Speaker 1: They say that if you don't know the history, you
Speaker 1: are doomed to repeat it. Now, if you're a regular
Speaker 1: viewer of this channel, you know that I love to
Speaker 1: go back in history. I love to get historical references
Speaker 1: to show us what's happening and what that tells us
Speaker 1: about the future. Not because it necessarily repeats, but it
Speaker 1: definitely does rhyme. Now, today I have a special guest,
Speaker 1: someone I'm very excited to bring back for the second
Speaker 1: time to the channel. And if you love hearing the
Speaker 1: historical references, you are going to love what Nick has
Speaker 1: to say. He's just authored a new book called Layered Money,
Speaker 1: and it goes back through history, and it goes all
Speaker 1: the way back into future tens. As a matter of fact,
Speaker 1: we start talking about the treasuries, which is something I've
Speaker 1: been talking a lot about the U. S. Treasuries. The
Speaker 1: yield has been plummeting. And he is a professor at USC.
Speaker 1: He talks about this to his students and he knows
Speaker 1: what's going on, and he's got a different take than
Speaker 1: what I've been saying, and it's one that you want
Speaker 1: to hear. Then we go back into history to learn
Speaker 1: about what happened that's actually sparked the renaissance, and then
Speaker 1: of course we bring it all the way back to
Speaker 1: current date. This is an interview you do not want
Speaker 1: to miss. Was one that I really enjoyed. So let's
Speaker 1: go ahead and jump right into it. All right, everyone,
Speaker 1: Welcome to another episode of the Market Disruptor Show today.
Speaker 1: I am so excited to bring back for a second time.
Speaker 1: I think maybe only the second guest that's been back
Speaker 1: a second time. Nick is back with us. He is
Speaker 1: the author of the brand new book Layered Money, which
Speaker 1: we'll be talking about. He's also an adject professor at
Speaker 1: the USC Marshall School Business and Nick, it's just just
Speaker 1: an honor to have you back. Thanks for joining us.
Speaker 1: Great to be Mark, thank you. Yeah. So, Um, you
Speaker 1: are an adjunct professor. Um, you had a career in finance. UM.
Speaker 1: I know you worked with treasuries. I want to talk
Speaker 1: about of course, you have this new book that's amazing
Speaker 1: that I've been loving. UM, and I want to talk
Speaker 1: about that, but maybe just real quick, give us a
Speaker 1: little bit of background on kind of your work in
Speaker 1: in big finance before and then kind of like which
Speaker 1: we're where you are at right now? Sure? So, I
Speaker 1: started in the fixed income industry several years ago and
Speaker 1: I was working at a couple of different bond managers,
Speaker 1: and then the most recent job that I had was
Speaker 1: trading US treasuries on a trading desk for a large
Speaker 1: institutional investment manager and also helping on the interest rate
Speaker 1: strategy team, so global macro economics and trading US government
Speaker 1: securities and other interest rate derivatives I was. I was
Speaker 1: doing that for several years and I really enjoyed being
Speaker 1: on the desk. That was something that Hey, just a
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Speaker 1: so much from and I got to study the FED
Speaker 1: really intimately on a daily basis, read research from some
Speaker 1: of the greatest thinkers on Wall Street with regard to
Speaker 1: treasuries and interest rates and um, the way that the
Speaker 1: economy is going and especially how the financial system works.
Speaker 1: So when I was there on the desk, I also
Speaker 1: started to fall down the bitcoin rabbit hole at the
Speaker 1: same time, and as time progressed, I started to read
Speaker 1: more and more about bitcoin, and then I started to
Speaker 1: write more about bitcoin, started publishing some research pieces out
Speaker 1: bitcoin and Lightning Network, and that really, um it really
Speaker 1: put pulled me in that in this direction of becoming
Speaker 1: a writer about bitcoin. And then I left the bond
Speaker 1: market in late and spent the whole year writing layered money. Yeah,
Speaker 1: So I mean that's a it's kind of an interesting
Speaker 1: track that brought you to kind of where we are today.
Speaker 1: It seems like maybe I'm wrong, but it almost seems
Speaker 1: like maybe the more into the traditional financial system people
Speaker 1: are sometimes the harder it maybe for them to see
Speaker 1: um the the other way that it could be, right,
Speaker 1: almost like, uh, what does it see the forest through
Speaker 1: the trees or whatever it is? Um. But let's dig
Speaker 1: into that for a minute. So you were working at
Speaker 1: a desk trading treasuries, So I want to talk about
Speaker 1: that for a minute because I've been talking about that
Speaker 1: quite a bit on my channel. And so obviously treasuries
Speaker 1: are a risk free asset or whatever they call that, UM,
Speaker 1: But lately they've been moving quite a bit. What have
Speaker 1: you been seeing in the treasury market. Let's just talk
Speaker 1: about that for a minute. Are you still following that? Yes?
Speaker 1: I am. And you know I talked about the market
Speaker 1: with my students at USC I teach a fixed income
Speaker 1: course over there, so we talked about interest rates all
Speaker 1: the time. And you know, one of the questions right
Speaker 1: now is why are interest rates moving so much? Uh?
Speaker 1: And they seemed to move quite a bit higher in
Speaker 1: the last several months. What I always like to do
Speaker 1: is zoom out, take a moment, zoom out. Let's look
Speaker 1: at the trend. Let's look at where we are I'm
Speaker 1: a I'm a chartist, I'm a technical analyst as well,
Speaker 1: and so I always like to look at price behavior
Speaker 1: through the lens of the chart and what what is
Speaker 1: the what are the buyers and sellers doing, and how
Speaker 1: is that reflected pictorially in in an image for us.
Speaker 1: So when I show them the forty year chart, I
Speaker 1: see a down channel and interest strings. That channel has
Speaker 1: not been broken by any stretch of the imagination. We
Speaker 1: are still in this multidecade downward trend in interest rates. Now,
Speaker 1: on top of that, we had an extremely dramatic move
Speaker 1: lower in interest rates in February March of last year
Speaker 1: and on, you know, through the summer, as rates went
Speaker 1: to zero almost across the whole curve. So when you
Speaker 1: get a move like that, and you get a retracement,
Speaker 1: for example, that is in context of a normal move.
Speaker 1: And so right now I would characterize the vast majority
Speaker 1: of this retracement higher and interest rates in the United
Speaker 1: States as a natural retracement of a very dramatic move
Speaker 1: last year. As last year, the market starts pricing in
Speaker 1: total calamity and economic collapse, and then we realize that
Speaker 1: people are not deathly afraid to go outside of their
Speaker 1: homes and they're still spending money, and so the economy
Speaker 1: recovers and uh, interest rates rise back up to levels
Speaker 1: where you know they were around the beginning of the pandemic,
Speaker 1: and I don't you know, we're not even there yet.
Speaker 1: It hasn't retraced all of that move. So you know,
Speaker 1: that's one side of the story, is that this could
Speaker 1: just be you know, things starting to get back to normal.
Speaker 1: The other side of the story is that, yes, there
Speaker 1: is more growth worldwide in the economy in the last
Speaker 1: three to six months then there was before that, and
Speaker 1: rates always priced in this rate of change and momentum
Speaker 1: and how things are going at the margin. Well, right
Speaker 1: now things that the margin are going better. So sell
Speaker 1: the risk free asset treasuries. That decreases the price, raises
Speaker 1: the interest rates. So treasury rates right now headed higher. Um.
Speaker 1: If they start going above to pretent above two and
Speaker 1: a half percent and tenure part of the curve, then
Speaker 1: we can like start waiting some flags and say, hey,
Speaker 1: what is happening longer term year with United States treasuries.
Speaker 1: But I think it's far too far too premature to
Speaker 1: make any grand conclusions about treasuries as the risk free
Speaker 1: asset right now. Um, I do personally anticipate uh treasuries
Speaker 1: to reach a yield level somewhere between here and two percent,
Speaker 1: meaning you know, one and a half to two percent
Speaker 1: on ten year yields. That actually starts to slow down
Speaker 1: the economy. And how does that happen? Higher interest rates
Speaker 1: are a tighter financial condition. If you have cash in
Speaker 1: the bank and you're looking at treasuries at zero point
Speaker 1: five percent, you you say, I'd rather invest that money
Speaker 1: somewhere else. But if you see treasuries at two percent,
Speaker 1: you can lock that in for ten years. Investors are
Speaker 1: going to sell their risk assets, purchase treasuries and drive
Speaker 1: down interest rates. And higher interest rates themselves carry more
Speaker 1: interest costs for companies when they're borrowing. So higher interest
Speaker 1: rates are a natural, uh um tightening of financial conditions.
Speaker 1: They do make things a little bit more difficult, and
Speaker 1: I think we're probably at that level and interest rates
Speaker 1: sometimes soon that they will start to reverse, and I
Speaker 1: do anticipate that rates will stay low for a long
Speaker 1: long time here in the United States. Yeah. So, I
Speaker 1: mean we saw them sell off down to about you know,
Speaker 1: fifty about point five, right, and then I think since
Speaker 1: that was August of last year, they've almost gone up
Speaker 1: at back to the buck fifty range. As you said, Um,
Speaker 1: and you think they were just oversold or over bought, oversold,
Speaker 1: and now they're just kind of um, reverting to the
Speaker 1: mean almost if you will. Yeah, you know that's a
Speaker 1: good way. And it's always confusing when you talk about
Speaker 1: treasuries because you can say that the prices are rallying
Speaker 1: or selling off, or the yields or rallying or selling off.
Speaker 1: But yeah, the bottom line is that when yields go lower,
Speaker 1: it's when the price is going up that demand is
Speaker 1: going up. And that's what happened last year. And and
Speaker 1: so yes, I do feel that people are selling their
Speaker 1: risk free asset right now and reinvesting that in other
Speaker 1: places as it's it's clear to us that um, you know,
Speaker 1: the economy is is surviving, this pandemic is growing out
Speaker 1: of it, and um that people are you know, starting
Speaker 1: to travel around the world again. But what about when
Speaker 1: you look a little bit deeper under the hood, right,
Speaker 1: and you look at like who's buying the treasury? So um, right,
Speaker 1: it looks like maybe we have kind of a lack
Speaker 1: of foreign buyers. Maybe more buying from the Fed. In addition,
Speaker 1: looking forward, we have a lot more stimulus coming, you
Speaker 1: know to one point nine and the winds they're already
Speaker 1: talking about a three trillion and based off of the
Speaker 1: Biden administration and the New Green, New Deal whatever, like
Speaker 1: I mean, we could be who knows, five, six, ten,
Speaker 1: hilly And do you think that has anything to play
Speaker 1: into those those yields on the treasuries as well? Um
Speaker 1: one the increase of stimulus, and two maybe is there
Speaker 1: a lack of buyers and the Fed has to start
Speaker 1: kind of controlling that a little, you know it. They're
Speaker 1: they're always these couple of things that are blamed when
Speaker 1: treasury go treasury rates go higher. One is that the
Speaker 1: Treasury is issuing a lot, so there's just a ton
Speaker 1: of extra supply, So where's the you know, the incremental buyer.
Speaker 1: And the other is that, oh, there's gonna be fiscal
Speaker 1: stimulus that's going to create aggregate demand and the economy
Speaker 1: that's going to trigger inflation. And then you know, interest
Speaker 1: rates go up as a natural kind of result from
Speaker 1: inflationary environment. UM. But I challenge, I always challenge these
Speaker 1: things because now we have this um, this additional buyer
Speaker 1: of the FED, which you mentioned, So it's a little
Speaker 1: bit nuanced, but really what you have to think about
Speaker 1: their thirty trillion treasuries existing, right the FED now owns
Speaker 1: seven plus approximately of them, so call it a quarter
Speaker 1: of the market. If things go badly in the world,
Speaker 1: the actual amount of treasury is available for the public
Speaker 1: to buy that the FED doesn't own, that's not also
Speaker 1: tucked away. It's only a few trillion, and so you have,
Speaker 1: you know, a hundred plus trillion of assets that are
Speaker 1: trying to jam into only a couple of trillion of treasuries.
Speaker 1: And that's what makes this price go up and the
Speaker 1: yields go down. When when ship hits the fan, right,
Speaker 1: when things go badly in the economy, it's the flight
Speaker 1: to safety. When we're in this um, we're in the
Speaker 1: opposite environment right now where there's no flight to safety.
Speaker 1: There's actually um you're leaving the safety to go invest
Speaker 1: in other way in other ways. Then there, you know,
Speaker 1: there's maybe this worry like where's the buyer, the foreign
Speaker 1: you know, demand has gone down, and we can see
Speaker 1: that maybe in the statistics a little bit. The domestic
Speaker 1: buyer or the investment managers themselves. They're not lining up
Speaker 1: to buy because you know things are going well. They
Speaker 1: want to put that money to work elsewhere and get
Speaker 1: some credit spread on top of what treasuries yield. But
Speaker 1: then when rates go up and things actually start to
Speaker 1: go bad in the economy, it's a it's a reflexivity
Speaker 1: sort of situation where the higher rates actually cause things
Speaker 1: to break, and that causes people to go into the safety.
Speaker 1: The FED then also then threatens to buy more treasuries
Speaker 1: and actually remove the supply of risk free assets to
Speaker 1: the rest of the world. And so there's always this
Speaker 1: FED being an infinite buyer in the back of people's minds,
Speaker 1: and it makes the marginal supply available to the market
Speaker 1: in crisis incredibly small. And so if you don't already
Speaker 1: own the treasuries as part of your portfolio, you're gonna
Speaker 1: be cha seeing a price higher and a yield lower
Speaker 1: as you try to lock in these yields for the
Speaker 1: next ten years and survive any you know, financial collapse
Speaker 1: that you know might be happening over the next couple
Speaker 1: of years. If you don't own the treasure is already,
Speaker 1: you're just gonna struggle to get them. So I'm I'm
Speaker 1: very cautious to ever say that extra supplies causing yields
Speaker 1: to go up, or that fiscal stimulus is causing deals
Speaker 1: to go up, fiscal profligacy is causing deals to go up.
Speaker 1: I don't really buy all of those things unless we
Speaker 1: do end this bull market in bonds, unless yields go
Speaker 1: to If if treasure yields go to three percent in
Speaker 1: the next three months, mark I'm definitely wrong. We can
Speaker 1: have another chat and I'll have to change my investment thesis,
Speaker 1: but not here at one and a percent. Definitely not
Speaker 1: at one got it? So last question about that, and
Speaker 1: then I want to move on and talk about how
Speaker 1: we tie this into the whole layered stack that that
Speaker 1: you that your thesis is on. But one more question
Speaker 1: about debt. So, just as you said, if it went
Speaker 1: to two two and a half, you wouldn't be so worried.
Speaker 1: At three you would be willing to be right that Um,
Speaker 1: at what point does the FED get I mean, obviously
Speaker 1: they've talked about not raising rates, They've talked about, you know,
Speaker 1: potentially controlling the yield curve, etcetera. I mean, do you
Speaker 1: think they let it get up to almost three before
Speaker 1: they really come in hot and really try to control that.
Speaker 1: Or two and a half is where they're starting to
Speaker 1: kind of pay attention, especially considering the deficits that we're
Speaker 1: running right now. Yes, especially because the deficits that we
Speaker 1: are running right now, and that that's really the core
Speaker 1: of it, right it's a mathematical restriction. You have a
Speaker 1: huge stock of debt. If you have to roll over
Speaker 1: that debt at three percent, all of a sudden, you're
Speaker 1: taking huge, huge revenue or i'm sorry, you're taking a
Speaker 1: huge chunk of money from the treasury going to interest
Speaker 1: you know, the interest holders, including the FED who owns
Speaker 1: owns all of this treasury debt. Of course they remit
Speaker 1: any profits they make back to the treasure, but they're
Speaker 1: paying all these coupons and they're not going to be
Speaker 1: able to afford other things, and that is uh limiting
Speaker 1: to economic activity. Then it actually gets into the employment
Speaker 1: picture when the FED is looking at it. And so
Speaker 1: there is definitely a level It's hard for me to
Speaker 1: say what it is, but there's a level close to
Speaker 1: here two two and a half, three percent, somewhere in
Speaker 1: that range where the FED starts to worry and says,
Speaker 1: we might have to, you know, start buying more treasuries
Speaker 1: on top of what they're already doing. Got it. So, um,
Speaker 1: that was great, Thanks for doing that. And and now
Speaker 1: I want to transition us for everybody listening, and I
Speaker 1: want to transition us into my favorite subject. If you
Speaker 1: watched the channel, I always try to bring this historical
Speaker 1: reference in, and so Nick's written this great book. It's
Speaker 1: called Layered Money. If you like my videos where I
Speaker 1: bring historical references forward, then you're gonna love his book,
Speaker 1: Layered Money. But I want to tie. We'll tie. Treasury
Speaker 1: is back in because it's part of the stack. But
Speaker 1: let's go ahead and just start back into that book
Speaker 1: and go back to history. You and I were talking
Speaker 1: off camera before we start recording and talking about how
Speaker 1: there was this, um, this this Renaissance that was created
Speaker 1: because the whole world had got onto like a standard
Speaker 1: unit of money, and then things started evolving from there.
Speaker 1: So maybe take us back to that point and kind
Speaker 1: of give us that that frame of reference. During the Renaissance,
Speaker 1: the Florentine meant issued a coin in the year fifty
Speaker 1: two called the gold florin, and that gold florin had
Speaker 1: an unchanged purity and wait for over three hundred years,
Speaker 1: and that was this remarkable advance in UH currency denomination stability.
Speaker 1: And because what were they doing, what were they doing
Speaker 1: before that? I mean, why was it so unstable? Yeah,
Speaker 1: of course it was so um it was so revolutionary
Speaker 1: what the Florentine meant did because before that, government after government,
Speaker 1: monarchy after monarchy dive their coins over time, they would
Speaker 1: have less gold content or silver content in the coins
Speaker 1: that they would meant throughout time. So the coin from
Speaker 1: the year five d and the coin from the year
Speaker 1: five and fifty a d um, we're different from each other,
Speaker 1: even though they were called the same thing by the government,
Speaker 1: and that creates confusion and it creates um. Hey, just
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Speaker 1: two and fifty dollars today. Obviously it creates inflation. It
Speaker 1: is it is m technically a devaluation of your currency, um,
Speaker 1: you know, by definition. And so that was the trend
Speaker 1: before and it guess what, it's still the trend after.
Speaker 1: So what what the Florigentine mint did during that time
Speaker 1: was very remarkable and gave this base for things to
Speaker 1: flourish on top of it. And of course the foreign
Speaker 1: as a coin ceased to exist just like every other one.
Speaker 1: But the fact that it lasted for so long during
Speaker 1: a time just like you were mentioning before we got
Speaker 1: on camera, during the time of a renaissance in so
Speaker 1: many other things science, mathematics, architecture, art, innovation, business structure, maritime, insurance.
Speaker 1: I mean, you're talking about so many different advances as
Speaker 1: a human civilization during this time. It really um set
Speaker 1: forth this system a monetary system that could be built
Speaker 1: on top of the forum at the time. Yeah, so
Speaker 1: do you think my guess going back to the to
Speaker 1: the history, and we did talk about it, but I
Speaker 1: don't know. I didn't go back and study as well
Speaker 1: as you did. But I've I've always kind of thought
Speaker 1: that maybe it was going to that standard unit of
Speaker 1: account that allowed for free trade to start flourishing, because
Speaker 1: now everybody could trade from country to country, everybody knew
Speaker 1: what that money was worth, which then allowed people to specialize.
Speaker 1: And then we had this explosion of of the Renaissance,
Speaker 1: right like, as you said, do the science and the
Speaker 1: arts and things. But um, were those two correlated that
Speaker 1: you take it started before? Did the money help that?
Speaker 1: It's hard to know what. What I concluded in the
Speaker 1: book is that during the time this idea of an
Speaker 1: international economy, let's call it in the thirteenth century at
Speaker 1: the fourteenth century, the international economy was this series of
Speaker 1: traveling fairs between merchants. So imagine, you know, like a
Speaker 1: cloth trade er and a spices trader, um, you know,
Speaker 1: and all these different traders coming together across the European continent.
Speaker 1: So Spain, France, Italy, Germany, Switzerland. They were traveling all
Speaker 1: over and when they met once a quarter every three
Speaker 1: or six months, they would trade. And so what started
Speaker 1: happening at these fairs bankers started following them and bridging
Speaker 1: debts between merchants for three to six months. And when
Speaker 1: they bridge debts, they are issuing these promises. They're issuing
Speaker 1: credit form you know, credit instruments, forms of money. And
Speaker 1: when you can say, oh, I want to borrow a
Speaker 1: little money by my textiles, make my finished product, and
Speaker 1: then sell the clothes, and I financed that activity with
Speaker 1: a banker, that's going to cause the economy to grow
Speaker 1: because that I now am adding value to the economy
Speaker 1: that I wouldn't have been able to do had I
Speaker 1: not had access to credit, because I don't have the
Speaker 1: money to buy all that all that cloth or that
Speaker 1: raw material to make clothes with. So yes, bankers issuing
Speaker 1: credit stimulated the economy during that time. And as the
Speaker 1: bankers traveled with the merchants from fair to fair across
Speaker 1: the European continent, the fairs started to become more important
Speaker 1: because not only could you trade, but you could also
Speaker 1: finance your business at the fairs. So and remember that
Speaker 1: had nothing to do with the Flora. That was just
Speaker 1: bankers forming a network with each other. Now, if the
Speaker 1: floor in was part of transactions during that time, that
Speaker 1: has a compounding effect on this idea of an international
Speaker 1: economy where several, you know, people throughout several parts of
Speaker 1: the world are all denominating their balance sheets in floren.
Speaker 1: So not only are you doing you know, great trade
Speaker 1: between different commodities or finished products, but now you are
Speaker 1: thinking about moving capital around more dynamically using this network
Speaker 1: of bankers and a shared denomination. But you know, we
Speaker 1: shouldn't confuse it and say that Floren was everybody's denomination.
Speaker 1: It was one coin, it was the most popular coin,
Speaker 1: It was of incredibly durable coin. But that the Floren
Speaker 1: alone didn't create this great system monetary system with a
Speaker 1: banking network. Sure, sure, but because they did have that
Speaker 1: standard unto account and they did have a more stable system,
Speaker 1: maybe it maybe it added to it. But so obviously
Speaker 1: that helped, but it still had its inherent flaws. Right,
Speaker 1: gold was heavy and most uh and probably the biggest
Speaker 1: argument against It's hard to settle, right, especially when you
Speaker 1: have to settle it over space, And so that's where
Speaker 1: the layers started coming on. That's right, Maybe give us
Speaker 1: a kind of high level view of how those layers work.
Speaker 1: And then I think if people can understand that, they
Speaker 1: can understand kind of a better understand of what we're
Speaker 1: looking at today. Definitely, the idea of layered money is
Speaker 1: is this idea that money has an inherent hierarchy to it.
Speaker 1: You think about different types of money today, you're checking account,
Speaker 1: the cash in your wallet, your Venemo balance. These are
Speaker 1: actually um People think of them as all forms of money,
Speaker 1: but they actually fall into a hierarchy. The cash in
Speaker 1: your wallet is issued by the FED, and it's a
Speaker 1: higher form of money than you're checking account dollars because
Speaker 1: that's issued by a at a bank, and the Venemo
Speaker 1: balance is issued by a company that uses your banking balance.
Speaker 1: So they're not actually all equal. Not all forms of
Speaker 1: money are equal. They fall into a hierarchy, and the
Speaker 1: hierarchy is determined by really whose balance sheet the money
Speaker 1: comes from. And so what I tried to do with
Speaker 1: layered money is eliminate this idea of balance sheets and
Speaker 1: assets and liabilities and just thinking of it as a first, second,
Speaker 1: and third layer of money, the first layer being the
Speaker 1: highest form of money and then on down we go.
Speaker 1: So in a historical context, a gold coin is a
Speaker 1: first layer money. It doesn't have a counterparty, it isn't
Speaker 1: issued by a bank. It is a physical item that
Speaker 1: you can hold in your pocket. A gold certificate that
Speaker 1: says I promised to pay the bearer one gold coin
Speaker 1: on demand is a second layer money because it promises
Speaker 1: to pay a first layer money. It's issued by a
Speaker 1: financial institution or a banker. So this relationship between first
Speaker 1: layer money and second layer money is this natural hierarchy
Speaker 1: of money, and our whole financial system works with the hierarchy.
Speaker 1: And I have these illustrations throughout the book where I
Speaker 1: show the first example of gold and gold certificates, but
Speaker 1: then we get into what does it look like today
Speaker 1: with the FED, and you can see that it's a
Speaker 1: highly complex system, but it's still is built like a hierarchy.
Speaker 1: So um, to kind of break this down a little bit, UM,
Speaker 1: So we have basically gold, which is as you said,
Speaker 1: it's the hardest form of money, the best form of money.
Speaker 1: I can have it. If I have possession of it,
Speaker 1: I own it, but it's very difficult, it's slow, it's
Speaker 1: hard to ship from one cotton to the next, etcetera.
Speaker 1: Hard to break down, denominations, all these things. So then
Speaker 1: we deposit that into a into a bank and they
Speaker 1: give me paper gold certificates. That's the second layer, and
Speaker 1: those are much easier to transport around. I can carry
Speaker 1: paper in my pocket, it's easier to send to you,
Speaker 1: et cetera. And so really each layer gives you maybe
Speaker 1: an extra layer of convenience. Um, so it does something different,
Speaker 1: it has an extra feature. But at the end of
Speaker 1: the day, like I could end up holding a piece
Speaker 1: of paper that I may not be able to redeem
Speaker 1: for the gold. And that's absolutely right. That's the tradeoff
Speaker 1: between the layers of money. Each layer serves a different function.
Speaker 1: The first layer is so that you don't have risk
Speaker 1: of a counterparty default. The second layer is for convenience,
Speaker 1: but then you have the risk. Right exactly what you said,
Speaker 1: that paper can be worthless tomorrow, and so we do.
Speaker 1: But but listen, we do make that trade off in
Speaker 1: the past and today and in the future. We all
Speaker 1: make that trade off. And so, um, you know, that's
Speaker 1: really what the layers represent. They represent this idea that
Speaker 1: we can have a we can have choice between how
Speaker 1: much counterparty exposure or how much risk that we are
Speaker 1: willing to carry with us on on on any given day,
Speaker 1: and just to fast forward to bitcoin, because that's the
Speaker 1: thesis of the book. Bitcoin empowers people to have directly
Speaker 1: to have access to the first layer of money, a
Speaker 1: counterparty free asset that they can hold themselves, no bank
Speaker 1: and default to them. I'm not talking about bitcoin on
Speaker 1: an exchange. That's a second layer bitcoin. Still, it's a
Speaker 1: promise to pay bitcoin. You can withdraw it if the
Speaker 1: exchange honors your request. And listen, people still have bitcoin
Speaker 1: on exchanges and bitcoin in their own private key storage
Speaker 1: mechanism whatever they choose to do. So, even even the
Speaker 1: people that are let's call them the staunchest hoddlers, the
Speaker 1: people who say own your keys, not your keys, not
Speaker 1: your coins. The moment they put bitcoin on an exchange,
Speaker 1: they have both first and second layer bitcoin. They have
Speaker 1: their own bitcoin, then they have bitcoin balances. Why did
Speaker 1: they do that because the bitcoin balances are going to
Speaker 1: get them quicker access to USD potentially That's why they
Speaker 1: did it in the first place. And so that trade
Speaker 1: off happens, it exists, it and we can see that,
Speaker 1: you know, looking back you know, a thousand years and
Speaker 1: I try to do that in the book. Yeah, so
Speaker 1: we kind of had if if I want to recap this,
Speaker 1: so we had gold, and then because gold was big
Speaker 1: and heavy and slow and hard to settle, we had
Speaker 1: we put in the bank. We got paper gold certificate,
Speaker 1: and then um, maybe we advanced and we got like checks,
Speaker 1: and then we got checks and then checks were too slow,
Speaker 1: so then we got like credit cards, and then credit
Speaker 1: cards were not not everybody can take a credit card,
Speaker 1: so then we got like so so it's like gold
Speaker 1: and then paper goaltificates and then checks and then credit
Speaker 1: debit cards and then um, that still didn't work. So
Speaker 1: then we have like PayPal or Venmo, and that's like
Speaker 1: a sixth or seventh layer, right, all built on that stack.
Speaker 1: The problem is somewhere along the line that stack of
Speaker 1: six seven layers was built and then gold was just
Speaker 1: taken out of the bottom. So somehow the stacks still
Speaker 1: stayed even though the whole base disappeared. Right, that's right,
Speaker 1: And um, this is this idea of fiat currency, and um,
Speaker 1: you know, readers will notice I try to avoid the
Speaker 1: words inflation, deflation, and fiat entirely in the book. Actually,
Speaker 1: the only time the word fiat appears is when Satoshi
Speaker 1: talks about fiat currency. It's a great quote um from
Speaker 1: early on in the Bitcoin network. But fiat just means
Speaker 1: that UM, the base is not there, right, the anchor
Speaker 1: of the system is not there. It's now by decree,
Speaker 1: it's a trust in the currency UM. But if you
Speaker 1: look at the layered system, it's not that the first
Speaker 1: layer of money isn't there anymore. It's what is the
Speaker 1: what is the FED own? They own US treasures, so,
Speaker 1: you know, to pull it full circle, US treasuries are
Speaker 1: now the first layer of money because it's what the
Speaker 1: FED owns. It's what backs the dollar um that the
Speaker 1: FED issues, It's what backs the federal reserve reserve balances
Speaker 1: that they issue to the banks which issue deposits to
Speaker 1: you and I that you know, circulate as currency UM
Speaker 1: in the economy. So US treasuries today are the first
Speaker 1: layer of money. Gold doesn't exist within the dollar pyramid anymore.
Speaker 1: It was removed UM, but that doesn't Again, the US
Speaker 1: dollar is still the world reserve currency. So just because
Speaker 1: it doesn't have gold as part of it doesn't mean
Speaker 1: that it can't function, is it now people don't trust
Speaker 1: it as much and are losing trust with the Fed
Speaker 1: doing what they're doing over the last decade plus UM
Speaker 1: and that's why it's part of why we see the
Speaker 1: price of gold higher today than it was ten years ago.
Speaker 1: It's also why we see um bitcoin emerging as you know,
Speaker 1: a direct response to this idea that um feed currency
Speaker 1: doesn't have an anchor, it is simply by decree and uh,
Speaker 1: I do believe that setoci attempt to address that with bitcoin. Yeah,
Speaker 1: So moving on to bitcoin. So a lot of people
Speaker 1: that believe in bitcoin believe that bitcoin could be gold,
Speaker 1: and not just a lot of people that believe in it.
Speaker 1: I mean we've seen JP Morgan come out our City
Speaker 1: Bank and put out guidance and say it's going to
Speaker 1: beat gold. I mean they say it's a better form
Speaker 1: of goal. So a lot of people think they equit
Speaker 1: to that digital gold. But then a lot of people
Speaker 1: that are against bitcoin or think bitcoin has these flaws
Speaker 1: would say that, well, bitcoin is too slow, it's not
Speaker 1: as fast as Visa or MasterCard. And I think that's
Speaker 1: where your thesis picks back up on it. Is that right?
Speaker 1: You want to fill us in on that? Yeah, you
Speaker 1: know when you if you're done reading my book and
Speaker 1: you still this comparison to Visa and MasterCard, then you
Speaker 1: didn't comprehend. That doesn't get people to read the book.
Speaker 1: But yeah, no, and you're absolutely right. That's what I
Speaker 1: tried to do, is I I try to show that
Speaker 1: it's just like you're talking about the sixth or the
Speaker 1: seventh layer of money Venmo and PayPal. Uh, it's not
Speaker 1: the same thing as bitcoin at all. Bitcoin is its
Speaker 1: own new virtual numerical commodity. It's not it's not a
Speaker 1: payment network. First, it happens to have this uh transaction
Speaker 1: mechanism that people can transact, and that happens to be
Speaker 1: a little slow. But the fed wire went down today
Speaker 1: and so and it's so it's a week day, it's
Speaker 1: the middle of the week, and it was the middle
Speaker 1: of the day. So the first layer of money, uh
Speaker 1: in the dollar system doesn't move very quickly either. And
Speaker 1: so UM the Lightning network enables big point to be
Speaker 1: transacted instantly. You're gonna have full counterparty money. So like
Speaker 1: if you know, people wanted to have exchange balances sending
Speaker 1: to each other, not using bitcoin, they can do that today. Also,
Speaker 1: UM instantly and so if you want to instantly transact bitcoin,
Speaker 1: just use a different layer of bitcoin. If you want
Speaker 1: to final settle bitcoin, you're gonna have to wait ten minutes.
Speaker 1: And if you don't want to then you can go
Speaker 1: find yourself another version of money. Yeah great, all right, Nick,
Speaker 1: thanks so much forgiving us that overview of layered money.
Speaker 1: And for anybody who wants that historical reference like I
Speaker 1: talked about all the time, definitely go read it. And
Speaker 1: then anybody who thinks that bitcoin can't solve this problem
Speaker 1: go back and read it as well. Um, I'm gonna
Speaker 1: put links to it down below for anybody that wants
Speaker 1: to follow Nick wants to get more of his writing,
Speaker 1: and of course by the book, so I'll have set
Speaker 1: it down there. Nick, thanks so much for joining us,
Speaker 1: Thanks Mark, everybody go check out Layer of Money, and
Speaker 1: and thanks for having me on. All right, Thanks so much, Nick.
Speaker 1: H