#1267 Lyn Alden | Bitcoin Solves Broken Money

Lyn Alden is the author of a brand new book called "Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better." This book is almost 500 pages, and it is a fantastic breakdown of the history of money, why the system is broken, and where we go from here. In this conversation, we talk about how the average individual is being impacted, saving vs investing, diversification, energy as the arbiter of truth, interest rates, US treasury, national debt, and more. ======================= Trust and Will has simplified the process of creating and managing your will or trust online. They leverage a data-driven, design-first approach and amazing customer support to help you protect your legacy from the comfort of your home starting at just $159. Sign up today for 10% off using ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://trustandwill.com/pomp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ======================= Base is making it their mission to bring a billion people onchain. But what exactly is Base? It's an Ethereum L2 offering a seamless experience for both builders and users. With near-zero gas fees and rapid transaction speeds, Base is shaping the future of the onchain world. Base is a canvas for everyone, with hundreds of apps in the Base ecosystem, whether you're an emerging creator, a seasoned developer, or someone exploring the onchain space for the first time, Base is designed to bring your ideas to life. So, if you're looking for a platform where the future of onchain is being built daily, Base is your destination. Join in and make onchain the next online. Learn more at ⁠base.org⁠ and follow along on Twitter at @BuildOnBase to see cool things to do onchain, everyday. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

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

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Lynn Alden is a repeat guest of this podcast and the author of a brand new book called Broken Money: Why Our Financial System Is Failing Us and How We Can Make It Better. Lynn wrote this book, which is almost 500 pages, and it is a fantastic breakdown of the history of money,

• 0:46Anthony Pompliano?

  why the system's broken, and where we go from here. In this conversation, we talk about a lot, especially how the average individual is impacted by this eroding situation, whether people should be buying and renting, saving versus investing, how they can think about diversification, what's going on with energy as the arbiter of truth, how high interest rates, declining interest in US Treasuries, and an exploding national debt is going to impact our children and the future of America. I always enjoy talking to Lynn, and this conversation was no different. She was in great form and dropped tons of knowledge, so I hope you enjoy this conversation. Here is my latest episode with Lynn Alden.

• 1:27Speaker 01

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

• 1:51Anthony Pompliano?

  Today's episode is brought to you by Trust and Will. I've gone through a number of different changes in my life over the last few years. I got married, I had a kid, and I had to start thinking about how could I ensure that my wife and my child would be okay if anything ever happened to me? That's where trust, wills, and estate planning come into play. Now, most people, what they do is they get introduced to a friend, an uncle, or someone in their local community. It tends to be someone who's really expensive, a lawyer, an accountant, or somebody who does estate planning, and they just simply are using a one-size-fits-all template and just telling you, "Pay me thousands of dollars and I'll use the same thing for you as the guy down the street." But that's not what Trust and Will does. They have a trusted online estate planning product that starts as low as $159, which

• 2:33Anthony Pompliano?

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• 3:19Anthony Pompliano?

  Today's episode is brought to you by Base. Base is making it their mission to bring a billion people on-chain. What exactly is Base? It's a layer-two offering, a seamless experience for both builders and users. With near-zero gas fees and rapid transaction speeds, Base is shaping the future of the on-chain world. Base is a canvas for everyone, with hundreds of apps in the ecosystem, whether you're an emerging creator, a seasoned developer, or someone exploring the on-chain space for the first time. Base is designed to bring your ideas to life. So if you're looking for a platform where the future of on-chain is being built daily, Base is your destination. Join in and make on-chain the next online. Learn more at base.org, or follow along on Twitter at BuildOnBase.

• 4:02Anthony Pompliano?

  Again, that's at BuildOnBase, to see cool things to do on-chain every single day.

• 4:08Anthony Pompliano?

  All right, guys. Bang, bang. I've got Lynn here with me. Lynn, I thought a great place to start. You wrote a book. It's called Broken Money. What exactly is broken about the money? Right? If you're going to title the book that, how do you describe why the money is broken?

• 4:21Speaker 02

  So I think why and how are two different parts of the question. I think why is because basically of the 150-year-plus gap like we've had between like that we had this period where transaction speeds and settlement speeds are so different. That's a big part of what I focus on in the book is that ever since invention and specifically the deployment, widespread deployment of the telegraph and kind of ushered in the telecommunications era,

• 4:45Speaker 02

  there's no fast way to send long-distance value without credit. And so we just basically had more and more credit, more and more abstraction, until we just kind of like lifted off from gold and kind of left it behind. But the downside of that gets to the how, like what's actually broken is that when you look around, there's 160-plus different currencies. Each one's like a little currency bubble and they're all devaluing at different speeds. So some of the most robust ones grow at, you know, 6% or 7% or 8% money supply growth a year. Many of the developing country currencies grow at 15%, 20%, 25%, in some cases more per year. And people are just kind of constantly getting diluted. And so they're constantly on a treadmill where you have to constantly try to earn higher wages.

• 5:31Speaker 02

  You have to constantly figure out what you're going to do with your savings. You can't just save it. You have to invest it. And so that's like a treadmill that everyone's on at different speeds. Cross-border payments, despite the fact that we live in the telecommunication age are not as efficient as we probably expect them to be. You know, if people 50 years ago saw that the money system still, in many cases, works the same way it used to, with just a little bit more fintech overlay. I think they'd be surprised at how kind of little we've developed here. But the main issue is just the fact that the way it works is that it's become so centralized and people are stuck in these 160 different currency bubbles.

• 6:06Anthony Pompliano?

  So what's interesting is you're talking about kind of being on these different speeds of treadmill. And really what's happening is the measuring stick is changing. At one point in the book, you say that sound money is a measuring stick that never changes. And when we think about that, let's say, fast forward, we get back to a sound money kind of foundation, and everyone is able to use that as a measuring stick that we all agree on and it doesn't change. What will be the implications in society for the average individual? Do they start to change their consumption behaviors? Do they actually start to just become savers and not investors? How do you see that playing out?

• 6:39Speaker 02

  So I think, I mean, the world will look different. It's always hard to predict the future, but in general, investing would be more optional. So right now, it's like a necessity. Like, for example, no matter where you are, like, I know people in Egypt, and what, but as soon as they get money, you plow it into like real estate or something. You don't just hold the money, because it's like holding melting ice cubes. And of course, in the United States, we plowed into the S and P 500 and other similar things. And so in that world, saving becomes more of a, just a normal thing. And investing is more of a niche thing, an optional thing, something you can do. And this particularly impacts people in the working class, the middle class. In, you know, in many countries, for example, people are literally just saving cash.

• 7:22Speaker 02

  They're not even getting the interest because, you know, bank accounts have overhead costs. And so if you have a net worth of like $500, they often just don't even try to go for that market. It's not a, not something they care about. The costs start to outweigh any sort of like usefulness they get from that. And so many countries still have underbanked people. But in that world, saving just makes more sense. Saving just works better. And also, the, the contracts that people do in society shift a little bit more to favoring the status quo. So in the, you know, whatever you have a contract negotiation, whatever the current contract is, is kind of like the default starting point, and the entity that wants to change it, the onus is on them.

• 8:03Speaker 02

  And so in a world where there's inflation every year, anyone who's trying to get higher wages or raise their rent for their tenants or raise their prices as a small business or something, it's always on you trying to make that action. And that's particularly hard for wage earners, because there's an anchoring bias. Because of that status quo. So if someone comes to you and says, I want a five, six, you know, seven percent raise, you think, why are you five, six, seven percent better than last year? But really, they're not. It's just money supply was so diluted. But realistically, they're going to get, you know, three percent, four percent increases. And so they're going to slowly kind of get eroded compared to the rate that money supply is growing up,

• 8:45Speaker 02

  house prices are going up, with things like that. A lot of people change jobs unnecessarily just because that's actually a way to kind of restart the anchoring bias and get the wage that they can't get at their initial employer, which is inefficient. But in that world of sound money, the existing status quo have a stronger negotiating position. Your salary is not changing. If your money is hard and productivity is increasing, you're getting a small real wage increase every year. If you're getting one or two percent increases on a sound money, you're doing well. And if there's so much deflation, the employer wants to reduce your wages. Well, that's going to be tricky for them to do. They could try. Maybe, maybe if it's, you know, it could happen, but it's unlikely.

• 9:27Speaker 02

  Basically, it just starts favoring the productive class rather than the arbitrage class. And I think that's, that's good for society. I think a, a sign of an unhealthy system is when engineers go work in Wall Street instead of, and can make more money there rather than go work building products. And yet, that's what we see a lot, is that the best place to make money relative to your training really is Wall Street. Like, people with a bachelor's degree can just make an enormous amount of money because that's, that's the source of arbitrage. And I think that that, that, that gets greatly minimized in that other world.

• 10:02Anthony Pompliano?

  So one of the areas of diversification that I think about is really, there's almost like two different levels to this. The first is, there's a very large portion of our population who they have no diversification because they just save in dollars that, as you called, you know, melting ice cubes. They just kind of melt away. The other side of that economic ladder, if you will, these people are very diversified. They have multiple investments, they're getting out of cash, and whether it's in Egypt and kind of buying real estate, or it's here in the United States and they're simply putting into the stock market, they're trying to get out The melting ice cube. Once you get into the investment class, then what you start to see is some people are heavily concentrated. They may have one or two investments and then there's other people who are trying to protect their kind of investment portfolio and they'll become very, very diversified.

• 10:44Anthony Pompliano?

  If we get back to this sound money kind of driven world, how do you look at diversification? Does everyone, for the most part, it's kind of flips and we become a majority saving economy and those who choose to invest may only invest in one or two assets? Or is it more so there's just additional optionality and so people have more choice? And the people who are the least educated, the people today who are just saving, they're the ones who really get kind of the benefit. And the people who are investing, they're still going to have the same complexities and challenges of trying to allocate capital to outperform whatever the money and kind of the value of that money is.

• 11:19Speaker 02

  Yeah, I think the high conviction view is that overall saving just becomes more important and investing becomes that more niche optional thing you can do, less necessity. But the lower conviction thing is what would that, what would those investments look like? Like what would people be more diversified or less diversified in that world? I don't really know. Certainly people that are trying to build wealth quickly would want to probably be more concentrated. That's you're trying to outperform. Overall, investment selection would still be similar. There's the end, but it's just like, that's something that professionals do. It's something that if you have spare capital, it's something you can go into. But it's just not this necessity. So the overall importance of that in society, it's, it gets just downgraded. It becomes more kind of utilitarian.

• 12:01Speaker 02

  And another key factor is that right now, if you have a lot of assets, you can get access to cheap credit because you can use those assets as collateral. You know, obviously credit's a little more expensive today than it was a couple of years ago, but on average in society, you can get a much cheaper credit than someone who has no assets. Which of course is going to be true in any system, no matter if it's hard money or soft money. But when you have soft money, when the unit of account itself is always shrinking, it boosts the importance of having that cheaper credit. Because you're, you know, all the wealthy people that have assets and that have purposely some degree of liability attached to it. Could be mortgages, could be other things. You're basically shorting, it's like an extra source of wealth creation. Shorting society's devaluing unit of account.

• 12:44Speaker 02

  And that's like one of your long-term kind of sources of wealth creation that the kind of working class and below is kind of locked out of. But in a world of sound money, debts are more strategic with their purpose. There's no reason to have like a, just like a long-term short on the currency because the currency can outperform most things. Even things like homes, which are really consumable, durable, so not really investments for the most part. But we treat them like that because in this world where you can attach a low mortgage to it and you're short of the unit, we turn them into investments. So in that, in that other world, you, you kind of return more towards them being like a baseline consumer durable. And investments become more strategic.

• 13:26Anthony Pompliano?

  One of the biggest questions that I get whenever I start talking about Bitcoin reaching any degree of mass adoption and really becoming the center of the financial world is, okay, well, everything that I've been told in this Kenziean view is that we need inflation to spur consumption, we need inflation to spur investment. If we move to a deflationary type asset or a sound money type asset, no one's going to buy anything and no one's going to invest anywhere. How do you think through what actually is true and whether the critics have a point in the lack of inflation driving a behavior change that could be negative for society and the economy versus, no, actually it's a positive.

• 14:05Speaker 02

  So I think we have, we have two specific examples that help counter that. One is if you look back at the 1800s, that was an era of mostly gold and silver as money. There's, there's, you know, virtually no inflation in the United States outside of kind of temporary wars. Basically, you have a benchmark of, you know, almost no inflation from the founding of the country up until, you know, kind of the creation of the Federal Reserve. No structural inflation. And yet that was the period of like rapid innovation, basically railroads, automobiles, electrification. Different types of engines were being built, new types of energies were being extracted and used in various ways. Just a huge era of productivity across kind of the world, but especially in these, these sound money environments.

• 14:48Speaker 02

  And it was clearly no hindrance to them. So I think that's the first example. The second example is that in tech today. You know, a lot of, basically, the cost of a gigabyte of, you know, storage, you know, goes down a thousandfold. And instead of just deflating that away, we use a thousand times more gigabytes than we used to. And so basically with cheapness comes abundance. You can use more of things that are valuable. And, you know, there's kind of like a, when people make the argument that you need to invest if you're because, or that a strongly appreciating unit of account would hinder investment, they're kind of double counting it because you only get that account, that unit of accounts only appreciating if technology's

• 15:30Speaker 02

  getting better over time. You know, if society is not advancing, your unit of account is actually not buying you more, right? If, if we just kind of get stuck into a status quo and all we're doing is kind of maintaining our existing world, then say a Bitcoin is just still going to be a, buy the same amount year after year after year. So you're not really getting inflated away, but you're not strengthening either. Only if society is, if investments are happening, if productivity is happening, will that Bitcoin be able to buy you more in the future than it can today. And so you, it's like people say, well, no investment's going to happen because your, your Bitcoin's always going up. But it's like, well, it's only going up because investment's happening. And, and so basically, if, if any

• 16:15Speaker 02

  time you have a skill or a niche, you can likely find a way to have a decent chance of, of say, outperform Bitcoin. You're, you're going out and using your time and energy and expertise and knowledge to go do something that's more useful than just holding it. And if you're deploying investments, you know, you might be more selective, which, which might slow down certain ideas, but you're also reducing malinvestment. And so those kind of balance each other out. And that's what we see again. It's not just theory. That's what we see in, in histories. You know, the Renaissance happened also on a sound money standard. Like I said, the, the whole kind of, the golden age of innovation in the 1800s happened on a, on a sound money standard. And so I think that there's no reason to

• 17:00Speaker 02

  expect it would be different under a Bitcoin standard. And, you know, Like I, to use Egypt as an example, you know, there's literally like a bunch of empty homes there. The people just, they have a second home and just leave it empty because it's like, well, you know, maybe it can run out later. Or like I have, I just want to have something tangible rather than hold the currency and the local stock market's not great. In dollar to, you know, in kind of compared to other assets. So there's this malinvestment that that gets redirected purely because money's bad. And if that money was stronger, sure, people might be more selective on investments, but they also make a lot less bad investments. And so I think the overall percentage of investments that are there would be on average more efficient, more focused and less malinvestment oriented.

• 17:45Anthony Pompliano?

  So there's four ideas that I pulled out of the book that I think are worth talking about and would love to hear you expand on more. So the first is energy as the arbiter of truth. I think this is a concept that when you go, when you actually study the energy markets, when you study how energy has been kind of harnessed throughout the years and specifically in the technology sector, it becomes a little bit more obvious. But how do you think about energy as the arbiter of truth, especially when it relates to money?

• 18:11Speaker 02

  So basically, everything we do in the economy is kind of one or two things. Either we're getting more energy per capita or we're using that energy more efficiently. You know, for example, energy in a processor, the both the construction of the processor and then putting energy into the processor to actually make it work. That's a very highly efficient use of energy compared to other things we can be doing. And so that's, that's really what our economy and our interactions are is basically just harnessing different types of energy, using them. And in the book specifically, the reason I use energy as the arbiter of truth is that's in the chapter that kind of goes over the different consensus models like proof of work versus proof of stake. And the importance of energy is that it can't really be gamed.

• 18:55Speaker 02

  You know, there, there's no kind of cheat code for like just getting energy without cost, for example. And so part of the reason why a gold coin has so much value is because there's so much energy density in it, in the sense that in order to get a gold coin, one ounce gold coin, you have to move like a ton, like tons of rock. You have to, you have to go out, spend like first, it's the efficient part. First, you have to kind of use technology or other techniques to find the deposits where it's, it's more dense in the crust than elsewhere. Then you have to basically. Build roads, build infrastructure to get to that mine. Then you have to actually have all these excavation equipment and dump trucks and all that.

• 19:36Speaker 02

  You're spending a tremendous amount of diesel fuel, literally, plus labor, plus everything else, materials, which are energy intensive, to extract the tons of rock, get the sift through, get the gold, then refine it into a single ounce of gold or bigger bar, things like that. And basically, that is like, that's proof of energy. When you give someone a gold coin, you're saying this is proof of a tremendous amount of work was done. You can't just print this. And even major new deposits, they can be found. It's still very hard to dilute this quickly because a tremendous amount of energy has to go in to actually extract those new deposits. And so whether it's Bitcoin, whether it's gold, whether it's silver even to a lesser degree,

• 20:20Speaker 02

  it's basically proof of energy. And that's one of the hardest proofs to ever forge, as long as the substance itself has some sort of verification method. Like a Bitcoin, you have a full node. Gold, you have various techniques, especially the smaller and more intricate, like the gold is, the easier it is to confirm that it's not just tungsten wrapped in gold. And that's it's proof of energy. And so as humans have gotten more energy efficient and more industrious over time, we started eliminating certain types of money as being useful because they just didn't have a big energy component. Maybe in a hunter-gatherer setting, their energy component was significant. But when we enter like the industrial age, that it becomes a small amount of energy relative to what we're capable of harnessing.

• 21:05Speaker 02

  Whereas only things like silver, gold, and Bitcoin can withstand the ability to just bring a tremendous amount of new energy to something. And it's something that no single entity has to control. And it's just it's proof of energy itself.

• 21:21Anthony Pompliano?

  Later in the book, you write, "In the modern era, energy abundance and technological enhancements have broadly improved human well-being, but the global monetary system has been slow to keep up." When you think about the advancements of energy and all of the benefits and kind of that arbitrar of truth, okay, got it. Why is the global monetary system so slow to kind of run alongside it? And obviously, in the book, you dive into a number of different solutions that you think are possible. But what is really the greatest barrier right now between where we are and where we need to get?

• 21:53Speaker 02

  So I think it's a great question. I think one of the key things that people assume about technology is that it's it's kind of linear and smooth and exponential, like that every year, technology gets a little better than the prior year, which is kind of true on net. If you look at all technologies, but in any one field, usually you get like a some sort of pieces come together and you get like a boom of technology and then you kind of eventually stagnate for a period of time because there's just not another breakthrough. So anything becomes very incremental. A really good example of this is aviation and Michael Saylor uses this example because he's like an aerospace engineer by training, which is basically, you know, for thousands of years, we make almost no progress on flight. You know, the closest you get is like Da Vinci drawling about it,

• 22:37Speaker 02

  but no progress. Then they get a little progress with like hot air balloons and airships. That's kind of the first like step change, but even that just kind of stagnates, not not super impressive. But when you specifically find hydrocarbons and aluminum and put them together, then you just dramatically just, you know, when you have the when you have an internal combustion engine, when you have machining, when you have aluminum, when you have hydrocarbons, we just have this like golden age of flight for like 60 years. You go from Wright Brothers to the moon in like a one human lifetime. It's like remarkable. But then we actually kind of stagnated again. I mean, the fastest, you know, kind of military manned jet was like the Blackbird.

• 23:18Speaker 02

  Like in the, it was, I think the sixties, seventies, I forget when it was built, but it's like they, it hasn't really changed since the seventies.

• 23:26Speaker 02

  Our ability to send humans into space, you know, we've not really gone, we've not gone back to the moon after the initial several rounds. Basically, we, in some ways, we've taken steps back. The most innovative thing we've done on commercial airlines is put wingtips on them to make them a little bit more energy efficient and improve their avionics, their interior stuff. And so their field of aviation has been an example of stagnation for a long time. And it just shows that, you know, you, you have these kind of step changes and that's normally how things go in any, in any one given technology field. And with money, I think that's basically what we've been stuck in is that the, you know, the telegraph was a kind of a boom for ways to transmit money. Basically, there, there are a couple of step changes in history.

• 24:09Speaker 02

  One was like, you know, the inventing of, of clay and papyrus, for example, writing. That was a literally a technology that empowered money. Then things like papyrus, then like things like paper specifically. So paper and even things like bookbinding on top of paper. So there's like things we didn't even think about today that were actually technologies of their era. Then there was like the printing press. That actually was another huge piece of technology for money. And then there was a telegraph. And really since then, we, you know, things kind of look similar now than they looked 50 years ago. In large part because we still have that existing technology set. And then there's also network effects. I mean, money is now closely associated with the government itself. And it's a network effect type of good.

• 24:54Speaker 02

  And so it tends to be, you know, kind of a long lasting thing that's very challenging to disrupt. And really Bitcoin and, and things like stable coins and things like that, that's kind of the, the latest boom we have. That can usher in like a whole nother period of, of growth that we've not really seen in a while. So I think it's, it's mostly a technology reason why money's just not really been growing in, in our lifetimes as, as fast as other things. And the other part would just be basically a trend to network effects.

• 25:23Anthony Pompliano?

  So you have this quote from Nobel laureate economist Friedrich Hayek, where you say, quote, "I don't believe that we shall ever have a good money again before we take the thing out of the hands of the government. Since we can't take them violently out of the hands of the government, all we can do is by some sly, roundabout way introduce something they can't stop." End quote. When you think about that, is Bitcoin the only current option we have to fulfill that kind of promise, or at least, you know, vision that Hayek had? Or are there other things that you think could be maybe not Bitcoin or blockchain related that could potentially also kind of get the same thing and help to restore a balance of power?

• 26:03Speaker 02

  So there's nothing on my horizon that really stands out other than Bitcoin. Specifically, you know, the blockchain combined with having the most decentralized type of it, so small nodes, proof of work, that seems to be the most robust way to do it. And then also, you know, when you have the network effects liquidity, your network's now big enough to kind of stand up to pretty challenging attacks. Anything that so far that kind of uses other methods has a central hub, and that central hub is attackable. And so some of the examples I use in the book is like, you know, there is a firm that like, you know, people could have like accounts denominated in gold ounces, for example, or gold grams, actually. And you could just easily trade them around and you could do all this. And then the government just kind of shut them down.

• 26:48Speaker 02

  And of course, we've had some emerge since then. But really, it's just, it's a chain of credit. And so it's not fundamentally solving the problem. I think Bitcoin fundamentally solves the problem because it creates a whole new ledger that is actually at the root of balance decentralized we can make it. There's still, you know, there's like supply chain concentrations to maybe kind of try to make a little bit better. There's a couple, there's still a handful of kind of attack points that are maybe not, you know, 100% decentralized, but it's so far, it's the most decentralized thing I've seen. And I think that's the best shot we have. Now, in other countries, I think stablecoins are serving a similar purpose, which is that, you know, if you're in Argentina...

• 27:31Speaker 02

  Or basically, if you're the Argentinean government, there's very little you can do about stablecoins getting in and out of your country. Now, the United States could go after stablecoins if for some reason they decided they didn't like them anymore. But Argentina can't, or Nigeria can't. And so for people in those countries, the fact that there's a central hub, but that hub is outside of their jurisdiction, and it's able to kind of pierce in there peer to peer. Like, that's the main thing that these technologies do is that with all these little 160 different currency bubbles, really, the only two ways to bring money in or out are physical ports of entry, which of course are heavily surveilled, and you can only bring so much cash or gold through an airport. And the other one would be wire transfers, bank, basically various types of bank transfers,

• 28:13Speaker 02

  or fintech overlays, which are still just essentially bank transfers. And those are also heavily controlled by government regulation. Whereas Bitcoins, stablecoins, similar types of assets, you know, you can show a QR code on a video call and send money. You can send someone an email with money, you can DM with money. So as long as they're not, like, shut off from the world like North Korea, you can send money in and out. You can memorize 12 words and just bring any amount of value density through an airport. And so that's just a world, that technology exists now. And the ones that have central hubs can pierce into most countries. And if you're going to go after the biggest markets of all,

• 28:55Speaker 02

  I think you have to be decentralized at the root, which is, you know, Bitcoin. It's the closest thing we have.

• 29:01Anthony Pompliano?

  So I want to talk a little bit about taking what you've called "broken money" and highlight the critique or maybe the warning that is being issued by people that the money could become more broken. And this gets into the national debt. This gets into what appears to be a declining interest of US Treasuries. So let's just start with the debt itself. We're now over $33.5 trillion in the United States. We've added over $500, $600 billion in the last month. It seems like the problem is getting worse and not actually providing any relief. Does the debt matter? And how do you evaluate this in terms of the declining, you know, strength of the US dollar?

• 29:44Anthony Pompliano?

  Or does it actually not maybe come as correlated as people would like it to be?

• 29:51Speaker 02

  So I think it does matter and people learned the wrong lesson about it about 30 years ago. And so for people that kind of tracked the kind of the nature of the public debt back in the late 80s and early 90s, that's when concern about the debt kind of reached a peak level. That was like the zeitgeist of the time. So the famous like debt clock went up in the late 80s. Ross Perot ran the most successful independent presidential campaign in modern history, running mainly on the debt and deficit. And so that was like an era. And if you look at the interest expense as a percentage, well, both in absolute terms and as the share of the economy, that makes sense because it was like soaring. And so people were like looking at this and thinking this is literally, it's going to go like Weimar. This is, this is completely unsustainable.

• 30:33Speaker 02

  And but what a lot of people didn't expect is that we would soon enter a 30-year period of very strong disinflation. And so, you know, China started to open up to the world in the 80s and really kind of accelerated that in the 90s and 2000s. Soviet Union fell and opened up resources and labor, the whole kind, the whole block opened up. So basically, we took Western capital, combined it with Eastern labor and resources, and you just had a pretty unprecedented period of, you know, productivity growth, globalization. And that was very disinflationary. And that allowed interest rates to go down much lower than anyone could have imagined in that era. And so even though we had higher and higher debts and deficits the whole time, we also, it was offset by ever declining interest rates.

• 31:17Speaker 02

  But once we hit zero and kind of chop long for a while and then bounce off zero because it's more fiscal activity and demographics are getting worse, now we're kind of going back to that late 80s, early 90s period where interest expense is now rapidly accelerating. And even if you don't keep increasing interest rates, even if, even if interest rates now are just in a sideways pattern between 0 and 6%, the fact that we're still adding more and more debts and deficits with, and there's no longer an interest rate offset. Let alone if you start to have structurally higher interest rates. But basically, that is now rendering it more acutely unsustainable. And so we have huge interest rate driven deficits and we have it is no offset.

• 32:01Speaker 02

  And it's actually more of a US phenomenon than the rest of the world. Japan's in a situation, US is in that situation, Europe's more mixed. But they also have slower growth. And so it's really something that we're seeing a lot in a developed world now. And I think people have spent the last 30 years becoming too complacent around it. And assuming that that kind of golden era of peace and exponential kind of productivity gains are going to last, even if the world doesn't get more chaotic, even if we avoid World War III, even if we don't, you know, decouple from China. If the mere fact that we don't continue to accelerate in the way we have, if the status quo just starts to kind of stagnate and we kind of,

• 32:43Speaker 02

  you know, we already tapped into a lot of that labor arbitrage and that resource arbitrage. And if we just kind of hold it steady, that means we still have no offset mainly to what we what just happened. Now, there still are some like, you know, AI and other things like that can still provide a very strong disinflationary impulse. But actually goes back to the prior point of energy. I think ultimately, energy is the big constraint here in terms of the ability to to run these big fiscal deficits structurally without the interest rate offset in a world where energy is not getting remarkably cheaper.

• 33:16Anthony Pompliano?

  What becomes fascinating to me is Stanley Drucker Miller recently critiqued Janet Yellen and Treasury Secretary and said, look, why did we not go ahead and refinance all of our debt at these really low interest rates and lock in long duration kind of debt? I think the counter argument would be that maybe investors wouldn't have bought long duration, you know, kind of low yield debt. How do you evaluate from a country's perspective? The citizens of the country were out refinancing their homes and kind of every single thing that they possibly could when interest rates dove. Does that the role of the central bank or the treasury? And did they make a mistake here? Or do you think that actually maybe there was some logic to what they were doing?

• 33:57Speaker 02

  So I think that while they could have around the margins increased the average duration. I mean, you know, basically Austria launched a hundred year bond. So basically they made whoever bought that, the bag holder or whoever got caught with it when the price actually started to go down. The United States could have done similar actions. We could have had 50 year bonds, 100 year bonds, or just issue more of the existing, you know, 10, 20, 30 year bonds. The average duration is something like six years on US Treasuries. And a lot of it's concentrated. It's not like it's not like an average thing. It's more like a lot of it's concentrated in the first few years. And then there's a long tail that goes up to 30 years of just less of that. I think your point is correct. And that's what my counter argument would be too, is that had they tried to like, not

• 34:40Speaker 02

  to surround the margins, but like meaningfully extend the duration, like if they made the average duration 12 or 15 years for like the whole, the whole, you know, kind of debt load, that would have prematurely jacked rates up and they probably would have run into liquidity issues trying it. I am kind of surprised they haven't at least tried to do it more than they could have. I think that's a valid criticism. Why didn't you try to extend average duration any more than you did, especially when there was such a strong bid at the time for, you know, those types of assets. But I think that basically it was, it was always going to kind of end this way. And another thing is that if we imagine a world where somehow they managed to extend the debt a lot more than they did, maybe the average duration is 15 years, we would

• 35:22Speaker 02

  have had even worse collateral issues in the banking system among the public. And so you probably would have had other issues pop up that would have ironically resulted in larger deficits because US tax receipts are so heavily tied to asset prices going up and the economy doing well, more so than many other countries because we're more financialized than them as kind of the, you know, the global reserve currency issuer. And so it's a lot harder to say that that actually would have really around the margins, or at least in a big way, made a huge difference.

• 35:54Anthony Pompliano?

  Now, if we continue kind of down this path of evaluating maybe your framework of why the money's broken, kind of what the current financial situation is and where we may be going, I think there's a lot of folks who are concerned about the United States in the sense of we have a national debt that's growing quickly, we have interest rate payments that are growing quickly, we now have two essentially proxy wars, both in Ukraine and in Israel, and we feel like there's a lot of money going out and maybe not as much coming in as we would like. I believe the latest number from the Treasury is there's going to be about a $1.7 trillion deficit for the year. And so it feels like all of this is happening and interest rates are already at, you know, five and a half,

• 36:37Anthony Pompliano?

  six percent, and we haven't been printing money. And so if we continue down this path, we're going to have to return to some sort of loose monetary policy without even getting into a recessionary period, which also a whole nother group of people think that we're headed towards. And so is it something where like we're in a bad spot? And if we are forced because of economic conditions or because of geopolitical decisions to go back to a loose monetary policy prematurely, that actually we can go from a bad spot to an even worse spot, and the United States then kind of goes closer and closer to, you know, quote, quote, "the edge"? Or is that just, you know, doomsayers on Twitter and elsewhere, kind of almost hoping for the implosion of the United States and maybe they should be more careful about what they wish for?

• 37:17Speaker 02

  So I think the 2019 period is destructive there. When the repo market blew up, it's not something that was like super popular among people, but anyone on macro would be familiar with that event, which is basically just overnight, the repo market that basically, you know, various overnight lending just kind of blew up. And so the Federal Reserve had to hop in, and there are a number of us at the time that were analyzing this, and we're like, this is actually not a repo problem, it's actually just a T-bill oversupply problem. Basically liquidity kind of hit its bedrock, and repo just happened to be used as the funding source for Treasuries by hedge funds and things like that. And so we were like, the Fed's going to have to, you know, stop QT and buy T-bills here. That's probably what's going to happen. And sure enough, you know, a couple of weeks later, the Fed was out there buying T-bills and then trying to call it, there was like, this is not QA,

• 38:02Speaker 02

  we're just buying T-bills. Which, you know, they, it, it, people were joking, they started calling it not QE. They were like, the Fed's doing not QE. And, you know, to, to their point, it wasn't exactly QE because the purpose wasn't to stimulate the economy. The purpose, they weren't buying long duration. They were just basically fixing a plumbing issue that was based on too much debt. They were, they just had to kind of go back to a degree of deficit monetization. Now, of course, that wasn't a huge deal at the time because we, we weren't at above average, you know, inflation levels, at least not by any meaningful degree. So it becomes a very different world if the Fed eventually has a repeat of that issue in a world where inflation's 3%, 4%, 5% or, or higher, especially if there's wars happening, things like that. So I do think that that's the eventual trajectory that we're headed on,

• 38:45Speaker 02

  is that there will be a time where the Fed just has to go back to balance sheet expansion, kind of regardless of what inflation's doing. And they're going to have a tough time kind of communicating to the market why they're doing that. And it could be volatile as they try to push back against doing that. But basically, if you have something like the repo market break or the treasury market go liquid, they're going to step in about as quickly as we saw them step into the banking crisis early this year. I mean, they're trying to, to cut down on inflation. You could have let, um, you know, some people lose unsecured deposits and contract the money supply a little bit. They decided not to go that route. And I think similarly, if you have, um, you know, repo blowout, treasury market blowout, something like that, they're going to just be, that, that's going to override their other concerns.

• 39:27Speaker 02

  Now, whether or not that's a doomsner, I think that for the first few years of that happening, that actually could feel like the next bull market. That could be this like source of liquidity. And it's like, sure, inflation's above target, but things are doing, you know, things are doing pretty well. And then ironically, if you weaken the dollar, you could get like an emerging market boom. That's generally how these go. Like a part of the reason they did so well in the 2000s was because we had a structurally weakening dollar for several years. And so the Brazils of the world, uh, the Indians of the world, all these countries basically had a boom because their, their debts were being kind of weakened, uh, rather than hardened. And so that can, and that can of course feed back into the United States where, you know, maybe our economy is not outperforming everyone else's, but then we're actually getting dragged along

• 40:09Speaker 02

  because ironically, our money problems are a boon for them. So I think especially in the early phase, it's not necessarily the doom that people would, would think it is right away. But I think the the long term outcome is that we, you know, and this is, this is perhaps decades in the making, is that we do have a long term monetary changeover based, you know, from a current system to whatever the next system looks with some of the recapitalization. It's like, you know, I don't like to use the word reset because everyone thinks, everyone has, they picture their head what reset means. Basically recapitalization is like a more specific thing, which is basically that the sovereign debt levels basically are devalued in real terms in one way or another.

• 40:51Speaker 02

  And they kind of do the next system from there. And so I do think basically this is going to be an issue. It's going to be a kind of a faceting and for many people a hardship in in macro world, winners and losers. And when people think about doom, I mean, I, you know, again, I like to refer to Egypt as an example. I just, I spent the summer there and inflation was 37% when I was there and life went on. People were driving, people were going to restaurants, people were having fun and eating together. And, you know, it was obviously some people are really struggling in that environment. But it's things that like our threshold for doom is like an average Tuesday in many countries around the world. And so I do think we're going to go through times in the

• 41:35Speaker 02

  years and decades ahead that we've not really experienced in the past 30, 40 years that other countries have and that we have in the in the more distant past. And that that some people phrase that as doom. But it's it's both doom and it's it's opportunity, it's growth, it's, you know, challenging there. I think the only way you get true doom is to have basically either society breakdown, true energy shortages, or major, major war. Those are the things that I would consider outright doom, whereas monetary changeovers are crises, but not necessarily doom, is how I'd phrase it.

• 42:12Anthony Pompliano?

  The last thing I want to talk about is there's a very interesting trend that seems to be occurring between bonds and Bitcoin. Historically, bonds have been seen as a safe haven asset, but since there's been multiple geopolitical conflicts, we have seen bonds actually trade down. And so it seems like investor interest is waning to some degree. Then, when we look at Bitcoin, Bitcoin is up after those geopolitical events, both short term and long term. In some cases, like when we look all the way back to Russia invasion of Ukraine, Bitcoin is up 50% since that moment. Now, it's a little hard to kind of understand on the bond side, hey, how much of this is just like the overall macro environment and kind of investments generally pulling down. But Bitcoin does seem to be

• 42:57Anthony Pompliano?

  the outlier. It does seem to be going up when many other assets are correlating and going down. We then see Larry Fink, BlackRock CEO, largest money manager in the world, go on television and say, hey, Bitcoin is a flight to quality, which I think kind of surprised even people in the Bitcoin community saying, wait, that guy is not supposed to be saying this, you know, publicly on television. Is that what's happening? Or like institutions and these large money managers and kind of people waking up to the fact that Bitcoin is becoming the default safe haven asset? Or are we maybe stretching some of these data points and trying to tell a story that really isn't there yet?

• 43:31Speaker 02

  I think both are true. And the way I would describe it first is that so the closest correlate I have found to Bitcoin price action is global liquidity. And so, for example, if I take global broad money supply denominated in dollars, which means there's two big components of it. One is how fast our money supply is expansion, especially the, you know, the top 10 monies. And then two, how strong is the dollar relative to them, which is really important because that's what a lot of global debt is denominated in. That's, that's like their, your, your liability unit of account. When the dollar's weakening or when money, the money printers are on, global liquidity, that, that global liquidity metric goes up quite a bit. And Bitcoin tends to be very correlated with that, to the upside, the downside. If you look at an absolute terms or rate of change terms, you'll see it's arguably

• 44:15Speaker 02

  more correlated than the halving is, although the halving helps too, I think. But basically, it's, it's one of those highly correlated things. And most risk assets in general, like, and our defined risk asset is volatile asset. That's how, that's how most capital kind of allocators would treat it.

• 44:31Speaker 02

  Most of those are correlated with liquidity, but so far Bitcoin seems to be more correlated with liquidity, which I think makes sense because it's stripped away from other factors like earnings and things like that. It's basically when you're deciding whether or not you want to own this scarce emerging money, expansion of the broad money supply globally tends to be fuel for that. And if you have contractions or stagnations in that, usually people are not pouring into Bitcoin and they're more defensive elsewhere. So I think some of it is like literally just that. Bitcoin kind of bottomed when liquidity bottomed and has been rising with kind of like, we're not really in a booming liquidity environment right now, but we're not as bad as it was in say, late 2022. But the other

• 45:13Speaker 02

  factor is like, I talked to some bank board of directors or institutional allocators, and there is a changing of the view. Like, when I talk about things like fiscal dominance, or the risk of a fiscal spiral, or, you know, things like that, or talking about structurally higher inflation for a period of time, things that might have gotten you called a kook, you know, four years ago, instead of like, you know, the board of directors like scoffing when you're saying this, they're kind of nodding along like, yeah, that makes sense. Basically, it's slowly becoming kind of more aware that we are in kind of unusual times. And so I think that basically people are taking things like Bitcoin, gold, hard assets in general, more seriously than they would have a few years ago. And, you know, every

• 45:56Speaker 02

  time, kind of, the way that I've described it before is that people in the Bitcoin space, most people have seen like the log price chart of Bitcoin at this point, and they see it, you know, it's got like, you know, four cycles to it. Most people have actually not seen that chart. And if they've seen the chart, they kind of dismiss it. What I think matters for people is not how many, how many times Bitcoin's risen from the ashes, it's how many times they've seen it rise from the ashes. Because if they see a Bitcoin boom, and it captures their attention for the first time, and then they see it crash, their view was, okay, this is exciting, oh, it's dead. If they see it come back a second time, You know, that's when a lot of people have that like wake up moment. They're like, wait a second,

• 46:38Speaker 02

  that's actually a thing. And for some people, maybe it takes a third time, not of Bitcoin having that cycle, but them literally seeing that cycle. And I think that it's kind of getting to the point where, especially after the 2017 bull market, that was big enough that it got on a lot of people's radars. Obviously, the 2021 one got even on more people's radars. And if they start to see a sign that it's, it might have another one, that maybe this thing isn't dead after all, like they might have written it off as, people start to actually take it more seriously. And I think that's, that's around, at least around the margins. I think that's what we're seeing.

• 47:14Anthony Pompliano?

  Lynn, Broken Money, Why Our Financial System Is Failing Us and How We Can Make It Better, it's available on Amazon and everywhere else. It is, I think, as I told you before, the perfect mix between academic rigor and an entertaining read that kind of makes you continue to continue, to kind of go through page by page. What was the one most surprising part of the whole process? Is there one thing that kind of sticks out to you that you're like, yeah, I didn't expect that, but it was kind of a pleasant surprise as you experienced it?

• 47:45Speaker 02

  I think how much I learned while writing a book, even though most of the book was already, like when I started writing the book, the reason it came out quickly is because I already had, like, the outline pretty much there. A lot of it was just going to draw off my existing research with a couple of new ideas I wanted to really kind of emphasize. But going into the nooks and crannies of like each chapter, I would find like new things that I didn't know, like when I was digging into kind of banking system of the Renaissance era, or digging into the nuances of the bread and wood system, things like that. There's these, a lot of times when you go to teach something, you know, you end up learning it even more because when you're teaching something, you want to be sure of what you're trying to teach. And so you end

• 48:27Speaker 02

  up kind of, you know, crossing your Ts and dotting your Is in a way that you might not do if you were just learning something. You can, if you're learning something, you can be like, you can get 80 or 90% of it, and like, yeah, I get most of it. Whereas if you're teaching it, you go back to that other like 10, 20% and really make sure that there's nothing kind of hidden there, or nothing that's going to throw off your view, or things that could be very surprising. And so digging into some of those resources, I was, you know, kind of just, like, super just kind of excited to see how much I learned, even just as an attempt to educate along the way.

• 49:02Anthony Pompliano?

  I think people know at this point, I read quite a bit. This is one of my favorite books of the last year. So, thank you so much for taking the time to write it. I know it wasn't easy, although you will humbly say that you already had most of the outline. You still had to sit down and write 500 pages or so. And obviously, I think people are going to learn a lot from it. So, thank you so much and we'll definitely do this again in the future.

• 49:21Speaker 02

  I appreciate that. Thank you.