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Speaker 1: They say that if you don't know the history, you

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Speaker 1: are doomed to repeat it. Now, if you're a regular

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Speaker 1: viewer of this channel, you know that I love to

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Speaker 1: go back in history. I love to get historical references

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Speaker 1: to show us what's happening and what that tells us

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Speaker 1: about the future. Not because it necessarily repeats, but it

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Speaker 1: definitely does rhyme. Now, today I have a special guest,

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Speaker 1: someone I'm very excited to bring back for the second

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Speaker 1: time to the channel. And if you love hearing the

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Speaker 1: historical references, you are going to love what Nick has

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Speaker 1: to say. He's just authored a new book called Layered Money,

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Speaker 1: and it goes back through history, and it goes all

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Speaker 1: the way back into future tens. As a matter of fact,

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Speaker 1: we start talking about the treasuries, which is something I've

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Speaker 1: been talking a lot about the U. S. Treasuries. The

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Speaker 1: yield has been plummeting. And he is a professor at USC.

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Speaker 1: He talks about this to his students and he knows

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Speaker 1: what's going on, and he's got a different take than

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Speaker 1: what I've been saying, and it's one that you want

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Speaker 1: to hear. Then we go back into history to learn

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Speaker 1: about what happened that's actually sparked the renaissance, and then

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Speaker 1: of course we bring it all the way back to

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Speaker 1: current date. This is an interview you do not want

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Speaker 1: to miss. Was one that I really enjoyed. So let's

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Speaker 1: go ahead and jump right into it. All right, everyone,

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Speaker 1: Welcome to another episode of the Market Disruptor Show today.

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Speaker 1: I am so excited to bring back for a second time.

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Speaker 1: I think maybe only the second guest that's been back

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Speaker 1: a second time. Nick is back with us. He is

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Speaker 1: the author of the brand new book Layered Money, which

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Speaker 1: we'll be talking about. He's also an adject professor at

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Speaker 1: the USC Marshall School Business and Nick, it's just just

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Speaker 1: an honor to have you back. Thanks for joining us.

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Speaker 1: Great to be Mark, thank you. Yeah. So, Um, you

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Speaker 1: are an adjunct professor. Um, you had a career in finance. UM.

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Speaker 1: I know you worked with treasuries. I want to talk

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Speaker 1: about of course, you have this new book that's amazing

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Speaker 1: that I've been loving. UM, and I want to talk

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Speaker 1: about that, but maybe just real quick, give us a

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Speaker 1: little bit of background on kind of your work in

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Speaker 1: in big finance before and then kind of like which

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Speaker 1: we're where you are at right now? Sure? So, I

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Speaker 1: started in the fixed income industry several years ago and

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Speaker 1: I was working at a couple of different bond managers,

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Speaker 1: and then the most recent job that I had was

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Speaker 1: trading US treasuries on a trading desk for a large

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Speaker 1: institutional investment manager and also helping on the interest rate

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Speaker 1: strategy team, so global macro economics and trading US government

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Speaker 1: securities and other interest rate derivatives I was. I was

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Speaker 1: doing that for several years and I really enjoyed being

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Speaker 1: on the desk. That was something that Hey, just a

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Speaker 1: real quick interruption to let you know that this video

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Speaker 1: is brought to you add free by block Fire. Now

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Speaker 1: they're giving you the ability to hodal your bitcoin and

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Speaker 1: your crypto as it goes up in value, and at

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Speaker 1: the same time you can earn high yielding interest on it,

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Speaker 1: so you can basically hold it for all the upside

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Speaker 1: potential and then you can make cash flow off of

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Speaker 1: it at the exact same time. Now, opening accounts super fast,

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Speaker 1: super simple, and they've offered to give me up to

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Speaker 1: two for every sign up, but I told them, you

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Speaker 1: know what, let's give it back to you. So you

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Speaker 1: can now go and you can get the two fifty

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Speaker 1: dollars whenever you set up your account, and all us

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Speaker 1: to do is just check the link in the description

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Speaker 1: for details, set up an account super quick and easy,

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Speaker 1: and turn up to two and fifty dollars brought to

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Speaker 1: you by black Fires, So check them out. I learned

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Speaker 1: so much from and I got to study the FED

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Speaker 1: really intimately on a daily basis, read research from some

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Speaker 1: of the greatest thinkers on Wall Street with regard to

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Speaker 1: treasuries and interest rates and um, the way that the

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Speaker 1: economy is going and especially how the financial system works.

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Speaker 1: So when I was there on the desk, I also

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Speaker 1: started to fall down the bitcoin rabbit hole at the

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Speaker 1: same time, and as time progressed, I started to read

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Speaker 1: more and more about bitcoin, and then I started to

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Speaker 1: write more about bitcoin, started publishing some research pieces out

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Speaker 1: bitcoin and Lightning Network, and that really, um it really

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Speaker 1: put pulled me in that in this direction of becoming

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Speaker 1: a writer about bitcoin. And then I left the bond

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Speaker 1: market in late and spent the whole year writing layered money. Yeah,

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Speaker 1: So I mean that's a it's kind of an interesting

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Speaker 1: track that brought you to kind of where we are today.

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Speaker 1: It seems like maybe I'm wrong, but it almost seems

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Speaker 1: like maybe the more into the traditional financial system people

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Speaker 1: are sometimes the harder it maybe for them to see

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Speaker 1: um the the other way that it could be, right,

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Speaker 1: almost like, uh, what does it see the forest through

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Speaker 1: the trees or whatever it is? Um. But let's dig

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Speaker 1: into that for a minute. So you were working at

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Speaker 1: a desk trading treasuries, So I want to talk about

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Speaker 1: that for a minute because I've been talking about that

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Speaker 1: quite a bit on my channel. And so obviously treasuries

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Speaker 1: are a risk free asset or whatever they call that, UM,

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Speaker 1: But lately they've been moving quite a bit. What have

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Speaker 1: you been seeing in the treasury market. Let's just talk

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Speaker 1: about that for a minute. Are you still following that? Yes?

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Speaker 1: I am. And you know I talked about the market

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Speaker 1: with my students at USC I teach a fixed income

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Speaker 1: course over there, so we talked about interest rates all

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Speaker 1: the time. And you know, one of the questions right

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Speaker 1: now is why are interest rates moving so much? Uh?

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Speaker 1: And they seemed to move quite a bit higher in

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Speaker 1: the last several months. What I always like to do

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Speaker 1: is zoom out, take a moment, zoom out. Let's look

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Speaker 1: at the trend. Let's look at where we are I'm

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Speaker 1: a I'm a chartist, I'm a technical analyst as well,

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Speaker 1: and so I always like to look at price behavior

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Speaker 1: through the lens of the chart and what what is

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Speaker 1: the what are the buyers and sellers doing, and how

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Speaker 1: is that reflected pictorially in in an image for us.

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Speaker 1: So when I show them the forty year chart, I

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Speaker 1: see a down channel and interest strings. That channel has

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Speaker 1: not been broken by any stretch of the imagination. We

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Speaker 1: are still in this multidecade downward trend in interest rates. Now,

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Speaker 1: on top of that, we had an extremely dramatic move

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Speaker 1: lower in interest rates in February March of last year

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Speaker 1: and on, you know, through the summer, as rates went

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Speaker 1: to zero almost across the whole curve. So when you

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Speaker 1: get a move like that, and you get a retracement,

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Speaker 1: for example, that is in context of a normal move.

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Speaker 1: And so right now I would characterize the vast majority

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Speaker 1: of this retracement higher and interest rates in the United

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Speaker 1: States as a natural retracement of a very dramatic move

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Speaker 1: last year. As last year, the market starts pricing in

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Speaker 1: total calamity and economic collapse, and then we realize that

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Speaker 1: people are not deathly afraid to go outside of their

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Speaker 1: homes and they're still spending money, and so the economy

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Speaker 1: recovers and uh, interest rates rise back up to levels

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Speaker 1: where you know they were around the beginning of the pandemic,

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Speaker 1: and I don't you know, we're not even there yet.

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Speaker 1: It hasn't retraced all of that move. So you know,

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Speaker 1: that's one side of the story, is that this could

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Speaker 1: just be you know, things starting to get back to normal.

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Speaker 1: The other side of the story is that, yes, there

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Speaker 1: is more growth worldwide in the economy in the last

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Speaker 1: three to six months then there was before that, and

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Speaker 1: rates always priced in this rate of change and momentum

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Speaker 1: and how things are going at the margin. Well, right

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Speaker 1: now things that the margin are going better. So sell

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Speaker 1: the risk free asset treasuries. That decreases the price, raises

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Speaker 1: the interest rates. So treasury rates right now headed higher. Um.

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Speaker 1: If they start going above to pretent above two and

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Speaker 1: a half percent and tenure part of the curve, then

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Speaker 1: we can like start waiting some flags and say, hey,

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Speaker 1: what is happening longer term year with United States treasuries.

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Speaker 1: But I think it's far too far too premature to

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Speaker 1: make any grand conclusions about treasuries as the risk free

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Speaker 1: asset right now. Um, I do personally anticipate uh treasuries

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Speaker 1: to reach a yield level somewhere between here and two percent,

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Speaker 1: meaning you know, one and a half to two percent

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Speaker 1: on ten year yields. That actually starts to slow down

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Speaker 1: the economy. And how does that happen? Higher interest rates

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Speaker 1: are a tighter financial condition. If you have cash in

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Speaker 1: the bank and you're looking at treasuries at zero point

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Speaker 1: five percent, you you say, I'd rather invest that money

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Speaker 1: somewhere else. But if you see treasuries at two percent,

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Speaker 1: you can lock that in for ten years. Investors are

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Speaker 1: going to sell their risk assets, purchase treasuries and drive

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Speaker 1: down interest rates. And higher interest rates themselves carry more

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Speaker 1: interest costs for companies when they're borrowing. So higher interest

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Speaker 1: rates are a natural, uh um tightening of financial conditions.

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Speaker 1: They do make things a little bit more difficult, and

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Speaker 1: I think we're probably at that level and interest rates

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Speaker 1: sometimes soon that they will start to reverse, and I

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Speaker 1: do anticipate that rates will stay low for a long

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Speaker 1: long time here in the United States. Yeah. So, I

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Speaker 1: mean we saw them sell off down to about you know,

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Speaker 1: fifty about point five, right, and then I think since

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Speaker 1: that was August of last year, they've almost gone up

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Speaker 1: at back to the buck fifty range. As you said, Um,

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Speaker 1: and you think they were just oversold or over bought, oversold,

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Speaker 1: and now they're just kind of um, reverting to the

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Speaker 1: mean almost if you will. Yeah, you know that's a

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Speaker 1: good way. And it's always confusing when you talk about

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Speaker 1: treasuries because you can say that the prices are rallying

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Speaker 1: or selling off, or the yields or rallying or selling off.

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Speaker 1: But yeah, the bottom line is that when yields go lower,

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Speaker 1: it's when the price is going up that demand is

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Speaker 1: going up. And that's what happened last year. And and

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Speaker 1: so yes, I do feel that people are selling their

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Speaker 1: risk free asset right now and reinvesting that in other

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Speaker 1: places as it's it's clear to us that um, you know,

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Speaker 1: the economy is is surviving, this pandemic is growing out

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Speaker 1: of it, and um that people are you know, starting

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Speaker 1: to travel around the world again. But what about when

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Speaker 1: you look a little bit deeper under the hood, right,

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Speaker 1: and you look at like who's buying the treasury? So um, right,

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Speaker 1: it looks like maybe we have kind of a lack

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Speaker 1: of foreign buyers. Maybe more buying from the Fed. In addition,

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Speaker 1: looking forward, we have a lot more stimulus coming, you

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Speaker 1: know to one point nine and the winds they're already

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Speaker 1: talking about a three trillion and based off of the

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Speaker 1: Biden administration and the New Green, New Deal whatever, like

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Speaker 1: I mean, we could be who knows, five, six, ten,

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Speaker 1: hilly And do you think that has anything to play

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Speaker 1: into those those yields on the treasuries as well? Um

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Speaker 1: one the increase of stimulus, and two maybe is there

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Speaker 1: a lack of buyers and the Fed has to start

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Speaker 1: kind of controlling that a little, you know it. They're

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Speaker 1: they're always these couple of things that are blamed when

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Speaker 1: treasury go treasury rates go higher. One is that the

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Speaker 1: Treasury is issuing a lot, so there's just a ton

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Speaker 1: of extra supply, So where's the you know, the incremental buyer.

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Speaker 1: And the other is that, oh, there's gonna be fiscal

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Speaker 1: stimulus that's going to create aggregate demand and the economy

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Speaker 1: that's going to trigger inflation. And then you know, interest

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Speaker 1: rates go up as a natural kind of result from

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Speaker 1: inflationary environment. UM. But I challenge, I always challenge these

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Speaker 1: things because now we have this um, this additional buyer

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Speaker 1: of the FED, which you mentioned, So it's a little

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Speaker 1: bit nuanced, but really what you have to think about

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Speaker 1: their thirty trillion treasuries existing, right the FED now owns

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Speaker 1: seven plus approximately of them, so call it a quarter

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Speaker 1: of the market. If things go badly in the world,

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Speaker 1: the actual amount of treasury is available for the public

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Speaker 1: to buy that the FED doesn't own, that's not also

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Speaker 1: tucked away. It's only a few trillion, and so you have,

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Speaker 1: you know, a hundred plus trillion of assets that are

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Speaker 1: trying to jam into only a couple of trillion of treasuries.

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Speaker 1: And that's what makes this price go up and the

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Speaker 1: yields go down. When when ship hits the fan, right,

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Speaker 1: when things go badly in the economy, it's the flight

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Speaker 1: to safety. When we're in this um, we're in the

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Speaker 1: opposite environment right now where there's no flight to safety.

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Speaker 1: There's actually um you're leaving the safety to go invest

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Speaker 1: in other way in other ways. Then there, you know,

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Speaker 1: there's maybe this worry like where's the buyer, the foreign

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Speaker 1: you know, demand has gone down, and we can see

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Speaker 1: that maybe in the statistics a little bit. The domestic

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Speaker 1: buyer or the investment managers themselves. They're not lining up

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Speaker 1: to buy because you know things are going well. They

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Speaker 1: want to put that money to work elsewhere and get

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Speaker 1: some credit spread on top of what treasuries yield. But

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Speaker 1: then when rates go up and things actually start to

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Speaker 1: go bad in the economy, it's a it's a reflexivity

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Speaker 1: sort of situation where the higher rates actually cause things

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Speaker 1: to break, and that causes people to go into the safety.

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Speaker 1: The FED then also then threatens to buy more treasuries

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Speaker 1: and actually remove the supply of risk free assets to

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Speaker 1: the rest of the world. And so there's always this

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Speaker 1: FED being an infinite buyer in the back of people's minds,

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Speaker 1: and it makes the marginal supply available to the market

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Speaker 1: in crisis incredibly small. And so if you don't already

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Speaker 1: own the treasuries as part of your portfolio, you're gonna

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Speaker 1: be cha seeing a price higher and a yield lower

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Speaker 1: as you try to lock in these yields for the

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Speaker 1: next ten years and survive any you know, financial collapse

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Speaker 1: that you know might be happening over the next couple

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Speaker 1: of years. If you don't own the treasure is already,

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Speaker 1: you're just gonna struggle to get them. So I'm I'm

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Speaker 1: very cautious to ever say that extra supplies causing yields

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Speaker 1: to go up, or that fiscal stimulus is causing deals

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Speaker 1: to go up, fiscal profligacy is causing deals to go up.

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Speaker 1: I don't really buy all of those things unless we

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Speaker 1: do end this bull market in bonds, unless yields go

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Speaker 1: to If if treasure yields go to three percent in

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Speaker 1: the next three months, mark I'm definitely wrong. We can

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Speaker 1: have another chat and I'll have to change my investment thesis,

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Speaker 1: but not here at one and a percent. Definitely not

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Speaker 1: at one got it? So last question about that, and

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Speaker 1: then I want to move on and talk about how

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Speaker 1: we tie this into the whole layered stack that that

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Speaker 1: you that your thesis is on. But one more question

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Speaker 1: about debt. So, just as you said, if it went

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Speaker 1: to two two and a half, you wouldn't be so worried.

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Speaker 1: At three you would be willing to be right that Um,

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Speaker 1: at what point does the FED get I mean, obviously

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Speaker 1: they've talked about not raising rates, They've talked about, you know,

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Speaker 1: potentially controlling the yield curve, etcetera. I mean, do you

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Speaker 1: think they let it get up to almost three before

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Speaker 1: they really come in hot and really try to control that.

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Speaker 1: Or two and a half is where they're starting to

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Speaker 1: kind of pay attention, especially considering the deficits that we're

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Speaker 1: running right now. Yes, especially because the deficits that we

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Speaker 1: are running right now, and that that's really the core

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Speaker 1: of it, right it's a mathematical restriction. You have a

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Speaker 1: huge stock of debt. If you have to roll over

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Speaker 1: that debt at three percent, all of a sudden, you're

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Speaker 1: taking huge, huge revenue or i'm sorry, you're taking a

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Speaker 1: huge chunk of money from the treasury going to interest

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Speaker 1: you know, the interest holders, including the FED who owns

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Speaker 1: owns all of this treasury debt. Of course they remit

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Speaker 1: any profits they make back to the treasure, but they're

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Speaker 1: paying all these coupons and they're not going to be

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Speaker 1: able to afford other things, and that is uh limiting

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Speaker 1: to economic activity. Then it actually gets into the employment

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Speaker 1: picture when the FED is looking at it. And so

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Speaker 1: there is definitely a level It's hard for me to

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Speaker 1: say what it is, but there's a level close to

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Speaker 1: here two two and a half, three percent, somewhere in

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Speaker 1: that range where the FED starts to worry and says,

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Speaker 1: we might have to, you know, start buying more treasuries

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Speaker 1: on top of what they're already doing. Got it. So, um,

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Speaker 1: that was great, Thanks for doing that. And and now

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Speaker 1: I want to transition us for everybody listening, and I

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Speaker 1: want to transition us into my favorite subject. If you

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Speaker 1: watched the channel, I always try to bring this historical

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Speaker 1: reference in, and so Nick's written this great book. It's

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Speaker 1: called Layered Money. If you like my videos where I

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Speaker 1: bring historical references forward, then you're gonna love his book,

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Speaker 1: Layered Money. But I want to tie. We'll tie. Treasury

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Speaker 1: is back in because it's part of the stack. But

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Speaker 1: let's go ahead and just start back into that book

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Speaker 1: and go back to history. You and I were talking

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Speaker 1: off camera before we start recording and talking about how

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Speaker 1: there was this, um, this this Renaissance that was created

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Speaker 1: because the whole world had got onto like a standard

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Speaker 1: unit of money, and then things started evolving from there.

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Speaker 1: So maybe take us back to that point and kind

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Speaker 1: of give us that that frame of reference. During the Renaissance,

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Speaker 1: the Florentine meant issued a coin in the year fifty

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Speaker 1: two called the gold florin, and that gold florin had

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Speaker 1: an unchanged purity and wait for over three hundred years,

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Speaker 1: and that was this remarkable advance in UH currency denomination stability.

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Speaker 1: And because what were they doing, what were they doing

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Speaker 1: before that? I mean, why was it so unstable? Yeah,

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Speaker 1: of course it was so um it was so revolutionary

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Speaker 1: what the Florentine meant did because before that, government after government,

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Speaker 1: monarchy after monarchy dive their coins over time, they would

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Speaker 1: have less gold content or silver content in the coins

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Speaker 1: that they would meant throughout time. So the coin from

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Speaker 1: the year five d and the coin from the year

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Speaker 1: five and fifty a d um, we're different from each other,

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Speaker 1: even though they were called the same thing by the government,

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Speaker 1: and that creates confusion and it creates um. Hey, just

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Speaker 1: another quick interruption to let you know that this video

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Speaker 1: it's brought to you add free by Block five. Now

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Speaker 1: they allow you to hold onto your bitcoin and your

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Speaker 1: other cryptos for all the potential upside, and at the

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Speaker 1: same time you can earn high yielding interest on it,

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Speaker 1: so it basically cash flows. Now with Block five you

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Speaker 1: can earn up to eight point six percent interest. You

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00:18:40,640 --> 00:18:43,840
Speaker 1: can also borrow against your crypto as well. It's super fast,

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00:18:43,880 --> 00:18:46,120
Speaker 1: it's super easy to set up an account and right

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Speaker 1: now you can get up to two hundred and fifty

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Speaker 1: dollars when you set up your account. Check the link

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00:18:50,760 --> 00:18:53,160
Speaker 1: in the description that I have for details in order

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00:18:53,160 --> 00:18:56,399
Speaker 1: to claim that two hut. Because Block five is the

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00:18:56,440 --> 00:18:58,440
Speaker 1: future of finance. Just check the link in the description

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Speaker 1: for all the details of how to claim aime you're

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Speaker 1: two and fifty dollars today. Obviously it creates inflation. It

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Speaker 1: is it is m technically a devaluation of your currency, um,

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Speaker 1: you know, by definition. And so that was the trend

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Speaker 1: before and it guess what, it's still the trend after.

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Speaker 1: So what what the Florigentine mint did during that time

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Speaker 1: was very remarkable and gave this base for things to

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Speaker 1: flourish on top of it. And of course the foreign

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Speaker 1: as a coin ceased to exist just like every other one.

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Speaker 1: But the fact that it lasted for so long during

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Speaker 1: a time just like you were mentioning before we got

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Speaker 1: on camera, during the time of a renaissance in so

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Speaker 1: many other things science, mathematics, architecture, art, innovation, business structure, maritime, insurance.

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Speaker 1: I mean, you're talking about so many different advances as

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Speaker 1: a human civilization during this time. It really um set

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Speaker 1: forth this system a monetary system that could be built

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Speaker 1: on top of the forum at the time. Yeah, so

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Speaker 1: do you think my guess going back to the to

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Speaker 1: the history, and we did talk about it, but I

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Speaker 1: don't know. I didn't go back and study as well

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Speaker 1: as you did. But I've I've always kind of thought

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Speaker 1: that maybe it was going to that standard unit of

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Speaker 1: account that allowed for free trade to start flourishing, because

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Speaker 1: now everybody could trade from country to country, everybody knew

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Speaker 1: what that money was worth, which then allowed people to specialize.

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Speaker 1: And then we had this explosion of of the Renaissance,

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Speaker 1: right like, as you said, do the science and the

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Speaker 1: arts and things. But um, were those two correlated that

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Speaker 1: you take it started before? Did the money help that?

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Speaker 1: It's hard to know what. What I concluded in the

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Speaker 1: book is that during the time this idea of an

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Speaker 1: international economy, let's call it in the thirteenth century at

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Speaker 1: the fourteenth century, the international economy was this series of

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Speaker 1: traveling fairs between merchants. So imagine, you know, like a

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Speaker 1: cloth trade er and a spices trader, um, you know,

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Speaker 1: and all these different traders coming together across the European continent.

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Speaker 1: So Spain, France, Italy, Germany, Switzerland. They were traveling all

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Speaker 1: over and when they met once a quarter every three

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Speaker 1: or six months, they would trade. And so what started

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Speaker 1: happening at these fairs bankers started following them and bridging

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Speaker 1: debts between merchants for three to six months. And when

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Speaker 1: they bridge debts, they are issuing these promises. They're issuing

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Speaker 1: credit form you know, credit instruments, forms of money. And

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Speaker 1: when you can say, oh, I want to borrow a

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Speaker 1: little money by my textiles, make my finished product, and

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Speaker 1: then sell the clothes, and I financed that activity with

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Speaker 1: a banker, that's going to cause the economy to grow

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Speaker 1: because that I now am adding value to the economy

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Speaker 1: that I wouldn't have been able to do had I

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Speaker 1: not had access to credit, because I don't have the

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Speaker 1: money to buy all that all that cloth or that

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Speaker 1: raw material to make clothes with. So yes, bankers issuing

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Speaker 1: credit stimulated the economy during that time. And as the

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Speaker 1: bankers traveled with the merchants from fair to fair across

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Speaker 1: the European continent, the fairs started to become more important

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Speaker 1: because not only could you trade, but you could also

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Speaker 1: finance your business at the fairs. So and remember that

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Speaker 1: had nothing to do with the Flora. That was just

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Speaker 1: bankers forming a network with each other. Now, if the

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Speaker 1: floor in was part of transactions during that time, that

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Speaker 1: has a compounding effect on this idea of an international

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Speaker 1: economy where several, you know, people throughout several parts of

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Speaker 1: the world are all denominating their balance sheets in floren.

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Speaker 1: So not only are you doing you know, great trade

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Speaker 1: between different commodities or finished products, but now you are

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Speaker 1: thinking about moving capital around more dynamically using this network

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Speaker 1: of bankers and a shared denomination. But you know, we

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Speaker 1: shouldn't confuse it and say that Floren was everybody's denomination.

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Speaker 1: It was one coin, it was the most popular coin,

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Speaker 1: It was of incredibly durable coin. But that the Floren

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Speaker 1: alone didn't create this great system monetary system with a

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Speaker 1: banking network. Sure, sure, but because they did have that

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Speaker 1: standard unto account and they did have a more stable system,

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Speaker 1: maybe it maybe it added to it. But so obviously

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Speaker 1: that helped, but it still had its inherent flaws. Right,

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Speaker 1: gold was heavy and most uh and probably the biggest

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Speaker 1: argument against It's hard to settle, right, especially when you

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Speaker 1: have to settle it over space, And so that's where

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Speaker 1: the layers started coming on. That's right, Maybe give us

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Speaker 1: a kind of high level view of how those layers work.

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Speaker 1: And then I think if people can understand that, they

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Speaker 1: can understand kind of a better understand of what we're

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Speaker 1: looking at today. Definitely, the idea of layered money is

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Speaker 1: is this idea that money has an inherent hierarchy to it.

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Speaker 1: You think about different types of money today, you're checking account,

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Speaker 1: the cash in your wallet, your Venemo balance. These are

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Speaker 1: actually um People think of them as all forms of money,

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Speaker 1: but they actually fall into a hierarchy. The cash in

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Speaker 1: your wallet is issued by the FED, and it's a

431
00:24:56,000 --> 00:24:58,800
Speaker 1: higher form of money than you're checking account dollars because

432
00:24:58,840 --> 00:25:01,840
Speaker 1: that's issued by a at a bank, and the Venemo

433
00:25:02,000 --> 00:25:05,400
Speaker 1: balance is issued by a company that uses your banking balance.

434
00:25:05,480 --> 00:25:09,639
Speaker 1: So they're not actually all equal. Not all forms of

435
00:25:09,680 --> 00:25:12,480
Speaker 1: money are equal. They fall into a hierarchy, and the

436
00:25:12,560 --> 00:25:16,679
Speaker 1: hierarchy is determined by really whose balance sheet the money

437
00:25:16,680 --> 00:25:19,199
Speaker 1: comes from. And so what I tried to do with

438
00:25:19,320 --> 00:25:22,639
Speaker 1: layered money is eliminate this idea of balance sheets and

439
00:25:22,680 --> 00:25:26,800
Speaker 1: assets and liabilities and just thinking of it as a first, second,

440
00:25:26,840 --> 00:25:31,000
Speaker 1: and third layer of money, the first layer being the

441
00:25:31,119 --> 00:25:33,399
Speaker 1: highest form of money and then on down we go.

442
00:25:33,800 --> 00:25:37,439
Speaker 1: So in a historical context, a gold coin is a

443
00:25:37,440 --> 00:25:41,160
Speaker 1: first layer money. It doesn't have a counterparty, it isn't

444
00:25:41,200 --> 00:25:45,480
Speaker 1: issued by a bank. It is a physical item that

445
00:25:45,560 --> 00:25:48,959
Speaker 1: you can hold in your pocket. A gold certificate that

446
00:25:49,000 --> 00:25:53,159
Speaker 1: says I promised to pay the bearer one gold coin

447
00:25:53,359 --> 00:25:57,720
Speaker 1: on demand is a second layer money because it promises

448
00:25:57,760 --> 00:26:01,080
Speaker 1: to pay a first layer money. It's issued by a

449
00:26:01,119 --> 00:26:05,639
Speaker 1: financial institution or a banker. So this relationship between first

450
00:26:05,720 --> 00:26:09,480
Speaker 1: layer money and second layer money is this natural hierarchy

451
00:26:09,560 --> 00:26:13,720
Speaker 1: of money, and our whole financial system works with the hierarchy.

452
00:26:13,760 --> 00:26:17,399
Speaker 1: And I have these illustrations throughout the book where I

453
00:26:17,440 --> 00:26:20,439
Speaker 1: show the first example of gold and gold certificates, but

454
00:26:20,520 --> 00:26:23,120
Speaker 1: then we get into what does it look like today

455
00:26:23,119 --> 00:26:25,200
Speaker 1: with the FED, and you can see that it's a

456
00:26:25,280 --> 00:26:30,160
Speaker 1: highly complex system, but it's still is built like a hierarchy.

457
00:26:30,600 --> 00:26:33,840
Speaker 1: So um, to kind of break this down a little bit, UM,

458
00:26:33,840 --> 00:26:36,520
Speaker 1: So we have basically gold, which is as you said,

459
00:26:36,560 --> 00:26:38,600
Speaker 1: it's the hardest form of money, the best form of money.

460
00:26:38,880 --> 00:26:41,199
Speaker 1: I can have it. If I have possession of it,

461
00:26:41,240 --> 00:26:44,600
Speaker 1: I own it, but it's very difficult, it's slow, it's

462
00:26:44,600 --> 00:26:46,840
Speaker 1: hard to ship from one cotton to the next, etcetera.

463
00:26:47,160 --> 00:26:49,600
Speaker 1: Hard to break down, denominations, all these things. So then

464
00:26:49,960 --> 00:26:52,520
Speaker 1: we deposit that into a into a bank and they

465
00:26:52,560 --> 00:26:55,359
Speaker 1: give me paper gold certificates. That's the second layer, and

466
00:26:55,359 --> 00:26:58,200
Speaker 1: those are much easier to transport around. I can carry

467
00:26:58,200 --> 00:27:00,399
Speaker 1: paper in my pocket, it's easier to send to you,

468
00:27:00,480 --> 00:27:04,160
Speaker 1: et cetera. And so really each layer gives you maybe

469
00:27:04,160 --> 00:27:08,320
Speaker 1: an extra layer of convenience. Um, so it does something different,

470
00:27:08,359 --> 00:27:10,560
Speaker 1: it has an extra feature. But at the end of

471
00:27:10,560 --> 00:27:12,760
Speaker 1: the day, like I could end up holding a piece

472
00:27:12,760 --> 00:27:14,639
Speaker 1: of paper that I may not be able to redeem

473
00:27:14,720 --> 00:27:17,920
Speaker 1: for the gold. And that's absolutely right. That's the tradeoff

474
00:27:18,000 --> 00:27:21,520
Speaker 1: between the layers of money. Each layer serves a different function.

475
00:27:21,640 --> 00:27:24,400
Speaker 1: The first layer is so that you don't have risk

476
00:27:24,560 --> 00:27:28,320
Speaker 1: of a counterparty default. The second layer is for convenience,

477
00:27:28,320 --> 00:27:30,800
Speaker 1: but then you have the risk. Right exactly what you said,

478
00:27:31,000 --> 00:27:34,520
Speaker 1: that paper can be worthless tomorrow, and so we do.

479
00:27:34,680 --> 00:27:38,040
Speaker 1: But but listen, we do make that trade off in

480
00:27:38,080 --> 00:27:41,520
Speaker 1: the past and today and in the future. We all

481
00:27:41,680 --> 00:27:45,080
Speaker 1: make that trade off. And so, um, you know, that's

482
00:27:45,080 --> 00:27:49,880
Speaker 1: really what the layers represent. They represent this idea that

483
00:27:49,960 --> 00:27:54,440
Speaker 1: we can have a we can have choice between how

484
00:27:54,560 --> 00:27:58,360
Speaker 1: much counterparty exposure or how much risk that we are

485
00:27:58,359 --> 00:28:02,560
Speaker 1: willing to carry with us on on on any given day,

486
00:28:02,640 --> 00:28:05,399
Speaker 1: and just to fast forward to bitcoin, because that's the

487
00:28:05,400 --> 00:28:10,080
Speaker 1: thesis of the book. Bitcoin empowers people to have directly

488
00:28:10,880 --> 00:28:13,440
Speaker 1: to have access to the first layer of money, a

489
00:28:13,560 --> 00:28:17,520
Speaker 1: counterparty free asset that they can hold themselves, no bank

490
00:28:17,560 --> 00:28:20,240
Speaker 1: and default to them. I'm not talking about bitcoin on

491
00:28:20,320 --> 00:28:24,480
Speaker 1: an exchange. That's a second layer bitcoin. Still, it's a

492
00:28:24,480 --> 00:28:27,040
Speaker 1: promise to pay bitcoin. You can withdraw it if the

493
00:28:27,080 --> 00:28:33,800
Speaker 1: exchange honors your request. And listen, people still have bitcoin

494
00:28:33,920 --> 00:28:38,360
Speaker 1: on exchanges and bitcoin in their own private key storage

495
00:28:38,400 --> 00:28:41,840
Speaker 1: mechanism whatever they choose to do. So, even even the

496
00:28:41,920 --> 00:28:45,560
Speaker 1: people that are let's call them the staunchest hoddlers, the

497
00:28:45,600 --> 00:28:49,640
Speaker 1: people who say own your keys, not your keys, not

498
00:28:49,760 --> 00:28:54,480
Speaker 1: your coins. The moment they put bitcoin on an exchange,

499
00:28:55,920 --> 00:28:59,520
Speaker 1: they have both first and second layer bitcoin. They have

500
00:28:59,640 --> 00:29:03,959
Speaker 1: their own bitcoin, then they have bitcoin balances. Why did

501
00:29:04,000 --> 00:29:06,760
Speaker 1: they do that because the bitcoin balances are going to

502
00:29:06,840 --> 00:29:09,800
Speaker 1: get them quicker access to USD potentially That's why they

503
00:29:09,880 --> 00:29:12,800
Speaker 1: did it in the first place. And so that trade

504
00:29:12,800 --> 00:29:16,120
Speaker 1: off happens, it exists, it and we can see that,

505
00:29:16,160 --> 00:29:19,040
Speaker 1: you know, looking back you know, a thousand years and

506
00:29:19,080 --> 00:29:21,600
Speaker 1: I try to do that in the book. Yeah, so

507
00:29:21,680 --> 00:29:23,760
Speaker 1: we kind of had if if I want to recap this,

508
00:29:23,840 --> 00:29:26,160
Speaker 1: so we had gold, and then because gold was big

509
00:29:26,200 --> 00:29:28,640
Speaker 1: and heavy and slow and hard to settle, we had

510
00:29:28,680 --> 00:29:30,600
Speaker 1: we put in the bank. We got paper gold certificate,

511
00:29:31,000 --> 00:29:34,440
Speaker 1: and then um, maybe we advanced and we got like checks,

512
00:29:34,920 --> 00:29:36,920
Speaker 1: and then we got checks and then checks were too slow,

513
00:29:37,000 --> 00:29:39,800
Speaker 1: so then we got like credit cards, and then credit

514
00:29:39,800 --> 00:29:42,520
Speaker 1: cards were not not everybody can take a credit card,

515
00:29:42,680 --> 00:29:45,080
Speaker 1: so then we got like so so it's like gold

516
00:29:45,320 --> 00:29:48,600
Speaker 1: and then paper goaltificates and then checks and then credit

517
00:29:48,600 --> 00:29:51,160
Speaker 1: debit cards and then um, that still didn't work. So

518
00:29:51,160 --> 00:29:53,720
Speaker 1: then we have like PayPal or Venmo, and that's like

519
00:29:53,760 --> 00:29:56,760
Speaker 1: a sixth or seventh layer, right, all built on that stack.

520
00:29:57,000 --> 00:29:59,680
Speaker 1: The problem is somewhere along the line that stack of

521
00:29:59,760 --> 00:30:03,520
Speaker 1: six seven layers was built and then gold was just

522
00:30:03,600 --> 00:30:07,120
Speaker 1: taken out of the bottom. So somehow the stacks still

523
00:30:07,160 --> 00:30:10,760
Speaker 1: stayed even though the whole base disappeared. Right, that's right,

524
00:30:10,880 --> 00:30:16,680
Speaker 1: And um, this is this idea of fiat currency, and um,

525
00:30:16,720 --> 00:30:19,880
Speaker 1: you know, readers will notice I try to avoid the

526
00:30:19,960 --> 00:30:24,680
Speaker 1: words inflation, deflation, and fiat entirely in the book. Actually,

527
00:30:24,720 --> 00:30:28,280
Speaker 1: the only time the word fiat appears is when Satoshi

528
00:30:28,560 --> 00:30:32,120
Speaker 1: talks about fiat currency. It's a great quote um from

529
00:30:32,120 --> 00:30:37,240
Speaker 1: early on in the Bitcoin network. But fiat just means

530
00:30:37,280 --> 00:30:41,760
Speaker 1: that UM, the base is not there, right, the anchor

531
00:30:41,800 --> 00:30:44,960
Speaker 1: of the system is not there. It's now by decree,

532
00:30:45,480 --> 00:30:48,800
Speaker 1: it's a trust in the currency UM. But if you

533
00:30:48,880 --> 00:30:53,280
Speaker 1: look at the layered system, it's not that the first

534
00:30:53,360 --> 00:30:56,240
Speaker 1: layer of money isn't there anymore. It's what is the

535
00:30:56,680 --> 00:30:59,720
Speaker 1: what is the FED own? They own US treasures, so,

536
00:31:00,040 --> 00:31:02,479
Speaker 1: you know, to pull it full circle, US treasuries are

537
00:31:02,480 --> 00:31:04,640
Speaker 1: now the first layer of money because it's what the

538
00:31:04,680 --> 00:31:09,240
Speaker 1: FED owns. It's what backs the dollar um that the

539
00:31:09,280 --> 00:31:13,520
Speaker 1: FED issues, It's what backs the federal reserve reserve balances

540
00:31:13,600 --> 00:31:17,360
Speaker 1: that they issue to the banks which issue deposits to

541
00:31:17,400 --> 00:31:22,360
Speaker 1: you and I that you know, circulate as currency UM

542
00:31:22,400 --> 00:31:28,600
Speaker 1: in the economy. So US treasuries today are the first

543
00:31:28,680 --> 00:31:33,520
Speaker 1: layer of money. Gold doesn't exist within the dollar pyramid anymore.

544
00:31:34,160 --> 00:31:39,240
Speaker 1: It was removed UM, but that doesn't Again, the US

545
00:31:39,320 --> 00:31:42,760
Speaker 1: dollar is still the world reserve currency. So just because

546
00:31:42,760 --> 00:31:45,640
Speaker 1: it doesn't have gold as part of it doesn't mean

547
00:31:45,640 --> 00:31:49,080
Speaker 1: that it can't function, is it now people don't trust

548
00:31:49,120 --> 00:31:52,320
Speaker 1: it as much and are losing trust with the Fed

549
00:31:52,680 --> 00:31:56,640
Speaker 1: doing what they're doing over the last decade plus UM

550
00:31:56,720 --> 00:31:58,920
Speaker 1: and that's why it's part of why we see the

551
00:31:58,960 --> 00:32:01,960
Speaker 1: price of gold higher today than it was ten years ago.

552
00:32:02,040 --> 00:32:06,120
Speaker 1: It's also why we see um bitcoin emerging as you know,

553
00:32:06,280 --> 00:32:12,120
Speaker 1: a direct response to this idea that um feed currency

554
00:32:12,680 --> 00:32:17,000
Speaker 1: doesn't have an anchor, it is simply by decree and uh,

555
00:32:17,200 --> 00:32:21,720
Speaker 1: I do believe that setoci attempt to address that with bitcoin. Yeah,

556
00:32:21,840 --> 00:32:25,760
Speaker 1: So moving on to bitcoin. So a lot of people

557
00:32:25,800 --> 00:32:29,680
Speaker 1: that believe in bitcoin believe that bitcoin could be gold,

558
00:32:29,880 --> 00:32:31,160
Speaker 1: and not just a lot of people that believe in it.

559
00:32:31,200 --> 00:32:33,320
Speaker 1: I mean we've seen JP Morgan come out our City

560
00:32:33,320 --> 00:32:35,760
Speaker 1: Bank and put out guidance and say it's going to

561
00:32:36,000 --> 00:32:37,800
Speaker 1: beat gold. I mean they say it's a better form

562
00:32:37,840 --> 00:32:39,440
Speaker 1: of goal. So a lot of people think they equit

563
00:32:39,560 --> 00:32:41,720
Speaker 1: to that digital gold. But then a lot of people

564
00:32:41,760 --> 00:32:45,000
Speaker 1: that are against bitcoin or think bitcoin has these flaws

565
00:32:45,160 --> 00:32:48,520
Speaker 1: would say that, well, bitcoin is too slow, it's not

566
00:32:48,600 --> 00:32:51,880
Speaker 1: as fast as Visa or MasterCard. And I think that's

567
00:32:51,880 --> 00:32:54,120
Speaker 1: where your thesis picks back up on it. Is that right?

568
00:32:54,160 --> 00:32:56,760
Speaker 1: You want to fill us in on that? Yeah, you

569
00:32:56,760 --> 00:32:59,440
Speaker 1: know when you if you're done reading my book and

570
00:32:59,480 --> 00:33:02,880
Speaker 1: you still this comparison to Visa and MasterCard, then you

571
00:33:02,920 --> 00:33:05,800
Speaker 1: didn't comprehend. That doesn't get people to read the book.

572
00:33:05,800 --> 00:33:09,240
Speaker 1: But yeah, no, and you're absolutely right. That's what I

573
00:33:09,280 --> 00:33:11,840
Speaker 1: tried to do, is I I try to show that

574
00:33:11,920 --> 00:33:13,800
Speaker 1: it's just like you're talking about the sixth or the

575
00:33:13,840 --> 00:33:18,440
Speaker 1: seventh layer of money Venmo and PayPal. Uh, it's not

576
00:33:18,480 --> 00:33:22,720
Speaker 1: the same thing as bitcoin at all. Bitcoin is its

577
00:33:22,800 --> 00:33:29,600
Speaker 1: own new virtual numerical commodity. It's not it's not a

578
00:33:29,680 --> 00:33:35,120
Speaker 1: payment network. First, it happens to have this uh transaction

579
00:33:35,920 --> 00:33:39,560
Speaker 1: mechanism that people can transact, and that happens to be

580
00:33:39,600 --> 00:33:43,960
Speaker 1: a little slow. But the fed wire went down today

581
00:33:44,080 --> 00:33:47,160
Speaker 1: and so and it's so it's a week day, it's

582
00:33:47,160 --> 00:33:48,800
Speaker 1: the middle of the week, and it was the middle

583
00:33:48,840 --> 00:33:53,200
Speaker 1: of the day. So the first layer of money, uh

584
00:33:53,200 --> 00:33:56,480
Speaker 1: in the dollar system doesn't move very quickly either. And

585
00:33:56,560 --> 00:34:00,560
Speaker 1: so UM the Lightning network enables big point to be

586
00:34:00,640 --> 00:34:06,120
Speaker 1: transacted instantly. You're gonna have full counterparty money. So like

587
00:34:06,600 --> 00:34:10,160
Speaker 1: if you know, people wanted to have exchange balances sending

588
00:34:10,200 --> 00:34:14,680
Speaker 1: to each other, not using bitcoin, they can do that today. Also,

589
00:34:15,480 --> 00:34:19,760
Speaker 1: UM instantly and so if you want to instantly transact bitcoin,

590
00:34:20,080 --> 00:34:24,319
Speaker 1: just use a different layer of bitcoin. If you want

591
00:34:24,320 --> 00:34:27,400
Speaker 1: to final settle bitcoin, you're gonna have to wait ten minutes.

592
00:34:27,880 --> 00:34:30,200
Speaker 1: And if you don't want to then you can go

593
00:34:30,320 --> 00:34:35,799
Speaker 1: find yourself another version of money. Yeah great, all right, Nick,

594
00:34:35,840 --> 00:34:38,440
Speaker 1: thanks so much forgiving us that overview of layered money.

595
00:34:38,480 --> 00:34:41,040
Speaker 1: And for anybody who wants that historical reference like I

596
00:34:41,040 --> 00:34:43,080
Speaker 1: talked about all the time, definitely go read it. And

597
00:34:43,120 --> 00:34:46,160
Speaker 1: then anybody who thinks that bitcoin can't solve this problem

598
00:34:46,320 --> 00:34:48,439
Speaker 1: go back and read it as well. Um, I'm gonna

599
00:34:48,440 --> 00:34:50,719
Speaker 1: put links to it down below for anybody that wants

600
00:34:50,719 --> 00:34:53,120
Speaker 1: to follow Nick wants to get more of his writing,

601
00:34:53,160 --> 00:34:54,680
Speaker 1: and of course by the book, so I'll have set

602
00:34:54,680 --> 00:34:56,640
Speaker 1: it down there. Nick, thanks so much for joining us,

603
00:34:57,160 --> 00:34:59,920
Speaker 1: Thanks Mark, everybody go check out Layer of Money, and

604
00:35:00,000 --> 00:35:02,719
Speaker 1: and thanks for having me on. All right, Thanks so much, Nick.

605
00:35:05,080 --> 00:35:05,120
Speaker 1: H