1 00:00:01,280 --> 00:00:05,080 Speaker 1: All right, everybody, welcome to the third part in our 2 00:00:05,160 --> 00:00:09,479 Speaker 1: opening series for financial Haresy on money. So we started 3 00:00:09,520 --> 00:00:13,960 Speaker 1: off with episode one, which was about the first few 4 00:00:14,040 --> 00:00:17,479 Speaker 1: thousand years of money, when money was gold. Then we 5 00:00:17,560 --> 00:00:20,960 Speaker 1: looked at the evolution from that system to gold backed 6 00:00:20,960 --> 00:00:24,720 Speaker 1: by paper, how that scaled up to banking, how that 7 00:00:24,840 --> 00:00:28,440 Speaker 1: scaled up to central banking, how that scaled up to 8 00:00:28,680 --> 00:00:31,440 Speaker 1: a global system with the FED as a central bank 9 00:00:31,520 --> 00:00:33,159 Speaker 1: for the rest of the world, and then how that 10 00:00:33,280 --> 00:00:38,120 Speaker 1: ultimately collapsed the same way every system like that has 11 00:00:38,200 --> 00:00:43,320 Speaker 1: collapsed before from an overprinting of those claims on real wealth. 12 00:00:44,040 --> 00:00:46,879 Speaker 1: Then we got to today, and now we are on 13 00:00:47,479 --> 00:00:51,000 Speaker 1: part three of our series looking forward to where money 14 00:00:51,120 --> 00:00:55,600 Speaker 1: will be going. Now we have to understand two things. 15 00:00:55,960 --> 00:00:59,880 Speaker 1: Um as we move forward here looking through our historic 16 00:01:00,200 --> 00:01:05,640 Speaker 1: lens at the future of our monetary system. The first 17 00:01:05,640 --> 00:01:10,480 Speaker 1: thing we have to understand is how d leveraging takes place. 18 00:01:11,000 --> 00:01:14,080 Speaker 1: And we'll go through the two types of de leveraging 19 00:01:14,160 --> 00:01:18,760 Speaker 1: events and how they're different, but they are still examples 20 00:01:18,800 --> 00:01:22,200 Speaker 1: of de leveraging. And we'll recognize at the end of 21 00:01:22,240 --> 00:01:26,920 Speaker 1: that that de leveraging is inevitable no matter what. It 22 00:01:27,040 --> 00:01:30,119 Speaker 1: is not something that can be avoided. Um. And then 23 00:01:30,160 --> 00:01:34,120 Speaker 1: once we look through the lens of the de leveraging coming, 24 00:01:34,400 --> 00:01:36,320 Speaker 1: then we can see on the other side of that 25 00:01:36,720 --> 00:01:41,759 Speaker 1: there will be one of four potential new monetary systems 26 00:01:42,080 --> 00:01:45,520 Speaker 1: that replace what we have today, and it will be 27 00:01:45,640 --> 00:01:47,559 Speaker 1: key to understand. We'll go through the four and you'll 28 00:01:47,560 --> 00:01:50,960 Speaker 1: see then there are only four options, and we'll look 29 00:01:51,000 --> 00:01:53,480 Speaker 1: at each one. And now some of them might be 30 00:01:53,480 --> 00:01:56,880 Speaker 1: better than others, and I hope by the end of 31 00:01:56,880 --> 00:01:59,559 Speaker 1: the episode you'll agree with me about which ones will 32 00:01:59,680 --> 00:02:04,080 Speaker 1: be better and which ones will be worse. So let's 33 00:02:04,120 --> 00:02:08,720 Speaker 1: talk about de leveraging. So first of all, leverage. Leverage 34 00:02:08,760 --> 00:02:11,440 Speaker 1: is debt, right, so leverage we can we need to 35 00:02:11,480 --> 00:02:14,880 Speaker 1: think of this through all the different aspects of what leverages. 36 00:02:15,000 --> 00:02:18,760 Speaker 1: So when we think about from the aspect of physics, 37 00:02:19,080 --> 00:02:22,520 Speaker 1: we talk about a lever like a teeter totter a 38 00:02:22,600 --> 00:02:25,960 Speaker 1: you know, on a kid's playground, and you imagine there's 39 00:02:25,960 --> 00:02:31,040 Speaker 1: a full crumb, and one side goes up faster than 40 00:02:31,080 --> 00:02:34,040 Speaker 1: the other side, so you're gonna have more speed on 41 00:02:34,040 --> 00:02:38,040 Speaker 1: one side versus more power on the other side. And 42 00:02:38,120 --> 00:02:42,119 Speaker 1: so this is why our comedies said, give me a 43 00:02:42,240 --> 00:02:45,240 Speaker 1: lever long enough and a place to stand, and I 44 00:02:45,280 --> 00:02:47,960 Speaker 1: can move the world. Which is true because if you 45 00:02:48,440 --> 00:02:51,600 Speaker 1: have a lever long enough and you place the full 46 00:02:51,639 --> 00:02:55,400 Speaker 1: crumb in the right spot, then even the force of 47 00:02:55,800 --> 00:02:59,880 Speaker 1: just you know, a man's ability to push, a man's 48 00:03:00,120 --> 00:03:02,440 Speaker 1: and strength, you would be able to move the mass 49 00:03:02,440 --> 00:03:04,760 Speaker 1: of the entire world. You need a very very large 50 00:03:04,880 --> 00:03:08,680 Speaker 1: level though. UM. We can see the same principle through 51 00:03:09,200 --> 00:03:13,880 Speaker 1: gearing ratios. So you can look at videos on you know, 52 00:03:14,000 --> 00:03:16,880 Speaker 1: on the internet, on YouTube, and uh you can find 53 00:03:16,880 --> 00:03:20,880 Speaker 1: people who have three D printed gears and uh they 54 00:03:21,040 --> 00:03:23,400 Speaker 1: you know, they'll place like you know, twenty or thirty 55 00:03:23,440 --> 00:03:27,200 Speaker 1: gears uh in line with each other, going from large 56 00:03:27,200 --> 00:03:31,440 Speaker 1: to small. And then as you rotate one side, uh, 57 00:03:31,600 --> 00:03:34,639 Speaker 1: the next gear rotates, let's say, at half the speed, 58 00:03:34,720 --> 00:03:37,320 Speaker 1: and the next gear rotates at half the speed. And 59 00:03:37,400 --> 00:03:40,000 Speaker 1: after only about twenty gears of doing this in a row, 60 00:03:40,360 --> 00:03:43,200 Speaker 1: you get to that last gear and it will take 61 00:03:43,560 --> 00:03:48,560 Speaker 1: it would take longer than the entire potential future of 62 00:03:48,600 --> 00:03:50,840 Speaker 1: the universe in front of us for that last gear 63 00:03:51,200 --> 00:03:57,200 Speaker 1: to move in one complete rotation. Um. And then in 64 00:03:57,320 --> 00:03:59,720 Speaker 1: terms of the energy that that would take, it would 65 00:03:59,760 --> 00:04:03,000 Speaker 1: take more energy than exists in the universe to move 66 00:04:03,120 --> 00:04:07,040 Speaker 1: that first gear enough rotations to translate into a full 67 00:04:07,160 --> 00:04:10,800 Speaker 1: rotation at the end gear. UM. And so these are 68 00:04:10,800 --> 00:04:18,640 Speaker 1: examples of leverage. Basically, you UH differentiate between the inputs 69 00:04:19,000 --> 00:04:23,440 Speaker 1: and the outputs through a mechanism and UH that allows 70 00:04:23,480 --> 00:04:26,159 Speaker 1: you either greater speed or greater power one way or 71 00:04:26,200 --> 00:04:30,680 Speaker 1: the other, and they work. Levers work both ways. It's 72 00:04:30,720 --> 00:04:33,400 Speaker 1: just has an opposite effect if you reverse the direction 73 00:04:33,400 --> 00:04:36,080 Speaker 1: of the lever. So UM. This is like on a 74 00:04:36,120 --> 00:04:38,480 Speaker 1: on a bicycle, when you're in you know, top gear, 75 00:04:38,760 --> 00:04:40,760 Speaker 1: but you're hot to stop, you likely won't be able 76 00:04:40,800 --> 00:04:44,360 Speaker 1: to get going UM. But when you're in the you know, 77 00:04:44,400 --> 00:04:46,200 Speaker 1: the lowest gear, you'll be able to get going real 78 00:04:46,240 --> 00:04:48,000 Speaker 1: easy because there's a lot of power, but you won't 79 00:04:48,040 --> 00:04:51,120 Speaker 1: be able to go very fast because the gear ratio 80 00:04:51,240 --> 00:04:52,560 Speaker 1: is set up to have a lot of power, not 81 00:04:52,600 --> 00:04:54,279 Speaker 1: a lot of speed. And then vice versa. When you 82 00:04:54,640 --> 00:04:57,159 Speaker 1: gear up all the way, it's good for going top 83 00:04:57,279 --> 00:04:59,600 Speaker 1: top speeds, but you don't have a lot of power 84 00:04:59,680 --> 00:05:02,200 Speaker 1: for being able to start off from a stop. And 85 00:05:02,279 --> 00:05:05,320 Speaker 1: so UH it's basically when it comes down to it, 86 00:05:05,680 --> 00:05:08,640 Speaker 1: whether you're talking about gears, whether you're talking about leverage 87 00:05:08,680 --> 00:05:11,880 Speaker 1: in terms of you know, some people will use technology 88 00:05:11,960 --> 00:05:15,160 Speaker 1: today to run their businesses. So uh, you know, this 89 00:05:15,240 --> 00:05:19,479 Speaker 1: is an example of people in uh similar businesses to mine, 90 00:05:19,560 --> 00:05:24,200 Speaker 1: I would say, are using technology as leverage. So, UM, 91 00:05:23,960 --> 00:05:28,640 Speaker 1: I personally don't have any full time employees. I have contractors, 92 00:05:28,920 --> 00:05:32,719 Speaker 1: I have programs, I have technology, I have services that 93 00:05:32,839 --> 00:05:36,680 Speaker 1: allow me to run a business with very high margins 94 00:05:37,000 --> 00:05:41,839 Speaker 1: versus you have some old legacy business systems that rely 95 00:05:42,120 --> 00:05:45,800 Speaker 1: on uh, you know, a high or a very low 96 00:05:45,880 --> 00:05:49,120 Speaker 1: asset turnover ratio. So you've got a lot a huge 97 00:05:49,160 --> 00:05:53,080 Speaker 1: asset base, a high amount of your assets will produce 98 00:05:53,080 --> 00:05:57,360 Speaker 1: a very small amount of cash flow low profit margin businesses. UM. 99 00:05:57,440 --> 00:05:59,880 Speaker 1: And you have to have employees, you have to have buildings, 100 00:06:00,040 --> 00:06:01,400 Speaker 1: you have to have you know, some of these old 101 00:06:01,480 --> 00:06:05,320 Speaker 1: legacy businesses UM have a very low amount of leverage 102 00:06:05,320 --> 00:06:07,599 Speaker 1: there Now they might be considered safer by some for 103 00:06:07,680 --> 00:06:10,600 Speaker 1: certain types of economies. And that's you know, a perfectly 104 00:06:10,600 --> 00:06:13,159 Speaker 1: acceptable argument. Not really the point of this. The point 105 00:06:13,200 --> 00:06:15,920 Speaker 1: is that leverages the difference between inputs and outputs. I 106 00:06:15,960 --> 00:06:18,479 Speaker 1: have very small amount of inputs in my business, and 107 00:06:18,560 --> 00:06:22,440 Speaker 1: my output is huge. Um. Same thing with bicycle gears, 108 00:06:22,560 --> 00:06:24,320 Speaker 1: Same thing with the gears. We were talking about earlier 109 00:06:24,440 --> 00:06:26,520 Speaker 1: um and then the last form of leverage would be 110 00:06:26,640 --> 00:06:30,640 Speaker 1: uh monetary leverage. So when we look at you know, 111 00:06:30,960 --> 00:06:33,920 Speaker 1: let's say a brokerage account that you're using marginal, You've 112 00:06:33,920 --> 00:06:36,359 Speaker 1: got let's say a hundred thousand dollars in your brokerage account. 113 00:06:36,560 --> 00:06:38,400 Speaker 1: You can buy a hundred thousand dollars worth of Apple 114 00:06:38,440 --> 00:06:41,719 Speaker 1: stock or Amazon stock, or since you have a hundred grand, 115 00:06:41,839 --> 00:06:44,760 Speaker 1: you can borrow from your broker another hundred grand to 116 00:06:44,920 --> 00:06:47,880 Speaker 1: purchase two d thousand dollars worth of the stock. Now, 117 00:06:48,200 --> 00:06:52,039 Speaker 1: your input was a hundred thousand dollars, but you are 118 00:06:52,120 --> 00:06:56,320 Speaker 1: able to get a greater output using leverage because if 119 00:06:56,360 --> 00:06:58,320 Speaker 1: this if you put in your own hunder grand and 120 00:06:58,320 --> 00:07:00,719 Speaker 1: you borrow another hundred grand to buy two rand and 121 00:07:00,720 --> 00:07:03,840 Speaker 1: the stock goes up ten percent, now your position goes 122 00:07:03,839 --> 00:07:07,279 Speaker 1: from two hundred thousand dollars to two yo dollars. Let's 123 00:07:07,320 --> 00:07:09,680 Speaker 1: say then you liquid eight and pay back the loan. 124 00:07:09,960 --> 00:07:12,280 Speaker 1: How much do you have to pay back? Well, still 125 00:07:12,280 --> 00:07:14,640 Speaker 1: a hundred thousand dollars. You borrow a hundred thousand, so 126 00:07:14,760 --> 00:07:18,320 Speaker 1: your net position at the end is one dollars. How 127 00:07:18,400 --> 00:07:21,640 Speaker 1: much did you gain? You gained on your own cash, 128 00:07:22,920 --> 00:07:26,520 Speaker 1: So the underlying asset moved ten percent, you gained, so 129 00:07:26,560 --> 00:07:31,000 Speaker 1: your output was greater than your input. Now this works 130 00:07:31,640 --> 00:07:33,880 Speaker 1: both ways, right because of the stock were to fall 131 00:07:33,920 --> 00:07:37,800 Speaker 1: ten percent and you would lose by being leveraged. So 132 00:07:38,280 --> 00:07:42,200 Speaker 1: leverage is changing uh the output, having the output be 133 00:07:42,240 --> 00:07:45,240 Speaker 1: different than the input. That's that's that's basically all it is. 134 00:07:45,880 --> 00:07:49,000 Speaker 1: Speaking from an uh An economic perspective, it's mostly going 135 00:07:49,040 --> 00:07:53,800 Speaker 1: to be referring to referring to debt um and so 136 00:07:53,920 --> 00:07:56,120 Speaker 1: what we looked at, what we look at today when 137 00:07:56,160 --> 00:07:57,960 Speaker 1: we look around the economy is we see one of 138 00:07:57,960 --> 00:08:01,640 Speaker 1: the most over leveraged economies that we've ever seen in 139 00:08:01,960 --> 00:08:05,120 Speaker 1: world history. When you look at the amount of debt 140 00:08:05,320 --> 00:08:09,400 Speaker 1: by governments, the most developed and advanced economies in the world, 141 00:08:09,400 --> 00:08:12,760 Speaker 1: like the United States are debt to GDP ratio right 142 00:08:12,760 --> 00:08:18,600 Speaker 1: now is over. Many economists say that is the line. 143 00:08:18,640 --> 00:08:22,440 Speaker 1: You can't come back from the United States of America. 144 00:08:22,800 --> 00:08:27,560 Speaker 1: Debt to GDP ratio right now is at and most 145 00:08:27,640 --> 00:08:30,040 Speaker 1: countries around the world right now are not in a 146 00:08:30,040 --> 00:08:32,760 Speaker 1: better position. There are some that are in a fantastic position, 147 00:08:32,800 --> 00:08:36,480 Speaker 1: but most are not in a better position. Governments, central 148 00:08:36,520 --> 00:08:39,319 Speaker 1: governments all around the world are loaded up with that 149 00:08:39,760 --> 00:08:46,400 Speaker 1: debt is leverage UH. Local governments, same thing, many local governments, 150 00:08:46,400 --> 00:08:49,800 Speaker 1: whether it's states or provinces or cities, same exact thing. 151 00:08:51,120 --> 00:08:53,760 Speaker 1: Now you might say, okay, well, governments is one story. 152 00:08:53,800 --> 00:08:58,920 Speaker 1: What about private private entities like corporations. When you look 153 00:08:58,960 --> 00:09:03,320 Speaker 1: at the corporate UH debt level right now again all 154 00:09:03,520 --> 00:09:07,280 Speaker 1: time highs. You can look at this from a just 155 00:09:07,360 --> 00:09:10,880 Speaker 1: a dollar standpoint, You can look at it adjusted for inflation. 156 00:09:11,160 --> 00:09:14,600 Speaker 1: Pretty much no matter how you measure it, the amount 157 00:09:14,640 --> 00:09:18,840 Speaker 1: of debt that corporations, public publicly traded companies have right 158 00:09:18,880 --> 00:09:22,160 Speaker 1: now is at an all time high, whether you compare 159 00:09:22,200 --> 00:09:24,760 Speaker 1: it against inflation where you whether you compare it against 160 00:09:25,080 --> 00:09:27,800 Speaker 1: the size of the companies like the UH you know, 161 00:09:28,000 --> 00:09:32,440 Speaker 1: measured by their market cap UM corporations. The economy right 162 00:09:32,480 --> 00:09:35,960 Speaker 1: now is extremely overleveraged UM and then specifically in the 163 00:09:36,040 --> 00:09:39,960 Speaker 1: United States, households, individuals as well, we have the highest 164 00:09:40,000 --> 00:09:43,520 Speaker 1: amount of debt that we've ever had UH in our history. 165 00:09:44,400 --> 00:09:47,640 Speaker 1: So individuals, companies, and governments all around the world have 166 00:09:47,800 --> 00:09:51,560 Speaker 1: most debt than we've ever had. Not only that, not 167 00:09:51,559 --> 00:09:53,480 Speaker 1: not only do we have to look at the amount 168 00:09:53,520 --> 00:09:56,080 Speaker 1: of debt, but we also have to look at leverage 169 00:09:56,600 --> 00:09:59,839 Speaker 1: through the lens of derivatives. Now a derivative. If you've 170 00:09:59,840 --> 00:10:03,360 Speaker 1: ever seeing the movie The Big Short kind of explained 171 00:10:03,400 --> 00:10:06,079 Speaker 1: this uh in a way that I think was the 172 00:10:06,120 --> 00:10:10,839 Speaker 1: best pop culture explanation for most people. I still don't 173 00:10:10,880 --> 00:10:13,000 Speaker 1: think it was as good as it could have been, 174 00:10:13,040 --> 00:10:15,640 Speaker 1: So I'm gonna give you my thirty second explanation of 175 00:10:15,640 --> 00:10:19,120 Speaker 1: derivatives here. Have you ever been on a boat, UH 176 00:10:19,160 --> 00:10:23,120 Speaker 1: and going wakeboarding or or tubing behind a boat. When 177 00:10:23,200 --> 00:10:25,199 Speaker 1: you think about a boat tugging along a tube or 178 00:10:25,240 --> 00:10:28,560 Speaker 1: a wakeboard a skier behind it, the boat is going 179 00:10:28,640 --> 00:10:34,280 Speaker 1: to turn to the left, and not immediately, but soon 180 00:10:34,520 --> 00:10:38,760 Speaker 1: after the boat turns left, the tube, the inner tube, 181 00:10:38,800 --> 00:10:41,080 Speaker 1: or the wakeboat or the skier behind the boat will 182 00:10:41,080 --> 00:10:46,920 Speaker 1: then also turn left. It doesn't happen immediately but there, 183 00:10:47,559 --> 00:10:50,720 Speaker 1: but it does follow eventually. And the key thing is here, 184 00:10:51,160 --> 00:10:54,000 Speaker 1: you have a greater amount of movement from the thing 185 00:10:54,080 --> 00:10:56,560 Speaker 1: that's being towed behind the boat. So you have this 186 00:10:56,600 --> 00:10:58,320 Speaker 1: boat going left and then right, and then left and 187 00:10:58,360 --> 00:11:00,679 Speaker 1: then right, and you'll watch kind of a whip lash 188 00:11:00,720 --> 00:11:03,920 Speaker 1: effect from the Let's say, the inner tuber behind the 189 00:11:03,960 --> 00:11:06,520 Speaker 1: boat will go to a much more extreme to the 190 00:11:06,600 --> 00:11:08,680 Speaker 1: left and then a much more extreme to the right. 191 00:11:09,559 --> 00:11:12,520 Speaker 1: So this is the visualization I like to use for 192 00:11:12,559 --> 00:11:16,520 Speaker 1: how a derivative acts. A derivative is basically a bet 193 00:11:16,640 --> 00:11:20,800 Speaker 1: on the movement of something else. So if you've ever 194 00:11:21,559 --> 00:11:25,960 Speaker 1: gambled on the outcome of a football game, or if 195 00:11:26,000 --> 00:11:30,480 Speaker 1: you've ever placed a bet on anything, your your output, 196 00:11:30,679 --> 00:11:32,320 Speaker 1: your whether you win or lose, is going to be 197 00:11:32,360 --> 00:11:37,319 Speaker 1: determined by the by something else, not the bet itself. 198 00:11:37,600 --> 00:11:39,679 Speaker 1: The bet the bet is going to whether you win 199 00:11:39,760 --> 00:11:42,600 Speaker 1: or lose is going to be determined by what's called 200 00:11:42,600 --> 00:11:46,120 Speaker 1: the underlying um. It's the underlying effect the thing that 201 00:11:46,240 --> 00:11:48,920 Speaker 1: is being bet on, whether it's a sports game or 202 00:11:48,960 --> 00:11:53,080 Speaker 1: an election or something else. Um. These types of bets 203 00:11:53,080 --> 00:11:57,480 Speaker 1: are called derivatives, and they are all over the economy, 204 00:11:57,559 --> 00:12:01,520 Speaker 1: the financial ecosystem. You can make bets on the housing 205 00:12:01,559 --> 00:12:03,760 Speaker 1: market going up and down, and that's what you know 206 00:12:04,160 --> 00:12:07,840 Speaker 1: contributed to the financial crisis. You can make bets on 207 00:12:08,240 --> 00:12:11,240 Speaker 1: just the regular any stock going up or down. These 208 00:12:11,280 --> 00:12:14,800 Speaker 1: are called stock options. You can make bets on the 209 00:12:15,600 --> 00:12:18,320 Speaker 1: overall stock market going up or down. These are called 210 00:12:18,360 --> 00:12:21,920 Speaker 1: index options. You can make bets on currencies going up 211 00:12:22,000 --> 00:12:24,680 Speaker 1: or down. You can make bets on pretty much anything. 212 00:12:24,760 --> 00:12:28,240 Speaker 1: You can construct these contracts which are bets on something 213 00:12:28,280 --> 00:12:31,200 Speaker 1: moving up or down. Now, what is key to know 214 00:12:31,320 --> 00:12:34,000 Speaker 1: here is that every time one of these derivatives is created, 215 00:12:34,360 --> 00:12:37,840 Speaker 1: there is a contract that exists. So you and I 216 00:12:38,000 --> 00:12:41,080 Speaker 1: make an agreement with each other that if something goes up, 217 00:12:41,120 --> 00:12:42,760 Speaker 1: you'll owe me money and if it goes down, I'll 218 00:12:42,760 --> 00:12:46,360 Speaker 1: owe you money. Just to make it very simple, um, 219 00:12:46,400 --> 00:12:49,120 Speaker 1: but there's always a time frame associated with this, and 220 00:12:49,200 --> 00:12:54,200 Speaker 1: so if it goes up or down, then suddenly, um, 221 00:12:54,280 --> 00:12:56,839 Speaker 1: we might be a little bit closer to me owing 222 00:12:56,880 --> 00:13:00,040 Speaker 1: you money or you owing me money, And so the 223 00:13:00,120 --> 00:13:02,560 Speaker 1: value of each of our sides of the bet will 224 00:13:02,720 --> 00:13:07,920 Speaker 1: change dynamically until the bet is done. What that means 225 00:13:08,120 --> 00:13:10,640 Speaker 1: is that in between now and when the bet ends, 226 00:13:11,200 --> 00:13:13,520 Speaker 1: you and I are not locked into each other. You 227 00:13:13,600 --> 00:13:17,839 Speaker 1: and I can give up our position on that bet 228 00:13:17,880 --> 00:13:20,840 Speaker 1: to somebody else who wants in instead, and they will 229 00:13:20,880 --> 00:13:23,800 Speaker 1: take our place with the corresponding amount of money that 230 00:13:23,800 --> 00:13:27,680 Speaker 1: that bet now requires for the new position that it 231 00:13:27,760 --> 00:13:31,000 Speaker 1: is in. So, to make this very simple, let's say 232 00:13:31,000 --> 00:13:33,960 Speaker 1: there's a bet on a sports game on on one 233 00:13:34,000 --> 00:13:38,160 Speaker 1: team on team a winning if right now, and let's 234 00:13:38,160 --> 00:13:41,080 Speaker 1: say it's ten bucks. If if if Team A wins, 235 00:13:41,200 --> 00:13:43,719 Speaker 1: ten bucks goes to me, If Team B wins, ten 236 00:13:43,760 --> 00:13:49,560 Speaker 1: bucks goes to you. Um, if Team B h right 237 00:13:49,600 --> 00:13:53,600 Speaker 1: now is a hundred points ahead, the likelihood that Team 238 00:13:53,600 --> 00:13:54,960 Speaker 1: A is going to be able to come back and 239 00:13:55,000 --> 00:13:58,400 Speaker 1: win the game is very small, and so for somebody 240 00:13:58,440 --> 00:14:02,319 Speaker 1: else to step in in position would be very, very cheap. 241 00:14:02,640 --> 00:14:04,360 Speaker 1: They might be able to come in for one cent 242 00:14:04,880 --> 00:14:07,480 Speaker 1: because nobody's going to take that bet anymore for ten 243 00:14:07,520 --> 00:14:11,720 Speaker 1: bucks because the payout won't be worth the risk. They're 244 00:14:11,880 --> 00:14:15,000 Speaker 1: virtually guaranteed then to lose that ten bucks. So they 245 00:14:15,040 --> 00:14:16,960 Speaker 1: might be able to come in for one cent, and 246 00:14:17,040 --> 00:14:18,640 Speaker 1: that's all I can get out of the bet at 247 00:14:18,720 --> 00:14:21,320 Speaker 1: is one cent, And then they might be willing to 248 00:14:21,360 --> 00:14:23,520 Speaker 1: take that bet to risk, you know, one cent to 249 00:14:23,560 --> 00:14:26,680 Speaker 1: win ten bucks. Now, the reason why I'm going so 250 00:14:26,760 --> 00:14:30,840 Speaker 1: deep into derivatives here is because the UH it's important 251 00:14:30,880 --> 00:14:36,120 Speaker 1: to recognize how big of a of an impact derivatives 252 00:14:36,160 --> 00:14:40,880 Speaker 1: can have When they're UH. They're what's called the nominal 253 00:14:40,880 --> 00:14:45,680 Speaker 1: amount of derivatives is small, but the overall total effective 254 00:14:45,720 --> 00:14:49,000 Speaker 1: derivatives can be very large because derivatives move to a 255 00:14:49,040 --> 00:14:52,880 Speaker 1: greater degree than what happens underneath them um and so 256 00:14:53,040 --> 00:14:56,480 Speaker 1: when currencies move, when bond markets move, when governments bank 257 00:14:56,600 --> 00:15:00,600 Speaker 1: go bankrupt or default, when corporations, when stock markets move, 258 00:15:00,640 --> 00:15:04,280 Speaker 1: when currencies move. When all these things happen, there's derivatives 259 00:15:04,280 --> 00:15:08,040 Speaker 1: that are being traded and bets that are taking place 260 00:15:08,200 --> 00:15:10,800 Speaker 1: on all of that, and there's a massive amount of 261 00:15:10,800 --> 00:15:14,600 Speaker 1: money and derivatives today, and the overall impact impact of 262 00:15:14,640 --> 00:15:20,520 Speaker 1: those derivatives if something unexpected happens means that because of leverage, 263 00:15:20,880 --> 00:15:25,160 Speaker 1: the total losses or or gains that could happen from 264 00:15:25,200 --> 00:15:31,120 Speaker 1: those derivatives is much larger than most people understand, much 265 00:15:31,200 --> 00:15:33,800 Speaker 1: larger than most people think it is. If everything just 266 00:15:33,880 --> 00:15:36,160 Speaker 1: goes according to what we think it's gonna what we 267 00:15:36,200 --> 00:15:38,240 Speaker 1: think is going to happen right now, then the total 268 00:15:38,320 --> 00:15:42,800 Speaker 1: impact of derivatives will be almost nothing because that's you know, 269 00:15:42,880 --> 00:15:46,640 Speaker 1: the current value. But when unexpected moves happen in a currency, 270 00:15:46,760 --> 00:15:50,080 Speaker 1: let's say, uh, the dollar, it's not supposed to go 271 00:15:50,120 --> 00:15:53,040 Speaker 1: above one fifteen, and it goes to one thirty. Because 272 00:15:53,320 --> 00:15:57,840 Speaker 1: let's say the yen and the pound both uh, you know, 273 00:15:58,360 --> 00:16:01,320 Speaker 1: lose a lot more value very quickly. From the Bank 274 00:16:01,360 --> 00:16:04,120 Speaker 1: of Japan deciding to do more yield curve control and 275 00:16:04,160 --> 00:16:07,360 Speaker 1: buying unlimited bonds and the Bank of England doing another 276 00:16:07,360 --> 00:16:11,680 Speaker 1: bail out of the UK pensions and those currencies collapse. 277 00:16:11,960 --> 00:16:15,040 Speaker 1: The dollar skyrockets and then a couple other currencies collapse 278 00:16:15,080 --> 00:16:18,480 Speaker 1: as a result. Well, there are bets being placed on 279 00:16:18,520 --> 00:16:23,720 Speaker 1: those that could wipe out UH sovereign wealth funds. There 280 00:16:23,720 --> 00:16:25,600 Speaker 1: are bets being placed on those that could wipe out 281 00:16:25,600 --> 00:16:27,920 Speaker 1: hedge funds. Their bets being placed on those that could 282 00:16:27,960 --> 00:16:32,040 Speaker 1: wipe out globally systemically important banks. And this is just 283 00:16:32,120 --> 00:16:36,040 Speaker 1: the derivatives. This isn't even the debt itself. So we 284 00:16:36,120 --> 00:16:39,360 Speaker 1: have a lot of debt now that we've or leverage, 285 00:16:39,360 --> 00:16:42,120 Speaker 1: I should say, when we count derivatives and debt from 286 00:16:42,160 --> 00:16:44,280 Speaker 1: debt from all levels, we've got a lot of leverage 287 00:16:44,280 --> 00:16:46,720 Speaker 1: built up in our system. Now we have to set 288 00:16:46,720 --> 00:16:49,240 Speaker 1: that to the side and understand why de leveraging always 289 00:16:49,240 --> 00:16:54,080 Speaker 1: follows leveraging, and there is no way around that. Um 290 00:16:54,120 --> 00:16:56,360 Speaker 1: when you when you let's say you make ten grand 291 00:16:56,360 --> 00:16:59,480 Speaker 1: a month, you make ten dollars every single month, how 292 00:16:59,560 --> 00:17:03,520 Speaker 1: much can you spend? You can only spend ten thousand 293 00:17:03,560 --> 00:17:07,200 Speaker 1: dollars every month, because that's exactly how much you make Now, 294 00:17:07,280 --> 00:17:09,720 Speaker 1: let's say you want to spend more than ten thousand 295 00:17:09,720 --> 00:17:13,119 Speaker 1: dollars in a given month. That means the prior month 296 00:17:13,760 --> 00:17:17,960 Speaker 1: you must spend less. If you know, hey, next month, 297 00:17:17,960 --> 00:17:20,960 Speaker 1: I'm gonna have to spend eleven grand, the only way 298 00:17:21,000 --> 00:17:23,920 Speaker 1: to do that is to have eleven grand next month, 299 00:17:24,560 --> 00:17:26,960 Speaker 1: which means the only way to have eleven grand next 300 00:17:27,000 --> 00:17:31,159 Speaker 1: month is to spend nine grand this month so that 301 00:17:31,200 --> 00:17:34,400 Speaker 1: you have a thousand dollars left over, so that next 302 00:17:34,480 --> 00:17:36,680 Speaker 1: month you can spend everything that you make next month 303 00:17:36,920 --> 00:17:39,480 Speaker 1: and what was left over from the prior month. That 304 00:17:39,640 --> 00:17:42,840 Speaker 1: is the only way to do it except for debt. 305 00:17:43,840 --> 00:17:47,520 Speaker 1: So when you want to spend more money than you 306 00:17:47,560 --> 00:17:50,200 Speaker 1: are bringing in an income and you do not have 307 00:17:50,280 --> 00:17:54,800 Speaker 1: a surplus from a prior period, you must borrow that 308 00:17:55,000 --> 00:17:59,280 Speaker 1: purchasing power from somebody else, usually a bank. So you 309 00:17:59,400 --> 00:18:01,480 Speaker 1: go to the bank, you get a credit card, you 310 00:18:01,560 --> 00:18:04,840 Speaker 1: do whatever you want. You spend that extra thousand dollars. 311 00:18:06,080 --> 00:18:08,120 Speaker 1: What do you have to do now that you've spent 312 00:18:08,200 --> 00:18:11,600 Speaker 1: that extra thousand dollars? You have to pay it back. 313 00:18:12,600 --> 00:18:15,679 Speaker 1: Now how do you pay it back? You pay it 314 00:18:15,720 --> 00:18:21,880 Speaker 1: back by reducing your future spending. So the only thing 315 00:18:21,960 --> 00:18:26,160 Speaker 1: that can ever be spent is what is produced. You 316 00:18:26,240 --> 00:18:30,359 Speaker 1: cannot consume something that has not been produced. I need 317 00:18:30,400 --> 00:18:34,160 Speaker 1: to say this like ten times because most modern economists, 318 00:18:34,720 --> 00:18:38,760 Speaker 1: especially people who lean towards modern monetary theory and wanting 319 00:18:38,760 --> 00:18:41,960 Speaker 1: governments to just spend wealth into existence and central banks 320 00:18:42,000 --> 00:18:47,160 Speaker 1: to print wealth into existence. You cannot consume something that 321 00:18:47,240 --> 00:18:50,639 Speaker 1: has not been produced. You cannot eat an apple that 322 00:18:50,720 --> 00:18:53,879 Speaker 1: has not grown on a tree. You cannot eat a 323 00:18:53,960 --> 00:18:57,480 Speaker 1: steak that has not grown in a cow. You cannot 324 00:18:57,560 --> 00:18:59,879 Speaker 1: live in a house that has not been built. You 325 00:19:00,080 --> 00:19:03,359 Speaker 1: cannot wear a shoe that has not been created. It 326 00:19:03,480 --> 00:19:08,040 Speaker 1: is impossible to consume something that has not been produced. 327 00:19:08,400 --> 00:19:10,480 Speaker 1: The only things that can be consumed are things that 328 00:19:10,480 --> 00:19:15,040 Speaker 1: have been produced. It is the same with money, It 329 00:19:15,119 --> 00:19:18,119 Speaker 1: is the same with purchasing power. The only way you 330 00:19:18,160 --> 00:19:23,560 Speaker 1: can spend is by having a surplus that has not 331 00:19:23,720 --> 00:19:28,560 Speaker 1: been spent. So when you spend a thousand dollars and 332 00:19:28,560 --> 00:19:32,360 Speaker 1: a thousand of that has been borrowed, you must then 333 00:19:32,520 --> 00:19:36,880 Speaker 1: forego spending next month by a thousand dollars to repay 334 00:19:36,920 --> 00:19:40,080 Speaker 1: that loan. Maybe you don't do it all in one month, 335 00:19:40,240 --> 00:19:43,680 Speaker 1: Maybe you forego spending one dollars every month for ten 336 00:19:43,800 --> 00:19:47,479 Speaker 1: months while you pay that back. What is still the 337 00:19:47,560 --> 00:19:52,280 Speaker 1: case is that in order for the de leveraging to happen, 338 00:19:53,640 --> 00:19:57,840 Speaker 1: the consumption must be reduced because when you spend money, 339 00:19:58,000 --> 00:20:01,159 Speaker 1: you're consuming, so the consumption must be reduced by the 340 00:20:01,160 --> 00:20:04,800 Speaker 1: amount that the consumption was increased for that de leveraging 341 00:20:04,840 --> 00:20:08,159 Speaker 1: to happen. Now you might be asking, okay, well, what 342 00:20:08,240 --> 00:20:13,600 Speaker 1: happens if they just decide to default and don't pay 343 00:20:13,600 --> 00:20:17,320 Speaker 1: back that debt? Then does the de leveraging actually happen? 344 00:20:17,920 --> 00:20:20,960 Speaker 1: And the answer is yes. However, it's a little bit, uh, 345 00:20:21,280 --> 00:20:23,040 Speaker 1: a little bit of a detour that will have to 346 00:20:23,080 --> 00:20:26,199 Speaker 1: take by looking at an inflationary de leveraging, and so 347 00:20:26,280 --> 00:20:27,840 Speaker 1: we're going to hold off on that for now. But 348 00:20:28,200 --> 00:20:31,920 Speaker 1: just just know that we will get back into that um. 349 00:20:31,960 --> 00:20:33,960 Speaker 1: And you're still you're still following the kind of the 350 00:20:34,000 --> 00:20:37,280 Speaker 1: laws of physics of money that the de leveraging is 351 00:20:37,280 --> 00:20:39,919 Speaker 1: still happening, that only only what has been produced can 352 00:20:39,960 --> 00:20:44,200 Speaker 1: be consumed. Now you looked at the individual and you think, okay, 353 00:20:44,200 --> 00:20:46,640 Speaker 1: well that makes sense. If I want to spend more 354 00:20:46,720 --> 00:20:51,200 Speaker 1: money than I normally make, I either have to uh 355 00:20:51,440 --> 00:20:54,879 Speaker 1: forego consumption in a prior month or forego consumption in 356 00:20:54,920 --> 00:20:56,960 Speaker 1: a ladder month in a later month, like, there's no 357 00:20:57,000 --> 00:20:59,399 Speaker 1: way around that. That's the only way that it can happen. 358 00:20:59,840 --> 00:21:03,280 Speaker 1: But what about an economy, because does the economy not 359 00:21:03,680 --> 00:21:07,959 Speaker 1: have characteristics different than the individuals that make the economy up. 360 00:21:08,520 --> 00:21:13,080 Speaker 1: And in some ways yes, some ways, systems, especially complex systems, 361 00:21:13,320 --> 00:21:17,119 Speaker 1: can have characteristics that are different than the individual nodes 362 00:21:17,240 --> 00:21:19,760 Speaker 1: that make up the system. But in this way the 363 00:21:19,800 --> 00:21:23,240 Speaker 1: answer is no, because there is no such thing as 364 00:21:23,280 --> 00:21:29,800 Speaker 1: the economy in this context. The economy is just a 365 00:21:29,920 --> 00:21:33,720 Speaker 1: bunch of individuals. There is no such thing as an 366 00:21:33,760 --> 00:21:38,840 Speaker 1: overall uh, an overall income, or an overall expense, or 367 00:21:38,880 --> 00:21:42,080 Speaker 1: an overall size of an economy. These are simply there 368 00:21:42,080 --> 00:21:45,600 Speaker 1: are some equations out there that some economists try to 369 00:21:45,680 --> 00:21:49,000 Speaker 1: use to explain, you know, an aggregate of what's going on, 370 00:21:49,600 --> 00:21:52,520 Speaker 1: but they all break down when you look into the details. 371 00:21:52,840 --> 00:21:57,480 Speaker 1: An economy in this context is literally just um, hundreds 372 00:21:57,520 --> 00:22:02,760 Speaker 1: of millions or billions of individuals that all have incomes 373 00:22:02,800 --> 00:22:06,080 Speaker 1: and all have expenses, and all have surpluses and i'll 374 00:22:06,119 --> 00:22:11,520 Speaker 1: have deficits. That is it. There is no aggregate entity 375 00:22:11,560 --> 00:22:17,400 Speaker 1: that is separated from the individuals. When you look at corporations. 376 00:22:17,720 --> 00:22:21,600 Speaker 1: A corporation ultimately is a bank account, money going in, 377 00:22:21,680 --> 00:22:25,040 Speaker 1: money going out, and there are a bunch of individuals 378 00:22:25,080 --> 00:22:28,520 Speaker 1: that are participating together with money going in and money 379 00:22:28,560 --> 00:22:31,600 Speaker 1: going out in order to make up that corporation. Same 380 00:22:31,640 --> 00:22:36,240 Speaker 1: thing with governments, just individuals acting in a governmental manner 381 00:22:36,680 --> 00:22:39,840 Speaker 1: and a couple extra bank accounts where money is going 382 00:22:39,880 --> 00:22:42,440 Speaker 1: in and money is going out. Yes, it's more complicated 383 00:22:42,440 --> 00:22:46,120 Speaker 1: than that, but it doesn't change the fundamental aspect of 384 00:22:47,080 --> 00:22:50,040 Speaker 1: what what. What is able to be consumed must first 385 00:22:50,160 --> 00:22:54,640 Speaker 1: be produced, because you cannot consume something unless it has 386 00:22:54,680 --> 00:22:59,119 Speaker 1: been produced. Therefore, if something is being consumed in a 387 00:22:59,320 --> 00:23:03,040 Speaker 1: greater mount that what is currently being produced, you are 388 00:23:03,200 --> 00:23:09,359 Speaker 1: either consuming a surplus of the past or a surplus 389 00:23:09,400 --> 00:23:14,000 Speaker 1: of the future. Now you might say, okay, well, since 390 00:23:14,680 --> 00:23:20,399 Speaker 1: there's more debt today than we have ever had in history, um, 391 00:23:20,440 --> 00:23:22,920 Speaker 1: and we do not have. When you look at individuals, 392 00:23:22,920 --> 00:23:25,800 Speaker 1: and we look at corporations and we look at governments, 393 00:23:25,840 --> 00:23:30,720 Speaker 1: there's no savings, uh, not anything that comes close to 394 00:23:30,760 --> 00:23:33,880 Speaker 1: the amount of debt. So therefore, on net, we clearly 395 00:23:33,920 --> 00:23:39,760 Speaker 1: are not spending or consuming a prior surplus. It's not 396 00:23:39,800 --> 00:23:42,360 Speaker 1: like all these corporations going into debt could just pay 397 00:23:42,400 --> 00:23:44,719 Speaker 1: it off from their savings account if they wanted to. 398 00:23:45,800 --> 00:23:51,199 Speaker 1: So if we are not consuming a prior surplus, we 399 00:23:51,280 --> 00:23:56,160 Speaker 1: are consuming a future surplus. Now you might be thinking, well, 400 00:23:56,160 --> 00:23:58,040 Speaker 1: what if we don't have a surplus in the future, 401 00:23:58,200 --> 00:24:00,280 Speaker 1: just like the individual. But if you borrow tent thousand 402 00:24:00,280 --> 00:24:02,879 Speaker 1: dollars and I'm sorry, you borrow a thousand dollars so 403 00:24:02,920 --> 00:24:06,280 Speaker 1: you can spend eleven thousand, and next month you still 404 00:24:06,280 --> 00:24:10,439 Speaker 1: only make ten eleven thousand. That means the consumption must 405 00:24:10,600 --> 00:24:15,200 Speaker 1: be reduced, so the surplus in order to pay back 406 00:24:15,280 --> 00:24:20,159 Speaker 1: that that prior deficit, that surplus is forced to happen 407 00:24:20,840 --> 00:24:27,159 Speaker 1: by a reduction in consumption. And unfortunately, that is the 408 00:24:27,200 --> 00:24:30,639 Speaker 1: future we are headed towards. We have borrowed from the 409 00:24:30,680 --> 00:24:35,280 Speaker 1: future so heavily that the future surplus to pay back 410 00:24:35,320 --> 00:24:37,840 Speaker 1: the debts of the past will be forced upon us, 411 00:24:38,280 --> 00:24:43,320 Speaker 1: and the consumption will be forcibly reduced to a point 412 00:24:43,600 --> 00:24:48,280 Speaker 1: that allows the laws of physics of money to take place. 413 00:24:48,880 --> 00:24:53,159 Speaker 1: That we, uh, we consumed more than we produced for 414 00:24:53,359 --> 00:24:57,760 Speaker 1: decades and the bill is going to come do now 415 00:24:58,240 --> 00:25:02,600 Speaker 1: we have to discuss an inflationary de leveraging because so 416 00:25:02,640 --> 00:25:07,560 Speaker 1: far what I've been discussing is basically a deflationary de 417 00:25:07,680 --> 00:25:11,960 Speaker 1: leveraging through austerity, where we actually pay back the debt 418 00:25:12,040 --> 00:25:14,680 Speaker 1: dollar for dollar. There's no defaults. We pay it back 419 00:25:15,119 --> 00:25:18,320 Speaker 1: and we just live on a lot less. We produce 420 00:25:18,400 --> 00:25:20,960 Speaker 1: a lot more than we consume. We're paying back a 421 00:25:21,000 --> 00:25:23,160 Speaker 1: lot in taxes. Those taxes are going to pay off 422 00:25:23,200 --> 00:25:26,560 Speaker 1: the national debt um and you know, people live for 423 00:25:26,600 --> 00:25:28,760 Speaker 1: a very long time on a lot less than they 424 00:25:28,840 --> 00:25:32,480 Speaker 1: consume because we're forced to. It's like a very long 425 00:25:32,600 --> 00:25:35,880 Speaker 1: extended uh. Kind of like a great depression, though maybe 426 00:25:35,920 --> 00:25:40,120 Speaker 1: not as severe. There is the option, though, to do 427 00:25:40,520 --> 00:25:44,000 Speaker 1: a different type of de leveraging, called an inflationary de leveraging, 428 00:25:44,800 --> 00:25:49,560 Speaker 1: where um, instead of just outright austerity and paying back 429 00:25:49,800 --> 00:25:53,200 Speaker 1: dollar for dollar nominally what is owed, you do a 430 00:25:53,960 --> 00:25:58,400 Speaker 1: de facto default through inflation where it looks like you've 431 00:25:58,400 --> 00:26:02,199 Speaker 1: paid it back, but um, you're paying it back with 432 00:26:02,280 --> 00:26:05,920 Speaker 1: dollars that are worth less than what you borrowed. Um. Now, 433 00:26:06,000 --> 00:26:08,159 Speaker 1: let's go back to the example to understand this of 434 00:26:08,200 --> 00:26:11,399 Speaker 1: the individual spend ten dollars a month, borrow a thousand 435 00:26:11,440 --> 00:26:13,359 Speaker 1: dollars extra, and then you never pay it back, your 436 00:26:13,400 --> 00:26:17,240 Speaker 1: default on it. What happens then in that situation is 437 00:26:17,280 --> 00:26:21,720 Speaker 1: the money supply and circulation expands permanently. Now we know 438 00:26:21,840 --> 00:26:24,800 Speaker 1: from prior episodes what happens when the money supply expands, 439 00:26:25,400 --> 00:26:29,200 Speaker 1: Prices go up to compensate. So do we really get 440 00:26:29,200 --> 00:26:33,440 Speaker 1: a free lunch here, No, because now that prices are 441 00:26:33,520 --> 00:26:36,240 Speaker 1: higher as a result of more money being in circulation, 442 00:26:36,440 --> 00:26:40,360 Speaker 1: your consumption goes down because your income does not purchase 443 00:26:40,480 --> 00:26:44,480 Speaker 1: as much wealth as it used to. When your income 444 00:26:45,200 --> 00:26:47,199 Speaker 1: does not purchase as much wealth as it used to, 445 00:26:47,880 --> 00:26:50,720 Speaker 1: you are forced to consume less than you used to. 446 00:26:51,480 --> 00:26:54,880 Speaker 1: It's that simple prices went up to compensate for all 447 00:26:54,880 --> 00:26:57,280 Speaker 1: the extra money floating around. So when you go out 448 00:26:57,280 --> 00:26:59,680 Speaker 1: there to spend the same amount of money you've always spent, 449 00:27:00,000 --> 00:27:01,960 Speaker 1: you get less for it. So at the end of 450 00:27:01,960 --> 00:27:04,120 Speaker 1: the day, it doesn't matter whether we have a deflationary 451 00:27:04,160 --> 00:27:07,080 Speaker 1: de leveraging where the prices go down or an inflationary 452 00:27:07,119 --> 00:27:09,119 Speaker 1: de leveraging where the prices go up. At the end 453 00:27:09,119 --> 00:27:11,080 Speaker 1: of the day, a deal leveraging is a de leveraging 454 00:27:11,119 --> 00:27:14,200 Speaker 1: which means the amount of wealth able to be consumed 455 00:27:14,359 --> 00:27:18,879 Speaker 1: goes down to pay back the overabundance and excesses of 456 00:27:18,920 --> 00:27:21,159 Speaker 1: wealth that were consumed in the past by borrowing from 457 00:27:21,200 --> 00:27:25,160 Speaker 1: the future. That is what a d leveraging is. Whether 458 00:27:25,200 --> 00:27:27,280 Speaker 1: we get it through inflation or deflation, whether the money 459 00:27:27,320 --> 00:27:29,040 Speaker 1: supply goes up or the money supply goes down to 460 00:27:29,080 --> 00:27:31,760 Speaker 1: the money supply stays constant, or whether prices go up 461 00:27:31,840 --> 00:27:33,640 Speaker 1: or prices go down. At the end of the day, 462 00:27:33,800 --> 00:27:39,720 Speaker 1: the consumption of wealth goes down to pay back the 463 00:27:39,760 --> 00:27:43,159 Speaker 1: amount of wealth that was over consumed in the past 464 00:27:43,240 --> 00:27:46,040 Speaker 1: with money they didn't have, but they borrowed from the future. 465 00:27:47,240 --> 00:27:50,120 Speaker 1: So we have a de leveraging coming either way. Now, 466 00:27:51,440 --> 00:27:54,320 Speaker 1: before we move on to the four new monetary systems here, 467 00:27:54,359 --> 00:27:56,800 Speaker 1: I do need to make a caveat here because some 468 00:27:56,880 --> 00:27:59,320 Speaker 1: people say, why is this never happened before, And the 469 00:27:59,359 --> 00:28:02,119 Speaker 1: answer is, well, it has happened many times, but sometimes 470 00:28:02,160 --> 00:28:05,919 Speaker 1: it is covered up by something called a growth of 471 00:28:05,960 --> 00:28:10,480 Speaker 1: wealth productivity increase. So in our example, let's say you 472 00:28:10,560 --> 00:28:13,640 Speaker 1: go from making you start off at ten thousand dollars 473 00:28:13,680 --> 00:28:17,639 Speaker 1: a month, you borrow a thousand dollars, so now you uh, 474 00:28:17,840 --> 00:28:20,240 Speaker 1: now you owe a thousand dollars. But at the same 475 00:28:20,280 --> 00:28:23,159 Speaker 1: time you get a raise of a thousand dollars a month. Well, 476 00:28:23,200 --> 00:28:25,520 Speaker 1: then you get to pay back that next month, you 477 00:28:25,560 --> 00:28:27,679 Speaker 1: get to pay back that thousand dollars you owe, but 478 00:28:27,720 --> 00:28:32,440 Speaker 1: you still get to spend ten thousand dollars now because 479 00:28:32,480 --> 00:28:36,000 Speaker 1: you're paying back that debt. You are still spending less 480 00:28:36,040 --> 00:28:39,280 Speaker 1: than you would have been able to spend when you 481 00:28:39,400 --> 00:28:42,280 Speaker 1: got that raise if you didn't have the debt, because 482 00:28:42,920 --> 00:28:44,720 Speaker 1: you would have in June. Let's say you would have 483 00:28:44,760 --> 00:28:47,440 Speaker 1: been able to spend eleven thousand dollars because you've got 484 00:28:47,520 --> 00:28:50,520 Speaker 1: your raise in June, but now you can't spend eleven 485 00:28:50,560 --> 00:28:53,520 Speaker 1: thousand dollars until July because you have to use June 486 00:28:53,560 --> 00:28:56,840 Speaker 1: to pay back that thousand dollars that you that you 487 00:28:56,920 --> 00:29:00,160 Speaker 1: borrowed in May. So even if you get a RAYS, 488 00:29:00,440 --> 00:29:03,240 Speaker 1: you're still on net spending less in that in that 489 00:29:03,280 --> 00:29:05,480 Speaker 1: month than you would have been able to otherwise. But 490 00:29:06,240 --> 00:29:10,840 Speaker 1: because you got the RAYS, it compensated for the what 491 00:29:10,880 --> 00:29:15,440 Speaker 1: you owed back, and so your your actual level, your 492 00:29:15,480 --> 00:29:18,120 Speaker 1: total dollar amount that you were able to spend, didn't 493 00:29:18,160 --> 00:29:20,880 Speaker 1: have to go down for a month, So it's not 494 00:29:20,920 --> 00:29:22,760 Speaker 1: like you had to go from ten thousand to nine 495 00:29:22,760 --> 00:29:25,160 Speaker 1: thousand and back to ten thousand for your spending. You're 496 00:29:25,200 --> 00:29:27,160 Speaker 1: able to stick at ten thousand until the debt was 497 00:29:27,160 --> 00:29:28,840 Speaker 1: paid off, and then you went up to eleven thousand, 498 00:29:29,240 --> 00:29:32,600 Speaker 1: so income went up. So when humanity stumbles upon a 499 00:29:32,600 --> 00:29:35,520 Speaker 1: new way to be productive, when humanity stumbles upon a 500 00:29:35,560 --> 00:29:38,280 Speaker 1: way to offload human labor from farming to animals and 501 00:29:38,320 --> 00:29:40,720 Speaker 1: is able to produce more food, when humanity creates a 502 00:29:40,760 --> 00:29:44,320 Speaker 1: steam engine and can offload labor from animals to tractors, 503 00:29:44,720 --> 00:29:47,840 Speaker 1: When humanity stumbles across the internet and is able to 504 00:29:48,040 --> 00:29:51,440 Speaker 1: and computing power and is able to offload the the 505 00:29:51,520 --> 00:29:56,440 Speaker 1: labor of hundreds of thousands of people from manual work 506 00:29:56,600 --> 00:29:58,520 Speaker 1: to computers who can do it in a blink of 507 00:29:58,560 --> 00:30:01,600 Speaker 1: an eye, and they're able to produce a lot more 508 00:30:01,720 --> 00:30:04,920 Speaker 1: as a result than we get more wealth, and that 509 00:30:05,000 --> 00:30:11,080 Speaker 1: growth of wealth hides the de leveraging, and we might 510 00:30:11,200 --> 00:30:15,160 Speaker 1: see it be dollar amount look pretty normal. Hey, we 511 00:30:15,200 --> 00:30:20,320 Speaker 1: didn't increase consumption, we didn't decrease consumption. We're we're going 512 00:30:20,360 --> 00:30:24,640 Speaker 1: along pretty steadily here and smoothly, not realizing that we 513 00:30:24,720 --> 00:30:29,560 Speaker 1: are actually paying back what we previously borrowed with the 514 00:30:29,640 --> 00:30:33,120 Speaker 1: additional income we got as a society from the advances 515 00:30:33,160 --> 00:30:38,880 Speaker 1: in productivity. Moving forward, that means that that's possible that 516 00:30:38,920 --> 00:30:43,000 Speaker 1: continues to happen to even a greater degree. Hypothetically, we 517 00:30:43,040 --> 00:30:48,880 Speaker 1: get a giant army of artificially intelligent robots and Elon 518 00:30:48,960 --> 00:30:51,120 Speaker 1: Musk is able to pull this through, and they're able 519 00:30:51,200 --> 00:30:55,160 Speaker 1: to take over and UH of mining and all the 520 00:30:55,240 --> 00:30:58,800 Speaker 1: difficult jobs and do them safer and do them more productively. 521 00:30:58,880 --> 00:31:00,920 Speaker 1: And we have robots that make robots that go out 522 00:31:00,920 --> 00:31:03,400 Speaker 1: and make everything that humans want and need. Well, then 523 00:31:03,400 --> 00:31:07,520 Speaker 1: in that place, well, we've produced so much then that 524 00:31:07,640 --> 00:31:11,200 Speaker 1: the cost of wealth goes down enough to compensate for 525 00:31:11,360 --> 00:31:14,080 Speaker 1: the fact that we have to de leverage for our 526 00:31:14,120 --> 00:31:18,840 Speaker 1: decades of excess. And so maybe UH and advanced in 527 00:31:18,840 --> 00:31:23,400 Speaker 1: productivity hides the future deleveraging, and that is always a possibility, 528 00:31:23,480 --> 00:31:27,000 Speaker 1: and I just have to say that before we move on. However, 529 00:31:27,720 --> 00:31:30,040 Speaker 1: because of everything that we've laid out over the last 530 00:31:30,040 --> 00:31:34,160 Speaker 1: couple of episodes, we know that eventually currencies die, and 531 00:31:34,600 --> 00:31:38,720 Speaker 1: normally they die of hyper inflation, though sometimes economies die 532 00:31:38,920 --> 00:31:43,120 Speaker 1: of deflationary collapses, although not very often, and are kind 533 00:31:43,120 --> 00:31:45,680 Speaker 1: of reborn into a into a new one that looks 534 00:31:45,720 --> 00:31:49,520 Speaker 1: this looks similar but is not identical. This happened UH 535 00:31:49,920 --> 00:31:52,400 Speaker 1: in Bretton Woods, many places around the world that we 536 00:31:52,440 --> 00:31:55,160 Speaker 1: talked about in the last episode. This happened in Vy 537 00:31:55,200 --> 00:31:57,160 Speaker 1: one that we talked about in the last episode, and 538 00:31:57,200 --> 00:31:59,240 Speaker 1: it looks like it's happening again. All over the world. 539 00:31:59,280 --> 00:32:05,560 Speaker 1: We have economies that are falling into hyperinflation Lebanon, Argentina, Zimbabwe, Venezuela, Turkey, 540 00:32:05,880 --> 00:32:08,040 Speaker 1: um all over the world, we have countries, we have 541 00:32:08,360 --> 00:32:11,400 Speaker 1: geopolitical tensions. We have countries talking about creating a new 542 00:32:11,600 --> 00:32:14,400 Speaker 1: global reserve currency that is backed by commodities that the 543 00:32:14,480 --> 00:32:17,520 Speaker 1: countries don't have to be subject to sanctions by one 544 00:32:17,560 --> 00:32:20,320 Speaker 1: country in order to to in order to do business 545 00:32:20,360 --> 00:32:23,320 Speaker 1: with each other. So we are seeing things like this 546 00:32:23,760 --> 00:32:26,000 Speaker 1: come up and it looks like signs of a new 547 00:32:26,040 --> 00:32:29,720 Speaker 1: global monetary system being born. In light of that, let 548 00:32:29,760 --> 00:32:32,400 Speaker 1: us discuss the four potential options of where we are 549 00:32:32,440 --> 00:32:36,000 Speaker 1: going in the future with this. We have four monetary 550 00:32:36,040 --> 00:32:38,720 Speaker 1: systems that are possible, and only four monetary systems that 551 00:32:38,720 --> 00:32:42,040 Speaker 1: are possible. We have a public ledger, a private ledger, 552 00:32:42,520 --> 00:32:46,479 Speaker 1: commodity money, and commodity backed money. That's it. Those are 553 00:32:46,480 --> 00:32:50,640 Speaker 1: the only four types of money that can exist. So 554 00:32:51,240 --> 00:32:55,560 Speaker 1: let us discuss uh. Let us discuss briefly commodity money 555 00:32:55,600 --> 00:32:57,600 Speaker 1: because We've been there before. We did a whole episode 556 00:32:57,600 --> 00:32:59,920 Speaker 1: on this is the first episode. You know what come 557 00:33:00,000 --> 00:33:02,560 Speaker 1: bodity money does to a does to an economy. You 558 00:33:02,560 --> 00:33:05,560 Speaker 1: have a limited supply, which means that you have a 559 00:33:05,560 --> 00:33:08,040 Speaker 1: growth of wealth that's very stable. You don't have big 560 00:33:08,080 --> 00:33:11,080 Speaker 1: booms and big busts. You have uh skin in the 561 00:33:11,120 --> 00:33:16,640 Speaker 1: game by individual players, and you have savings. Incentivized growth incentivized. 562 00:33:16,760 --> 00:33:20,920 Speaker 1: Debt is disincentivized and punished. The problem with this and 563 00:33:20,960 --> 00:33:22,160 Speaker 1: why I'm not going to spend a lot of time 564 00:33:22,160 --> 00:33:26,240 Speaker 1: on commodity money, is because of the lack of um 565 00:33:27,480 --> 00:33:32,200 Speaker 1: uh salability across space. If we have to have if 566 00:33:32,240 --> 00:33:36,560 Speaker 1: we are going to have commerce between countries, commerce between states, 567 00:33:36,920 --> 00:33:41,880 Speaker 1: commerce between corporations, commodity money will never happen again. It 568 00:33:42,000 --> 00:33:45,640 Speaker 1: is just too costly to transport physical money. It will 569 00:33:45,680 --> 00:33:49,680 Speaker 1: not happen again. Um. The only way, in my opinion, 570 00:33:49,720 --> 00:33:52,680 Speaker 1: that we could go back to a commodity commodity monetary 571 00:33:52,760 --> 00:33:58,440 Speaker 1: system is if we have a global war, nuclear event 572 00:33:58,560 --> 00:34:01,400 Speaker 1: that is so severe that it wipes technology. There are 573 00:34:01,440 --> 00:34:04,040 Speaker 1: just too many better options now that technology exists to 574 00:34:04,080 --> 00:34:08,080 Speaker 1: go back to a commodity money system. Now you might 575 00:34:08,160 --> 00:34:10,120 Speaker 1: be asking Okay, Well, what if we go back to 576 00:34:10,160 --> 00:34:14,080 Speaker 1: a quasi commodity money system where there's commodities like gold 577 00:34:14,120 --> 00:34:16,759 Speaker 1: in a vault that's a third party, and when uh, 578 00:34:17,080 --> 00:34:19,120 Speaker 1: two countries want to do commerce with each other, they 579 00:34:19,200 --> 00:34:20,680 Speaker 1: do what they used to do and they have batch 580 00:34:20,760 --> 00:34:23,239 Speaker 1: settlement and the country, you know, goes to the vault 581 00:34:23,280 --> 00:34:25,239 Speaker 1: and says, okay, we're giving a hundred million ounces of 582 00:34:25,239 --> 00:34:28,400 Speaker 1: gold from this country to this country. And it's like, okay, 583 00:34:28,440 --> 00:34:31,840 Speaker 1: that's a commodity backed monetary system. That's not a commodity 584 00:34:31,880 --> 00:34:35,120 Speaker 1: money system anymore. And I think that is very very 585 00:34:35,200 --> 00:34:38,400 Speaker 1: very likely that at least in some places in the world, 586 00:34:38,400 --> 00:34:41,839 Speaker 1: because they are talking about doing that right now. They're 587 00:34:41,840 --> 00:34:46,160 Speaker 1: discussing and saying, hey, let's do this. So the fact 588 00:34:46,200 --> 00:34:49,200 Speaker 1: that we have countries and governments and central banks all 589 00:34:49,239 --> 00:34:52,040 Speaker 1: around the world, especially in the East, saying this is 590 00:34:52,040 --> 00:34:54,120 Speaker 1: a good idea and we should keep on talking about 591 00:34:54,160 --> 00:34:56,600 Speaker 1: this and getting closer to developing a system like this, 592 00:34:56,840 --> 00:34:59,640 Speaker 1: means that it's very likely that that happens at some point, 593 00:35:00,640 --> 00:35:03,440 Speaker 1: and that is a commodity backed money system. And we 594 00:35:03,560 --> 00:35:06,879 Speaker 1: spent all of episode two talking about this, so we 595 00:35:06,960 --> 00:35:09,400 Speaker 1: don't need to go into that here we know that 596 00:35:09,440 --> 00:35:11,719 Speaker 1: there is a little bit more potential for fraud, a 597 00:35:11,800 --> 00:35:15,480 Speaker 1: little bit more potential for overprinting UM. But ultimately, if 598 00:35:15,520 --> 00:35:18,000 Speaker 1: it's done right, you get most of the advantages of 599 00:35:18,040 --> 00:35:21,839 Speaker 1: the commodity money system and you still get the advantages 600 00:35:22,000 --> 00:35:25,880 Speaker 1: of salability across UH space where you have batch settlement, 601 00:35:26,040 --> 00:35:30,120 Speaker 1: third party trusted vaulting vaulting systems that do UH the 602 00:35:30,200 --> 00:35:34,440 Speaker 1: transfer of ownership UM from one entity to another. And 603 00:35:34,520 --> 00:35:37,880 Speaker 1: so you get the same system that incentivizes savings, the 604 00:35:37,920 --> 00:35:42,359 Speaker 1: same system that incentivizes UH the UM UH the lack 605 00:35:42,400 --> 00:35:45,319 Speaker 1: of debt build up. And because of that, now you 606 00:35:45,400 --> 00:35:51,720 Speaker 1: have UH the kind of a good Frankenstein's system UM 607 00:35:51,760 --> 00:35:55,640 Speaker 1: that has some contra compromises but ultimately is pretty stable 608 00:35:55,719 --> 00:36:01,280 Speaker 1: over time between between commodity money and and the fiat 609 00:36:01,320 --> 00:36:04,920 Speaker 1: system that we have today UM. And so that's that's 610 00:36:04,960 --> 00:36:07,520 Speaker 1: the commodity backed money. So we've talked about those two options. 611 00:36:07,520 --> 00:36:09,920 Speaker 1: Now we have commodity money in the future or commodity 612 00:36:09,960 --> 00:36:12,360 Speaker 1: backed money in the future. There are two other potential 613 00:36:12,360 --> 00:36:16,840 Speaker 1: systems here, public ledger money and private ledger money UM. 614 00:36:16,880 --> 00:36:20,280 Speaker 1: Now let's talk about Let's talk about private ledger first. 615 00:36:20,480 --> 00:36:23,840 Speaker 1: Back in a long time ago, there are these islands 616 00:36:23,840 --> 00:36:28,200 Speaker 1: called the Micronesian Islands. In these islands, they had a 617 00:36:28,280 --> 00:36:32,160 Speaker 1: private I'm sorry, public ledger. We are talking about public ledger. 618 00:36:32,200 --> 00:36:34,320 Speaker 1: Now I said private ledger. We are talking about public ledger. 619 00:36:34,920 --> 00:36:38,400 Speaker 1: These islands they were they had a public ledger monetary 620 00:36:38,440 --> 00:36:41,440 Speaker 1: system where they had these large stones called Rye stones. 621 00:36:41,719 --> 00:36:44,759 Speaker 1: Imagine a donut made out of rock that's eight ft 622 00:36:44,840 --> 00:36:47,279 Speaker 1: tall and that sits on the ground in the middle 623 00:36:47,280 --> 00:36:51,759 Speaker 1: of the village. And this rock is owned by one 624 00:36:51,800 --> 00:36:53,799 Speaker 1: person in the island. Let's say they've got a bunch 625 00:36:53,840 --> 00:36:56,799 Speaker 1: of these, there's like, you know, ten of them. This 626 00:36:56,840 --> 00:36:59,279 Speaker 1: one rock is owned by one person. And everybody in 627 00:36:59,280 --> 00:37:01,200 Speaker 1: the village gets to other on this island and says, 628 00:37:01,400 --> 00:37:05,839 Speaker 1: we all know that John owns this rock. And John says, yeah, 629 00:37:05,840 --> 00:37:09,200 Speaker 1: I own this rock. Suddenly, though, John wants to buy 630 00:37:09,200 --> 00:37:12,759 Speaker 1: a cow from Phil. So John looks to Phil and 631 00:37:12,800 --> 00:37:16,000 Speaker 1: he says, hey, I would like your cow, and Phil says, okay, 632 00:37:16,040 --> 00:37:18,719 Speaker 1: Well then you have to pay me your rock, and 633 00:37:18,760 --> 00:37:21,600 Speaker 1: so John says okay. So the whole village comes together 634 00:37:21,920 --> 00:37:25,080 Speaker 1: and they say, okay, now we are all acknowledging that 635 00:37:25,160 --> 00:37:27,919 Speaker 1: the ownership of this rock is being transferred from John 636 00:37:27,920 --> 00:37:30,719 Speaker 1: to Phil, and everybody acknowledges it at the same time 637 00:37:30,719 --> 00:37:33,200 Speaker 1: and sees the transaction take place and acknowledges that John 638 00:37:33,200 --> 00:37:35,160 Speaker 1: bought the cow from Phil, and now Phil owns the 639 00:37:35,239 --> 00:37:38,560 Speaker 1: rock and John owns the cow. So in everybody's mind, 640 00:37:38,640 --> 00:37:43,120 Speaker 1: there's a group knowledge base here that everybody knows who 641 00:37:43,120 --> 00:37:46,839 Speaker 1: owns the rocks. They're big, so nobody can move them, 642 00:37:46,960 --> 00:37:50,120 Speaker 1: nobody can steal them. If suddenly Sally comes out of 643 00:37:50,120 --> 00:37:52,720 Speaker 1: nowhere and says I own the rock, everybody will be like, Nope, 644 00:37:52,760 --> 00:37:55,799 Speaker 1: we know Phil owns it because we all acknowledge he 645 00:37:55,800 --> 00:38:00,800 Speaker 1: bought it from John. This is a public ledger monetary system. 646 00:38:00,840 --> 00:38:05,160 Speaker 1: It's where there's simply a list that is publicly accessible 647 00:38:05,200 --> 00:38:10,840 Speaker 1: and publicly verifiable of who owns how much money that's it. Now. 648 00:38:11,440 --> 00:38:15,360 Speaker 1: This system failed when the um colonizers came in and 649 00:38:15,360 --> 00:38:18,719 Speaker 1: they realized they could just make rocks very easily and 650 00:38:18,760 --> 00:38:22,160 Speaker 1: bring them in because they had better technology than the islanders, 651 00:38:22,680 --> 00:38:26,279 Speaker 1: and there was hyper inflation very quickly and from all 652 00:38:26,280 --> 00:38:29,680 Speaker 1: the rocks that were being brought in, and the monetary 653 00:38:29,680 --> 00:38:33,439 Speaker 1: system failed. Bitcoin is an example of a public ledger 654 00:38:33,480 --> 00:38:37,400 Speaker 1: monetary system. It's simply a list that says this person 655 00:38:37,480 --> 00:38:41,280 Speaker 1: it's called a wallet, but this account has this much bitcoin. 656 00:38:41,719 --> 00:38:44,760 Speaker 1: This account has this much bitcoin, and it lists every account, 657 00:38:44,760 --> 00:38:47,360 Speaker 1: which are called wallets, every wallet that has bitcoin, and 658 00:38:47,400 --> 00:38:49,799 Speaker 1: it lists how much is in it, and then in 659 00:38:49,840 --> 00:38:52,880 Speaker 1: each of those it shows where that came from. So 660 00:38:52,960 --> 00:38:55,600 Speaker 1: it has every transaction that has ever happened back to 661 00:38:55,640 --> 00:38:59,440 Speaker 1: the very first transaction of bitcoin. It's just a ledger 662 00:38:59,560 --> 00:39:02,440 Speaker 1: ast if you will, of all of the accounts that 663 00:39:02,480 --> 00:39:03,920 Speaker 1: have the money and how much money they have and 664 00:39:03,960 --> 00:39:05,920 Speaker 1: where the money came from. It's the same thing as 665 00:39:05,960 --> 00:39:10,279 Speaker 1: these rocks. It's publicly accessible. Anybody can go look all 666 00:39:10,320 --> 00:39:13,839 Speaker 1: the way back to beginning all the transactions. Now, this 667 00:39:13,960 --> 00:39:16,640 Speaker 1: is a depending on how it's done. Like if we 668 00:39:16,640 --> 00:39:19,960 Speaker 1: look at bitcoin, there's a fixed supply and it is 669 00:39:20,400 --> 00:39:25,280 Speaker 1: uh open source software, and so every other crypto cryptocurrency 670 00:39:25,360 --> 00:39:28,480 Speaker 1: is based somewhat off of Bitcoin, and it's changed in 671 00:39:28,520 --> 00:39:31,400 Speaker 1: some way, and so everybody has tried their own, but 672 00:39:31,600 --> 00:39:36,600 Speaker 1: ultimately the market has decided that that the public ledger 673 00:39:36,640 --> 00:39:41,480 Speaker 1: system of bitcoin that prioritizes um UH security is going 674 00:39:41,480 --> 00:39:44,279 Speaker 1: to be the best one, and it's the winner so 675 00:39:44,360 --> 00:39:48,040 Speaker 1: far at least, and because it prioritizes security, and because 676 00:39:48,160 --> 00:39:52,080 Speaker 1: it um has such a hard limited supply um, it 677 00:39:52,120 --> 00:39:54,760 Speaker 1: looks like it will be able to maintain its position 678 00:39:54,880 --> 00:39:58,640 Speaker 1: as leader um in perpetuity because you have to make 679 00:39:58,680 --> 00:40:00,879 Speaker 1: a trade off somewhere. If you make a trade off 680 00:40:00,920 --> 00:40:03,200 Speaker 1: that is higher towards security, you can't get the network 681 00:40:03,200 --> 00:40:06,880 Speaker 1: effects because it becomes less efficient. So we have a 682 00:40:06,920 --> 00:40:11,040 Speaker 1: public ledger monetary system with bitcoin, and there's a limited supply, 683 00:40:11,160 --> 00:40:14,680 Speaker 1: and so as money, it would operate very similarly to 684 00:40:14,719 --> 00:40:18,640 Speaker 1: a commodity money because it's it's limited supply. The difference 685 00:40:18,760 --> 00:40:23,759 Speaker 1: is it is technically infinitely divisible, which means that you 686 00:40:23,800 --> 00:40:27,800 Speaker 1: don't suffer from deflation like with gold as a coin 687 00:40:28,560 --> 00:40:31,080 Speaker 1: eventually slap it down on the counter and it's it's 688 00:40:31,080 --> 00:40:33,280 Speaker 1: too expensive to pay for your groceries or your lunch, 689 00:40:33,640 --> 00:40:35,760 Speaker 1: and so you need a change. You needed to deposit 690 00:40:35,800 --> 00:40:41,360 Speaker 1: it for safety and get paper. Bitcoin is technically infinitely divisible, 691 00:40:41,600 --> 00:40:45,000 Speaker 1: so you can just make smaller and smaller denominations of 692 00:40:45,040 --> 00:40:48,560 Speaker 1: it as the future goes on, and as it increases 693 00:40:48,600 --> 00:40:50,880 Speaker 1: in purchasing power because it's a limited supply and the 694 00:40:50,920 --> 00:40:54,439 Speaker 1: wealth of everything will still grow. Now that's a public 695 00:40:54,520 --> 00:40:56,960 Speaker 1: ledger monetary system. So it looks like the best of 696 00:40:56,960 --> 00:41:00,880 Speaker 1: both worlds in terms of technology today mary with commodity 697 00:41:01,000 --> 00:41:05,920 Speaker 1: hard commodity money of the past. That is potentially likely. 698 00:41:06,640 --> 00:41:09,560 Speaker 1: There are certain places and certain people in certain institutions 699 00:41:09,560 --> 00:41:13,280 Speaker 1: are around the world that are actively trying to push 700 00:41:13,360 --> 00:41:16,080 Speaker 1: for that to happen because it looks like that would 701 00:41:16,080 --> 00:41:19,319 Speaker 1: be the best system that is available right now for 702 00:41:19,400 --> 00:41:23,120 Speaker 1: most people moving forward. Now we have to look at 703 00:41:23,120 --> 00:41:24,719 Speaker 1: the last one because this one is where we where 704 00:41:24,719 --> 00:41:27,600 Speaker 1: it gets scary. A private ledger. So we know what 705 00:41:27,640 --> 00:41:29,840 Speaker 1: a ledger is. It's just a list of all the accounts, 706 00:41:29,840 --> 00:41:32,320 Speaker 1: all the people who have the money, how much money 707 00:41:32,320 --> 00:41:35,560 Speaker 1: they have, and where it came from. But this one 708 00:41:35,640 --> 00:41:39,080 Speaker 1: is private. This one only a select group of people 709 00:41:39,440 --> 00:41:43,200 Speaker 1: have access to this information, which means that only a 710 00:41:43,239 --> 00:41:47,879 Speaker 1: select group of people have control over these accounts. This 711 00:41:47,960 --> 00:41:51,200 Speaker 1: is what's known as a central bank digital currency. And 712 00:41:51,239 --> 00:41:53,960 Speaker 1: this is the next evolution of a fiat monetary system. 713 00:41:53,960 --> 00:41:55,640 Speaker 1: Because you might be asking, hey, well, what if the 714 00:41:55,640 --> 00:41:59,000 Speaker 1: current system keeps ongoing. While it won't it's dying. It 715 00:41:59,000 --> 00:42:01,920 Speaker 1: will be be replaced by something. And the next evolution 716 00:42:01,960 --> 00:42:03,960 Speaker 1: of the current system, the fiat system that we have 717 00:42:04,080 --> 00:42:07,960 Speaker 1: right now is a central bank digital currency, and this 718 00:42:08,040 --> 00:42:11,360 Speaker 1: is where it bypasses the banking system, and you have 719 00:42:11,360 --> 00:42:15,080 Speaker 1: an account directly with the central bank, and they see 720 00:42:15,280 --> 00:42:17,440 Speaker 1: every account. They have all the data of all the 721 00:42:17,480 --> 00:42:20,600 Speaker 1: financial accounts, all the transactions that are taking place, and 722 00:42:20,640 --> 00:42:25,680 Speaker 1: all the control. So if your bank decides your transaction 723 00:42:25,760 --> 00:42:29,799 Speaker 1: was fraud, they can reverse it, they can stop it. 724 00:42:30,000 --> 00:42:33,200 Speaker 1: If you're bank decides that today I'm talking about Chase 725 00:42:33,200 --> 00:42:35,000 Speaker 1: Bank of America, will farg anything if they decide you're 726 00:42:35,000 --> 00:42:37,760 Speaker 1: in a business like right now, if you're in the 727 00:42:37,760 --> 00:42:44,279 Speaker 1: the UM the edibles business I'll say UM, or the 728 00:42:44,280 --> 00:42:49,280 Speaker 1: the the leafy greens that make people feel good business, UM, 729 00:42:49,320 --> 00:42:51,160 Speaker 1: there are many banks that will just say, no, we 730 00:42:51,160 --> 00:42:53,000 Speaker 1: don't want to do business with you. If you're in 731 00:42:53,000 --> 00:42:55,960 Speaker 1: the pu pu business and you're selling those little those 732 00:42:56,040 --> 00:43:01,120 Speaker 1: little metal metal chunks that uh the fly fly down 733 00:43:01,239 --> 00:43:04,400 Speaker 1: range into a target, UM, and you're in that business, 734 00:43:04,600 --> 00:43:06,040 Speaker 1: there are many banks that will say we don't want 735 00:43:06,040 --> 00:43:07,840 Speaker 1: to do business with you. If you're in the business 736 00:43:07,880 --> 00:43:10,319 Speaker 1: where you sell gold and silver coins to people, there 737 00:43:10,360 --> 00:43:11,680 Speaker 1: are many banks that will say we don't want to 738 00:43:11,680 --> 00:43:14,000 Speaker 1: do business with you. However, there's still a little bit 739 00:43:14,000 --> 00:43:18,839 Speaker 1: of competition. Ten tyrants are better than one because at 740 00:43:18,920 --> 00:43:22,000 Speaker 1: least the tyrants are competing for who they get to 741 00:43:22,040 --> 00:43:27,360 Speaker 1: be a tyrant over. If you bypass the banking system 742 00:43:27,400 --> 00:43:31,120 Speaker 1: and you get one central bank that controls all financial accounts, 743 00:43:31,840 --> 00:43:34,960 Speaker 1: that's pure tyranny. You know, you know, have no longer 744 00:43:35,000 --> 00:43:38,400 Speaker 1: have any choice. So if the central bank decides we 745 00:43:38,440 --> 00:43:42,320 Speaker 1: don't want people to be in this business, now, nobody 746 00:43:42,400 --> 00:43:46,359 Speaker 1: can be in that business. There's no legislation that has 747 00:43:46,400 --> 00:43:50,200 Speaker 1: to happen, there's no voting that has to happen, there's 748 00:43:50,239 --> 00:43:54,280 Speaker 1: no public accountability. There are a few people in charge 749 00:43:54,400 --> 00:43:58,680 Speaker 1: of the money and all financial accounts that are unelected 750 00:43:59,239 --> 00:44:03,919 Speaker 1: that get to say what transactions and financial activity gets 751 00:44:03,960 --> 00:44:06,680 Speaker 1: to take place in the economy and what doesn't. They 752 00:44:06,680 --> 00:44:10,440 Speaker 1: can stop a transaction, they can reverse a transaction. They 753 00:44:10,440 --> 00:44:13,480 Speaker 1: can deposit money in people's accounts and say this can 754 00:44:13,520 --> 00:44:17,080 Speaker 1: only be spent on certain activities, on certain goods, at 755 00:44:17,120 --> 00:44:24,080 Speaker 1: certain businesses owned by certain oppressed groups. And you essentially 756 00:44:24,120 --> 00:44:29,720 Speaker 1: have top down, centralized control over everything that happens, because 757 00:44:29,800 --> 00:44:33,040 Speaker 1: money is half of everything that happens in an economy. 758 00:44:33,719 --> 00:44:36,680 Speaker 1: And if we get to while first, I should say 759 00:44:36,680 --> 00:44:38,520 Speaker 1: that there are many countries around the world that are 760 00:44:38,560 --> 00:44:41,120 Speaker 1: pioneering this and pushing for this and researching this and 761 00:44:41,160 --> 00:44:44,400 Speaker 1: trying to get this to happen. So it is a 762 00:44:44,520 --> 00:44:48,359 Speaker 1: very high likelihood we get this system somewhere, And it 763 00:44:48,400 --> 00:44:52,360 Speaker 1: doesn't matter whether or not it is used for good 764 00:44:52,480 --> 00:44:55,960 Speaker 1: or for bad. It doesn't matter whether or not the 765 00:44:56,040 --> 00:44:59,080 Speaker 1: central banks or the government's using a CBDC use this 766 00:44:59,200 --> 00:45:03,799 Speaker 1: power for volle What matters is the potential that this 767 00:45:03,880 --> 00:45:09,719 Speaker 1: power presents in the first place. The solution is not 768 00:45:09,880 --> 00:45:13,000 Speaker 1: to invent a weapon so powerful and just hope the 769 00:45:13,080 --> 00:45:18,640 Speaker 1: good people control it. The solution is to prevent that 770 00:45:18,719 --> 00:45:23,160 Speaker 1: from ever being possible in the first place. So it 771 00:45:23,320 --> 00:45:26,680 Speaker 1: is not that we want to open up and start 772 00:45:26,880 --> 00:45:30,759 Speaker 1: the dialogue and have the possibility of a CBDC and 773 00:45:30,800 --> 00:45:34,560 Speaker 1: then hope that we get the right person in control 774 00:45:34,560 --> 00:45:36,080 Speaker 1: of it that will do the right thing with it. 775 00:45:37,440 --> 00:45:42,959 Speaker 1: Because absolute power corrupts absolutely And like Warren Buffett says, 776 00:45:43,800 --> 00:45:46,719 Speaker 1: make sure you buy a business that an idiot can run, 777 00:45:47,200 --> 00:45:51,880 Speaker 1: because someday an idiot will. And like Noval Ravi Kant says, 778 00:45:52,400 --> 00:45:56,680 Speaker 1: the best test of a system is whether you can 779 00:45:56,719 --> 00:45:59,799 Speaker 1: install your enemy in charge of the system for ten 780 00:46:00,080 --> 00:46:03,800 Speaker 1: years and it still functions properly, and if the system 781 00:46:03,880 --> 00:46:06,640 Speaker 1: is reliant on the right person or a good enough 782 00:46:06,680 --> 00:46:09,360 Speaker 1: person being in charge of it, the system will fail 783 00:46:10,080 --> 00:46:14,920 Speaker 1: every time. And so commodity money will probably never happen 784 00:46:14,960 --> 00:46:18,440 Speaker 1: again unless we wipe ourselves out. Commodity backed money will 785 00:46:18,560 --> 00:46:21,200 Speaker 1: very likely happen at least in certain places around the world. 786 00:46:22,440 --> 00:46:25,040 Speaker 1: Public ledger money will very likely happen at least in 787 00:46:25,080 --> 00:46:28,839 Speaker 1: certain places around the world. Private ledger money will very 788 00:46:28,880 --> 00:46:31,040 Speaker 1: likely happen at least in certain places around the world. 789 00:46:31,719 --> 00:46:35,160 Speaker 1: So moving forward, it looks very much like when this 790 00:46:35,200 --> 00:46:40,560 Speaker 1: fiat system fails, it will fracture into three competing systems, 791 00:46:41,080 --> 00:46:45,960 Speaker 1: public ledger money, private ledger money, and commodity backed money. Now, 792 00:46:46,040 --> 00:46:49,080 Speaker 1: I don't know which one of those will win, but 793 00:46:49,200 --> 00:46:51,920 Speaker 1: I know which one of those will lose, and that 794 00:46:52,080 --> 00:46:57,359 Speaker 1: is private ledger money. And here's why we're gonna get 795 00:46:57,360 --> 00:47:00,440 Speaker 1: a little bit philosophical here for the end of the 796 00:47:00,600 --> 00:47:05,359 Speaker 1: end of the episode. Uh. In the Bible, Jesus is 797 00:47:05,400 --> 00:47:08,359 Speaker 1: called the king of kings. So a king is somebody 798 00:47:08,360 --> 00:47:12,080 Speaker 1: who's in charge of, you know, everything, But there are 799 00:47:12,160 --> 00:47:16,239 Speaker 1: multiple kings across history and across geography, and Jesus is 800 00:47:16,560 --> 00:47:20,239 Speaker 1: titled The King of Kings. Now, what are the attributes 801 00:47:20,320 --> 00:47:23,520 Speaker 1: in the Bible For Jesus, he is all knowing, and 802 00:47:23,560 --> 00:47:27,120 Speaker 1: he is all powerful, and he is without sin. He's 803 00:47:27,160 --> 00:47:30,680 Speaker 1: all good, all knowing, all powerful, all good. So the 804 00:47:31,360 --> 00:47:35,480 Speaker 1: necessary characteristics for something to work if it is in 805 00:47:35,560 --> 00:47:39,640 Speaker 1: control of literally everything, is that it has all the information, 806 00:47:39,800 --> 00:47:43,480 Speaker 1: has all the power, and has all the morals. This 807 00:47:43,680 --> 00:47:49,040 Speaker 1: rings true with power in life as well, because for 808 00:47:49,200 --> 00:47:53,120 Speaker 1: a government to be successful, uh, you'd want it to 809 00:47:53,160 --> 00:47:56,840 Speaker 1: have the right information. Because if something is in control, 810 00:47:56,840 --> 00:47:58,480 Speaker 1: like a king or a dictator, or a government or 811 00:47:58,480 --> 00:48:00,400 Speaker 1: a central bank digital currency, they would to have all 812 00:48:00,440 --> 00:48:03,239 Speaker 1: the right information because if you have one piece of 813 00:48:03,280 --> 00:48:06,000 Speaker 1: incorrect information, the decision you make will be flawed and 814 00:48:06,040 --> 00:48:09,480 Speaker 1: you'll have a failure. So the more control you exercise 815 00:48:09,480 --> 00:48:11,480 Speaker 1: over over a system, the more important it is to 816 00:48:11,520 --> 00:48:14,200 Speaker 1: have all the right information. But because like we learned 817 00:48:14,200 --> 00:48:17,359 Speaker 1: in the first episode, because valuation is subjective and has 818 00:48:17,840 --> 00:48:20,040 Speaker 1: everything to do with all the wants and needs that 819 00:48:20,080 --> 00:48:23,239 Speaker 1: people are ranking for themselves in their heads all day long, 820 00:48:23,280 --> 00:48:26,760 Speaker 1: on a subjective basis, it is literally impossible to gather 821 00:48:26,840 --> 00:48:29,560 Speaker 1: all that data is centralized source. So the information in 822 00:48:29,640 --> 00:48:32,480 Speaker 1: some sense will be flawed because it will be distilled. 823 00:48:33,120 --> 00:48:35,560 Speaker 1: Even if they get as much as possible, they can't 824 00:48:35,560 --> 00:48:38,600 Speaker 1: get at all. So in that sense, a CBDC is 825 00:48:39,120 --> 00:48:41,600 Speaker 1: doomed from the start because it cannot get all the 826 00:48:41,640 --> 00:48:46,360 Speaker 1: information and so it will be making incorrect decisions. Number two, 827 00:48:46,880 --> 00:48:50,560 Speaker 1: all the power. While a CBDC will exercise a high 828 00:48:50,600 --> 00:48:54,120 Speaker 1: degree of of control over a system, it cannot exercise 829 00:48:54,239 --> 00:48:57,640 Speaker 1: all the control over a system. It's not possible. Therefore, 830 00:48:57,680 --> 00:49:01,479 Speaker 1: where it cannot make an executive decision to cause something 831 00:49:01,480 --> 00:49:04,000 Speaker 1: to happen um a k a. In the case of 832 00:49:04,040 --> 00:49:07,360 Speaker 1: black markets, and cannot exercise control over things people do 833 00:49:07,400 --> 00:49:10,600 Speaker 1: outside the system, well, then it is doomed to have 834 00:49:10,640 --> 00:49:14,680 Speaker 1: failure there. And finally, absolute power corrupts absolutely and so 835 00:49:14,719 --> 00:49:16,640 Speaker 1: the people who are in control of it, even if 836 00:49:16,640 --> 00:49:18,880 Speaker 1: they did have all the information and all the power, 837 00:49:19,320 --> 00:49:22,000 Speaker 1: they would be UH it would be impossible for them 838 00:49:22,040 --> 00:49:24,640 Speaker 1: to make decisions that were in the best interest of 839 00:49:24,680 --> 00:49:28,439 Speaker 1: everybody involved, and would very likely tip over into making 840 00:49:28,440 --> 00:49:31,880 Speaker 1: decisions that would benefit themselves keeping that power, benefit the 841 00:49:31,920 --> 00:49:35,440 Speaker 1: people in UH politics that placed them in power, and 842 00:49:35,480 --> 00:49:38,280 Speaker 1: would therefore make decisions that would cause the system to fail. 843 00:49:38,880 --> 00:49:40,359 Speaker 1: And the more you scale us up, and the more 844 00:49:40,360 --> 00:49:44,560 Speaker 1: you concentrate the power, the more those results are magnified, 845 00:49:44,640 --> 00:49:49,160 Speaker 1: and the failures are uh exponentially larger. And so that's 846 00:49:49,200 --> 00:49:51,600 Speaker 1: why we get the example in the Bible, this ancient 847 00:49:51,600 --> 00:49:55,239 Speaker 1: wisdom that says, if you want somebody to exercise full 848 00:49:55,239 --> 00:49:59,640 Speaker 1: control over the people who have full control, somebody who 849 00:49:59,719 --> 00:50:02,960 Speaker 1: is going to operate as a king of kings, literally 850 00:50:02,960 --> 00:50:06,480 Speaker 1: in control of everything. They have to know everything, which 851 00:50:06,480 --> 00:50:09,040 Speaker 1: they can't. They have to have all the control over 852 00:50:09,120 --> 00:50:12,160 Speaker 1: everything which they can't, and they have to be all good, 853 00:50:12,440 --> 00:50:15,160 Speaker 1: which they aren't. And so the very fact that we 854 00:50:15,239 --> 00:50:18,640 Speaker 1: have all three of those necessary components and all three 855 00:50:18,640 --> 00:50:22,280 Speaker 1: of those severely lacking, we know a CBDC is doomed 856 00:50:22,480 --> 00:50:27,560 Speaker 1: to fail by killing itself. So we know that three 857 00:50:27,600 --> 00:50:32,120 Speaker 1: systems will be coming, CBDC, crypto like bitcoin, and a 858 00:50:32,120 --> 00:50:34,640 Speaker 1: commodity back to money like a new currency back by gold. 859 00:50:35,280 --> 00:50:37,480 Speaker 1: Those will happen. We don't know which one will be 860 00:50:37,480 --> 00:50:39,880 Speaker 1: the winner, but we know which one will lose. And 861 00:50:39,960 --> 00:50:43,320 Speaker 1: anywhere that tries the CBDC will lose and will fail 862 00:50:43,360 --> 00:50:47,359 Speaker 1: and will destroy itself. And whicheveryone tries the commodity backed money, 863 00:50:47,400 --> 00:50:51,319 Speaker 1: and which everyone tries the public Ledger money will be 864 00:50:51,400 --> 00:50:55,719 Speaker 1: in the running for the future dominant monetary system and 865 00:50:55,760 --> 00:51:00,120 Speaker 1: the future economic success. So we went a little it 866 00:51:00,239 --> 00:51:02,879 Speaker 1: over time on this episode. I apologize. I always try 867 00:51:02,880 --> 00:51:04,720 Speaker 1: and keep it down to forty five minutes of content 868 00:51:05,000 --> 00:51:07,320 Speaker 1: without the ads, and so I would like to continue 869 00:51:07,320 --> 00:51:08,799 Speaker 1: to do that in the future. We went a little 870 00:51:08,800 --> 00:51:10,520 Speaker 1: bit long on this one, but I thought it was 871 00:51:10,600 --> 00:51:13,000 Speaker 1: necessary to go in detail on each of those topics, 872 00:51:13,360 --> 00:51:15,600 Speaker 1: and that is where we are headed because we have 873 00:51:15,640 --> 00:51:17,200 Speaker 1: a de leveraging in front of us, we have a 874 00:51:17,200 --> 00:51:20,120 Speaker 1: new system being born in front of us, and it 875 00:51:20,280 --> 00:51:22,879 Speaker 1: is it is yet to be seen who will win, 876 00:51:23,000 --> 00:51:26,920 Speaker 1: but we know who will lose. As always, thank you 877 00:51:26,960 --> 00:51:29,839 Speaker 1: guys so much for listening. We'll see you next time.