Episode Transcript
[00:00:01] Speaker A: When you really dig into the heart of how finance, of how our monetary system and how our political system work and how deeply married they are, you begin to see something that's pretty disturbing, that cheating and manipulation aren't simply something that arised in bad behaviors.
They're fundamentally required by the system itself.
They are baked in.
They are the standard.
It is the law.
And if that is our reality, then the only way we can actually restore honesty and sensible standards is to create a money that refuses to bend to the law.
So the question is, have we done that?
It's time for a Guy's Take episode.
The Best in Bitcoin Made. Audible I am Guy Swan and this is bitcoin. Audible.
What is up guys? Welcome back to Bitcoin. Audible I am Guy Swan, the guy who has read more about bitcoin than anybody else you know.
And we are getting into a Guy's Take episode. This will sort of pseudo be a follow up to the last two reads that we did.
So there's Alan Farrington and Sasha Meyers piece on number go down and then Hugh Hendry's Modern Money Only Works by Cheating.
Or technically I think it's Bitcoin and the human Problem that is excerpted into Modern Money Only Works by Cheating by Tyler Durden from Zero Hedge. But whatever little article Inception thing they've got going on there, the main piece that we read is written by Hugh Hendry. Now the main thesis of that piece, because I want to hit that one first because there's a lot more to push back on. I've really, really appreciate the piece. I thought it was a really interesting perspective on someone who wasn't like full on into bitcoin. And I think it's one of the only, I think legitimate concerns or I guess maybe unknowns.
I don't know how exactly to put this, that of the negative perspectives against bitcoin, which he wasn't even technically negative, but in the pushback of bitcoin, bitcoin's inevitable success. I think this is actually the interesting perspective to hold and I think it's accurate as to what's being priced in the market. This is what I talk about so so often on the show is that what bitcoin has to break through to become a global money. The thing that bitcoin is trying to prove itself for is trust.
Can it sustain itself? Can it be resistant to the powers that wish to change it? Can it change when it needs to change in order to survive potential existential crises? Does it have the. Does it have that sweet spot of it can evolve enough to not be so hard as to shatter when something finally hits it with enough force versus
[00:03:41] Speaker B: is it hard enough?
[00:03:42] Speaker A: Is it resistant and resilient enough to not change under social pressure, or more specifically political pressure to be corrupted and manipulated? And I want to start by reading this quote because I think this is a really interesting.
I think this is a strong framing for what he was trying to get at and how to understand or see just how out of the ordinary or maybe even unprecedented the idea of Bitcoin is as an economic tool,
[00:04:19] Speaker B: a hard
[00:04:20] Speaker A: object thrown into an elastic world to see what happens. That provocation only makes sense once you recognize what elastic money left behind.
As societies embraced fiat, the global pool of savings did not become defenseless. Inflation arrived, but it was hedgeable. Equities, property, credit, productive ownership, capital learned how to run. What didn't reappear was another asset that hedged inflation without introducing credit risk.
Gold has of course, played that role for centuries. Scarce, apolitical, jurisdictionless, created without leverage, owing nothing to anyone, an inflation hedge that was simultaneously riskless. When gold was demoted as a monetary standard, that role was tolerated, not replaced. When gold was ransacked between the long years of 1980 and 2011, curious minds looked for an alternative.
I love that line of a hard. A hard object thrown into an elastic world to see what happens.
But I also kind of fundamentally kind of the underlying economic principles and the way I see money and how economies and money specifically emerges and why it emerges. I'm constantly shocked over and over again because of how intuitive it seems.
Once you get the picture that I believe that I've developed over the, I don't know, 20 or so years that I've nerded out on this daily.
It surprises me how many simple fundamental truths are completely ignored or contradicted in modern economic thought. And that's also why I think this paired so well with Alan Farrington and Sasha Meyer's piece number go down.
Because if you understand what Sasha and Alan were getting at in the second piece, you can see a lot of the fundamental errors, despite them being very interesting thought experiments. Some a lot of the fundamental errors that Hugh Hendry made in his understanding or I guess his framing of the economic problems and the economic solutions, because I think he very inaccurately or incorrectly suggested that the fact that you can hedge fiat makes it okay or makes basically absolves it of its negative consequences and suggested that the fact that we can print and create elastic monetary supply and we can issue more debt arbitrarily that this actually allowed the, the political and financial system to survive, that it allowed the economy to actually adapt and survive through difficult times, rather than the quite obvious truth. If you really dig down to where and how these imbalances are created and what the consequences of them are, that they were the cause, that it is explicitly the lack of the, of the extremely hard object.
It is the lack of the genuine settlement of value in the actual trade that forces or that enables the imbalance to grow so bad that causes systemic risk.
[00:07:58] Speaker B: Now what's funny is that he actually does bring up, he does note that
[00:08:02] Speaker A: there are all of these negative consequences, but then he correctly, and this technically is not inaccurate the way he's framed it, the way that he thinks about
[00:08:13] Speaker B: it, but he's thinking about it within a paradigm that is inaccurate.
[00:08:17] Speaker A: So when you think about like 2008, 2009, is that the reason the entire political and financial system didn't collapse is
[00:08:24] Speaker B: because we could print and issue as
[00:08:26] Speaker A: much debt and money as we wanted out of thin air and we could
[00:08:30] Speaker B: basically paper over our losses. But that doesn't fix the problem. It doesn't even slightly fix the problem.
[00:08:38] Speaker A: It simply prevents institutions that are destroying resources from dying or from being broken apart and resold from essentially the fire sale, you know, breakdown and distribution of cannibalistic entities.
[00:08:55] Speaker B: But the thing is, is that's exactly what you want.
You, you don't want to save the cancer. And explicitly it is a cancer, otherwise it wouldn't be on the verge of destruction and total collapse all of the time due to an insurmountable imbalance that just keeps getting bigger and bigger. And you don't, you don't cover up the losses. You don't get away from the cost. You can't. All you do is hide it. But that doesn't mean that the cost isn't there. The cost is simply borne by the middle class and the poor. That's it. The same cost is paid. It's just not structural to the institutions that are causing it. It's qualitative. To the people who literally don't get to eat, to the homeless that explode, to the middle class that stop owning their homes or their cars or anything in their lives and everything becomes more and more expensive. But the exact same cost, actually more cost is paid in the covering it up on net. It is always a net negative to defraud the monetary system to cover up some giant expense or more specifically some huge imbalance. But the failure to recognize or the
[00:10:07] Speaker A: failure, I think, to critically or Very
[00:10:10] Speaker B: importantly caveat where that imbalance came from by the very institutions that are bailing themselves out and it lends, it takes us back to a very fundamental question, is what is the economy?
[00:10:22] Speaker A: What is a better economy?
[00:10:24] Speaker B: The economy is people. It's not institutions, it's not a political party, it's people. It's actual people and their genuine, their individual conditions in aggregate.
[00:10:35] Speaker A: What can we produce?
[00:10:36] Speaker B: What are we, what problems are we able to solve?
[00:10:39] Speaker A: How, how efficiently and successfully are we able to distribute solutions to problems?
[00:10:47] Speaker B: And fiat elastic money in every single sense of its attempt to do that fails. In fact, the only thing it's good for is exactly what he detailed out, is socializing losses.
But if your healthy liver and your healthy kidneys and your healthy heart have to pay, have to literally suffer the cost in average, you know, pulling from the rest of the body to make sure the cancer doesn't die, you're not solving a problem. You're just preventing what appears to be one giant shock to the system when you cut out or lose one large mass of material. But I promise you the organism will do better without the cancer.
There is the notion though that he understands some of this, which is why I don't.
[00:11:37] Speaker A: Part of me doesn't quite understand his
[00:11:40] Speaker B: perspective because of the things he suggests.
[00:11:43] Speaker A: Like he talks about socializing loss. I think it even opens, where is this?
Yeah, so, quote, Bitcoin is not here to save the world. It's here because the world learned the
[00:11:55] Speaker B: hard way that modern money only works
[00:11:58] Speaker A: by cheating, cheating time, cheating pain, cheating death. We built systems that survive by bending,
[00:12:06] Speaker B: by socializing losses, but pretending tomorrow can
[00:12:10] Speaker A: always carry what today can't. And it mostly worked.
[00:12:14] Speaker B: Worked well enough that America never failed, markets never cleared, and catastrophe was deferred again and again.
So clearly he seems to understand
[00:12:27] Speaker A: some
[00:12:27] Speaker B: of the fundamental relationship here, except that he seems to think that because there's
[00:12:33] Speaker A: economic pain, that that's economic destruction, that
[00:12:37] Speaker B: this isn't necessarily the pain is a bad thing. But when the pain is to correct an imbalance, it's not a bad thing. When the pain is to cut out a cancer, it's a worthwhile pain. When the pain is a hangover from sobering up, you need to deal with the hangover.
The hangover is not the problem. The drinking two bottles of liquor was the problem.
[00:13:01] Speaker A: And then connecting this to the notion of the fact that inflation arrived, but it was hedgeable, forced.
[00:13:08] Speaker B: Being forced to hedge something that doesn't
[00:13:10] Speaker A: need to be hedged, that normally would
[00:13:13] Speaker B: have a natural hedge is a Staggering
[00:13:16] Speaker A: friction is a absolutely massive inefficiency. Imagine, imagine you have a, you have a car and your gas tank is constantly leaking. It just leaks, you know, a gallon of gas every single day. So if you leave it in your driveway without driving it for 15 days, you get a 15 gallon tank or 20 gallon tank, right?
That you, you lose all 15 gallons and it just runs out into your driveway. And this is actually done by policy, right? They, they like make the gas tank porous on purpose because they're trying to incentivize people to drive. This is the, this perfect analogy actually for the idiocy of fiat money, saying that you have to inflate the money in order to encourage people to spend. It's like, oh well, it's hedgeable. So what does that mean? Let's say there's a thousand dollar mechanism that you can buy that catches the gas when it gets into you. You install it in your driveway, right? And you park on top of it and it catches the gas and then it filters it and cleans it and it puts it back in your car. Well, let me tell you, that's not a solution to the fact that our gas tanks suck. That's just the ingenuity of the market providing a solution to an artificial problem.
[00:14:30] Speaker B: But it remains an artificial problem and an artificial cost. And now think about how much more expensive it is and how much more difficult it is for people to actually
[00:14:39] Speaker A: drive around and get to where they need to go.
[00:14:41] Speaker B: And if you can only afford a five or six thousand dollars car, you're
[00:14:44] Speaker A: just going to be the one that has to pay for the gas. You're, the subsidy is going to be for everybody who can afford this, this recirculating filtering system to get around the fact that gas tanks suck at the one job they're supposed to do. And everyone who can afford this machine
[00:15:01] Speaker B: are the ones that will actually pay for it. And guess what else it does.
[00:15:04] Speaker A: It creates this massive staggering industry with
[00:15:08] Speaker B: a huge principal agent problem because they actually want the gas tank, the very industry that builds up around this filtration recirculation system now actually wants the gas tank to be shittier at its job. And they will literally lobby Congress, who has already created our problem and has enough power to actually manipulate this entire, the condition of this entire market and industry.
[00:15:33] Speaker A: Because it's an artificially created industry from
[00:15:35] Speaker B: a friction that Congress has created to begin with, which means that it's a feedback loop of them becoming more able to manipulate it and more and more people actually interested incentivized to make the problem worse.
Who keeps getting hit with it? The middle class and the poor who can't afford the system while they can keep making the problem worse to upgrade to force upgrades and make make the system itself more expensive, it making it more viable and more important that everybody hedge. And so what do they do? All the poor middle class are going to get together and they're going to pool their money together into some giant institution that's going to basically manage it all for them and they're going to start renting their cars from a company
[00:16:14] Speaker A: that can offer it at you know,
[00:16:16] Speaker B: 1/10 or 1/100th of the cost because
[00:16:18] Speaker A: they get to do it in aggregate
[00:16:20] Speaker B: and they get the economy get the benefit of the economies of scale. And what happens? The poor and the middle class lose
[00:16:25] Speaker A: all of their autonomy.
[00:16:26] Speaker B: They can't go anywhere unless they get permission from either the institution that owns their car or the government that decides how much they're going to be bled.
[00:16:33] Speaker A: And now not only do you have the industry of people building the filters
[00:16:37] Speaker B: and the systems to recirculate the gas and get it back in the car,
[00:16:41] Speaker A: but now you have an industry of
[00:16:42] Speaker B: car rental people who own and control the lives of all the people in the the middle class and poor who
[00:16:48] Speaker A: are also now lobbying to keep this system in place and make it less and less efficient because it makes their, their business system, because it makes the
[00:16:57] Speaker B: viability of their entire industry more and more important. In other words, the hedge becomes a critical part of the economy and the hedge actually wants the economy to do worse, wants the money to suck more at its job so that they can
[00:17:12] Speaker A: keep the their jobs.
[00:17:13] Speaker B: The outcome is literally on a long enough timeline, a never ending negative feedback loop until the cancer literally eats the entire system. And that is the only analogy for what the filtration industry is. That's the only analogy for what the
[00:17:29] Speaker A: political system has created. That's the only analogy for the new
[00:17:32] Speaker B: rentals rental institutional industry that is profiting
[00:17:37] Speaker A: from all of this.
[00:17:38] Speaker B: It's a cancer because it will just keep growing based on a friction that they are are lobbying to make worse so that they can keep growing. And then the market is going to come in and it's going to create another tool in another industry to help socialize and spread out whatever the cost
[00:17:56] Speaker A: of the other thing is.
[00:17:57] Speaker B: Just like the rental industry was a
[00:17:59] Speaker A: quote unquote solution to the, the extreme
[00:18:03] Speaker B: expense of this new filtration and circulation
[00:18:05] Speaker A: system, the recovery system.
[00:18:07] Speaker B: Well, there's going to be a new industry to Try to solve the growing friction of now, the rental system. The problem and imbalance extends outward at the edges and the market keeps trying to find new solutions.
[00:18:19] Speaker A: And it gets more efficient at finding
[00:18:21] Speaker B: solutions, but it does so only by scaling, only at the consequence of scaling up the problem, which is exactly why it's a negative feedback loop until everything breaks. So the idea that this is like
[00:18:34] Speaker A: some sort of a solution, that fiat can constantly be elastic to absolve itself from any crashes or any like hard
[00:18:41] Speaker B: spikes or major events in the economy, is actually nonsense. All it does is as he says, which I don't understand how he doesn't get this is it socializes the imbalance. It simply allows the imbalance to scale over and over and over again, bigger and bigger and bigger, until it's one massive, completely and totally catastrophic collapse that no one can, no one can actually exit. It does not solve the problem or allow the society or the institutions to survive. It ensures that they all die at once and there's no partial destruction. There's. It ensures that literally the cancer grows until the entire organism dies, then all
[00:19:24] Speaker A: the organs go with it. Nothing lives.
[00:19:26] Speaker B: And that's what we're talking about when you talk about the death of a currency. And that will destroy the political system. That will, will destroy all of the institutions, that will absolutely destroy the livelihoods, the wealth and hundreds of years worth of history of the American people. And that's where we're headed if we
[00:19:45] Speaker A: don't do something about this.
[00:19:47] Speaker B: And the fact that money is elastic is not a solution. It's the reason this is the inevitable end.
[00:19:52] Speaker A: It's the reason the American power and
[00:19:55] Speaker B: empire is actually such a facade. It's the reason why China can produce
[00:20:01] Speaker A: the exact same AI models for 1/100
[00:20:04] Speaker B: of the cost as the Garbage Fiat VC network that does so in America. We don't know how to be efficient. We don't know how to actually calculate the cost of the resources. And because of that, we never get to clear out the garbage. We're always on this train riding straight into the side of a mountain. And there's never a good market signal. There's never a way to actually get off the damn train to protect something from the socialized credit risk that has infected every single corner of our entire economic system. The whole thing is leveraged. The whole thing is leveraged like 40 to 1. And the only reason it hasn't exploded is because there's no exit valve big enough to let out the pressure. But it will collapse. It will either collapse or it will slowly and painfully leak as people get poorer and poorer and have less, less and less control and autonomy in their own lives. This is exactly how we end up
[00:21:04] Speaker A: in nothing but centralized platforms. The hedging example is such a perfect one.
[00:21:09] Speaker B: Think about how insane. Think about what a profound and psychotic
[00:21:14] Speaker A: subsidy it is that everyone actually has to get into mutual funds and stock indexes just to keep the money they already earned.
It is literally the God subsidy. Like there is no subsidy more powerful than this that you have to.
[00:21:30] Speaker B: And the perverse incentives that the normal person just to save money, not even to save money well, but to get
[00:21:39] Speaker A: like an average 5% when the actual fiat inflation, the actual amount of new Fiat money is 7% on average, you're
[00:21:47] Speaker B: making a 2% loss. You're being charged a full fee for
[00:21:50] Speaker A: the privilege of a 2% loss. But what's the really sinister thing happening?
[00:21:55] Speaker B: You hand over the voting rights of all of the investment you have to a different institution.
When you put your money in BlackRock or a mutual fund, that institution gets the voting rights to control what Apple and Google and Nvidia and Tesla or whatever the hell company they're investing in. They get the voting rights to tell the company what to do off of your money. They own the company at your expense so that you can pay them a fee and make a 2% loss on the value that you already earned.
That's insane. It's so stupid. And no, there's no upside. If the upside is that, well, at least the mutual fund companies didn't collapse.
Actually, that's exactly what we want them to do. Because they're eating the world. They're literally destroying our economy. They are rotting the economy from inside out. And yes, I realize that that comes with a lot of pain, but it's just pain that we feel, as opposed to pain that we're covering up with five different pharmaceuticals to prevent death. The only way we prevent the death, the only way we prevent from losing everything is if we allow ourselves to feel the pain and understand what behavior we should change. If we just keep covering up, covering it up with alcohol and five different pharmaceuticals, we will just continue until we die. And trust me, the quality of life will not improve. We won't get healthier or better. We'll just keep wondering why. It's like we feel okay, but everything's still miserable. And it doesn't seem like I have any purpose in life. There's a reason why antidepressants are actually deeply tied to suicide. Because it's fake. It's a chemical solution to a fundamentally psychological problem. It just covers up. It doesn't fix the fact that somebody feels meaningless or doesn't have the right perspective or doesn't have any purpose in life. It just covers it up and makes them feel happy. And then they feel even more empty. Like, why, with a smile on their face, they're like, why the hell am I doing anything? Why do I care about human life? Why do I care about my life? It doesn't matter. It doesn't solve the problem. It masks it in a quite horrifying way, actually.
That is what fiat does.
Fiat is just an antidepressant so that
[00:24:13] Speaker A: we don't have to feel sad.
[00:24:15] Speaker B: It's another bottle of liquor so we
[00:24:16] Speaker A: don't have to deal with the hangover. Those are not solutions. And that's not a working system.
[00:24:22] Speaker B: That's a really big problem.
Going back to the article, he uses
[00:24:29] Speaker A: an example that I thought was really interesting and also not quite applicable to his argument.
I mean, just in general, if we're talking about hardness generally and the fact that, you know, gold doesn't lie about the amount of value actually available.
So let me go ahead and hit the in case you didn't listen to the piece or you don't remember exactly what I'm referencing here, so Quote the defining monetary lesson of the 20th century was not ideological. It was traumatic. It emerged.
It emerged not from debates about socialism versus Capitalism or Keynes versus Hayek, but from the lived experience of what happens when economic systems impose rigidity on societies already under extreme stress.
After the First World War, Germany was not a failed society. It was bruised, diminished, politically unstable, and deeply resentful. But it remained functional. Industry existed, labor existed. Institutions existed. The system was strained, not yet broken. The collapse came later, and it was not inevitable. Versailles changed that. The treaty was not merely punitive, it was vindictive and economically literate. Reparations were demanded in hard terms, payable in gold at precisely the moment Germany's productive capacity was being constrained.
Forgiveness was absent. Flexibility was absent. Economic reality was ignored. When Germany struggled to meet those obligations, the response was not renegotiation, but enforcement. In 1923, French and Belgian forces occupied the Ruhr Valley, seizing control of Germany's industrial heartland. Its coal, its steel, its metal production, while still demanding gold payments to the Allied victors. Output was taken. Gold was still required. Rigidity was imposed from both ends.
I'm going to skip the next part, because this is the important line.
[00:26:22] Speaker B: Hard money did not cause the collapse
[00:26:24] Speaker A: of Weimar Germany, but it failed catastrophically to absorb the trauma. And when institutions fracture under mass unemployment, money fractures with them.
End quote.
So
[00:26:41] Speaker B: hard money did not cause the
[00:26:43] Speaker A: collapse, but it failed catastrophically to absorb the trauma.
The idea that any of this had to do that, the lesson here has to do with hard money doesn't make any sense to me because Germany could not have been a better example of under severe and terrible trauma. He even mentions it here, that Germany was not after the war. War. Germany was not a failed society. It was bruised, diminished, politically unstable, and deeply resentful. But it remained functional. Industry existed, labor existed, institutions existed, system was trained, not yet broken. The collapse came later.
Well, guess what? That was working under gold. That was working under genuine market signals.
For, like you're looking at a country that took an unbelievable beating, but it was still intact, very likely because of hard money, not the other way around, not because hard money caused it some sort of a problem, but because it had some semblance of hard money that was actually letting them properly price the industry that existed, the labor that existed, and the institutions that remained. And what obliterated their economy was the fact that other countries were just stealing their actual production and resources. And if they had been willing to take those debts in the Reichmark in the German currency, well, then it would have simply meant that they didn't take the resources. Like, that's, that's kind of the argument here, if you want to take this example and say, okay, how would FIAT have solved this problem?
Well, FIAT would have simply inflated away what France and the Allies and everybody were trying to steal, but via the Treaty of Versailles. So if they just let Germany pay in German currency to deal with the debts after World War I, well, then all that would mean is that everybody on the other side of the Treaty of Versailles would have simply accepted that they didn't get resources.
Like, they would have just been paid 1, 1000ths of what they got paid because they would have paid for it in the devaluation of the currency they were being paid in, which would be voluntary.
So it has nothing to do with hard money. It has to do with whether the
[00:29:07] Speaker B: people on the other side of the
[00:29:08] Speaker A: Treaty of Versailles who were getting paid would accept less payment, whether they did it through the allowance of letting them inflate the currency to pay for it, or whether they simply didn't steal all of their production capacity and coal and their resources and metal production and, or
[00:29:26] Speaker B: force them to pay in gold.
[00:29:28] Speaker A: But that's. It's the same thing, no matter which
[00:29:31] Speaker B: way you look at it.
[00:29:32] Speaker A: The question is, do they take all the resources and force them to pay about, pay all of this that they can't possibly actually pay, or do they not? And if they force them to pay,
[00:29:40] Speaker B: the currency was going to die, their currency was going to die because they were going to lose the value and
[00:29:46] Speaker A: the resources one way or the other.
[00:29:48] Speaker B: Fiat money would never have been able
[00:29:50] Speaker A: to absorb the trauma of what their problem was.
In fact, they had fiat money. That's why they hyper inflated.
[00:30:00] Speaker B: The problem was, is that in the Treaty of Versailles, they demanded real money and real resources.
[00:30:06] Speaker A: And so what did the German government do? They printed money to get it, they issued more debt.
[00:30:11] Speaker B: They actually did exactly what.
[00:30:14] Speaker A: What he was explaining they couldn't do
[00:30:16] Speaker B: is they did everything they can to cover up their problem with their currency and then the legitimacy, legitimacy of their actual money blew up in their face and they hyperinflated. And then I already talked about this
[00:30:30] Speaker A: because the very next section talks about how 1929 was, man.
The idea that the response to 1929 worked because they broke the gold standard and that this somehow saved the institutions and the political system in the whole country from disaster.
It's hard to, I want to be very calm and just explain all the details, but it is so infuriating to look at the Great Depression and just be shocked that anyone thinks that that was a success, that you could ever in any possible means call that quote, unquote. It worked.
There's a reason why it's called the Great Depression, the great one.
And it didn't happen because of hard money. It happened when we lost hard money. And it was caused. The 1929 crash was explicitly caused by fiat, by the expansion of credit at a grueling pace.
It went from 100% to 300% in nine years.
We tripled the amount of debt to the amount of productive capacity that we had in nine years.
We over leveraged the ever loving hell out of the system and it was trying to correct.
[00:32:16] Speaker B: And shockingly, most of the things were back in balance within about 9 to 12 months. Until this entire break from any sense of genuine economic reality sent us into a vast and lengthy depression that lasted for a decade. And if we just want to look at the results, we don't even want to stop and just talk about how bad and how ridiculous all of the policies that got us there were. But just look at the results. You're looking at the worst results that have ever occurred.
They took a bunch of actions in 1930 and 1931. And what were the results 10 years of global economic depression, that's about as bad a report card as you can get. And it was literally only until after World War II. Remember, this economic depression sent us into a global war. Another one even bigger than the first one. So it wasn't just economic depression, it was economic depression plus the worst global war we've ever had, ever.
And only after, only after we finally stopped all of this shit did things recover. A lot of respect for Hugh and I really like a lot of what he put in this article and I love the perspective that he has in thinking about what the actual pricing of Bitcoin is and how to think about what, what the relationship to fiat is and how it is able to absorb
[00:33:47] Speaker A: or socialize these, these major events in the market.
[00:33:51] Speaker B: But to look at that and say, quote, unquote, it worked, and not realize the blatantly obvious truth that the course of events was because of those decisions.
Like you don't just. It's like, it's like I did 10 things and the results were this.
[00:34:08] Speaker A: Thank God I did those 10 things
[00:34:10] Speaker B: because the results would be worse.
No, no, they happen because of those things that you did.
To the very explicit opposition of the notion that printing enormous amounts of money and controlling the economy and micromanaging things and the insane, literally insane socialist policies of the Great Leap Forward that absolutely obliterated the economy and refused and was such a massive, unbelievable Burden that for 10 years we could not climb our way out of it because we kept getting beat to death with a hammer every time we tried to climb back up the ladder in total opposition of that. If we had just let it run its course and let the actual market signals play themselves out, we'd have been recovered by 1931. Everything would have been. The 300% imbalance would have simply been corrected and the US and global economy would be in a far, far better state and we would probably have over avoided World War II. The two very things mentioned in this piece that are the reluctant examples of Fiat working are actually two of Fiat's biggest and most profound failures.
I guess really the Treaty of Versailles really had nothing at all to do
[00:35:32] Speaker A: with fiat versus hard money. It was just the fact that the
[00:35:36] Speaker B: country was being completely persecuted. It was just being drowned and choked
[00:35:41] Speaker A: and that caused massive poverty. So, well, yeah, duh.
[00:35:45] Speaker B: But if their debts had been inflated
[00:35:47] Speaker A: away because they had been denominated in fiat currency and German fiat currency, that wouldn't have fixed anything. You think, you think everybody on the other side of the city, everybody on the other side of the Treaty of Versailles would have just been like, oh, well, I guess you don't have to pay us back anymore. I guess we don't want your. That they wouldn't have come in and stolen all of their coal and metal production and steel mines.
[00:36:09] Speaker B: No, of course they would have.
[00:36:11] Speaker A: They'd have been like, oh, you just inflated away your obligation. Well, we're gonna take it. You know, we're just cut the skin off your back. The whole point was to destroy the country it wasn't even about.
[00:36:20] Speaker B: That's why they tried to do everything
[00:36:22] Speaker A: they could to make sure that the resources is actually what they got and that the country stayed poor. It was punitive. It was about punishment. And there's a reason why. There was like one dissenting voice at the end of World War I, during all of this, and they literally said that we did not actually solve any problem. The Treaty of Versailles did not fix anything. Quite the contrary. We probably just delayed the continuation of this war for about two decades. And it's funny how little we learn from the one dissenting voice that told us exactly what was going to happen way back pre1920. And then also mentioning that the 2008 crisis was an ugly fiat success is also just because he refers to as a system. It was not a scare or a stress test. It was, quote, a system wide cardiac arrest.
The banking system was insolvent in any meaningful sense. How did it get that way?
[00:37:18] Speaker B: How did it get that way?
[00:37:21] Speaker A: The amount of times that like the mindset of treating the symptom and not realizing what the cause is, that the
[00:37:33] Speaker B: fact that the banking system was insolvent and sent us into a system wide cardiac arrest and propped up a mortgage
[00:37:42] Speaker A: bubble that made absolutely no sense with
[00:37:45] Speaker B: an absolutely staggering expansion of the money
[00:37:49] Speaker A: supply and debt at interest rates that
[00:37:51] Speaker B: were absolutely absurd is a fiat failure, A failure of fiat. The fact that Fiat was able to defraud the rest of the American people
[00:38:04] Speaker A: who weren't irresponsible, reckless morons, despite the
[00:38:09] Speaker B: market signals, trying everything they could to tell them to be the fact that
[00:38:13] Speaker A: fiat was able to socialize that loss and not kill the behavior and actually make it a systemic and culturally acceptable
[00:38:23] Speaker B: thing that has progressed in continuous continued into this day, in fact made worse because now there's a whole generation entering the workforce that literally thinks this is
[00:38:30] Speaker A: a perfectly sensible way to do business
[00:38:32] Speaker B: in a perfectly reasonable way to think
[00:38:34] Speaker A: about interest rates and how to spend
[00:38:35] Speaker B: money that's not a success.
We're talking about generational failure. We're talking about embedding into the consciousness of the population something that should have destroyed banks and made us absolutely deathly afraid of ever doing again because it literally destroys the country.
We enforced behavior that sent us into a system wide cardiac arrest. We made the very same system and behaviors and practices that made the entire banking system insolvent. Normal, not a success, not an ugly success. Nothing of the sort in any way, shape or form.
[00:39:15] Speaker A: Failure, failure.
[00:39:16] Speaker B: Failure in causing it and failure in fixing it. And as he says, this is what fiat does. Well, I completely agree. Could not agree more.
[00:39:24] Speaker A: And here's the crazy thing about all of this. Going back to what I opened this episode with.
You were forced to play this game the law.
Like talking about this becoming like a cultural norm. This becomes a way to do business.
[00:39:41] Speaker B: Not only that, it's, it's actually the most profitable because if you were solvent,
[00:39:47] Speaker A: you just got outgrown by everyone who
[00:39:50] Speaker B: went on a reckless, insane, unbelievably stupid
[00:39:55] Speaker A: behavior for a decade that led to a system wide cardiac arrest.
[00:40:02] Speaker B: And then they all got bailed out and you never got while you were actually prudent, while you were actually frugal and solvent the entire time. What should have happened is that you should have been balled up. Every one of those other banks at fire sale prices, you should have gotten them at 4 cent on the dollar because you were the only one with a freaking head on your shoulders. That's what that painful contraction does is it fixes, punches everybody in the face who was an asshole and says stop being assholes because this costs real resources. People actually die and go hungry when you do this. System wide cardiac arrests don't just occur.
They are caused by shitty behavior and bad investment at staggering scale. This is what fiat enabled and fueled and reinforced for decades. And there were actually banks during the 2008 crisis that tried to refuse the TARP bailout and they were forced to take it because it would have revealed just how unfair, how ridiculous the solution was that there actually were semi responsible banks in the mix and then there were terrible insolvent one and that we just socialize the entire system and reinforce the behavior that got us into the
[00:41:17] Speaker A: problem to begin with.
[00:41:18] Speaker B: This is exactly why I think Custodia
[00:41:20] Speaker A: bank is not getting approved, is because
[00:41:22] Speaker B: if you actually have a solvent bank,
[00:41:24] Speaker A: if you actually have a full reserve bank, you're not, you're not allowed, you
[00:41:28] Speaker B: can't, they can't possibly allow that because it would reveal just how powerful the scam is that's actually happening here. And importantly it allows that release valve within the system.
If Custodia bank opened up and said
[00:41:44] Speaker A: that we are going to have full
[00:41:46] Speaker B: 100% reserves for everything held in deposit at our bank, and they start to get any sort of credibility or adoption or number of, or depositors, and we
[00:42:00] Speaker A: get another silver bank or another, you know, another scare from JP Morgan or
[00:42:07] Speaker B: any, any of the larger banks.
[00:42:09] Speaker A: Where do you think a lot of
[00:42:11] Speaker B: people are going to send their money?
[00:42:13] Speaker A: Where are they going to wire to with their API in the middle of the night?
[00:42:16] Speaker B: When, where's the bank run going to go to?
Then you actually, you can end the system, push the reserves to the 100% reserved bank and it will literally kill
[00:42:28] Speaker A: all of the other ones.
[00:42:29] Speaker B: If there's enough pressure, if there's actually a way out within the system itself, it's not literally the currency.
[00:42:37] Speaker A: And this is exactly why, you know,
[00:42:39] Speaker B: buying Bitcoin is a speculative attack against the currency itself, because there is actually
[00:42:45] Speaker A: no exit within, inside the system.
[00:42:49] Speaker B: You have to sell the currency. You have to sell the actual money to get into a new money. So it's not just, it's not really
[00:42:56] Speaker A: bank reserves that are being the problem. It's not the insolvency of the bank system itself that's being revealed. It's the fact that the money, the
[00:43:04] Speaker B: value of the money is dependent on the insolvency of the banks, is that it's actually, they're actually tied together because
[00:43:11] Speaker A: the debts that the banks issue out
[00:43:13] Speaker B: of thin air, backed by nothing, are indistinguishable from real currency. We've made the credit risk and the actual money indistinguishable. They are the same thing. They're all, they're all just bundled together. We got a, we just got a bundled package on everything and 90% of it is garbage.
[00:43:33] Speaker A: It's like, you know, you made a stew or you made ground beef and
[00:43:36] Speaker B: you put the 10% of good beef that you had in with literal 90% rotten garbage.
[00:43:41] Speaker A: And then everybody's complaining about how it tastes. And it's like, well, if we didn't have Fiat, you know, we'd have to
[00:43:46] Speaker B: throw away 90% of this meat.
[00:43:47] Speaker A: Well, yeah, we shouldn't be eating it.
[00:43:48] Speaker B: That's why everybody's sick and everybody's constantly throwing up. The solution isn't hiding the rotten meat. The solution is fixing the thing. That's.
It is literally reinforcing people to ground up rotten meat and feed it to us. We should fix the problem. We should stop eating rotten meat. We should actually fix the quality of the of what is in what we are engaging in in the economy and the pricing mechanism for investments and get real interest rates and we would actually be stable, we would actually be sustainable and we wouldn't have to worry about cardiac arrests across system wide cardiac arrests and a full on banking system insolvency every five years. But you're essentially forced to participate because if you don't you reveal in such a staggering and billboard like broadcast way how absurd the system actually is and it would actually fuel the collapse itself to do something stable and solvent within this system. That's how bad it is is the mere presence of solvency is a threat to the entire thing.
[00:45:00] Speaker A: That should scare the crap out of you.
And now I'm out of time because
[00:45:05] Speaker B: I have just spent.
[00:45:06] Speaker A: I've gone through, I haven't even gotten to. I've read two quotes, three quotes from
[00:45:12] Speaker B: the like eight that I saved from this one piece and ranted for 50
[00:45:17] Speaker A: minutes and now I'm out of time and I have to go so we're going to do this again. I'm going to keep guys taking on this because it's just absurd and I also don't want to in the context of like Hugh Hendry. I mean he'll probably never listen to the show so it's probably not an issue. But I don't want to walk away from the conversation on this thinking that like I thought this was the dumbest and most terrible article ever.
I do have this huge disconnect with some of the the reasoning that he provides for why Fiat has some sort of a benefit here and even seems
[00:45:51] Speaker B: to understand some of the principles but doesn't still doesn't put the picture together which just baffles me. But there's a lot to unpack that is actually really good.
[00:46:00] Speaker A: So maybe this will this is the negative side of the article and we'll do the positive side because I think there's a really interesting thing to unpack in the pricing mechanism of bitcoin and why the kind of the cycles are over and what actually is the market unsure about. Why is bitcoin still where it is? And so I want to take some time and to get into that too and we'll have to do it on the next Guys Take episode but honestly I haven't been doing enough Guys takes anyway so we're overdue for a run of solid rants and with that I'll catch you on the next one. Until then everybody, that's my two sats.
Equality of the general rules of law and conduct is the only kind of equality conducive to liberty. And the only equality which we can secure without destroying liberty.
Friedrich August von Hayek.
