Doomsday Inflation and a Bull Case for Bitcoin — with Lyn Alden

Lyn Alden, independent analyst and author of “Broken Money,” joins the show to discuss the U. S. deficit and the threat of persistent inflation. She also shares why she remains bullish on Bitcoin, and breaks down what supports its current value. Further reading: https://www.lynalden.com/ Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

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

• 0:00Speaker 00

  When you need to build up your team to handle the growing chaos at work, use Indeed sponsored jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

• 0:30Scott Galloway?

  Today's number, $111 million. That's how much New Yorkers spent on hot dogs last year. True story. Buddha walks up to a hot dog vendor and says, make me one with everything.

• 0:53Scott Galloway?

  Welcome to Prop G Markets. Ed, I was at Jack's wife reader this morning and this lovely woman came up with her 11 year old son and said that they were going to listen to Prop G Markets. And so I have to clean up my act. We have to go PG 13 for a little while here.

• 1:08Ed Elson?

  I honestly, I get that a lot. A lot of people want to listen with their kids.

• 1:12Scott Galloway?

  And they can't.

• 1:13Ed Elson?

  Taking their kids to school, but they can't because of the jokes.

• 1:15Scott Galloway?

  Yeah.

• 1:15Ed Elson?

  It's a serious problem.

• 1:17Scott Galloway?

  Yeah, I think it's worth it. I'm definitely going back to, you know.

• 1:20Ed Elson?

  I agree.

• 1:21Scott Galloway?

  Yeah. Speaking of hot dogs, you know my nickname in college, Ed.

• 1:24Ed Elson?

  The dog? What is it?

• 1:25Scott Galloway?

  No, no, no, I can't say, I can't say. Anyways, tripod, Ed, it was tripod. Anyways, we're back. We're back.

• 1:34Ed Elson?

  Oh, I love it.

• 1:35Scott Galloway?

  That's it.

• 1:36Ed Elson?

  How, how is New York?

• 1:37Scott Galloway?

  It's fantastic. If anybody wants to feel good about, you know, anything, come to New York and walk around as long as you can lubricate it with tens of thousands of dollars. But there's lines to get in stores. The restaurants are amazing. It was beautiful this weekend. People are friendly. People come up and say nice things and it's great here. You must be enjoying it. You're young. What did you do this weekend?

• 2:00Ed Elson?

  I went back to college for reunions again.

• 2:03Scott Galloway?

  Really?

• 2:04Ed Elson?

  Yes.

• 2:04Scott Galloway?

  So wow. How are the douches, douches and doucheville doing?

• 2:09Ed Elson?

  It's good. It's good. It's getting a little tired. I gotta say, I mean, third year in a row. Princeton's weird. I mean, everyone goes back every single year. It's like, it's kind of getting a bit much, so.

• 2:20Scott Galloway?

  Yeah, but that's, it's not because they care about you. It's because they're gonna ask you for more money.

• 2:24Ed Elson?

  Oh, yeah.

• 2:25Scott Galloway?

  So they can be a hedge fund that continues to offer classes and pay their faculty.

• 2:29Ed Elson?

  That's right. And it's a good strategy.

• 2:31Scott Galloway?

  Yeah, it works.

• 2:31Ed Elson?

  It was a fun, it was a fun time.

• 2:33Scott Galloway?

  Was it a fun time? What do you guys do at a reunion? What do they do at reunions in Princeton? I imagine them having Pim's Cups and talking about redrawing the maps of the world with their Republican friends. What, what do they actually do?

• 2:43Ed Elson?

  Uh, you stand, you stand in the grass and drink beer all day. That's all you do.

• 2:48Scott Galloway?

  Sounds pretty good.

• 2:48Ed Elson?

  People get, I gotta say, it's pretty impressive how fucked up people get. You wouldn't expect it at Princeton.

• 2:55Scott Galloway?

  You wouldn't expect that? Oh, there's serious alcohol abuse up and down the income ladder. That's not, oh my God. All right, get to the headlines, Ed.

• 3:04Ed Elson?

  Let's do it.

• 3:07Speaker 03

  Now is the time to buy. I hope you have plenty of the well at all.

• 3:14Ed Elson?

  Elon Musk's artificial intelligence startup, XAI, closed a $6 billion funding round at an $18 billion valuation. Funds from the Series B round will be used to bring the company's first products to market. The Justice Department is suing Live Nation for anti-competitive practices in the concert industry. The lawsuit alleges that alongside its subsidiary Ticketmaster, Live Nation has engaged in tactics to raise ticketing fees for consumers and restrict opportunity for artists and venues. Live Nation's shares declined 8% following that announcement. And finally, China has raised around $48 billion to increase its chip-making capabilities. The National Semiconductor Fund is part of China's efforts to reduce dependence on America for semiconductors and chip-making equipment.

• 3:59Ed Elson?

  Scott, your thoughts?

• 4:00Scott Galloway?

  So, XAI, I think, you know, Elon is, like, is pretty controversial. I think there's a lot of people who are now rooting for his loss, if you will. Pre-money of 18 billion, post a 24. I think the Kingdom's invested. Dubai, Andreessen Horowitz, Sequoia Capital. I almost see it as a, an option, or putting, putting a chip down on, on a number because, you know, I gotta admit it, I had one of those moments. I was flying from Miami. And I saw the pilots had looked over to the left and it was one of the SpaceX craft launching, which is just, you know, the guy's not making a photo sharing app or sending Viagra

• 4:39Scott Galloway?

  through the mail. He is doing big, big, bold things. On this flight, they had Starlink. And my son called me on FaceTime and it was perfect. And I can't believe I'm saying this. My least favorite product of the year is Twitter. I think it's become the sewage system of a sewer. My favorite product is also from the same person, that Starlink. It is an unbelievable product. It really is incredible. And I think that people, this is more of a FOMO, right? And that is, people look at Elon's ability to sink incredibly big and think, okay, there's a pretty good chance this thing's going to go out of business or not live up to its potential. But there's always a non-zero probability when you invest with Elon Musk, that it might be 10, 20, 30x. So an 18 billion, while that's a lot of money

• 5:23Scott Galloway?

  for a startup, I think anything in AI that has potentially the customer base of a Twitter, that has access to the data of a Twitter, or the sheer amount of data, although I'm wondering how valuable that data is because it's just such a cesspool. I don't want to say I'm rooting against Elon because that's a bias, but I'm definitely not rooting for the guy. But I think there's no denying with Starlink and some of the other things he's working on, that I can understand why people would do this. What are your thoughts?

• 5:50Ed Elson?

  Yeah, I think what's very interesting to me is the cap table. You mentioned some of those names. They're basically all of the biggest names in VC. It's Andreessen Horowitz, Sequoia, even, yeah, the Saudi Investment Fund. Now, what's striking to me is that many of those investors are pretty significant shareholders in companies that are direct competitors to XAI. So for example, Sequoia is also an investor in OpenAI. And Elon has made it pretty abundantly clear that his goal is just to replace them. So my question to you. Why would a VC like Sequoia Capital invest in the rival of one of its most significant portfolio companies? Doesn't that kind of go against their interests?

• 6:34Ed Elson?

  And doesn't it certainly go against the interests of the founders they've backed?

• 6:38Scott Galloway?

  Yeah, these firms will all say that they support their CEO. But if there's an opportunity to make money, they will violate that. They will not stay out of an investment opportunity pretending to live up to their, you know, their previously stated mantra, we don't fund competitors. They're not making a bet against any AI company, they're making a bet on the sector. And so they'll obviously bump up. And Sequoia and Andreessen are so powerful that they can not dictate terms, but they could, they can fund rival companies. And then the CEO of another company pops up and says, hey, you said you weren't going to fund our competitors. This is making life harder. And they're going to say, well, we're Sequoia, get over it. We'll, we'll do whatever we want.

• 7:17Ed Elson?

  Live Nation?

• 7:19Scott Galloway?

  I think the government here has a really strong case because the thing that has held back or gotten in the way of breaking up big tech or DOJ or FTC actions against big tech is that their products are for free. Now, traditionally, antitrust law is based on this theory, you know, the Bork theory, and that is consumer harm. And the best litmus test for consumer harm is pricing. So big chicken, it goes from 12 to six to three players. And then an economist gets up there and goes, and by the way, the chicken hasn't gotten better, but its prices have increased faster than inflation for the last 30 years because there's, you know, there's one king chicken, there's a monopoly on chicken or a duopoly or an oligopoly. And it's an easier way to look at antitrust. And the problem with Google and Meta is it's hard to look at consumer harm.

• 8:03Scott Galloway?

  Now, the consumer harm comes in the, in the form of, okay, my 15 year old girl is, is engaging in self-cutting because of bullying she's getting on Meta. But that is hard for an economist to quantify and not an easy consumer test. That's sort of indirect cost levied on parents and society around the world. What's much easier is when AT&T continues to raise its long distance rates faster than inflation with shitty technology. And they go, well, and economist goes, if you broke these guys up, there's more competition. You're just going to see a massive increase or decrease in pricing and increase in innovation, more R and D, you know, all, all good stuff. And eventually. Greater shareholder gains. I think of all the seven bells, baby bells that the original AT&T was broken up into, they were all worth more than the original AT&T

• 8:47Scott Galloway?

  within something like a decade. So I think they're going to have that type of ammunition here because my guess is, I think they will be able to show or demonstrate that pricing at these events has vastly outpaced inflation. Now, some of that is a concentration of power and they'll say it's all because of monopoly abuse. I think that's a little bit unfair. I would imagine, if I had to speculate, the lawyer representing Live Nation is going to go, we're fucked. And not only that, consumer sentiment is against us since we had that debacle around Taylor Swift tickets. So I would bet that they try to figure out a way to go to the DOJ or the FTC and say, do you want us to sell this? Do you want us to spin this? Do

• 9:27Scott Galloway?

  you want to have a consent decree? Or I think the lawyers at the DOJ are, I think they are salivating, ready to get in court around this one. What are your thoughts?

• 9:35Ed Elson?

  Yeah, well, you mentioned those price increases. Are they going to prove that it's increased faster than inflation? We have the data. They have. In 2018, the average ticket price for a top 100 US concert was $90. Today, that number is 120, which means, I mean, you look at inflation during that same time period, it's increased around 20%. Concert tickets are up 33%. So yeah, the, the, the price increase is real. Those are pretty serious grounds for antitrust enforcement. Having said that, I would make two criticisms of the DOJ here. And the first is the following. Back in 2010, Live Nation made a bid to buy Ticketmaster, which was pretty controversial at the time because Live Nation, as it is

• 10:19Ed Elson?

  today, was the largest events promoter in the world. And ultimately, the DOJ approved it. They decided that under certain legal conditions, the transaction was lawful and it did not violate antitrust laws. Now, this lawsuit is plain and simply claiming that Live Nation merged with Ticketmaster is a monopoly, which to me begs the question, well, why would you let them merge in the first place? I think the answer is, you know, we made a mistake. We shouldn't have. I think generally speaking, that's just not a great signal to send to the market. I just think it erodes some level of faith in the DOJ.

• 10:55Scott Galloway?

  Yeah, it's insane. The best investment that taxpayers could make right now in terms of ROI. On a short term basis would be one, the IRS, they get 12 bucks back for every one. They they fund the IRS. And the second would be to double the size of the DOJ and the FTC and start breaking up all of these industries. You'd bring prices down, there'd be more jobs, more shareholder value, more tax revenue. It is time for the great de-concentration. It's time to break up these industries across all different dimensions. Anyways, bit of a word salad there.

• 11:28Ed Elson?

  Any final thoughts on China's $48 billion semiconductor fund?

• 11:32Scott Galloway?

  The chip race is the arms race. These countries, we don't want to, we don't want to get into a hot war with anybody, right? That risks nuclear war. What we have with China is kind of a cold peace. It's not even a cold war. Russia and the US really hated each other in the sixties and we're constantly trying to actively undermine each other. We are more interdependent than that. The new front for this proxy war, this cold peace is chips. And whether it's your toaster oven or the guidance system on an AI operated drone, these chips are everything. And I think the Biden administration does not get enough credit for being very forward leaning and making a big investment with the CHIPS Act. I think it's about 83 or 85 billion dollars. And China has to respond. And what's interesting is that, I mean, to a certain extent, the US is just pulling away with it.

• 12:17Scott Galloway?

  Our economy so drastically dwarfs every other economy that it's going to be very hard for anyone to keep up with us, even China, on a spending level. So I think this is, I think this was very predictable when, when the US basically put pressure on, I think it was TSMC, is that what they're called, out of, out of Northern Europe and said, do not sell these sophisticated chips to China or we're going to make life hard for you. And we've said the same thing to Nvidia, that you can't sell your most sophisticated chips into these guys. That is going from a cold peace to a cold war because that is cutting off, you know, that is cutting off their lifeline. But the chips or production of semiconductor technology is the new front in the cold war slash a cold peace. What are your thoughts?

• 13:02Ed Elson?

  I think the stat that really shocked me is that China's on track to spend more than $140 billion on chip production so far. It's actually larger than the US and, and Europe. So, you know, that statistic combined with the fact that the country's already dealing with Basically, a massive economic crisis. I mean, they could be investing all of that money in anything else. They have a lot of other problems to deal with. But the fact that they want to put it towards this, towards chip manufacturing, AKA AI, I think that just tells us how critical China considers this new technology to be.

• 13:37Scott Galloway?

  The only thing is, that number might be a little bit misleading because that's government spending. And we constantly talk about, look at the amount of money that private companies are investing in this type of technology. And you can bet everyone, I mean, okay, Nvidia adds a quarter of a trillion dollars in five minutes post earnings call. You can bet a lot of that is going to go back into chip research and design and IP, right? In addition, the biggest players and deepest pocket of players in the world, Amazon, Microsoft, Meta, Apple are all like, I am sick of kissing Jensen Huang's ass. So you can bet they are all investing tens of billions in developing their own chips. So I would bet that if we had a real number here, it would dwarf the Chinese number.

• 14:22Ed Elson?

  Yeah, it's all corporate venture. All right, we'll be right back after the break for our conversation with Lynn Alden.

• 14:37Speaker 00

  When you need to build up your team to handle the growing chaos at work, use Indeed sponsored jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

• 15:11Ed Elson?

  Welcome back. Here's our conversation with Lyn Alden, independent analyst, full-time investor, and the author of Broken Money. Lyn, thank you for joining us today.

• 15:20Speaker 04

  Thanks for having me. Happy to be here.

• 15:24Ed Elson?

  So we got lots to get into, but I want to start with just some of the more high-level basic stuff. You've put out sort of an Investing 101 memo. It's on your website. You did that for 2024. And in that memo, you outline what you believe to be some of the more common pitfalls, as you call it, when it comes to getting started as an investor. Could you just outline for us what some of those pitfalls are?

• 15:50Speaker 04

  Well, there's a lot of different pitfalls that people could run into. One of them is just not getting started. That's one of the biggest ones overall. Another one is overcomplicating it. Basically, people, they get frozen by decision paralysis. They don't know how to get started. They get overwhelmed with options. A lot of financial investing content historically has been kind of darkening. It's kind of as though it's like put out of reach of most people. And I think another big one is over-concentration. A lot of times when people do get interested in investing, they tend to get drawn towards some of the more high volatility or things that don't really compound super well. It could be, for example, people get really into like mining stocks because they're very volatile, even though they don't have a really good track

• 16:34Speaker 04

  record, or they get really into a big theme or something, rather than fully understanding what they're investing in. And so there's multiple things that people run into.

• 16:44Ed Elson?

  Yeah, we talk a lot on this podcast about the difference between investing versus trading, and I think you've described it as just gambling. And generally, our view has been that it pays to be a value investor. Do you consider yourself to be a value investor in the traditional sense? And if so, what does that term actually mean to you?

• 17:04Speaker 04

  For the most part, I do. That's certainly the kind of framework that I entered investing from. I would basically read Warren Buffett and that kind of content when I was like a teenager, and I would look at You know, buying companies at reasonable prices based on their fundamentals for the long term. Over time, you know, I've looked at multiple different investment strategies. Value often has the kind of perception that it is opposite of growth, that basically it involves kind of lower growth, cheaper companies, where I think a more holistic understanding of value investing is that basically it's fundamental investing. So that can include a growth company as long as you're basing your research on the fundamentals

• 17:48Speaker 04

  of what you expect the company to do, rather than say purely chasing things like price. So, and Peter Lynch really popularized that strategy back in the 80s, like growth at a reasonable price. That's basically, that could be kind of the intersection between growth and value investing. In recent years, I've incorporated more macro analysis into my investing frameworks because I kind of started to view back in, say, 2017, 2018, that this was to be like a macro-heavy decade, which means that things that are outside of any one company's control will move a large portion of the market. So I do incorporate a kind of a macro overlay that helps me determine potential growth rates of companies and things like that.

• 18:32Speaker 04

  But at the heart of it, I, you know, I like to buy profitable companies at reasonable valuations that I think are going to be providing a good product or service over investable time horizon, three, five, 10 years, and then let that thesis play out over the long term.

• 18:48Scott Galloway?

  Let's do that. Let's overlay the macro. What do you think are the big macro factors that provides for the atmospherics for some of the decisions or recommendations you make?

• 18:57Speaker 04

  A big piece of it is the fiscal dominance, is how I'd phrase it, that most, most of the past, call it 40 years of investing history, was under a period of monetary dominance, which we can think of as central banks and commercial banks having a very big influence on markets. And so, most economic expansions are these periods of heightened bank lending activity. And then most of the recessions are periods where banks are pulling back their lending, and often because central banks are tightening for various reasons. But there are other periods in history where the fiscal side becomes as big or sometimes more of an important variable than the bank lending side.

• 19:42Speaker 04

  And so, for example, if you look at annual net bank loan creation and you compare that to annual fiscal deficits, in most decades, the bank lending would be a bigger sum than the fiscal deficits, especially if you also add corporate bond issuance, net corporate bond issuance. So basically, how much kind of private sector lending in various forms, either securitized or not, is happening compared to the size of the fiscal deficits. But the 2020s, and really kind of even like the year kind of leading up to that, like 2019 or so, we're now getting to a period where the fiscal deficits in a given year are bigger than new bank loan creation and bigger than even the sum of bank loan creation in net corporate bond issuance.

• 20:24Speaker 04

  And the last time that the US was in that situation was really the 1940s. So the very long-term historical kind of framework, Japan finds itself in that position today. And in that kind of environment, you tend to, on average, run inflation a little higher than you would otherwise. You tend to have a little bit less cyclicality in markets because you have this background deficit spending that's happening. And you tend to get bigger bifurcation between different sectors. And so, for example, in the, say, the last year, if you're on the right side of fiscal deficits, meaning, for example, if your, if your business is catering to recipients

• 21:06Speaker 04

  of Medicare, Social Security, Defense, your business is doing pretty well. Like, if you're in the, if you're in the travel, hospitality, restaurant business, you're, you're doing fairly well in this environment. Whereas if you're not really on the right side of fiscal deficits, if you're more impacted by the monetary situation, like commercial real estate, for example, then you're, you're in an outright depression. And so, you get, when you have that kind of tight monetary but also very loose fiscal policy, you get into a very bifurcated type of market. And so, that kind of led me to say, be less bond-focused, more equity-focused, and to make decisions like that for my portfolio, and some of those have played out. Far, far more usefully than say, avoiding one company or picking another company.

• 21:50Speaker 04

  Having those kind of big asset allocations reasonably correct has been a huge source of risk reduction.

• 21:57Scott Galloway?

  So I find this really fascinating. So we always talk about everyone's obsessed with Chairman Powell, whether his briefcase is especially, especially full or not, based on indication of where interest rates are going. And you're saying that the fact that we're a household making $52,000 a year, our tax receipts, and our decision to spend $72,000 a year, or 75, and basically rack up unbelievable deficits, that's, that's overcompensating. That's, that's really more important than whether, you know, there's a rate hike or not. And that, I, I find that terrifying, just because it feels like, one, you're just living on borrowed time.

• 22:41Scott Galloway?

  It just doesn't feel sustainable. And then I, what shocks me is that I speak to a lot of people and they don't seem that panicked about it. It's, it's almost as if we've normalized the idea that we can take in five trillion in taxes and spend seven trillion. What, what am I missing here?

• 22:59Speaker 04

  Well, so there's an interesting trend that I think led to this, and I agree with you. Um, you know, when you, when you see people today talk about the risks of the debt and the deficit, you often see the response to that is people said, well, people have been concerned about this for decades and look, nothing bad happened. And it's funny, when you look at when the national debt clock went up, that was the late eighties. Ross Perot ran the most successful independent presidential campaign in modern history, based on largely debt, debts and deficits in the early nineties. That period was kind of the peak zeitgeist for, uh, public concern around the debts and deficits. But the phase we went to for the next three decades was that China opened up to the world, Soviet Union fell, basically large amounts of labor and resources got connected to Western

• 23:44Speaker 04

  capital. A big burst of globalization, very disinflationary. And so we kind of had this period of thirty more years of falling interest rates. And that offset a lot of our public debt accumulation. So if you if you double your debt, but you cut your interest rate in half, your your interest expense still still seems quite manageable. And I think people got lulled into a false sense of security that they kind of said, OK, we were worried about the debts and deficits. It turns out we didn't have to worry. We're fine. And though now people kind of, I think, the pendulum swung the other way that people are saying, look, what we've learned is that they don't matter. But I think the key risk is that our interest rates have now, they bounced off zero. They're now going sideways to up. I think we're in a structurally, like, no longer declining industry environment.

• 24:29Speaker 04

  And when you have accumulated debts, deficits, and interest rates are just going sideways, let alone up, that offset's gone. And the debts and deficits actually start to matter quite a bit more. And then, as I said before, when that sum of fiscal deficits is larger than the amount of net bank loan creation, or even the the sum of net bank loan creation and corporate bond issuance, that's just a much bigger factor on the economy. And then, in addition, you can get to a point where the Fed rate hikes, could they they lose their effectiveness to fight inflation? Because if you have an environment, let's say, back in the early eighties, where public debt is thirty five percent of GDP, and most of the money creation is coming from bank

• 25:11Speaker 04

  lending, if you raise rates super high, you you do blow out the fiscal interest expense to some extent, but you put a lot more downward pressure on that private sector lending. And so that tends to be a net disinflationary effect. On the other hand of the spectrum, if you if you have fiscal deficits are larger than bank lending, and you have an accumulated stock of over a hundred percent debt to GDP on the on the public ledger, when you raise interest rates, which is what we've seen in the past couple of years, you do put some downward pressure on bank lending. But also, you blow out the interest expense of the federal government by an even larger total number than the the slowdown you did for bank lending.

• 25:52Speaker 04

  And so it has a less disinflationary effect than it would if you had only, say, thirty five percent debt to GDP. And if you go far enough, like, if you get to where Japan is, and you have something like two hundred percent debt to GDP, then rate hikes could even be inflationary under certain circumstances because Almost none of your money growth is coming from bank lending. It's all coming from monetized fiscal deficits and industry rates increase those fiscal deficits.

• 26:16Scott Galloway?

  I'm a Debbie Downer, half glass empty kind of guy. I just, I, I'm not smart enough to figure out how monetary, you know, the theory that we can keep just spending more than we're making. What you're saying is a potential scenario that how it unwinds is just inflation that we lose bullets in the chamber. Our, our tool against inflation becomes useless because of the skyrocketing interest on, on debt, which explodes the debt further, which more, more interest payments, more money printing, because we have no choice. I, one, can we continue to do this? Some economists say, yeah, you can continue to do it. Do you believe we can continue to, to live above our means like this?

• 26:56Scott Galloway?

  And two is the, is the doomsday scenario, just inflation that we no longer have the weapons to fight?

• 27:02Speaker 04

  So yeah, that, that is how I describe the doomsday scenario. That's the limiter is that we, we get structural inflation that is beyond our ability to fight with all the tools that we're, we're used to doing because all the Fed's tools for controlling inflation are really about accelerating or decelerating bank lending. And they really don't do anything about the deficit. So if the deficit is the source, is the primary source of new money creation, then the Fed's tools become limited and sometimes even counterproductive. To answer your other question, basically I don't view it as sustainable. I think that these situations can go on a lot longer than people expect, but it doesn't mean that they're sustainable. Basically, this, this phenomenon is not new to, say, emerging markets. It happens to emerging markets all the time.

• 27:44Speaker 04

  They have a lot less rope to, to, you know, they have a lot less road to go down because they often, their liabilities are denominated currency that they don't control. They're more reliant on external capital. The U.S. has a ton of road or historically had a ton of road. I think people overestimate the amount of road that it has when industries are no longer structurally declining. And so I, I do basically think that the, yeah, the long-term outcome here is on average higher inflation and inflation that is less, less able to be controlled by central bank policy of tightening. And that really the only way to try to get a handle on it is to deal with the deficits. But a lot of that is, is.

• 28:27Speaker 04

  Structural, it's basically accumulated decisions over decades and things that are kind of third rails in politics to touch. And it becomes, it just becomes a very hard problem to solve, which is, yeah, I'm not, I'm not very bullish on the strength of currency or the reliability of bonds as long-term investment vehicles because of that underlying situation. One kind of background point I would make is that when people talk about debts and deficits in the US and they, they talk about it being like a doomsday scenario. For people that kind of study global markets, like, you know, I'm, in a, in a few weeks, I'll be back in Egypt. I go there every year. They're dealing with something like 40% inflation right now. And life goes on.

• 29:10Speaker 04

  It's not, it's obviously not, not great, but it, people, the things that people think of as the end of the world are happening all the time in multiple countries as we speak at, at higher magnitude than any of this likely leads to in the near term. So I think that's the optimistic point there is that there are always things that are more extreme. There are, people are adaptable, systems change over time and the end of one system or the, the, the switch off from one chain, one system to another system is often more of a handoff. And, you know, apart from the biggest tail risks in the world, like nuclear war or something like that, life, life goes on, right?

• 29:50Speaker 04

  So it's, I generally don't like the, the phrase that it's doom, even though it is serious. We'll be right back.

• 30:07Speaker 00

  When you need to build up your team to handle the growing chaos at work, use Indeed sponsored jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

• 30:42Ed Elson?

  We're back with Profty Markets. Could you give us your general assessment of the crypto market right now? Are you still a believer in Bitcoin? And how does it compare in your view to other digital assets?

• 30:53Speaker 04

  Digital assets, yeah, basically I've been a bull on Bitcoin as well as stable coins is really the two categories that I've found to be high utility kind of signal to noise. I've been very critical on the rest of the crypto space. Basically, when we think about money age, money is largely a ledger. So when people were using gold as money, they're basically relying on nature to provide the ledger and we would augment that ledger with, you know, coinage and abstraction. But basically, we're we're kind of updating this ledger by physical possession of gold and nature's kind of setting the rules for how you can make more gold or how to move around or authenticate that gold. Modern money relies

• 31:34Speaker 04

  on central bank ledgers who basically we trust the Fed to run a ledger and then banks are kind of a layer two on top of that kind of centralized ledger. So we have this kind of two-tier money system, really kind of three-tier when you incorporate fintechs and things like that. So we have this kind of two or three-tier centralized money system. And the challenge there, so you know, in the US, at least for the past half-century, we've had it pretty good. Our currency loses value slowly and we have plenty of investment vehicles to save into. Whereas, for example, when you look at a country like Egypt, they don't have the S and P 500. They don't have, you know, their stock market's not a reliable

• 32:17Speaker 04

  investment, kind of a wealth building vehicle. They've got real estate, but real estate's, of course, illiquid. So there's all sorts of downsides with that. They can't obviously invest in their own currency in any meaningful amounts because you've got On the average of double-digit inflation over a 50-year period. And so what things like Bitcoin, stablecoins do. And could you just explain what a stablecoin is? I'm sure it'll become clear, but. Sure, a stablecoin is when an entity holds dollars or things like T-bills, for example. You can wire them money. They will then give you tokens that are redeemable, at least by large entities, for those dollars. And so they're basically like banknotes in digital form.

• 32:59Speaker 04

  And then even smaller entities that don't have the right to redeem them, they can still trade them around. And the main ability there is that it allows countries that have historically had a heart that desired dollars because they wanted some stable currency that's more stable than their currency, but doesn't have the volatility of gold or Bitcoin or something like that. It allows them to access dollars more easily and in more digital form as long as they have a smartphone. And so they're very popular in Argentina, they're very popular in Lebanon, they're very popular in Nigeria. They're basically, they, we live in a world where there's 160 currencies, more or less. They're all kind of central monopolies.

• 33:40Speaker 04

  So if you're in Nigeria, you've got to trust the Nigerian central bank and the Nigerian government and how they're going to manage their currency. The borders are fairly tightly controlled, which is, you know, you can only bring so much value in or out of an airport. Bank transfers are quite controlled and often done at artificial exchange rates that differ wildly from what the actual kind of market rate for that currency is. And what stablecoins and Bitcoin do is, you know, if there's a Nigerian graphic designer and she holds up a QR code on a video call, I can pay her in whatever money she wants. She could ask for Bitcoin, she could ask for dollar stablecoins, and it goes to her around her local banking system. And she's able to then use that peer-to-peer.

• 34:23Speaker 04

  She can bring it with her wherever she goes, if she ever leaves Nigeria. And she basically has more choice over what money she uses outside of her currency monopoly. Bitcoin is the fully decentralized, you know, fully scarce version of that. It's the one that's not, there's no central hub. The thing you have to deal with is that higher volatility and the uncertainty of what it'd be worth in, say, any given one or two-year period. Whereas stablecoins, the downside is that they are fully centralized. There's some entity that's holding the assets. And you have to trust them. You also have to trust their ability to operate in their regulatory environment. But the way I would phrase is they kind of serve as offshore bank accounts for the working and middle class rather than just the wealthy. They kind of just

• 35:08Speaker 04

  compress the overhead of running one of those systems where if you're in Argentina, you might not trust your your own government's ability to run the currency. You might not trust the banks because in the past, you know, even if you store dollars in them, they can get confiscated away. But they say, well, you know, for small amounts of working capital, I'll trust this offshore entity.

• 35:29Ed Elson?

  Yeah, if you're in somewhere like Argentina, or, you know, Egypt, Lebanon, Russia, Turkey, those are places where comparatively speaking, you're probably going to have more faith in the value of a Bitcoin versus the value of, say, a Turkish lira. What I don't see, however, is how Bitcoin could serve any real use case for an American today.

• 35:50Speaker 04

  Sure. So one of the attributes of money, it is, is that which you hold, even if you don't intend to consume it yourself. That's kind of historically where money kind of came from. And so, for example, if we hold a gold coin, we're not necessarily intending to melt it down in a jewelry or industrial use anytime soon, but we're kind of holding it, knowing that it's a useful thing that other people use.

• 36:09Ed Elson?

  Store of value.

• 36:10Speaker 04

  Store of value. And as an American, to your point, we generally don't find ourselves troubled for payments or even troubled for savings. We have no shortage of savings vehicles that are reliable. But if you kind of view it as something that could be useful for billions of people around the world, something like half the world lives under shades of authoritarianism, half the world lives under kind of persistent double-digit inflation and multiple, you know, hyperinflations within our lifetime. Bitcoin is something that Americans often treat more as that investment. And it's one that happens to have outperformed the S and P 500, the NASDAQ, almost everything other than Nvidia over, you know, three, five, 10-year period. So.

• 36:50Speaker 04

  For us in America and Europe, it's often seen as an investment, which I think makes sense. But in, say, Africa, where there's roughly 40 currencies, or Latin America, where there's roughly 30 currencies, and every one of those currency borders is a friction. Most of those currencies are undesirable to hold. It's something that's useful to them, and that therefore it is an investment for people that kind of understand that there is a use case, even if the use case doesn't apply to them. And like America, I do think that we are running this more structurally high inflation because of the things we talked about earlier in this discussion. But that doesn't mean they have to happen super quickly. It doesn't mean that things have to end.

• 37:31Speaker 04

  You know, if you kind of do the rough math, I mean, Congressional Budget Office expects 20 trillion in net treasuries to be issued over the next 10 years. They also assume no recessions. So if there's recessions, that number's probably going to be higher. They generally undershoot the number. So let's say conservatively, 20 trillion in treasures are going to be issued. If you look at how much, you know, gold's going to be mined over the next 10 years, at current prices, it's somewhere in the ballpark of 2.5 trillion. And the amount of Bitcoin that's going to be created at current prices is something like 70 billion. Now, of course, gold and Bitcoin can change in price to accommodate more inflows if people want to put more money into them. But the point is basically, if you're just kind of saying, what do I want to own that's pretty scarce?

• 38:16Speaker 04

  Obviously, good equities are one of the options. Good real estate can be one of the options. Art is historically one of the options, especially for wealthy investors. But also Bitcoin is because it's liquid, it's fungible, it's portable, and it's got a lower kind of new supply growth rate than other, a number of other kind of liquid investments. So I think from an American perspective, it's often viewed as an investment, whereas in other countries, it could be viewed as a lifeline.

• 38:45Scott Galloway?

  Isn't that the core value proposition of Bitcoin? Over time, every fiat currency has failed because the temptation to think short term results in printing of money and flooding the market of that currency. And that Bitcoin, whether it's true or not, has created the perception that we will stop printing at some point. And no other asset, there's more, you know, there's more gold in the ground, there's synthetic diamonds, and there's a Fed and presidential cycles that just continue to print more money. Isn't, at the end of the day, isn't it that they've convinced people we're going to stop mining Bitcoin at some point?

• 39:23Speaker 04

  Yeah, so basically, the rule set of Bitcoin is distributed among the people that run nodes, it's open source software. And so it's built into the code since inception. So every, every approximately four years, the amount of new Bitcoin that's traded every 10 minutes gets cut in half. So it's not that mining just one day shuts off, it's that mining starts out at a certain pace and over time gets, it asymptotically approaches 21 million. So back in April, the amount of new Bitcoin created every 10 minutes got cut in half. And approximately four years from now, it'll happen again. And at this point, as of this latest halving, the annual supply inflation of Bitcoin dropped below

• 40:05Speaker 04

  1%, which is approximately half that of gold. Gold generally historically grows at estimates of something like 1.5 to 2% per year in terms of supply. The typical developed market currency grows at 6 to 9% per year, outside of extraordinary years. Emerging markets like developing countries, you know, they typically grow at double digit currency supply growth over the long term. And so among fairly liquid monies or money like assets, Bitcoin is now a very slow growing supply.

• 40:38Scott Galloway?

  I mean, the way you frame it is very compelling, that when you look at the actual gross amount out there, even with its price run up, what you're saying is it's actually, the perception of the run up is not the reality, that because of this halving and a reduction in supply, the asset price is still reasonable. Is that, is that fair? Am I putting more into your mouth?

• 40:56Speaker 04

  That's my view. And I think, I think the total adjustable market's still notably higher than it is now. I don't know what it's going to do over the next three months, but yeah, I'm bullish with say a two year view, or a five year view, or, you know, potentially a 10 year view. I went through a long phase where I was You know, pretty skeptical on the asset. I was like, well, what if another currency is going to be better? Or what if the whole, what if the whole space gets so diluted? But once I saw the network effects really form, once I delved into the technology and why it's designed a certain way, ever since, ever since really early 2020, I've been pretty structurally bullish on it. And, and that really continues to be the case, you know, over four years later.

• 41:37Scott Galloway?

  So just, I just want to return real quickly to the, the macro discussion. And that is, I'm trying to think of a soft landing scenario for what feels like reckless spending. And that is the following, and tell me if you think this is a potential scenario. We sugar out a way to raise taxes, lower spending, and our deficit, we get our deficit down to one trillion a year. And inflation continues to run at five, six percent a year, meaning in 12 years, the economy doubles, or the dollar, notional dollar value of the economy doubles to 50, to 50 trillion. And we're running, we're running deficits at 2% of total GDP,

• 42:18Scott Galloway?

  which is lower than inflation, which argues that as a percentage of our GDP, inflation starts to go down, and the market perceives that, interest rates lower, and we're no longer in this, this, this cycle of upward inflation. Is that a potential soft landing scenario?

• 42:34Speaker 04

  I think so. But the main challenge there is that, and this is kind of unique to the US. Our, our tax receipts are very tied to asset prices. It's kind of just, especially since the 90s, because a large portion of taxes are from wealth individuals.

• 42:49Scott Galloway?

  So people exercising their Nvidia options.

• 42:51Speaker 04

  Exactly. Yeah. And so you'll generally see with a, with a short lag, tax receipts follow asset prices. So if we were to pivot toward austerity, there's a decent chance we would get kind of flattish asset prices. And then therefore, you could ironically continue to widen the deficit anyway. It's a very hard tailspin to get out of. You'd have to, I think, not just, not just tweak your revenue and spending model, but you'd have to kind of overhaul some of the ways it works, which would make it even harder to do in a more, in a very polarized environment. Generally speaking, when countries get out of this, like, like, we got to similar debt levels in the 40s. We had much better demographics back then. We had a much stronger manufacturing base. But basically, what, what countries do when they, when they find themselves here?

• 43:35Speaker 04

  Is they generally run financial repression, which is that they hold rates below the inflation rate. It kind of slows down the interest expense of the of the public ledger and therefore can kind of slow down the money supply growth. It makes your currency fairly undesirable to to outside entities, which is not what we're doing right now. That's what Japan's doing. But I I think that's kind of in the cards for the US, which is basically that that we're going to have a period of time where interest rates are just not really keeping up with inflation. If you're holding currency or bonds, you get kind of gradually devalued. Technology and part of what disguises the inflation is that, you know, we think of inflation as being compared to zero, but the baseline inflation rate is negative because over time,

• 44:18Speaker 04

  technology gets better, things get cheaper to produce, but they go up in price anyway because of how we run our money. And so any sort of technological gain is also contributes to the possibility of soft landing because as you as you get better at making stuff, if you're running money supply growth at 10%, but you're 5% more productive at making things every year, then actual prices on average might only be going up at 5% per year. That's kind of historically how countries try to grow out of this type of situation. But normally they don't do so without a pretty big currency devaluation along the way. And that generally shows up in whatever is scarce. So generally, the high quality assets go up a lot in currency in those environments.

• 45:02Speaker 04

  If you get any sort of dislocation in in energy production for a period of time, like if you're just not growing or a capex is not happening and you get a you get a currency devaluation, that can show up in higher prices. That that's generally what triggers pain in emerging markets as some of their key imports get very expensive. So there are ways to kind of smooth it out over a long period of time, but it's very hard to kind of structurally fix it until there's basically a big change in how taxes are done, spending's done, and probably the overall currency level as we kind of know it now.

• 45:38Scott Galloway?

  Every time we have you on, I think to myself, why don't we have? Lyn on every week. This has been fantastic.

• 45:45Ed Elson?

  Agreed.

• 45:46Scott Galloway?

  Lyn is a full-time investor, independent analyst and author of Broken Money: Why Our Financial System Is Failing Us and How We Can Make It Better. Her work has been featured in The Wall Street Journal, Business Insider, Market Watch and CNBC. And she's also served as a consultant to startup companies, head funds and executive committees. You can find her research at Lyn Alden, L-Y-N-A-L-D-E-N.com. She joins us from... Lyn, where are you?

• 46:10Speaker 04

  I'm in New Jersey.

• 46:11Scott Galloway?

  New Jersey. And you say it with pride. Well done.

• 46:14Speaker 04

  Yes.

• 46:15Scott Galloway?

  You say it with pride. Lyn, thanks so much for your time. This was fascinating.

• 46:18Ed Elson?

  Thanks, Lyn.

• 46:18Speaker 04

  Thank you.

• 46:28Ed Elson?

  Algebra of wealth. Scott, we spent a lot of time with Lyn discussing the deficit and generally discussing debt. I want to stay on that theme, but switch it to personal. You often say that debt is a double-edged sword. You say wield it as a weapon, but don't let it cut you. Can you elaborate on that idea?

• 46:48Scott Galloway?

  Sure. So, there is good debt. And most financial advisors will say to you, debt is the enemy. But the wealthiest people in the world leverage debt. Apple, which never needs to have debt, issues hundreds of billions in debt. And good debt takes on a couple different types of complexions. One, it's an investment in yourself. A limited amount of student debt in pursuit of a degree that I think, where you'll get the certification that'll pay off. I borrowed, I think, $15,000 to get through business school, which isn't a lot of money. It's been a huge ROI for me. The other type of debt is for assets that will appreciate in value. And that is, okay, I'm buying a home. I can get a mortgage

• 47:28Scott Galloway?

  for 6%. And it's going to force me to save some money. I'm going to live in it. And potentially, I think, I think that the price may go up at the same rate, or ideally more. So occasionally having some debt, if it's low interest and friendly, and you're using the proceeds to invest in something that'll grow faster than the interest rate on the debt, that is what you call good debt. What is bad debt? Using debt for consumption. I really want to go to Stagecoach because, you know, I love country music and it's my dream to see Willie Nelson and Post Malone. None of that is true, Ed. That's the wrong thing to use debt for. So debt for consumption, I think, is a bad idea because it puts you

• 48:11Scott Galloway?

  in a place where the credit markets or these companies will convince you that it's not real money. It feels, it doesn't feel nearly as painful. And the temptation, there's so many amazing things that capitalist economy offers you, but just be very careful about getting into any sort of debt for consumption. Good debt is low interest rate debt that either enhances your ability to make more money in the future, or you can invest in things that likely, over the medium and long term, have shown a track record of returns that are greater than that debt. Does that make sense?

• 48:44Ed Elson?

  Absolutely.

• 48:47Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavas and Catherine Dillon. Mia Silverio is our research lead, and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday.

• 49:41Speaker 05

  Close your eyes, exhale, feel your body relax, and let go of whatever you're carrying today.

• 49:48Speaker 06

  Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class. I got them delivered free from 1-800-CONTACTS. Oh my gosh, they're so fast. And breathe. Oh, sorry. I almost couldn't breathe when I saw the discount they gave me on my first order. Oh, sorry. Namaste. Visit 1-800-CONTACTS.com today to save on your first order.

• 50:09Speaker 05

  1-800-CONTACTS.