2020, and then what do you do there? Right? So it's like, it just, you know, the whole system kind of seizes up. And I think that's a function of the fact that, you know, for 40 years now, we've had

• 53:20Speaker 00

  lower and lower interest rates, all the way down to zero, and in some cases, negative in some countries. And that's resulted in higher and higher debt relative to GDP. And that debt is only serviceable with low rates. And I think that that is what defines a long-term debt cycle. That's why it's different than a normal deleveraging event, because there's so much debt in the system, that it if ever delevers normally, the whole system breaks. And so, given the choice between massive, you know, bumpy deflationary collapse, or printing money, that historically, the result in printing money, which can take the form of holding interest rates below inflation for quite a long period of time. And so in the 1940s, for example, inflation averaged 6%.

• 54:05Speaker 00

  It spiked as high as 19%, and the Fed held rates at roughly 0%. And they basically just said, You know, we're not going to default, so this is interest rates. And we're seeing that right now in Japan, where, you know, they're above their inflation target, but they're holding rates at zero and they're capping their 10-year bond at 0.25% with yield curve control. They're basically printing money into inflationary spike because they're like, our debt, our public debt is 250% debt to GDP. So we're not going to raise rates to positive real levels anytime soon. And we're seeing a similar thing in Europe. They're basically saying, look, Italy's got 150% debt to GDP. They're not going to have positive rates.

• 54:46Speaker 00

  They're basically, bondholders are going to default in one of two ways. If they raise rates, they're going to default nominally, right? So Italy's just going to be unable to service debt, or you just, everyone's going to take a haircut and, you know, Italy's not going to default nominally, but they're going to basically default in real terms.

• 55:03Ryan Sean Adams?

  When you keep saying default in real terms, right? So what we're talking about is inflation is really the pressure release valve here, right? That's how we have, in the long-term debt cycle, we have, we have pumped this, like this balloon maximally full. And now it's going to pop, but the way we can like deflate it slowly is through inflation that's kind of seeping out the sides. And is that why we're seeing that with like the yen and the euro? Why they're at like, you know, 20-year lows relative to the, to the dollar is because we're starting to see kind of inflation deflate this, this debt pressure that's been building up?

• 55:43Speaker 00

  I think that's what we're seeing, but it won't be a pleasant process. And so basically in a normal deleveraging cycle, the amount of debt in the system comes down. Whereas in a long-term debt cycle, basically endgame type of scenario, there's so much debt in the system that it can't come down without collapsing everything. And so you, instead, you have the denominator go up, which is money supply, right? So you have debt compared to GDP, nominal GDP, and compared to money supply go down, not because there's tons of deleveraging, but because there's inflation of the underlying unit that that debt is nominated in. And, you know, that's one, it's a very messy environment and it's so rare in developed markets. I mean, this happens all the time in America. Emerging markets, it hasn't happened in our lifetimes in developed countries.

• 56:27Speaker 00

  And that's why this is so challenging to navigate. And it usually involves financial oppression because if you're inflating away the currency, people want to get out of the currency. So then they often try to block the exits and say, well, you know, you can't buy. Like in the United States, when they went through this period, they they made it illegal to own gold. Literally for if you owned a benign yellow metal, you could get up to 10 years in prison, which is, you know, kind of insane by today's standards. And so basically, it's it's one of those things that's kind of intellectually offensive that they say, OK, well, this is you took out this debt. This is what you owe. But when push comes to shove, that's that's essentially what happens in history, where they they kind of inflated away. And, you know, there's there's way there's scenarios where it can happen slower than others.

• 57:11Speaker 00

  And there's ways that can happen more spectacularly and more kind of terribly. And that partially comes down to what's happening in the real world. Right? So for example, the fact that Europe is now energy insecure kind of makes that more of an emergency for them. Whereas, you know, Japan and the United States is a little bit less of an outright emergency and might happen more gradually, for example. Whereas some areas are more in emergency status. And then, of course, that's even more so for some of these periphery countries. Like Sri Lanka, for example, that's like been completely unable to get fuel

• 57:46Speaker 00

  because they have kind of fewer resources in general. So their whole reserve system is messed up. And so I do think that we are in an environment where a lot of debts will be inflated away. And that can mean different things depending on the order of events that happen. Right? So it could be a spectacular blow up. Or it could be like the 1940s financial oppression scenario, where it drags out over a decade. And, you know, everybody kind of takes a haircut.

• 58:14Ryan Sean Adams?

  Is there any softer landing if it happens to all developed countries at once? It seems like all the central banks are in a similar scenario. And if it happens to everyone, is is that a softer landing than if like it's only happening in a few small pockets?

• 58:31Speaker 00

  I think that still remains to be seen because the challenge there is that even though it's happening to every country at once, it's not happening to every person in those countries equally, right? So for example, right now in the United States, consumer sentiment, University of Michigan does a consumer sentiment survey nationwide and it's actually got their lowest ever reading. It was last month in June.

• 58:53David Hoffman?

  Since they started doing it.

• 58:54Speaker 00

  Yeah, like 70 years ago, right? It's never been lower. Basically, it only got almost as low during the bottom of the subprime crisis and very briefly at the end of the 70s, early 80s, when they had massive inflation and Volcker was trying to put the economy into recession to fight it, which is kind of similar to now. But basically, it's the worst ever reading. And that's in large part because the average wage went up like 6%. Official inflation went up 8.6%. Food at home went up 12%. High protein foods went up 14%. Gasoline went up 50%. And so, basically, even though unemployment's low, people in

• 59:34Speaker 00

  general are miserable. And it doesn't affect everyone equally. So if someone has resources, someone has a lot of fixed rate debt, if their income is unaffected, if they have all their needs met, they're in pretty good shape. Whereas if someone's kind of struggling, that's where you're going to get rising populism, rising social discontent, and that can make a soft landing is not soft for everyone. And then you can get kind of fluctuating changes in leadership of that country. And just basically, I think the United States and Europe in particular, among developed countries, are pretty vulnerable to this kind of shifts in political winds around back and forth to get whiplash and what the people want from their politicians because they're in kind of an impossible scenario.

• 1:00:19David Hoffman?

  I want to set up a scenario that I think we are all about to run into, speaking in the frame of mind of, history doesn't repeat, but it does rhyme, but it's also very different. And one of the reasons why it's different is from technology. And we already talked about how like this, the speed of information, especially memes being passed around on the internet is Part of that technology, people just like understand things better and faster these days. And I also want to bring up the, something that's stuck out to me lately is that, you know, the Federal Reserve is led by the elder generation, the boomers of the world. Meanwhile, there's this like this growing younger cohort on like crypto Twitter that is surprisingly

• 1:01:01David Hoffman?

  like well versed in like money and economics and finance for what they would be in their, in previous eras. And so there was a meme that was circling around on crypto Twitter, Lynn, that I want to get your take on. And Ryan's gonna, gonna share it here in a sec. The Bankless Weekly Rollup, we talked about this meme at the end of the show. So if you listen to the roll up, you'll, you'll know it's coming. So this is a meme that progresses quarter by quarter. So we start in Q1 2021, and every single quarter has Jerome Powell's face and his quote, he's quoting, "In Q1 2021, quantitative easing won't cause inflation." And then in Q2 2021, we go, "Some inflation, but it's transitory." Q3, "Okay, high inflation, but it's peaking." Q4 2021, "Okay, inflation, but maybe not transitory,

• 1:01:45David Hoffman?

  but job market very strong, wage growth very strong." And then Q1 2022, "Okay, we need to hike aggressively to curb inflation, but no worries, economy very strong, soft landing definitely possible." Q2 2022, and this is like, you know, it's circled red because this is where we are currently. Negative growth in Q1, but no, no recession risk. Q3 2022, "Okay, recession coming, but you're not gonna lose your home." Q4 2022, "Okay, you're, you may lose your home, but you're not gonna starve to death." Q1 2023, "You may die, but at least you'll go to heaven." And so like, but part of this is this like technology that is passing around like these memes that- By the way, I love his face, like how it transitions to like at the end.

• 1:02:29David Hoffman?

  These memes that are very well understood by like younger generations. And it's commentary, it's like social commentary as to the performance and the knowledge of the Federal Reserve. So Lynn, when you take a look at this meme, is it as, first, is it as dire as it may, as the meme makes it out to be? And, and second, is the Fed, like, how would you rate the actions of the Fed? Is the Fed like a competent institution right now?

• 1:02:55Speaker 00

  So I mean, dire, I think, depends on where you are, right? So if you're in Sri Lanka, it's pretty dire. Even if you're in Europe, it's pretty dire. Maybe less dire, depending on where you are in the United States, or where you are in Japan, or where you are in certain countries, maybe less dire. So you'll die if you go to heaven is not on my macro forecast, thankfully. But I think that, but I get the meme. Basically, one of the things I've been analyzing is the question of what does the Fed understand that they're not saying versus what do they not understand? That's actually kind of an interesting question, right? Because prior to this whole COVID fiasco and the money printing and the financial pressure

• 1:03:35Speaker 00

  and the inflation, BlackRock, with a former Fed official, released a report saying, in the next downturn, because debt's so high and because interest rates are so low, we're going to have to print a lot of money and probably do helicopter money, so probably fiscal stimulus combined with that. But that could be somewhat inflationary, so they're going to have to hold interest rates low for a period of time despite that. So you're going to have to have kind of coordination. And then the big challenge becomes how to not have inflation get too high and out of control. So like, the whole roadmap was there. I mean, they saw basically everything. And there are a number of analysts like me and others that were, we had been reading things like that, and we've been doing our own kind of similar research and saying that's basically the problem.

• 1:04:19Speaker 00

  And so when it starts to play out in real time, central banks never come out and say, "Look, the sovereign debt's too high, so we just have to hold rates low and financial pressure everything." I mean, they never just say that. They never say we have to inflate the debt away. So they have to use euphemisms, they have to kind of phrase it in different ways. And so the question then becomes, what do they know that they just have to phrase differently or kind of, you know, kind of push the can down the road and kind of mislead people versus... You know, what do they actually just that they honestly think that they that they can solve it, or that they, you know, that they think they're doing the right thing. And so, you know, for a while, the Fed and other central banks were saying it's transitory, when a lot of us knew that it wasn't, or at least not nearly as transitory as they think it

• 1:05:03Speaker 00

  will be. And so, I do think that the Fed and other central banks are facing a competence, you know, kind of crisis here, where their tools have always been kind of lagging indicators, right? So they're not very good at forecasting. If you look at the Fed's track record of forecasting, basically what they do, they never predict a recession, because that, you know, they're kind of inherently political organization, right? So predicting a recession is kind of inherently political statement in some ways, even if it's not, it just comes off that way. So they never predict a recession. And what they do, basically, no matter if things are high or low, they kind of point back to everything's going to go back to 2%. That's all they do. They basically just draw a line from wherever it is now, to 2%

• 1:05:47Speaker 00

  inflation, and like, you know, 2% GDP, real GDP growth, and like 2.5% interest rates. And they just are always kind of going back and trying to point towards that medium. And they don't really have a good track record. And I think that that's all kind of being mark to market, or being kind of realized now, because now they're facing this kind of more end game type of scenario, the super high debt level combined with inflation, which is just not something that their tools are well equipped to handle, and something that they contributed over decades to getting us here, that they don't really have the tools to get us out of. And so I do think that, you know, in countries around the world, especially these developed markets that have these super high debt levels, so Europe,

• 1:06:30Speaker 00

  Japan, United States, like, I wouldn't want their job, because it's an impossible job, and you either have to like, lie, or... You know, like you had to be stupid or kind of look stupid. And it's inherently challenging environment to be in, right? So I think that they face a credibility crisis and it's not, it's partially because they contributed to it, but it's also partially because their predecessors contributed to it. And that's just inherently rough place to be in. I think that the model itself is old, right? I think that, you know, if you ask most people, are price controls a good thing? Like, should the government set prices of things? Most people would say no. Whereas like, you know, in the United States, we've had price controls on money since 1913, right? We control the price of money.

• 1:07:12Speaker 00

  Basically, a group of elders gets in a room every six weeks and determines what the price of money will be. And it doesn't matter where you are in the country. I mean, this is a country of 330 million people, 50 states, very different markets. And they kind of set the nationwide price. And then also because with the global reserve currency, this has international ramifications. And it's literally because a group of people in a room are determining that price. And so I just think that the model itself is kind of antiquated. And that as software each the world and as we kind of go through a somewhat inflationary crisis, I think that the shortcomings of that model are kind of being laid bare.

• 1:07:53Ryan Sean Adams?

  That is why, of course, in crypto, we were looking to immutable algorithms to control our monetary policy as a way out. And maybe as the institutional trust in the central banks around the world erode in this decade, as we expect they will, maybe that becomes an increasing reason to turn to crypto. Of course, that is the bull case. But I want to ask you another thing that this meme was conveying, I think, towards the end with the, well, maybe you'll die, but at least you'll go to heaven part, which is like kind of this grim humor, but also a concern that I've heard David articulate. I've thought about it in the back of my head as well, which is one decade we haven't talked about, Lynn, is the decade of the 1930s. And the R for recession can turn into a D for depression.

• 1:08:37Ryan Sean Adams?

  And we have the populism. We have, you know, kind of like the commodity prices, the global instability, the political instability.

• 1:08:48Ryan Sean Adams?

  The like this could turn grim very quickly. You haven't mentioned the 1930s as a possibility. But what do you think about that? Is there some remote chance? Of course, there's always a chance, but do you think it's likely maybe? Or do you think it's a probability worth considering that this R could turn to a D depression and we get a decade or maybe less than a decade of some sort of really big calamitous dip in the economy that is worldwide in nature and does affect the US, does affect the developing world as well as the developed world?

• 1:09:25Speaker 00

  I think that's possible, but would take a different form. And so the 1930s were pretty disinflationary decade. And that's because you had the popping of a private debt bubble. And so you had busy underutilization of existing capacity. So you had commodity oversupply, you had low economic output, and then the economy had a tough time kind of bouncing back and responding to that. Whereas I think that to the extent that we've run into a calamity this decade, and I think we're seeing kind of early signs of one due to energy crisis, I think it'd be more of an inflationary type of depression. Right? I think that basically, you know, if I look at the bottlenecks of what could make this decade really, really bad, it's, you know, partially what's happening with the money system, but it's more so what's happening with the real movement of essential goods.

• 1:10:10Speaker 00

  Right? So it's really about can people get the energy they need? And energy is kind of the master resource that affects everything else. And so if you look back in history, you know, even though individual countries can kind of reduce their energy use, the world almost never reduces its energy use because like, you know, there's so much developing, you know, kind of countries around the world. There's still people that need a lot more energy. And even the countries in developed markets that have been able to kind of flatten their energy use, it's in large part because they shipped some of the most energy intensive production to those developing countries. So they kind of got off their balance sheet and out of mind, even though they're still actually benefiting from that higher energy consumption.

• 1:10:51Speaker 00

  And the only times where global energy usage went down year over year, one was, you know, a kind of a Three-year period in the early 1980s, which is basically when Volcker basically put the you know, kind of the US into a severe recession. You had a Latin American debt crisis. You had a big dollar spike and you had this kind of really rough global macro environment for a few years. So that was number one. That was basically, that was actually the last time that consumer sentiment was anywhere near this low was that period, right? So that was a terrible period for almost everyone. The other one was the global financial crisis. You had one year of, you know, less energy uses than the year prior. And then the third instance

• 1:11:34Speaker 00

  was 2020, the whole COVID crash and basically, you know, economic lockdowns and shut-ins and reduced air travel and things like that. And so generally reductions in energy consumption are associated with the worst economic environments in modern history, right? The whole kind of post-World War II era. I don't have data for energy consumption during the 30s, but it would not have been pretty, possibly worse. And so I think that that's one of the key things to look at is if we do have serious trouble getting the energy we need, that's where you can get really bad, you know, like humanitarian outcomes. And it doesn't affect everyone equally. It affects, it depends on where you are physically,

• 1:12:19Speaker 00

  what resources you have available to you. And I, so that's, that's the thing. Like if there's an economic thing that keeps me up at night, it's about energy security, energy distribution, and then all these kind of other things come, come later. So, so the money system, all that is really bad. But at the end of the day, it comes down to can we get energy? Can we heat our homes in the winter? Can we, you know, get food on the table, right? Because even, you know, a lot of fertilizers are made from natural gas, right? And so if natural gas, you know, like in Europe, it just looks like a Weimar chart, that making fertilizer in Europe is going to look like a Weimar chart, right? So basically,

• 1:13:02Speaker 00

  it really comes down to whether or not we have abundant energy.

• 1:13:07David Hoffman?

  I want to hear what you think about the fertilizer and food topic, but before we get that, I just really want to double down on this whole energy conversation. Oil, a barrel of oil saw its first decline in price in the last like two weeks in a while. And like, I think like if we take a trailing average of like 10, five to 10 years, oil and gas is still really highly priced currently, but at least it's coming down in the last two weeks. So that's like one very cautious note of optimism to be had there. If that continues to trend downwards, I think that's a big relief as in energy prices, gas prices, food prices start to come down. But question, question for you is, is oil really at the center of this?

• 1:13:48David Hoffman?

  Or like, what is, if we're, if we're saying that energy is at like the center of whether or not we go into a depression or recession, or it's just a, or it's just a pullback, what charts are we looking at? What, what are the energy prices? How, how do we measure this whole thing?

• 1:14:03Speaker 00

  So oil, natural gas would be the two biggest, coal and nuclear and other things like that are also, are also big ones. And so, you know, basically if you look at oil is more, oil is more fungible than natural gas. So oil is, is pretty easy to transport around the world. And so you can get kind of dislocations in price, but it's generally pretty similar prices around the world. And so Brent crude and, and West Texas Intermediate Crude, you know, there could be brief anomalies where they differ, but for the most part, they're rather similar prices. And, you know, right now we saw a dip in oil uses, but we have to keep in mind that the US Strategic Petroleum Reserve, so the, the oil that the government controls, they're

• 1:14:46Speaker 00

  actively selling oil into the market to try to suppress prices that they can't do forever for obvious reasons. They only have so much. We also, China's been under lockdowns for, you know, a large part of the spring and even now, and basically they have, they have unusually low jet fuel usage and car usage because they have, you know, kind of centrally suppressed their economic activities. So the two biggest countries in the world. Are either increasing supply or suppressing demand for oil. And so I think that I would, you know, any sort of dips, I think that, you know, you have periods of time where it gets ahead of itself, people bid up the price, and then you have kind of, you know, pullback, you have demand destruction, you have recessionary type environments.

• 1:15:27Speaker 00

  I would be slow to celebrate those pullbacks because I think that the underlying supply constraints are still there. And so I think that those can bounce back quickly, or if they keep going down, it's a sign of basically depression, it's basically a sign of recession happening. Natural gas is a less fungible energy source because it's much harder to transport. If you want to transport internationally, you need LNG, right? So you either need to, you know, transport over land with pipelines usually, those take years and years to build, they're very expensive, or if you want to transport it by sea, you need LNG, which means you need these multi-billion dollar facilities to cool it, you know, there's this whole technical process to, you know, basically liquefy it, transport it, and then unliquefy it.

• 1:16:10Speaker 00

  And there's kind of a firm amount of LNG capacity that we have because these are multi-billion dollar facilities that we don't just switch on overnight and we don't just have a lot of flexibility there.

• 1:16:20Ryan Sean Adams?

  For people who are not familiar, what's LNG?

• 1:16:22Speaker 00

  Liquefy natural gas. Right, so it's natural gas that we put into liquid form and cool it. And so that's, so basically the result of what I'm saying is that because natural gas is more costly to transport relative to the value of the product, we have much different prices around the world for natural gas compared to oil that is pretty unified. And so right now, for example, European natural gas prices are absolutely through the roof. They're multiple times higher than you see in the United States or Canada because they have an energy crisis, they get a lot of their natural gas from Russia, so that's obviously a geopolitical problem right now. But actually, that was already happening before the war, they were just were having

• 1:17:03Speaker 00

  limitations there, and their ability to get natural gas from overseas is much more limited than their ability to get oil from overseas because the capacity to transport natural gas is much more limited and takes a lot more money and time to get that capacity online in order for, say, Canada to ship over natural gas to Europe or the United States to ship over natural gas to Europe. And so I think the two markets to watch, one is just global oil prices, but then two, natural gas prices, especially in specific regions. And then also, I mean, as a fallback, you know, I mean, Asia uses coal quite heavily because they don't have a lot of oil and gas deposits. So they use a lot of coal, despite the fact that it's dirtier in most ways. And we're actually starting to see in

• 1:17:47Speaker 00

  Europe that some of those markets are falling back on on coal, basically due to emergency conditions that basically they've, you know, they have not built new nuclear facilities. They're at their limits in terms of natural gas, that whole market's breaking, and they can only get so much oil. And so they have a fallback on on coal. And so I think that basically looking at these big, you know, markets are some of the the underlying things for for kind of near term, intermediate term energy usage.

• 1:18:16David Hoffman?

  So here's what I'm concerned about. The first half of this podcast, we were talking about how the Federal Reserve's hand is more or less forced with its tools. It's it's steering wheel has one of those things in it that's locked. So it can't really steer it. It's out of options. The global markets for oil, we're already broken with supply chains. So that kind of is is a fixed thing as in we can't really fix that. It's not it's not fixable. We're already like maxed out as far as I can tell from the limited information that I've gathered. Maybe you can help clarify. We're already maxed out with how much gasoline we can pump out of the ground or how much energy that we can produce. So that option is fixed as well. We don't really have much choice there. It

• 1:19:00David Hoffman?

  sounds like we have a little bit of ammo left in our reserves that we're selling into the market to help supply to reduce price. But I mean, that runs out. So as soon as we're done shooting that ammo, then we're then we're kind of stuck there. It seems to me we don't have very many choices. And our future is already set. And for better or for worse, maybe that future is actually, you know, a clear sky. Somehow we make it out of this. Okay, you know, maybe it's not. Maybe it's a capital D depression. But either way, our we don't have any choice. And if you're telling me that we don't have any choices, that makes me scared. And I don't really have a question. I kind of just want to hug like, do we? Do we have any good, where are the clear skies here? Are there any? Or are we kind of effed?

• 1:19:45Speaker 00

  So I think as we go deeper into this deck, I mean, there are ways to bring more energy online, just not overnight, right? So, you know, partly is if you're an oil company or an investor in a potential oil company, you know, there are quick oil sources you can bring online like shale where maybe you're willing to ramp that up a little bit. But on the other hand, there are like oil projects you could do offshore that take seven years to pay back. And you don't know what the market's going to look like. You don't know what governments are going to do. You don't know what technology is going to look like. And so you're hesitant to do those. And, and, you know, right now, if you look at oil pricing markets, they kind of like the Fed, they, they still kind of think this is transitory. They're like, oh, we're going to go back to normal and like oil prices not going to be that high.

• 1:20:29Speaker 00

  So if you're, if you're planning on putting $3 billion into like offshore development, you're like, well, maybe I shouldn't. And I think that basically the, the more kind of pain this, this goes on, the more incentive eventually you, you start to get of, of both governments and corporations like, no, no, we have to go get that oil. This is like an emergency and this, this is not going away. Right? So I think there are still levers to pull in terms of bringing new supply online and then building LNG so that, for example, you know, relatively cheap American LNG could then kind of arbitrage some of the super expensive natural gas in Europe and kind of arbitrage and spread out those prices a little bit. So there's, there's kind of natural things that over time should begin addressing this.

• 1:21:14Speaker 00

  And I think their concerns come if one is you have kind of, say governments make wrong decisions and you try to suppress new production or, or control production and then mismanage it. Right? I think that that, those are risks. They're basically, you can kind of like snatch defeat from the jaws of victory where you're kind of maybe starting to come to a solution, then you manage to mess that up. And also it's one of those things where if you're on the periphery, if you're, if you're in a poorer nation, or if you're in a poorer segment of society. It's like you're you're kind of last in line in order to get this resolution. So I think for a lot of people, it is a really tough time to be in. But I think over time that this can be fixed. And, you know, the Fed's purpose right now, like I said before, they can't do supply,

• 1:21:59Speaker 00

  but they can try to suppress demand. So they're they're kind of trying to take discretionary demand off the market. They're basically saying, look, if you're going to go on a frivolous vacation, maybe you shouldn't, right? So maybe, maybe, you know, curtail your optional usage so that the more essential usage gets used, right? So that that's kind of what that's the lever that they're pulling. And I think that over the longer run, the only way we truly get out of this towards, you know, constructive disinflationary growth again, is to get more energy supply and distribution online. And then that can also, I mean, you know, China's building nuclear plants. There's, you know, there's all sorts of technologies that looks long enough in the future, deep geothermal, certain types of renewable resources. You know, I think that there are long range ways to address this.

• 1:22:44Speaker 00

  And it's just, there's, there's intermediate things and there's longer range things. And it just, that's why I think this is going to be a challenging decade because these are not things we can snap our fingers and just get, you know, long duration of oil projects and gas projects and LNG terminals online tomorrow.

• 1:22:59David Hoffman?

  Would it be unprecedented in the same way that the United States government like put a permanent bid on vaccines before they were developed and just just footed the bill for that? Would it be unprecedented for them to do something similar with energy markets where they, hey, we need investment into our infrastructure. We promise to buy oil like this many boils of barrel barrels of oil at this price for the next four years to give some sort of like security onto this investment by by the private sector. Would that be unprecedented?

• 1:23:31Speaker 00

  That would be kind of like the 40s, right? So the 40s, they said, look, here's this war. We're going to do, we're going to be a permanent bid for like industrialized, building industrial facilities, making war machines. And, you know, you're, you're going to get paid, right? So that's kind of what we did. And also they did the same thing. They said, okay, we need aluminum. We're going to build aluminum. Like that's just, we're going to throw public money into building aluminum, right? So basically you had a very inflationary decade, but they actually had a lot of real world goods and services that came from that. And so that actually, that actually helped make it that inflation not permanent, right? So you brought on. You know, new resources because of that. So if you had some sort of policy where they said, look, we are going to, you know,

• 1:24:11Speaker 00

  incentivize new production as quickly as possible and longer term as possible. I do think that would be one of the more productive uses of public capital. I mean, if you're gonna, if your choices are either throw, you know, billions of dollars towards corporations for frivolous purposes, or throw billions of dollars towards energy development, I would take that latter one every day of the week. Right. So that's not the worst use of incentives or public capital. And basically, you know, if the US said, look, if, if prices go below X, we will expand our strategic petroleum reserve to pay you X. So you have, you have no kind of downside risk over the next five years from producing oil.

• 1:24:53Speaker 00

  You know, I think that that, I mean, that probably you'd have periods of problem in the future, you might have oversupply at some point, right? You probably, that's kind of the history of, of public arrangements where they solve one problem, they create another. But I do think that is one of the solutions here. But I think this is overall, it's just going to be a very challenging decade. I think different countries are going to handle it differently. I think some of them might try to do things like that. Other times, I think the private sector can wake up and, and, you know, if you kind of get out of their way that they can go and do that. And it's, of course, it's a very challenging balance because during this period of commodity oversupply, that's when a lot of people develop some of these environmental goals that they then are stuck because now you have an actual crisis and you're kind of, you're balancing

• 1:25:37Speaker 00

  between the environmental goals you were kind of planning for and then being hit in the face by the real world. And I think that that's, it just, I think a lot of people are kind of adjusting and kind of navigating that in the way that they see it.

• 1:25:50David Hoffman?

  Really quick question before we kind of just summarize everything. Food or, excuse me, energy, oil, these like energy markets are at this epicenter of everything, but then like downstream of that immediately becomes food. Can you just kind of paint the picture of what is the state of fertilizer markets and just food markets? And if there's any just like, you know, contagion risk there?

• 1:26:11Speaker 00

  So there are, so, I mean, a subset of fertilizers are made using natural gas. Right. So energy is a key input. Not just in driving to work, but also in making food. And then even once the food is made, in terms of transporting it and packaging it and getting it to where it needs to be, all that is very energy intensive process. And so generally, when you have price spikes in energy, that translates into price spikes in food, which of course is one of the most bad types of inflation because it's an essential good and it hurts impoverished people the most. They spend the largest percentage of their income on necessities like food and fuel.

• 1:26:49Speaker 00

  And then it's compounded by the fact, I mean, so Russia's the biggest fertilizer exporter, first of all. And so there's obviously, you know, we think of Russia as an oil exporter, but they're actually, you know, they're the second biggest oil exporter, they're the biggest natural gas exporter, they're the biggest fertilizer exporter, they're a big exporter of nickel, which is an important metal for batteries and things like that. So all the, a lot of renewables that people want to do, they have sources there. So they're, you know, given the fact that they're largest landmass, it's not shocking that they're basically the most important commodity market. And so that obviously has some geopolitical implications, but either way, you know, basically, so Russia's a big fertilizer exporter, they're also a big wheat exporter. Ukraine's a big wheat exporter.

• 1:27:33Speaker 00

  And so I know that Ukraine's like, you know, harvest has obviously been disrupted from this. You have kind of, you've had kind of wheat problems. And if I could actually get a wheat chart, there is a sign of good there. So you had this huge spike during the run up to the war, but it's actually given back a lot of those war-related gains, because I think that that might be cooling off to some extent. But over the very long run, I think the key thing to focus on is fertilizer. Because if, if, if natural gas prices stay high, that means fertilizer prices are likely to stay high, which translates into higher food prices. And like I said, transporting it. Now, again, you do have a supply response over time. And so for example, one of the world's largest fertilizer producers, Nutrien, is expanding

• 1:28:17Speaker 00

  their production. They were kind of on the fence for that for a number of years, where they always had the option to maybe expand it. And, you know, now they're kind of accelerating some of their expansion efforts because they, you know, the market has given them the signal, yes, we need all this new production. And so I think that over time, you can get responses to that. But it just, you know, Commodities cycles tend to be rather persistent. They tend to last five to 10 years on the upside and five to 10 or more years on the downside because a lot of these projects do take years to bring online. And so I think that that is the big challenge right now is that you have so much debt in the system, increased money supply so much. Now we have real world constraints on energy and fertilizer and things like that. And

• 1:29:02Speaker 00

  so I think we're going to have a period of high inflation, interest rates below inflation, and to the extent that it's either bad or terrible, it really comes down to the real world, right? So can we get the energy? Can we get the fertilizer? Can we get that? Who's going to get it? And I think that's the situation we find ourselves in.

• 1:29:22Ryan Sean Adams?

  So Lynn, you've dropped so much fantastic information for us, and I feel like I have much more peace on the possibilities and the different outcomes of the 2020s, particularly on the macro side than I did coming into this. I guess as we conclude, two big questions. One is, could you just give us a summary of what this new normal looks like yet again? I know you were alluding to it earlier. And then secondly, want to leave the listener with some action items. What do we do? So I think the message has been clear from this episode for travelers into the 2020s, of which we are all on that journey, steady

• 1:30:03Ryan Sean Adams?

  in time and space. We are entering the 2020s. There is going to be a new normal. We cannot expect a world of the 1990s, or the early 2000s, or the 2010s. The 2020s are going to be different. There's going to be a new normal. There's going to be an adjustment, and we should get prepared for that. So first, what does this new normal look like? Can you summarize that? I know you mentioned cyclical inflation. That's going to be an ever constant thing. You also mentioned commodities going up because we are undersupplied on commodities. Are those the chief characteristics of the new normal? Are there others? How do you summarize that?

• 1:30:40Speaker 00

  I think that's a good way to put it. I think that we can describe the recent normal, which is basically the 90s, the 2000s, and the 2010s, which was... We had China open up to the world. We had the Soviet Union collapse and all, you know, those states opened up to the world. So we had this big pool of labor that was able to connect to developed markets. And so we had decades of geographic arbitrage where we could offshore things. It's very disinflationary force. And it resulted in this period of abundance where, you know, you can always go to the market and there's, you know, everything you could ever want, any color, and pretty cheap. And that's kind of the environment we've been in. And I think that we've kind of exhausted quite a bit of that where we've now we've tapped into that

• 1:31:23Speaker 00

  labor. You know, China's now a rising geopolitical power. Obviously, there's tension in Russia now. So you basically, I think we've gone from this unipolar world that was opening up and that was becoming more efficient interconnected. I think now we're going into a multipolar world, a more contentious world. And, you know, that we've have to resource some things and that basically we no longer have the capacity to push inflation and push, you know, kind of lower capital elsewhere.

• 1:31:56Speaker 00

  At the same time, we've, you know, we went through a long period where we under invested in commodities. This tends to happen in history. I mean, the 1970s, another contributor to why we had so much inflation is US oil production peaked in 1970 structurally after like a century of going up and rolled over, you know, all the way until the 2000s when we, you know, started doing shale, right? So we had, we became more reliant on those external sources, the Middle East. And that's, that's along with money supply growth. That's part of why we had such an inflationary decade. So it's always the combination of commodities and then whatever's, whatever's happening with the money situation. And so I think going forward, because of how high debts are, because of how kind of tight our energy situation is, and because of how we've lost

• 1:32:38Speaker 00

  some of the disinflationary levers, I think we're going to have a more constrained world for a while. I think that, and that could take the form of inflation. And there are other periods where you can get disinflation, but then scarcity and recession and basically just shortages, right? And I think that those can manifest in different ways and different severities depending on where you are. And I, you know, navigating this is obviously challenging. I mean, that's, that's something we're all trying to figure out. I think that there's practical things people can do, like, you know, corporations are very Lean manufacturing oriented. They want to have low inventories. They want to do just in time delivery. And I think it's kind of up to households to have, you know, stockpiles if

• 1:33:19Speaker 00

  they can, basically to not rely on that everything's going to be there for you all the time, right when you need it with no interruptions, right? So I think that that people have to become a little bit more self sufficient, a little bit, a little bit more ready for periods of disruptions and challenges. And then number two, you know, I think people approach their portfolios differently. I mean, I take a rather diversified approach. I have cash, I have equities, you know, focused on kind of like a energy equities, cash flow producing pipelines, things like that. I mean, I have a diverse set of equities. I have some gold. I have Bitcoin, people know that. And I kind of just, I diversified a number of different assets that I analyzed to be important for the next decade. And of course, people have different expertise and they'll find different things that they

• 1:34:04Speaker 00

  want to invest in or different things that they want to exclude. But I do think it's important to be somewhat diversified because you can have big shocks. I mean, as we saw, crypto just completely went down dramatically. If someone was 100% in crypto, their net worth is down, you know, 70, 80% or more. Whereas, you know, if they were like 100% cash over the past couple of years, they just got, you know, their, their net worth went nowhere, went down in real terms while everything else went up for a long period of time. And so I generally have a mix of multiple assets. But I think a lot of it's also just, you know, cultivating yourself, having, you know, trying to build relevant skill sets, trying to, you know, basically make your life as resilient as possible. Because I think that

• 1:34:47Speaker 00

  there is kind of challenges ahead of us. And the one area that still could be disinflationary is actually ironically white collar labor, right? So we've, we've spent the past couple of decades, you know, kind of offshoring blue collar labor. And now with, with remote work, it becomes super easy to hire any competent person around the world. And that it, I think that actually kind of can result in disinflation for, for a lot of white collar jobs. So I think that, that basically people have to just, I think, cultivate diverse skill sets, be as valuable as possible, and be diversified and basically have resiliency in your own life.

• 1:35:25Ryan Sean Adams?

  This is all fantastic insight and I think this key self reliance is going to be important in the 2020s. You have to get out there and learn how to do things because the old methods will not work and even questions of like where do you store your value and to your point, Linz, like, you know, people used to store their value in, you know, savings account in the bank. Maybe now in the 2020s, you want to store the minimum necessary that you need for some time horizon to pay bills and such. And then with the other value that you want to store, look at this diversified set of assets, including of course crypto and other things. One last question on that because you touched kind of career and you've touched your kind of storing

• 1:36:08Ryan Sean Adams?

  value. But one piece that I think might be shaking people a little bit is their mental health, actually. And I know that your focus is really like macro, but there is a psychological element to investing into macro as well. Do you have any words for people in this volatility on kind of mental health and how we should prepare in that way?

• 1:36:34Speaker 00

  Well, I guess people don't want their macro advisor to give them health advice. But I mean, I think exercising and eating healthy is really important. I actually, it's funny, one of my earliest articles, I wrote like a 9,000 word article on kind of fitness and and healthy living because, you know, I've always kind of been into fitness and I used to do martial arts. I used to be like a assistant instructor for martial arts and it's kind of a big theme for me. And so I think it's, people should not underestimate the importance of exercise, staying in shape, you know, kind of, you know, trying to eat like whole foods, you know, as much as they can.

• 1:37:06Ryan Sean Adams?

  You mean get back to fundamentals?

• 1:37:07Speaker 00

  Get back to fundamentals, yeah. And then, yeah, I mean, developing strong relationships with those around you, either online or offline, because we're, we're social animals and, you know, we need to go to interact with our tribe or our group and other groups. And, and so I think that mental health is an important thing. And I think especially in this environment. Where people hate each other so much, there's rising populism due to extreme wealth concentration, due to changes in the money and breakdown of money systems and things like that. I think it's important for people to at least try to be, have gratitude for what they have and be as constructive as possible to those around them. And I think it's also, it's an environment where, you know, we talked before about how information travels super fast. That also means bad information travels fast. Basically, we have a flood of

• 1:37:51Speaker 00

  information, both accurate information and false information. And people have to be really discerning and like, look for sources and like, kind of, not always just kind of focus on whatever they, what it reinforced what they already think, but then, you know, seek out information that they disagree with, so that they can then learn from it and then, you know, basically then come to a more informed conclusion. And that's for multiple different subjects. And so I think that that's, and that's part of self-reliance, is basically having your own information filter, so that you are not getting in a bubble, and that you're getting out there, basically trying to understand the world how it works. And I think this is, it's a really, really challenging environment because it, you know, kind of

• 1:38:32Speaker 00

  breaks a lot of bubbles, I think, that people have been in for decades in various countries.

• 1:38:37Ryan Sean Adams?

  Such a good way to end it, Bankless listeners. Hope you were taking notes. We started with macro thoughts, macro advice. We end with life advice, which is always fantastic and what you can expect on a Bankless podcast. Lynn, thank you so much for enlightening us on what's going on in the world and the 2020s. This has been super valuable. We appreciate it.

• 1:38:58Speaker 00

  Happy to be here. Thanks for having me.

• 1:38:59Ryan Sean Adams?

  Action items, guys. Of course, we will include a link to Lynn's fantastic newsletter and website at lynalden.com. Make sure you subscribe to that. Sign up via email. Also, we have a number of previous podcasts with Lynn. David was mentioning them earlier in the episode. We'll include a link to all of those episodes in the show notes. Also, stay tuned for more macro stuff on Bankless. More coming up with Luke Grauman and Travis Kling and others. Risks and disclaimers, as always, we have to end with this. None of this has been financial advice, maybe some life advice sprinkled in. But crypto is risky. All this stuff is risky. You could definitely lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:39:44David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcasts, and community as a Bankless Premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless Premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anything's, and weekly rollups, where we summarize the week in crypto and other

• 1:40:29David Hoffman?

  fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless Nation.