Speaker 1: Hello, Maren talks Money Listeners. Just before we get to
Speaker 1: this week's exciting episode, I want to tell you about
Speaker 1: my column this week. It's out on Bloomberg dot com.
Speaker 1: This week I suggest a solution to the UK housing shortage,
Speaker 1: and boy do we need one. And the idea is
Speaker 1: that we should find ways for the over sixty five
Speaker 1: to step off the housing ladder so that more young
Speaker 1: people can step on. That involves planning change, it involves focus,
Speaker 1: and involves buy in from growth groups, but it is possible.
Speaker 1: Be sure to check it out at bloomberg dot com,
Speaker 1: slash wealth or search for my name. Of course, you
Speaker 1: can also find columns from Bloomberg's many other brilliant columnists,
Speaker 1: and be sure to subscribe to Bloomberg for access to
Speaker 1: insightful stories, data videos, podcasts, and much more. John, ma'am John,
Speaker 1: does anyone except for me have off youve advice like
Speaker 1: financial advice.
Speaker 2: Not financial advice nor now plenty of life advice, But
Speaker 2: we'll come.
Speaker 3: Back to that later.
Speaker 1: Offline, did you think you are paying anybody to offer
Speaker 1: you advice that you aren't getting?
Speaker 2: No? No, well thanks, and.
Speaker 3: All a lot of other people are.
Speaker 1: So this week we've had or were should we say
Speaker 1: were This week we've had results out from Saint James Place,
Speaker 1: and boy they've been a shocker.
Speaker 3: I'm sure you've seen them. Everything is lower, cashprop.
Speaker 1: Is a slightly lower anyway, but that's entirely overshadowed by
Speaker 1: the provisions. They've taken a pvision of four hundred and
Speaker 1: twenty six million pounds which they say is linked to
Speaker 1: evidencing and delivery of client servicing. I they can't prove
Speaker 1: that they have been providing clients with the advice that
Speaker 1: they should have been gotting on the ongoing service they
Speaker 1: should have been getting, and they may have to pay
Speaker 1: an awful lot of them back. It's absolutely huge. So
Speaker 1: the share price fell, we're talking, by the way, everybody.
Speaker 1: On Thursday the twenty eighth, the share price fell around
Speaker 1: thirty percent first thing this morning. Is back up a
Speaker 1: little bit now, but it is still down over one
Speaker 1: year sixty two percent, and that is a direct result
Speaker 1: of the regulatory authority starting to look at what represents
Speaker 1: value in the financial services industry. So a lot of
Speaker 1: people will get a night little bit of money. It's
Speaker 1: a bit like the cars where everyone didn't get quite
Speaker 1: what they're expecting from their interest rates and may not
Speaker 1: get a pile of money back. But do you know
Speaker 1: what I want to talk about when it comes to
Speaker 1: Saint James's Place is not so much the advice that
Speaker 1: people weren't getting, thought they might be getting, didn't know
Speaker 1: they were paying for.
Speaker 3: Or whatever it was. It's ESG because I like to
Speaker 3: bring a lot of stuff back to ESG.
Speaker 1: Now, yeah, I have had a look at Saint James
Speaker 1: Place ESG risk ratings and here we are on Sustainalytics
Speaker 1: and the ESG rating for Saint James Place is eighteen
Speaker 1: point six and that is considered to be low risk.
Speaker 1: So if we look, you can be negligible on zero
Speaker 1: to ten and at medium twenty to thirty, high thirty
Speaker 1: to forty, and severe forty.
Speaker 3: Now, if you were.
Speaker 1: An investor fund manager who invested with an ESG overlay
Speaker 1: and you health in James's Place, which I think some do,
Speaker 1: would you have fulfilled your brief even though the company
Speaker 1: has technically rated low risk for ESG purposes, I would say,
Speaker 1: and I'd like to hear your view on this, that
Speaker 1: for s and G purposes, this was a very high
Speaker 1: risk stop to hold.
Speaker 2: I mean, I think you're absolutely right. I think that
Speaker 2: anyone who read the papers, the financial bits of the papers,
Speaker 2: including no very very mainstream, high profile newspapers the Sunday Times,
Speaker 2: did a lot of good work on this. From what
Speaker 2: I remember, they would have realized that there was at
Speaker 2: the very least some controversy around Saint James's Place and
Speaker 2: the fees that it was charging and exactly how that
Speaker 2: fitted in with the FCA's overall view of how customers
Speaker 2: should be treated, and that's been saying that in the
Speaker 2: most diplomatic way possible. So yeah, I think if they
Speaker 2: had actually been doing any other than box ticking, then
Speaker 2: they should have realized that. I do think it also
Speaker 2: points to the fact that grouping ES and G it's
Speaker 2: kind of a mish mash of compute bollocks. If I'd
Speaker 2: allowed to say that, you know, it's like, as far
Speaker 2: as I can see, the E is the bit that
Speaker 2: gets all the attention. That's what people think of. So
Speaker 2: it's like, if it's a wind turbine creator, then yes,
Speaker 2: I'm going to buy that because it's it's E, and
Speaker 2: they don't really think about the S or the G.
Speaker 2: And if it's an oil major then not going to
Speaker 2: buy it because they just think about it, but they
Speaker 2: don't actually think, actually, this is a well run oil major.
Speaker 2: And that's before we even talk about how we meant
Speaker 2: to do without fossil fuels, you know, et cetera, et cetera.
Speaker 2: So yeah, I think it's more just it just points
Speaker 2: to that it was always a you know, a marketing
Speaker 2: tool at best, and a weird kind of metastasization that
Speaker 2: all of the stupid ideas that have come out during
Speaker 2: the zero percent interest rates.
Speaker 1: To me that if you look at the G, that
Speaker 1: should be the only one that really matters, because if
Speaker 1: the G is good, the rest will follow.
Speaker 2: Right.
Speaker 1: A well management a well managed company will obviously have
Speaker 1: an I to an S and an I to an
Speaker 1: E to environmental and social issues, But the G is
Speaker 1: the core thing. And you could say, and you know,
Speaker 1: we'll we'll look more closely. It's in James Places over
Speaker 1: the next couple of days. But you could say that
Speaker 1: it's the G that has.
Speaker 3: Fallen down here.
Speaker 1: I've just looked up when they announced their new fee structure,
Speaker 1: because everything everything changed again under regulatary pressure the end
Speaker 1: of last years in Change Place introduced a new fee
Speaker 1: structure and if you look at what these CEOs said
Speaker 1: at the time, given our confidence in making these changing.
Speaker 1: There is also no change to our ongoing dividend guidance,
Speaker 1: which continue to be based on blah blah blah. But
Speaker 1: what we found out today was that the dividend has
Speaker 1: been slashed fairly significantly. So there's a you know, there's
Speaker 1: a G issue there, and that seems to be the
Speaker 1: one that we should be looking at going forward. Anyway,
Speaker 1: that gave me an excuse to round about ESG briefly,
Speaker 1: but we'll move on from that. This is complicated, look
Speaker 1: at it more carefully than you ever might have thought
Speaker 1: that you needed to. Now, the next thing that's coming
Speaker 1: up is the budget quite soon. There's a lot of
Speaker 1: G issues going on there, right. We can't tell you exactly.
Speaker 2: Where's the G.
Speaker 1: Anyway, So inadequate G coming up next week definitely. We
Speaker 1: can't tell you what's going to happen, but we can
Speaker 1: tell you in advance to make absolutely sure that you
Speaker 1: have done everything you can to use all your tax allowances.
Speaker 1: You know, might as well use that iceer up now,
Speaker 1: might as well put what you can into your sip now.
Speaker 1: You just never know, right, John anything else we should
Speaker 1: be doing in advance.
Speaker 2: Well, it's the iSER SIP. If you're ruined the marginal
Speaker 2: income tax streets, obviously look at things like Salvary cyco phase.
Speaker 2: If you have got a lower on in spose or
Speaker 2: your spouse is the highly on in one, make sure
Speaker 2: your assets are distributed and our sensible tax efficient way.
Speaker 2: I don't see anything wrong with that. VCTs and thes's
Speaker 2: are obviously options if you really have an awful lot
Speaker 2: of money and you've used up your SIP allowance and
Speaker 2: your eyes allowance. But I think the other thing is
Speaker 2: and I mean I think it almost feels that it
Speaker 2: should be redundant to say this by now, because this
Speaker 2: has been the case for at least ten years now.
Speaker 2: But if you have your money and anything that even
Speaker 2: smells faintly like a tax dodge vehicle, then you shouldn't
Speaker 2: have because nowadays it's all about the spirit of the
Speaker 2: law rather than the letter of the law. So if
Speaker 2: the HMRC comes across this game that says that it's
Speaker 2: a bit avoiding tax, but they didn't intend it to
Speaker 2: be allowed to avoid tax, then you're going to carry
Speaker 2: the can for that at some point, And they're pretty
Speaker 2: aggressive it pursuing this, so don't be invested in it.
Speaker 2: And Dodgy basically just use the government approved tax efficient
Speaker 2: vehicles as best you can and then cross your fingers
Speaker 2: because the tax button is going to be high for
Speaker 2: a long time. Probably.
Speaker 1: Yeah, it's interesting in that John Way and I was
Speaker 1: looking for a new accountant about five six years ago
Speaker 1: for various reasons, and I went round a couple of accountants,
Speaker 1: you know, just think who would suit, et cetera. And
Speaker 1: there seemed to be an incredibly easy way to decide
Speaker 1: which accountant not to use, because several of them suggested
Speaker 1: to me various tax avoidance schemes which turned out, of
Speaker 1: course in the end to be classed as evasion schemes
Speaker 1: to do with films being the obvious, etcetera. And it
Speaker 1: turned out the very very very easy way to check
Speaker 1: which accountant you want to use, and anyone who offers
Speaker 1: you that stuff is not the accountant you want to use.
Speaker 3: That fascinating.
Speaker 2: It's interesting. I mean, I do think there's something that
Speaker 2: sort of felt at the tame. I think this is
Speaker 2: it's not ideal that we have sort of moved to
Speaker 2: a situation where it's all about the intent of the
Speaker 2: law rather than the letter of the law, because I
Speaker 2: think that that's a blanket for lots of bad governance.
Speaker 2: And also, I mean, I do wonder how much that's
Speaker 2: kind of influenced the way that a lot of politicians
Speaker 2: seem to want to now just say things and make
Speaker 2: it so, and that whole virtue signal and idea where
Speaker 2: you think you've passed a law and therefore you have
Speaker 2: dealt with a problem, as opposed to having you think
Speaker 2: about what the consequences of the law might be. So
Speaker 2: I do wonder how much of that's down to well, okay,
Speaker 2: now that this spirit of the law rather than the
Speaker 2: letter of the law kind of thing. But you just
Speaker 2: have to live with it. Unfortunately, you have to operate
Speaker 2: in the world as it is.
Speaker 3: That's interesting how often we have to remind people of that,
Speaker 3: isn't it?
Speaker 2: This is quite striking.
Speaker 1: Welcome to Marriage, Trucks, Money, the US and much people
Speaker 1: who know the markets explain the markets. I'm there in
Speaker 1: sum set Web this week I speak with Lynn Alden,
Speaker 1: the author of Broken Money, where our financial system is
Speaker 1: failing us and how we can make it better. This
Speaker 1: book came highly recommended lots of other people have read
Speaker 1: it and told me I should too.
Speaker 3: I have no, and I have now and I have there.
Speaker 1: It's a tremendous guide to the history of money and
Speaker 1: where we are now with the modern money system.
Speaker 3: Lynn, thank you so much for joining us today.
Speaker 4: Happy to be here, Thank you for having me.
Speaker 1: It's interesting you put money in the context of ledgers systems.
Speaker 1: So in the very beginning, people you sed always talk
Speaker 1: about just barter and trading shells, et cetera, et cetera.
Speaker 1: But you take a slightly different approach to the beginnings
Speaker 1: of money.
Speaker 3: So I wonder if you could just talk to us
Speaker 3: a little bit about that.
Speaker 4: Sure, And so in kind of historical economic literature, there's
Speaker 4: really two camps for what money is at its foundation,
Speaker 4: and so the most common one that people hear about
Speaker 4: is that before money, people had to use barter, so
Speaker 4: they had to trade different things, and then eventually they
Speaker 4: realized that if they all agree on a shared universe account,
Speaker 4: that it can make trade way easier. And this tends
Speaker 4: to be an emergent phenomenon that happens in societies all
Speaker 4: over the place. They choose different types of money based
Speaker 4: on their technological development, based on what's available to them.
Speaker 4: But those moneys tend to have certain attributes, and certain
Speaker 4: technical changes tend to obsolete certain types of money, and
Speaker 4: it tends to be like an iterative process. So if
Speaker 4: you choose the wrong type of money, someone else can
Speaker 4: basically exploit your wrong choices until the society settles on
Speaker 4: the right Money's basically the good that you'd like to hold.
Speaker 4: It's liquid, that's portable, that's long lasting, and that you
Speaker 4: can basically always have a high likelihood that you can
Speaker 4: trade it for something else. That's not the one camp
Speaker 4: of money. The other one less from the economic side
Speaker 4: and more from the anthropology side, which is to point
Speaker 4: out that not a lot of barter is found even
Speaker 4: in hunter gather societies or in kind of history as
Speaker 4: we know it, that barter tends to be a pretty
Speaker 4: rare state. And instead they point out that societies tend
Speaker 4: to sidestep the need for barter before it even arises.
Speaker 4: It's basically such a basic problem that even pre dating
Speaker 4: commodity money, usually they use credit to try to reduce
Speaker 4: the number of times they actually have to make a
Speaker 4: physical transaction, they say, but instead of trying to trade
Speaker 4: spears for furs and trying to figure out exactly what
Speaker 4: you need when I need. Instead, I can just give
Speaker 4: you what you need because I happen to have a
Speaker 4: surplus of many things at the moment. And that's based
Speaker 4: on the premise that at a later time and I
Speaker 4: might be deficient on something, you owe me whatever I
Speaker 4: need at that time, and so credit is an early tool,
Speaker 4: along with commodity money to mitigate that. And I think
Speaker 4: that the two ways to summarize that are if you're
Speaker 4: trying to avoid the double coincidence of wants, basically the
Speaker 4: challenging thing of having a surplus is something that someone
Speaker 4: else has a deficiency in, and having a deficiency is
Speaker 4: something that someone else has a surplusit and therefore being
Speaker 4: able to make a trade. The two ways to make
Speaker 4: that easier are either a shared unit of account that
Speaker 4: we can use for one side of every transaction that's
Speaker 4: basically commodity money, or that we can delay that over
Speaker 4: time by making it so that our double coincidence of
Speaker 4: wants doesn't have to be for the same thing at
Speaker 4: the same time. As long as there's a period where
Speaker 4: you need something and is a later period, write something
Speaker 4: that can be extended and therefore have a higher probability
Speaker 4: of success. Those are kind of the two paths of
Speaker 4: where money has originally.
Speaker 1: Yeah, and he use a wonderful example at the very
Speaker 1: early part of the book with Godfather to explain about
Speaker 1: this kind of social credit use of money.
Speaker 4: Yeah, that was a key example because Veto in the
Speaker 4: movie has most things that he needs, and so when
Speaker 4: people come to him, he doesn't really need anything from them.
Speaker 4: He doesn't want a little bit of money from them,
Speaker 4: he doesn't want anything they really have at the time.
Speaker 4: But instead of what he does, it says, I'll do
Speaker 4: this favor for you now, because he's in the position
Speaker 4: where he has a surplus of many things, many resources,
Speaker 4: and in their shadow economy that he's got a lot
Speaker 4: of resources to deploy, and what he asks for in
Speaker 4: favor is an unspecified favorite of future time. So he's
Speaker 4: basically saying, there's absolutely nothing I really want from you
Speaker 4: right now, but I perceive that there's a chance in
Speaker 4: the future that I will. And so that's basically a
Speaker 4: way of him granting them something even though he doesn't
Speaker 4: need anything from them, because he employs the usage of credit.
Speaker 1: Okay, interesting, now, one of the other examples that you
Speaker 1: use is one of my favorite examples in this island
Speaker 1: in the South specific Yeah, they've always have historically used
Speaker 1: these very big round stones with a hole in the middle,
Speaker 1: which they called ry stones. Is money, right, And this
Speaker 1: has been very interesting to everyone who's been interested in
Speaker 1: bitcoin since the very beginning, because it really did operate
Speaker 1: as what we now think of as a proper ledger system, right.
Speaker 4: Yeah, And that's a useful example because so in the book,
Speaker 4: for example, when I talked about those two types of
Speaker 4: money that I talked about, either credit or commodity money,
Speaker 4: the thing that they really have in common is basically
Speaker 4: people are deciding on what ledger they're going to use,
Speaker 4: what is the unit of account, and what is the
Speaker 4: record system that they're going to rely on. And so
Speaker 4: if you're using commodity money, you're basically using nature as
Speaker 4: your tool for saying, Okay, here's the number of units
Speaker 4: that exist at a given time, here's and then those
Speaker 4: units are updated by physical possession, whereas if you're relying
Speaker 4: on credit or similar systems, you're relying on human administers
Speaker 4: of that ledger, either orly or in writing. And the
Speaker 4: yap stones are interesting because they were an early combination
Speaker 4: of both, they kind of get to the root of money,
Speaker 4: being a ledger itself. And so that's an instance where
Speaker 4: a unique set of circumstances gave them a particularly unique
Speaker 4: type of money. So most commodity moneys and early times
Speaker 4: were things like grains and shells and cocoa, and they
Speaker 4: tend to have these kind of common attributes, whereas the
Speaker 4: yap stones the ry stones were quite different. So they
Speaker 4: were on a small island, and there's another island two
Speaker 4: hundred and fifty miles away or so, and on that
Speaker 4: other island they had very attractive limestone, and so they
Speaker 4: did not have it on their own island. And so
Speaker 4: they would go on fairly simple boats and they would
Speaker 4: go across this kind of treacherous water. They'd go mine
Speaker 4: the limestone, bring it back, carve it into big circles,
Speaker 4: and they'd have different sizes. Some of them could be moved,
Speaker 4: and some of them were so big that they could
Speaker 4: never realistically be moved again. And they had all these
Speaker 4: these stones, these limestones now on their own island, and
Speaker 4: when they transacted with each other from major things, they
Speaker 4: would just orally say, this stone now belongs to this person.
Speaker 4: So the big stones themselves don't move, and instead it
Speaker 4: just basically the island has a mental and oral ledger
Speaker 4: of who owns all the stones, but that it is
Speaker 4: backed up by the physical properties of the stones themselves.
Speaker 4: It's very hard to add new stones to the system.
Speaker 4: It takes a lot of work to do it. It's
Speaker 4: very dependent on the time and place. So, for example,
Speaker 4: the fact that it's a small island makes oral transmission
Speaker 4: of the ledger possible. And two, the technological era that
Speaker 4: they existed in made it so that the stones were
Speaker 4: very hard to acquire, and that was eventually broken by
Speaker 4: the fact that as people from industrial societies came to
Speaker 4: the island saw how to exploit the system, they would
Speaker 4: use their advanced technologies to more rapidly increase the number
Speaker 4: of those stones on the island, or otherwise use forced
Speaker 4: to coerce them through their appreciation of the stones to
Speaker 4: do things. But in that era that served as a
Speaker 4: particularly unique type of money.
Speaker 1: But both parts are interesting, aren't they. The first when
Speaker 1: the money system was working well, and then secondly when
Speaker 1: it was effectively destroyed by people with better technology bringing
Speaker 1: in more stones and hence too much flow, destroying the
Speaker 1: whole thing. So, but both parts of it are interesting
Speaker 1: in the context of looking at how money works today.
Speaker 4: Yeah, and it also shows that even dying money systems
Speaker 4: can have a second wind or a way to try
Speaker 4: to fight back. So, for example, when the stone system
Speaker 4: started being disrupted by those more industrial technology, the people
Speaker 4: that use that money system would say, well, older stones
Speaker 4: are more valuable now because they are provably prior to
Speaker 4: this technology. And so all these newer stones, they're kind
Speaker 4: of like modern art. We're not going to treat them
Speaker 4: the same way, whereas like these older stones are like
Speaker 4: Da Vinci paintings, right, they're not able to be reproduced
Speaker 4: even with better technology because we're now adding age as
Speaker 4: a factor. And so there's still were attempts to make
Speaker 4: that system go longer, and just of course over the
Speaker 4: long arc of time it became more of a relic
Speaker 4: of the past.
Speaker 1: Now, I'm slightly wondering how to approach the rest of
Speaker 1: the history of money before we get to the today,
Speaker 1: because there's so much going on here, from money being
Speaker 1: connected to commodities right through to the beginning of fractional banking, etc.
Speaker 1: What do you think of the sort of key points
Speaker 1: on the journey from effectively YAP to here.
Speaker 4: I think the main thing is that as different moneies
Speaker 4: came together, so as all these societies met each other,
Speaker 4: there is an iterative process where the weaker moneies increasingly
Speaker 4: got sorted out, like the stones we just talked about
Speaker 4: and other types of moneies, until basically the ones that
Speaker 4: kind of were left standing given all of humanity shared
Speaker 4: technology was gold and silver because they were resistant to
Speaker 4: debasement even with better technology, and they had better properties
Speaker 4: of money in the more universal sense. And each society
Speaker 4: had their own money based on what was available, what
Speaker 4: was technologically suitable. But then as time progressed, as societies
Speaker 4: met each other, there were objectively better answers than other
Speaker 4: answers for what constitutes good money, and as those came together,
Speaker 4: the more suitable money would win out, until the whole
Speaker 4: world found itself on a shared standard.
Speaker 1: Okay, So then we end up with gold and silver
Speaker 1: effectively being a global money system. And what was the
Speaker 1: next big step after that?
Speaker 4: The next big step after that was so that was
Speaker 4: you know, thousands of years of kind of finding out
Speaker 4: what is the best physical money. But the other big
Speaker 4: step was how do you move money around? So even
Speaker 4: those top money still had limitations for verification, a physical
Speaker 4: transfer to visibility limitations in some cases, and so the
Speaker 4: other kind of technical path was different. Proto banking and
Speaker 4: full service banking arrangements that people and cultures would develop
Speaker 4: on top of those money systems so that they could
Speaker 4: move the ownership of the money more easily and faster
Speaker 4: and cheaper. They didn't have to move the physical money itself.
Speaker 4: An early example in the book that I used is
Speaker 4: the Hawala system, which is prevalently even before Italian city
Speaker 4: state banking, basically throughout North Africa, the Middle East and
Speaker 4: stretching into India, basically along the Silk Road path. There
Speaker 4: would be these money changers called haualidars, and if you
Speaker 4: wanted to transport gold from one city to another city,
Speaker 4: for example, the expensive way is to physically transport it,
Speaker 4: which you might do if you have a sufficient amount
Speaker 4: and you're highly secure, you might want to do that.
Speaker 4: But if you're doing that on a regular basis, a
Speaker 4: service that was provided was that you could deposit gold
Speaker 4: with your local haualidar. They would give you a receipt
Speaker 4: for that gold, and then you or your messenger could
Speaker 4: transfer that receipt to another city, and in that city,
Speaker 4: that Houalidar has a contact with another Haualidar, and you
Speaker 4: would redeem the gold from that other Haualidar, and those
Speaker 4: Haualidars between those cities would do multiple these transactions and
Speaker 4: give monther a given year and they would net out,
Speaker 4: so maybe every six months or every twelve months they
Speaker 4: would actually do a physical settlement to sort that out,
Speaker 4: but they're able to do multiple transactions between them just
Speaker 4: by transferring kind of the knowledge that was made. And
Speaker 4: so we can think of that as a series of
Speaker 4: analog encryptions. Because when they invented paper, it was improvement
Speaker 4: over papyrus. When they invented book binding, that was an
Speaker 4: improvement over scrolls. When they invented the printing press, that
Speaker 4: was an improvement over handwriting. They had to have analog
Speaker 4: encryption techniques to make it so that people could not
Speaker 4: just forge different types of receipts or copy different types
Speaker 4: of receipts that are redeemable for gold for obvious reasons
Speaker 4: relating to fraud, and so on top of all that
Speaker 4: kind of global contest to see what types of moneies
Speaker 4: are most suitable, there's also this kind of global growth
Speaker 4: in terms of all these different methods to more efficiently
Speaker 4: transfer the ownership of those underlying especially gold and silver,
Speaker 4: but really any sort of physical object.
Speaker 1: So now we're moving towards papers is bearer assets, and
Speaker 1: we're moving towards the possibility of fractional banking.
Speaker 4: Right Yeah, Because basically any sort of money change or
Speaker 4: any sort of monetary entity would realize that a lot
Speaker 4: of people would deposit their gold. They'd have these paper
Speaker 4: receipts for gold, and they would find that way more
Speaker 4: convenient than holding their gold themselves. And so they would
Speaker 4: realize that most people do not redeem their gold all
Speaker 4: at once. Any given time, there's a small percentage that
Speaker 4: might be being redeemed or being deposited, but that they have
Speaker 4: a common float there, and so the temptation there is, okay,
Speaker 4: we can lend some of it out, earn interest and
Speaker 4: therefore reduce the fees that you charge your depositors and
Speaker 4: maybe even give them a share of interest, which allows
Speaker 4: you to outcompete other custodian type entities. And that works
Speaker 4: for a period of time, but it leads to obviously
Speaker 4: some systemic issues if you do get a bigger than
Speaker 4: normal attempt to withdraw the gold, and your assets are
Speaker 4: denominated partially in gold and partially in these less liquid
Speaker 4: loans and other assets other types of collateral, then you
Speaker 4: could fail to meet that, and so they started to
Speaker 4: introduce basically systemic instability into some of these arrangements, because
Speaker 4: the way I put it in the book is there
Speaker 4: was an increasing speed gap between transactions and settlements. So
Speaker 4: over time, as all these different layers on top of
Speaker 4: gold and silver became more and more efficient, it allowed
Speaker 4: those number of claims to grow compared to how much
Speaker 4: underlying metal there was, until it became systemic and a
Speaker 4: big technology I focus on, which people don't really think
Speaker 4: of the telegraph as a monetary technology, but it was
Speaker 4: arguably one of the biggest technologies for how we use
Speaker 4: money and how banking works. Because prior to the telegraph,
Speaker 4: anytime you transferred to information, you still had to get there.
Speaker 4: You had to physically move people, ships and horses and
Speaker 4: all that to get the information to another city, whereas
Speaker 4: in the eighteen sixties, once we had the telegraph over
Speaker 4: continents and across oceans, you could update each other's ledgers
Speaker 4: at the speed of light, and you had a huge
Speaker 4: gap between all these kind of banking arrangements and the
Speaker 4: physical gold, and you had a very kind of elaborate,
Speaker 4: hierarchical system of multiple claims for every unit.
Speaker 3: Of underlying sounds like the beginning of the end.
Speaker 4: That's how it ended up going. Basically. One of my
Speaker 4: favorite sources in the book is in eighteen seventy five,
Speaker 4: William Stanley Jevins wrote a book called The Money and
Speaker 4: the Mechanism of Exchange, and I cited that in the book,
Speaker 4: and it's a fascinating read because it's one hundred and
Speaker 4: fifty years ago and he's describing how the monetary system
Speaker 4: works and how technologies are making their monetary system more efficient,
Speaker 4: and he's very precient because he's on one hand, he's saying,
Speaker 4: look how efficient we've become. Every friction we encounter, we
Speaker 4: just centralize it. So you know, basically all global trade
Speaker 4: can just go through London now and everything can net
Speaker 4: out and gold rarely ever has to ever move, and
Speaker 4: it's hyper efficient, and this is great. The other hand
Speaker 4: is we have to remember that all of these claims
Speaker 4: are redeemable for gold, and the system's now levered twenty
Speaker 4: to one, and so if five percent of people show
Speaker 4: up and want their gold back. The system is illiquidated
Speaker 4: and not solvent, not able to make those claims, and
Speaker 4: so it's like he's balancing these kind of observations around
Speaker 4: efficiency and stability. And of course we know from history
Speaker 4: that a few decades later in World War One, that
Speaker 4: whole leverage system unraveled and we had to go through
Speaker 4: major transformations of what we use as money because that
Speaker 4: increasing kind of leverage, that increasing speed gap, really changed
Speaker 4: how humans interact with money.
Speaker 3: Well, you have them. I'm glad we've made it to
Speaker 3: World War One. We've skipped hundreds of years. We've done brilliantly.
Speaker 1: And in the middle of the book there's a really
Speaker 1: terrifying chot of the buying power of one hundred pounds
Speaker 1: over time seventeen fifty to twenty twenty three. And by
Speaker 1: the way it's telling is it is the oldest existing
Speaker 1: current in the world, doesn't it. I mean, it's been
Speaker 1: going for so many hundreds of years, it's really quite impressive.
Speaker 1: Was it's lost the majority it was value over that time,
Speaker 1: But nonetheless, sterling is the oldest consistent currency.
Speaker 4: Yeah, it's the oldest consistent currency that is still alive today.
Speaker 4: And it's interesting because for centuries it had a very
Speaker 4: slow debasement rate. It was an average of something like
Speaker 4: zero point one five percent per year. There were these
Speaker 4: occasional mild devaluations. It used to be a pound of silver,
Speaker 4: now it's a couple of grams of silver. But over
Speaker 4: like the first you know, six seven plus centuries, it's
Speaker 4: a very kind of steady, slow debasement rate. But once
Speaker 4: World War One happened, and once kind of this huge
Speaker 4: gap opened up between efficiency of trading all these claims
Speaker 4: around and being able to fraction reserve everything, you started
Speaker 4: to get this rapid deterioration in the pound sterling compared
Speaker 4: to the underlying precious metals and for perching power in general.
Speaker 4: And one of the observations I make in the book
Speaker 4: is that that opened up a kind of a problematic
Speaker 4: inct of structure, because the basement has been something that
Speaker 4: has existed for thousands of years, I mean, going back
Speaker 4: to Roman times and prior coinage has always been debased
Speaker 4: to varying degrees. But the modern system allowed that debasement
Speaker 4: to happen practically overnight instead of over years and decades.
Speaker 4: And so basically with a stroke of a pen, whenn
Speaker 4: entity a government can now print a lot of money
Speaker 4: and then break all the pegs to base all the money,
Speaker 4: and then as in the years that follow, as the
Speaker 4: inflation follows, then they go back and try to address
Speaker 4: what happened. And so what would normally take many years
Speaker 4: in a long period of time can be compressed into
Speaker 4: it really with a stroke of a pen. And that's
Speaker 4: the modern era of money that we find ourselves in.
Speaker 1: One of the extraordinary stories around this that you tell
Speaker 1: in the book is about the UK Warlon, which was
Speaker 1: only paid off relatively recently, and there was a publicity
Speaker 1: campaign at the time that suggested that the Warlane was
Speaker 1: an easy sell and it was hugely able subscribed and
Speaker 1: the British rushed to buy the wall to help finance
Speaker 1: the war, and that was what was put about at
Speaker 1: the time. But it turned out, of course not to
Speaker 1: be true at all, and we only found out much
Speaker 1: later in twenty seventeen that the Bank of England blog
Speaker 1: was called Bank Underground wrote a piece explaining the in fact,
Speaker 1: this hadn't happened at all, and effectively the money is
Speaker 1: simply been printed and then in a wonderful little end
Speaker 1: point of this saga the ft that had written stories
Speaker 1: at the time saying how wonderful it was that everyone
Speaker 1: had rushed to buy the wooloone printed and apology in
Speaker 1: twenty seventeen saying that everything they had written was not true.
Speaker 1: We are now happy to make it clear that none
Speaker 1: of the above was true. So this is when the
Speaker 1: central banks started this money printing process in real earnest
Speaker 1: and also started not quite telling us the truth about it.
Speaker 4: Well, we think of government finances ot and think of
Speaker 4: taxation and spending, and that is a fairly transparent process,
Speaker 4: and that can be kind of debated each year and
Speaker 4: each electa siason to see, Okay, what a tax is
Speaker 4: going to be, what is the budget deficit or surplus,
Speaker 4: what kind of thing is we're spending on. Whereas inflation
Speaker 4: is a more opaque form of taxation that can be
Speaker 4: done first and then sorted out later after the consequences
Speaker 4: have already occurred. And for example, in that arrangement to
Speaker 4: finance that war, they could just lie and say, Okay,
Speaker 4: the loans have been met, when really what they're doing
Speaker 4: is they're just printing money. They're financing the loans through
Speaker 4: new money creation. And therefore they're spending into the economy
Speaker 4: money that they did not withdraw from the economy. Therefore
Speaker 4: they're expanding new overall money supply, and therefore all of
Speaker 4: the holders of the currentsy all the holders of the bonds,
Speaker 4: including foreign holders of currency and bonds, are getting sharply
Speaker 4: devalued without knowledge that it's happening, and without having given
Speaker 4: any sort of consent or any sort of process to
Speaker 4: make that happen, and then only in hindsight in this
Speaker 4: case comically like a century later. But even if it
Speaker 4: takes place three years five years later, the consequences have
Speaker 4: smoothed out over time, they go back and realize that
Speaker 4: they never actually consent to. This is basically taxation without
Speaker 4: input or knowledge, and therefore it could not be debated,
Speaker 4: couldnot be protested, It couldnot be discussed in a way
Speaker 4: that would normally be done with taxation. I guess one
Speaker 4: of the themes in the book is that as technologies come,
Speaker 4: it can sometimes change the power structure, or the incentive structure,
Speaker 4: or where the source of power is. Prior to that
Speaker 4: kind of era of telecommunications and heavy use of banking,
Speaker 4: money was intrinsically hard to debate it was a very
Speaker 4: challenging physical process, slow process to do it, but in
Speaker 4: this modern era, because it can be done so quickly,
Speaker 4: it really shifts a lot of that power to those
Speaker 4: who wield the power of the printing press.
Speaker 1: And it makes central banks extraordinarily powerful, doesn't it. And
Speaker 1: as one of the bizarre things about recent times has
Speaker 1: been the idea that an independent central bank is a
Speaker 1: very good thing, whereas in fact, in some ways it's
Speaker 1: a bit of a threat to democracy because if the
Speaker 1: central banks have the power to do this, to create
Speaker 1: the inflation and effectively to transfer between different groups in
Speaker 1: the economy, it's not necessarily something one likes to think
Speaker 1: of happening outside democracy.
Speaker 4: Yeah, and it's one of those things where central so
Speaker 4: central bank independence. The main purpose of it is so
Speaker 4: that the like a president or a prime minister some
Speaker 4: sort of leader can't just call up the central bank
Speaker 4: in a week leading up to an election and say, hey,
Speaker 4: I need you to cut industrates, or I need you
Speaker 4: to juice the economy, or I'm going to fire you, right,
Speaker 4: So that it's trying to avoid those kind of near
Speaker 4: term abuses of the system by instead having some sort
Speaker 4: of separate powers. The challenge is that, especially during crises,
Speaker 4: central bank independence tends to go away. The government just
Speaker 4: captures the central bank and says, look, it's a war.
Speaker 4: You're going to finance the war. So it's not really
Speaker 4: independent anymore. And then two, even when it is independent,
Speaker 4: people are end up therefore very reliant on the competence
Speaker 4: and the ethics of the central bank, which can be
Speaker 4: people that they didn't necessarily lack. Obviously, each country will
Speaker 4: have its own process for how the bank is structured,
Speaker 4: but these are generally appointed rather than elected officials. A
Speaker 4: rather small number of people dictating what the price of
Speaker 4: money is, what the price of money and time is
Speaker 4: essentially able to make low credit loans to certain entities
Speaker 4: and not other entities, and therefore they get quite a
Speaker 4: bit of power, the power of the purse, the power
Speaker 4: of even defining what our money is, something that is
Speaker 4: both powerful but opaque.
Speaker 1: And as I say, uncomfortable outside the democratic process. Now,
Speaker 1: let's flip forward another few decades and talk about today.
Speaker 1: And the key point of the book is that our
Speaker 1: money system is broken and that we're being failed by
Speaker 1: the system as a whole. So let's talk about what's
Speaker 1: broken now. More than has been in the past. What's
Speaker 1: so terrible, and that for most people money works. You know,
Speaker 1: they have a bank account, they investor bit, they buy
Speaker 1: this ou there are debit cards work, that bank accounts work.
Speaker 1: Now they're getting some interest on their bank account. That
Speaker 1: I was saying, this is marvelous. So for most people
Speaker 1: they would say, well, I don't know what you're talking about.
Speaker 1: My money works.
Speaker 4: Yeah. A distinction I make in the book is between
Speaker 4: developed and developing countries. I argue in the book that
Speaker 4: there's problems with money everywhere, but they're more obvious in
Speaker 4: certain areas than others. So when we zoom out, there
Speaker 4: are about one hundred and sixty currencies in the world,
Speaker 4: and outside of the handful many many listeners of this
Speaker 4: are probably in the handful of me and you and
Speaker 4: others listening are in the handful of currencies that are
Speaker 4: the least bad. These are the ones that lose value
Speaker 4: the slowest despite all the problems we just discussed. Outside
Speaker 4: of major wartime, they are kind of a slowly debasing currency,
Speaker 4: Whereas when you look at the long tail of most currencies,
Speaker 4: which is actually where most of the people in the
Speaker 4: world live, they experience much more rapid currency debasement, and
Speaker 4: therefore all of those issues we just talked about, the
Speaker 4: opaqueness of say, financing government through inflation, for example, things
Speaker 4: like that happen way more magnitude and way more frequency
Speaker 4: in many other countries in the world. So that's one
Speaker 4: big problem. And two, there's actually a shocking number of
Speaker 4: people in the world that are still unbanked. So you know,
Speaker 4: banks have been now around for centuries even longer in
Speaker 4: some forms, and yet there's in a fairly short period
Speaker 4: of time more people have smartphones than have bank accounts.
Speaker 4: In the current era, there's basically an inherent kind of
Speaker 4: limitation to banks and so the combination.
Speaker 1: But if you have a smartphone, do not automatically have
Speaker 1: a bank account. I mean in Kenya, I noticed it's
Speaker 1: all now, but there was empesser etc. There's always something
Speaker 1: you can do with the phone to create the equivalent
Speaker 1: of a bank account.
Speaker 4: The equivalent, yes, And I think that's actually one of
Speaker 4: the kind of pieces of my book is that technology
Speaker 4: is kind of enabling people to go around these issues.
Speaker 4: And so you know, in these countries I just talked
Speaker 4: about all these countries with failing currencies or mixed access
Speaker 4: to bank accounts. Technology is now enabling people to have
Speaker 4: more choice over their money. So things like bitcoin or
Speaker 4: stable coins allow people in all these different jurisdictions to say,
Speaker 4: instead of my local rapidly debasing currency that my wages
Speaker 4: and my savings are denominated in, I can go around
Speaker 4: that system and I can say I want dollars from
Speaker 4: this jurisdiction, or I want this decentralized currency bitcoin, or
Speaker 4: whatever the case may be, depending on their preferences, their
Speaker 4: volatility tolerance, their technical understanding. And so that's basically a
Speaker 4: way to break into all these different silos. And the
Speaker 4: other point I make in the book is that when
Speaker 4: we look at develop countries, so obviously we have a
Speaker 4: lot fewer obvious problems with our money. Like you said,
Speaker 4: we don't really have problems making payments, we don't really
Speaker 4: have problems with rapid debasement, but instead that the problems
Speaker 4: tend to be more subtle. So, for example, the rapid
Speaker 4: accumulation of government debt is one of those things where
Speaker 4: it's this kind of slowly growing instability outside of our
Speaker 4: kind of immediate concern, but something that long terms an issue,
Speaker 4: and I think a more kind of short term issue
Speaker 4: something that kind of happens on a regular basis is
Speaker 4: that people underestimate the importance of credit. And so, for example,
Speaker 4: during major crisses, when credit locks up, when governments and
Speaker 4: central banks give selective credit to some entities. For example,
Speaker 4: in the United States during the Global financial crisis, they
Speaker 4: gave credit to large banks, but they would not give
Speaker 4: credit to say, some smaller banks or homeowners and entities
Speaker 4: like that, and so they can selectively basically bail out
Speaker 4: certain entities more so than other entities. And this is
Speaker 4: kind of a recurring cycle that happens recession after recession
Speaker 4: after recession, and it's one of the key forces of
Speaker 4: wealth concentration that's happening under the surface. So in some ways,
Speaker 4: the kind of the problems of the money that we
Speaker 4: have in developed countries are more like the problems of
Speaker 4: having a bad diet. And we talk about the quality
Speaker 4: of food, for example, we might say, well, when we
Speaker 4: eat it, we get full, we function, we don't really
Speaker 4: see a problem. But of course if we're eating bad
Speaker 4: food over a long period of time, those problems tend
Speaker 4: to accumulate, Whereas in developing countries the money problems tend
Speaker 4: to be more bad on the surface, it's more like
Speaker 4: the food is poison, and it's more obviously in your
Speaker 4: face a problem. And so there's all these kinds of
Speaker 4: inefficiencies built up in the system, and I argue that
Speaker 4: a lot of it is just because of the technology
Speaker 4: path that we've you know, kind of the deterministic technological
Speaker 4: path and the order of technologies that we've had up
Speaker 4: to this point.
Speaker 3: Okay, so how do we fix it?
Speaker 4: Linn. The book basically doesn't have a firmly prescriptive view,
Speaker 4: but it basically emphasized that some of these open source
Speaker 4: technologies that are still somewhat dismissed by academia and kind
Speaker 4: of mainstream journalism are I think a lot more powerful
Speaker 4: than they get credit for. Basically, within that kind of
Speaker 4: one hundred and sixty different currency framework that I mentioned,
Speaker 4: the fact that these currencies can go around borders, the
Speaker 4: fact that they can provide people more choice of what
Speaker 4: money that they want to hold, regardless to where they are.
Speaker 4: As long as they have some sort of basic internet connection,
Speaker 4: some sort of basic phone service, they're able to go
Speaker 4: around these types of blockades. And that's over the long
Speaker 4: arc of time, I think able to put a lot
Speaker 4: more restraints on the types of manipulations that can occur
Speaker 4: outside of their purview and give them more options. For example,
Speaker 4: I personally spend part of each year in Egypt. So
Speaker 4: I live most of the year in the United States
Speaker 4: part of each year in Egypt, and that's because some
Speaker 4: of my family and friends are in Egypt. My husband
Speaker 4: and I are kind of buy country, and whenever we're
Speaker 4: in Egypt, we see a lot of these problems, a
Speaker 4: lot more acutely compared to when we're in the United States,
Speaker 4: and I'm always reminded when I go there. How in
Speaker 4: the twenty first century, our technological aspects of money have
Speaker 4: not really caught up with the technological aspects of other
Speaker 4: parts of our lives. And so, for example, an anecdote
Speaker 4: that I'd like to share a lot is I know
Speaker 4: a physician in Egypt that holds physical cash dollars that
Speaker 4: he buys on the black market as his primary liquid
Speaker 4: savings because he doesn't trust the local currency. They have
Speaker 4: thirty seven percent inflation, They've had double digit inflation more
Speaker 4: often than not over the past fifty years. That's in
Speaker 4: the twenty first century. In twenty twenty four, that's his
Speaker 4: chosen monetary technology, and it just shows that this whole
Speaker 4: system I think is right for disruption. And I think
Speaker 4: that these kind of open source things, and I tend
Speaker 4: to focus on bitcoin and stable coins have thus far
Speaker 4: kind of had the most utility in these areas, serve
Speaker 4: people in these different jurisdictions and kind of go around
Speaker 4: and present an alternative to somebody's more centralized and kind
Speaker 4: of rapidly debasing or rapidly kind of financially abused systems.
Speaker 1: When people like me say that they can't quite get
Speaker 1: their head around the likes of bitcoin as a long
Speaker 1: term entity because they can't see the use case said,
Speaker 1: is simply because we're not looking outside the developed world
Speaker 1: for a use case.
Speaker 4: I think that's a big chunk of it. So in
Speaker 4: the developed world, for example, we don't really have a
Speaker 4: rapid like a major payment problem, and for our savings problem,
Speaker 4: we have some issues with it, but not really so
Speaker 4: for example, we can hold money in the s and
Speaker 4: P five hundred. Our equity markets are fairly good, and
Speaker 4: we don't really face problems too often with bank accounts
Speaker 4: being frozen or for kind of arbitrary reasons or things
Speaker 4: like that. Whereas when you go to many other countries.
Speaker 4: One the currency is rapidly debasing generally faster too. They
Speaker 4: don't really have access on average to as good equity
Speaker 4: markets as we do. You know, they'll have a lot
Speaker 4: of volatility, not a lot of upside. If the country
Speaker 4: even has a significant equity market to the extent that
Speaker 4: they can get access to offshore assets, it's usually more
Speaker 4: restricted to the wealthy end of the spectrum. Right, If
Speaker 4: you can afford an offshore bank account, if you can
Speaker 4: afford an offshore brokerage account, you're generally in a better position.
Speaker 4: And so there's a lot of these technologies are kind
Speaker 4: of an equalizer. They basically say, if you have a smartphone,
Speaker 4: then you can access to the type of things that historically
Speaker 4: we're more accessible to the wealthy. And then also, for example,
Speaker 4: if your bank accounts are just arbitrarily frozen, right, there
Speaker 4: are a lot of countries where if you protest or
Speaker 4: things like that, your bank account's just frozen, confiscated. And
Speaker 4: so there's actually you know, human rights organizations or democracy
Speaker 4: advocates and things like that that make use of stable coins,
Speaker 4: bitcoin and other sort of descentalized financial systems to go
Speaker 4: around the fact that their local jurisdictions got a monopoly
Speaker 4: over the monetary system. And I think that those are
Speaker 4: these things that often go overlooked in a lot of
Speaker 4: these discussions around the usefulness of this type of technology,
Speaker 4: which to some extent understandable because there's been so much fraud,
Speaker 4: there's been so much hype in the broader space, and
Speaker 4: I think it's a shame because underneath all of that
Speaker 4: kind of hype and fraud and problems, there are these
Speaker 4: seeds of really important use cases, at least for a
Speaker 4: subset of the technology.
Speaker 1: Now, let me just ask you about one of the
Speaker 1: other things that the skeptics such as me to say
Speaker 1: you mentioned earlier that in times of crisis, a central
Speaker 1: bank is no longer independent because and we know that
Speaker 1: it isn't a time of crisis that we understand properly
Speaker 1: the sovereignty of the nation state. Right, So if stable coins, Bitcoin,
Speaker 1: any of the new cryptocurrencies were to become a threat
Speaker 1: to an existing currency, surely the same thing can happen,
Speaker 1: and that if they become a threat, we find out
Speaker 1: about the power of the nation's stage and they're stopping
Speaker 1: a threat.
Speaker 4: So I think that depends on the authority of the
Speaker 4: nation state. And so an interesting case study in recent
Speaker 4: years was Nigeria. So that's a country of two hundred
Speaker 4: million people. They ban cryptocurrencies from their banking system, so
Speaker 4: they basically said banks can no longer send money to
Speaker 4: known crypto exchanges, and they introduced their enira, the CBDC
Speaker 4: and yet for you know, years, three years or so,
Speaker 4: they had very limited adoption of the enira. And they
Speaker 4: have one of the highest adoption rates of cryptocurrencies mainly
Speaker 4: stable coins and bitcoin in the world. And specifically they
Speaker 4: have really high peer to peer trading volumes because that's
Speaker 4: how they go around their local banking system. And so
Speaker 4: there are certain technologies or certain kind of transparency things
Speaker 4: that make it pretty hard for governments to always get
Speaker 4: away with specifically what they want to do. Now, obviously
Speaker 4: a country like China would would likely have more success
Speaker 4: us at pushing things that it wants to do then
Speaker 4: say a country like Nigeria.
Speaker 1: I wonder if we can briefly but move away from
Speaker 1: the book and talk in general about markets and economics,
Speaker 1: because you're not just an author a strategist, and the
Speaker 1: most important thing at the moment for everyone investing, for
Speaker 1: everyone is to think about where inflation is going next.
Speaker 1: And we talk a lot on this podcast about how
Speaker 1: we have not expected inflation to go up, come down,
Speaker 1: and stay down, because mostly when you have these inflationary episodes,
Speaker 1: they tend to come and go. You get inflation, you
Speaker 1: get a little disinflation, you get inflation again, et cetera.
Speaker 1: And having looked at your work, I see that's a
Speaker 1: few point that you agree with or appear to agree with.
Speaker 4: Yeah, And I think a big factor to focus on
Speaker 4: that's going to really dictate the pace of inflation is
Speaker 4: the energy side. So if you look back at all
Speaker 4: the major of modern history, they always coincided with spikes
Speaker 4: and energy prices because that's been underlying input for a
Speaker 4: lot of things. It's the underlying input for wages, it's transportation, automation.
Speaker 4: Now even currently things like AI run on quite a
Speaker 4: bit of power. And if you have abundant energy, then
Speaker 4: some of those other inflationary forces in the economy they're present,
Speaker 4: but they're not as severe as one might think. Whereas
Speaker 4: when the energy itself is inflationary, almost any reductions in
Speaker 4: other areas tend not to be sufficient to offset that inflation.
Speaker 4: So my kind of expectation is that on average, this
Speaker 4: decade is going to have higher average inflation than the
Speaker 4: prior couple decades, but the timing and severity of any
Speaker 4: kind of further inflation waves you might experience are likely
Speaker 4: to be quite coincident with energy. So I think basically,
Speaker 4: if one wants to have a strong opinion on that,
Speaker 4: they really have to dive into, especially in their particular country,
Speaker 4: the sources of energy that they use, the likelihood of,
Speaker 4: for example, global oil disruptions, the growth rate of US
Speaker 4: shale oil, and the ability to meat demands of the
Speaker 4: next five years or so. And so my expectation is
Speaker 4: that by the time this decade's finished, we're probably going
Speaker 4: to have another energy price spike and another inflation spike,
Speaker 4: and so I think that's where I'm focusing. I think,
Speaker 4: aside from that is just the ongoing issue of the
Speaker 4: money supply growth that occurred a few years ago is
Speaker 4: still working its way through the economy. It's still working
Speaker 4: its way through weight growth as a price growth, and
Speaker 4: so I think that process still has some time to go.
Speaker 4: But that if not for an energy spike, that can
Speaker 4: eventually settle back down. And it's really about the energy
Speaker 4: side that I think will determine the timing or magnitude
Speaker 4: of future inflation waves.
Speaker 3: Okay, and how would that affect markets?
Speaker 4: So if you were to get another sustained inflation wave,
Speaker 4: that probably of the market would then price bond you'll hire.
Speaker 4: And I would be concerned about some of these really
Speaker 4: high valued equities that are trading at thirty, forty fifty
Speaker 4: times earnings in some cases, because you tend to have
Speaker 4: a thing where during periods of low inflation, equity valuations
Speaker 4: and can get very high because the cost of money
Speaker 4: is very low. Whereas in environments where we have more
Speaker 4: of these inflation of core inputs, some of these more
Speaker 4: disinflation type of assets, high valued equities or bonds and
Speaker 4: things like that, tend to do very poorly. So a
Speaker 4: lot of investors are invested with structural disinflation in mind.
Speaker 4: The classic sixty to forty portfolio of equities and bonds,
Speaker 4: and especially market cap weighted equities, so they're very geared
Speaker 4: towards the large growth stocks, especially in the United States markets.
Speaker 4: I like having a separate segment in a portfolio focused
Speaker 4: on energy because that is in many cases a better
Speaker 4: hedge against the rest of the assets during decades that
Speaker 4: are more inflation a on average. So during disinflationary decades,
Speaker 4: bonds are a better hedge for equities, whereas during inflationary decades,
Speaker 4: energy tends to be a better hedge for the rest
Speaker 4: of in equity portfolio. So I certainly like to have
Speaker 4: that slice of protection.
Speaker 1: Now, Lynn, I always ask at the end of the podcast,
Speaker 1: always asked the same question. I feeling slightly embarrassed and
Speaker 1: a little pointless asking you this question, but I have
Speaker 1: to because I ask everybody. Okay, if you.
Speaker 3: Here we go.
Speaker 1: If you were to only be able to invest in
Speaker 1: one asset over a ten year period, and you were
Speaker 1: only given a choice of two assets, one of those
Speaker 1: was gold and one of those was bitcoin, which would
Speaker 1: you choose?
Speaker 4: So Bitcoin is the risk your choice in the sense
Speaker 4: that there's a non zero chance that the investment gets
Speaker 4: heavily disrupted in some way, whereas gold by the end
Speaker 4: of the decade that you're still going to have you
Speaker 4: know roughly probably what your perching power is. But between
Speaker 4: the two, I would have to probably go with bitcoin, Okay.
Speaker 3: So you still have some confidence in gold. That's interesting.
Speaker 4: So gold has had this place as a kind of
Speaker 4: a mental backstop for kind of the global financial system.
Speaker 4: It's kind of this this like head, this kind of
Speaker 4: bearer asset that you can hold that can't be rapidly debased.
Speaker 4: And in a world of bitcoin and digital assets and equities,
Speaker 4: I think gold is still an analog backups. People say,
Speaker 4: what about cyber attacks, what about Internet outages, what about
Speaker 4: power disruptions, all this kind of tail risks that people
Speaker 4: can imagine. I think gold just transfers over to that
Speaker 4: new world and still serves that kind of similar mental backstop.
Speaker 4: And it's also still what central banks prefer as their
Speaker 4: their main underlying collateral, aside from other other countries bonds.
Speaker 1: Final question, everyone's going to go out and buy your
Speaker 1: book and read it now if they haven't already on
Speaker 1: any lots of well listen as they've already got it
Speaker 1: and already read it. But your book aside, is there
Speaker 1: are there any books that will one book in particular
Speaker 1: that you see as an investing bible that you would
Speaker 1: recommend to everybody that they should read.
Speaker 3: Do you have a favorite?
Speaker 4: So? I think actually a really simple one is the
Speaker 4: most important thing by Howard Marx, and it's the reason
Speaker 4: I like it it's a very accessible read. It's not
Speaker 4: really about them like the detailed mechanics of investing. It's
Speaker 4: based on just investing principles. And so if people that
Speaker 4: aren't familiar with him, Howard Marx is a billionaire investor
Speaker 4: primarily in junk bonds, but the book itself applies to
Speaker 4: He's well known for his kind of macro or insightful
Speaker 4: articles on multiple topics, and the book itself is not
Speaker 4: about any specific asset class. It's more about the mindset
Speaker 4: and kind of the joke of the book is that
Speaker 4: Howard found himself whenever people say would talk to him
Speaker 4: and say the most important thing is this, and then
Speaker 4: like in another conversation, you'd be like the most important
Speaker 4: thing and it'd be like a different topic. So, as
Speaker 4: a joke wrote the book in every chapter is a
Speaker 4: different most important thing. And so the book itself is
Speaker 4: a fairly concise set of independent descriptions or recommendations for
Speaker 4: how to think about investing, how to think about finance.
Speaker 1: Wonderful, Lynn, thank you so much for all those fascinating insights.
Speaker 3: We hugely appreciate you.
Speaker 4: Joinning you thank you for having me.
Speaker 1: With me now to reflect to what we just said
Speaker 1: from Lynn Alden, author of Broken Money, is senior reporter
Speaker 1: John Steppeg. John, I'm so glad you're had to talk
Speaker 1: to me about this one. This was just the most
Speaker 1: fascinating podcast, wasn't it.
Speaker 2: I know, I thought it was great. Actually really really
Speaker 2: their history of money is so interesting, and I would
Speaker 2: say that Len's basically summed it up, you know, your
Speaker 2: lessening this. She actually probably don't really have to go
Speaker 2: and read my chairs apart for the hard book obviously,
Speaker 2: So no, I thought I thought it was great.
Speaker 3: Yeah, I mean, I just loved the way.
Speaker 1: I love the way that she looked at money from
Speaker 1: the very beginning as being ledger based, you know, because
Speaker 1: people don't think about it. We talked about this a
Speaker 1: bit about about how people look at the origins of
Speaker 1: money being about barter, where in fact it's much more
Speaker 1: likely it was never about barter. It was always about
Speaker 1: credit credit in people's heads, credit credit using stones, using
Speaker 1: shells or whatever. But what we're not talking about barter,
Speaker 1: we're talking about keeping ledgers. And I wrote about this
Speaker 1: years ago. Actually I wrote about my bitcoin first. I
Speaker 1: wrote about it ledgers and wrote about how the rise
Speaker 1: tones of yapp were a ledger currency, and bitcoin was
Speaker 1: the modern version of that, and that you know, she's
Speaker 1: really expanded on all that stuff in this book and
Speaker 1: taken her through the entire history of money with this
Speaker 1: idea of the ledger.
Speaker 3: Of the background. And I think it's absolutely fascinating, brilliant.
Speaker 2: I mean, I agree because one thing I remember whenever
Speaker 2: I first started getting interested in history of money, which
Speaker 2: I guess was about twenty years ago, the prevailing idea
Speaker 2: was the commodity idea, the idea that we'd kind of
Speaker 2: gradually found better and better substances for solving the you know,
Speaker 2: the the timing of kind of woants and so we're
Speaker 2: going from one of our salt t shales to gold eventually.
Speaker 2: And I think it was at the kind of I
Speaker 2: think it was David Graeber's book that eventually kind of
Speaker 2: displaced that in the popular imagination at that point when
Speaker 2: you start to realize, well, so that's it's really daft
Speaker 2: to imagine that that's how things started, because you couldn't
Speaker 2: get anything done then until someone had come up with
Speaker 2: the idea of a currency. But it's like, you say,
Speaker 2: this ledger thing, if you've got a small enough tribe
Speaker 2: of people. Then everyone can remember, well, you know Dave
Speaker 2: always Merrin, who always join, who owns summer? You know
Speaker 2: this amount of money, and then you don't have to
Speaker 2: have any real you know, it doesn't have to be
Speaker 2: a kind of anything that represents it in a passing
Speaker 2: things sort of way. You've just got all that big
Speaker 2: stone is yours or know what's mine? Now? So no,
Speaker 2: I do I think that that made a lot of sense.
Speaker 1: Yeah, and I when you think about the point here
Speaker 1: being that all money does is moves goods and services
Speaker 1: through time, right, That's all it does. And so you
Speaker 1: only need it. You don't need anything physical for that.
Speaker 1: You simply need the record. And we didn't talk about this,
Speaker 1: but my favorite favorite bit about rites right stands and
Speaker 1: Yap is the story which may or may not be true,
Speaker 1: but I think it is about one of the boats
Speaker 1: coming back from the distant island with very large ry
Speaker 1: stones on the boat thinking and so the stones are
Speaker 1: then lost under the sea, but they still exist as wealth.
Speaker 3: They're still owned. Everyone knows they're there. They don't need
Speaker 3: to be seen.
Speaker 2: To be part of the system. That are you. Yeah,
Speaker 2: you own that one that's under the sea. No, No,
Speaker 2: you own it. Yeah, exactly, I just I just swapped
Speaker 2: to you for some I do I think, I mean,
Speaker 2: I think my question then low after this, and probably
Speaker 2: the main thing that that actually I was thinking was so,
Speaker 2: has this changed your view on Bitcoin of crypto currencies
Speaker 2: in any way? No, No, because I mean it's very
Speaker 2: it's all very logical, and it makes an awful lot
Speaker 2: of sense. And I think that a lot of Len's
Speaker 2: points about the difference between developed markets and developing markets
Speaker 2: what interesting as well.
Speaker 3: Yes, absolutely, she's right with that.
Speaker 1: One thing she is definitely right about and I thought
Speaker 1: it when I looked at her work before, is that
Speaker 1: you and I and our conversations have very often overlooked
Speaker 1: the fact that develop markets don't have the semi reliable
Speaker 1: money systems that we do. But the bit where I
Speaker 1: didn't find Lens replied to me to be satisfactory, and
Speaker 1: where I'm still concerned is that I believe in the
Speaker 1: nation state and the sovereignty of the nation state and
Speaker 1: the reassertion of the nation state in times of crisis, right,
Speaker 1: And we do find that that whenever there is a
Speaker 1: financial crisis or died any other kind of crisis, we
Speaker 1: see the nation state showing who holds power.
Speaker 3: And interestingly, I.
Speaker 1: Think back to the podcast we did a few weeks
Speaker 1: ago on space, and that conversation has come up again. Now,
Speaker 1: how do you control space? Who wins in space? What
Speaker 1: are the rules in space? Why can't you just take
Speaker 1: over Mars if he feels like it? And the answer
Speaker 1: is because he has to take off from the territory
Speaker 1: of a nation state, right, So therefore you can't. Nothing
Speaker 1: private can have power over over the nation state, be
Speaker 1: it in space or beard a new kind of money.
Speaker 3: And that's the bit where That's the bit where I really.
Speaker 1: Was hoping that Lin would give me an answer that
Speaker 1: I could work with, but that was the one point
Speaker 1: where she couldn't and didn't.
Speaker 3: So I still.
Speaker 1: Think that you can't have a currency operating out with
Speaker 1: a sovereign currency and hold its value indefinitely.
Speaker 2: See I mean, I think I said a good point,
Speaker 2: and I agree because bas of what I mean, what
Speaker 2: Bog's don't is that in the absence of actually Belden
Speaker 2: is owin rawbot army, your eight ill and musk can
Speaker 2: do the permission or of the nation state, and the
Speaker 2: nation state has the monopoly of a visa and that's
Speaker 2: basically what it boils down to. But I mean within
Speaker 2: all that then no, it's it's that thing of well,
Speaker 2: we can still, I guess recognize that something like bitcoin
Speaker 2: does have value within the context that it may not.
Speaker 2: You know, it's not going to go on and replace
Speaker 2: the dollar, and it's not going to go on and
Speaker 2: replace the pound. It's just but but I guess, I
Speaker 2: guess the argument that is digital gold makes the fair
Speaker 2: element sense.
Speaker 3: Sean, you've been oneever, but you.
Speaker 2: Know I've always been a bit wobblier on this than
Speaker 2: than you side. The question is always a bit well
Speaker 2: what value is it that you know? What price is it?
Speaker 2: But it's got a it has a function. It's not
Speaker 2: a scam. I think that, Len, if you are.
Speaker 1: Listening to this, you've done something nobody else has been
Speaker 1: able to do. Your broad John steppeic round the cryptocurrencies.
Speaker 2: So I'm gonna finish change my mind.
Speaker 3: Something I've never matched changed mind on anything. Don't forget that.
Speaker 1: Limb finished by saying bitcoin is riskier than gold in
Speaker 1: the sense that there is a non zero chance that
Speaker 1: the investment gets heavily disrupted in some way, whereas gold.
Speaker 1: You know that by the end of the decade, I'm
Speaker 1: adding a little to a quota, You're still going to
Speaker 1: have it.
Speaker 2: I mean, that's it was the fact partly that she
Speaker 2: acknowledged that that I thought, well, you know, you're not
Speaker 2: You're not one of these you know, idea logues or
Speaker 2: when these people is going to come more Twitter afterwards
Speaker 2: and harasses because we didn't mention their particular favorite crypto
Speaker 2: coin or something like that. You know, it clearly has
Speaker 2: a very deep understanding of the money system. But I
Speaker 2: say the thing also I wanted to bring up was
Speaker 2: I was recently reading an Old Bank for International Settlements
Speaker 2: report on digital currencies because I was bored and I
Speaker 2: was on a plane, and that was the only thing
Speaker 2: in my back. And what was interesting about that is
Speaker 2: because I think this is the other the other part
Speaker 2: of what Linn's talking about in the crypto currency thing
Speaker 2: in general, is that it's very clear that sovereigns want
Speaker 2: their cut and they are taking this seriously like central
Speaker 2: bank digital currencies are the you know, the suffering the
Speaker 2: equivalent of basically recognizing the threat posed by something like
Speaker 2: Bitcoin or more and more accurately stable coins, the thing
Speaker 2: that's freaking them out of stable coins, because those are
Speaker 2: kind of like I guess, almost like counters, not counterfeit,
Speaker 2: but private very versions of the dollar, but they're backed
Speaker 2: by dollars, but they're being used in the digital realm.
Speaker 2: And if that realm is gonna what the BIS was
Speaker 2: basically saying is the central banks, and it was doing
Speaker 2: in a very cuddly way, but was saying that central
Speaker 2: banks should be part of that world so that they
Speaker 2: can provide the asset elast resort, the currency elast resort
Speaker 2: basically for all the future applications that will be on
Speaker 2: the blockchain, if you like. And then when they were
Speaker 2: talking about the applications, that was a bit fuzzier. I
Speaker 2: think the problem there is it's like if I want
Speaker 2: to send money to you from my bank account, then fine,
Speaker 2: there's about ten different transactions behind the curtain, but I
Speaker 2: don't care, and you don't care. Yeah, it takes seconds,
Speaker 2: and if it doesn't arrive, then we can shout it somewhere.
Speaker 4: You know.
Speaker 2: It's not as from an end user point of view,
Speaker 2: it doesn't matter.
Speaker 1: I always use it, always use a camvoice when I
Speaker 1: call customer services.
Speaker 2: By the way, Oh yeah, but it's a shouty camvoice.
Speaker 2: I just use my accent. That helps a lot of
Speaker 2: the time, unless it's a Glasswegian call center. But it's
Speaker 2: a trade finance so where you've got to you know,
Speaker 2: you've got to order a shipload of goods from something
Speaker 2: from you know, somewhere across the world, and the problem
Speaker 2: is that you don't want to pay them before you've
Speaker 2: got the goods, they don't want to send the goods
Speaker 2: before you pay them, And then there's a whole load
Speaker 2: of complicated bits in the middle where the person on
Speaker 2: the other side of the world might also be staking
Speaker 2: the goods is collateral to like five different people, and
Speaker 2: you don't know anything about it. So that's sort of
Speaker 2: areas where they were talking about how kind of programmall
Speaker 2: bowl contracts and smart cuncies and all the rest of
Speaker 2: it might actually work better for these specific applications. So
Speaker 2: I guess a long way round, what I'm talking about
Speaker 2: is that it's clear that this technology does have some
Speaker 2: use in certain financial areas, and I think perhaps the
Speaker 2: biggest threat to something like bitcoin is that central banks
Speaker 2: are just going to come in and occupy that space.
Speaker 2: But it is again, it is a real area of technology.
Speaker 2: It's not something that is just a problem. Can I
Speaker 2: looking for us a solution? Looking for a problem, Well,
Speaker 2: I think.
Speaker 1: We better live in the John. We'll live it with
Speaker 1: John the convert. And you know they were saying nothing
Speaker 1: worse than a convert. Thanks for listening to this week's
Speaker 1: Maren Tooks Money. We'll be back next week. In the meantime,
Speaker 1: if you like us show, rate, review, and subscribe wherever
Speaker 1: you listen to your podcasts, and of course tell your friends.
Speaker 1: And finally, we now have our show emails those ender
Speaker 1: long ideas, questions or comment to Merin Money at Bloomberg
Speaker 1: dot net. This episode was hosted by me Maren Sumset
Speaker 1: Web produced by some asidi. Special thanks to Lynn Alden
Speaker 1: and John Steppeck.