Inflation Narratives in a Bitcoin World

Every passage, on the record.

1. 00:01Claim

   Once you see past that, you will see that Bitcoin outcompetes the legacy system. And if it outcompetes the legacy system by eliminating inflation, then it would be advantageous at the moment that you understood that information and others did not, it would be advantageous to your future self to take action.

2. 00:38Claim

   It makes your arguments so much weaker, your narrative so much weaker, if you continually pile on to what the mainstream or even the substream narrative is around what inflation is, who it harms, why it comes into existence in the first place.

3. 01:10Quote

   Inflation is always and everywhere a monetary phenomenon, in the sense that it can be produced only by a more rapid increase in the quantity of money than in the output.

4. 01:10Reference

   The way that I see it is in the Milton Friedman said it best, "Inflation is always and everywhere a monetary phenomenon."

5. 01:40Claim

   The supply cannot be manipulated in Bitcoin. If the supply cannot be manipulated, if it cannot be inflated, if it cannot be increased, well then there is no inflation.

6. 01:40Prediction

   So it's going to outcompete because it can't be inflated.

7. 03:06Claim

   Getting this wrong makes Bitcoiners or supporters of Bitcoin looking competent. And that's just as we are trying to build trust amongst the people that are being taken advantage of in the legacy system. If we cannot be trustworthy or if the things that we say look incompetent, that makes us look just like the legacy economists. You end up looking silly, which defeats the whole purpose, which slows adoption.

8. 03:37Claim

   The quicker that this is adopted, the quicker that this is seen and the more efficiently we can allocate resources around the economy.

9. 04:07Analogy

   Asset prices would go up or just prices in general would go up. It would be if you shut down the world economy for some reason. Factories were going to close. You weren't going to be able to go to work. That would create a rise in prices.

10. 04:38Claim

    Asset prices can go up for a number of different reasons. But that is not inflation. That is asset prices increasing.

11. 04:38Claim

    Who benefits from changing the definition of inflation? And if we are tracking prices instead of money supply, what becomes more important? Well, the most important thing then, if that's what we're tracking, the most important thing becomes the stability of prices.

12. 05:44Reference

    We know from great books like Jeff Booth's Price of Tomorrow that we are becoming more efficient through technology.

13. 05:44Claim

    We are becoming more efficient through technology. We are doing more with less. And if that is the case, if we are doing more with less, then prices should be falling.

14. 05:44Claim

    If prices are stable, what's actually happening as we become increasingly more efficient is we are being robbed of those gains. The gains in efficiency that technology allows for are being taken from us.

15. 06:15Quote

    The attention is focused on prices. Price increase. CPI, that's inflation. But while all of the attention is focused there, the difference is being siphoned away through the increase of the supply of money and the control of that money.

16. 06:48Claim

    The more that the government spends, the less the economy has to create more energy reserves. The government is the least efficient allocator of capital.

17. 07:18Quote

    you cannot have anything lower because then people will have to save and they'll continue to hoard their money and there will be no demand. And without demand, that leads us into this deflationary spiral. And we all end up in a very in a much worse situation, complete nonsense.

18. 07:18Claim

    Even though they don't create money, even though they are not the ones that create money out of thin air, the government, they are the first under the spigot. They are the closest to the new money.

19. 07:51Quote

    They mandate the theft by forcing banks to trade treasuries for reserves via the Fed.

20. 07:51Claim

    The US, the Federal Reserve, does not have monetary sovereignty. The dollar is the global reserve currency. The Fed can't stop the Eurodollar system from creating more US dollars.

21. 08:25Claim

    The Eurodollar banks aren't going to get bailed out. They need to stay alive to continue to benefit from the privilege of extracting energy from with no input.

22. 08:55Event

    What happened after 2008 is all of these people that were completely overleveraged realized that this could not continue. That collateral had to be called in, that we had to start looking at what was actually on the balance sheet and making sure that that was square or else we were going to come to a point where there would be complete capitulation.

23. 09:32Claim

    How value really is expressed through prices. And if there's manipulation in that market, that leads to severe constraints on efficiency gains on energy transformation.

24. 09:32Claim

    The banks that are involved, the financial institutions that play in the Eurodollar system and create dollars out of thin air, they will always flee to the safest assets in times of crisis.

25. 11:20Quote

    I don't think it is an exaggeration to say history is largely a history of inflation and usually of inflation engineered by governments for the gain of governments.

26. 11:20Reference

    This is, it can be, I guess, highlighted with Friedrich Hayek who said, "I don't think it is an exaggeration to say history is largely a history of inflation and usually of inflation engineered by governments for the gain of governments."

27. 11:20Analogy

    So up until the Eurodollar system, it was only a one-sided sandwich. It was a pizza and now we have both squeezed from both sides.

28. 11:51Reference

    Again, this is a Hayek idea, this boom and bust cycle that he talks about where subsidies and guarantees and anything that a government entity comes up with, with a way to spend money to induce more transformation of energy is always going to be the wrong choice simply because they don't have the incentives to be correct.

29. 12:32Analogy

    His classic example is chocolate covered pickles. Some government, some bureaucrat thinks that it's a great idea that the market needs chocolate covered pickles. And so they invest all of these resources through subsidies, through guarantees, through loans, and it misallocates those resources when the market didn't want those things at all.

30. 13:16Claim

    Distorted prices drive energy to areas of less demand. Less demand means less transformation, means less exchange, means those resources are completely squandered.

31. 13:51Quote

    QE removes liquidity from the system at the worst possible time, making life harder on everyone.

32. 13:51Claim

    They buy the most pristine collateral with bank reserves.

33. 14:27Event

    As of right now, in March 2020, the Fed lowered the reserve requirement to 0%. So they get nothing for having those reserves. They are not allowed to make any more loans because they have all these bank reserves on the balance sheet. They serve no purpose.

34. 14:59Reference

    The Fed has said in Fed minutes, "Why are we doing this? Why when there is dissent amongst the members in these conversations, why are we going after the asset that everyone is running to as the buyer of last resort? Why are we doing that? We should be buying things that nobody else wants. Why are we buying the thing that everybody wants?"

35. 15:32Reference

    The central bank really, what is relying on here is this portfolio balance channel with the portfolio effect to kick in, which is this idea that large institutional seller of bonds, the people that we're selling these Treasuries to the Federal Reserve, well, they're going to move on to riskier assets with their gains from selling these bonds at elevated prices and that will push asset prices higher.

36. 16:02Claim

    When in fact the opposite occurs because banks are the ones that are providing these bonds. Institutional buyers are the ones that are providing these bonds to the Federal Reserve. So they're pulling liquidity from the system.

37. 16:02Quote

    Low interest rates signal tight monetary conditions, not the other way around. High interest rates forecast the opposite.

38. 16:34Claim

    A 10 percent GDP spend on asset purchases, 10 percent of GDP, what it will equate to in interest rate reductions is 50 basis points. It's only going to reduce interest rates by 50 basis points, a 10 percent spend of GDP.

39. 17:08Claim

    It's coming from the banks themselves that create the money, inside of this system where collateral is king. Banks are much more risk averse. They know they can see the writing on the wall. Why? Because they have information. They have information that other people don't have.

40. 17:39Quote

    The asymmetry of information allows these people, allows these institutions to rent-seek in between the actual transformation of the energy and the storage of that energy.

41. 18:14Quote

    It's telling the Fed what is going to happen with the markets. It's not vice versa.

42. 18:14Claim

    The only people who can get credit are the cream of the crop when interest rates are low. What do they do with this free money if they're intelligent? You buy scarce assets.

43. 18:51Claim

    Actual production of goods is less productive than simply buying and holding scarce resources. So the behavior that you incentivize is getting as much free money as you can, and then simply buying and holding scarce resources. You're incentivized to stop production.

44. 19:22Reference

    You've probably heard talk about zombie corporations. These things exist simply to arbitrage interest rates versus the scarce resources that they can procure with the debt that they undertake.

45. 19:59Claim

    The core question here is does an economy need inflation? I.e., are we able to transform more energy from inaccessible to accessible if we have inflation of the money supply?

46. 19:59Idea

    Are we able to transform more energy from inaccessible to accessible if we have inflation of the money supply?

47. 20:29Quote

    This incredibly stupid belief that inflation is actually good, necessary, desired.

48. 20:29Analogy

    What this is saying is that you are too stupid to decide what to spend your money on so that you need to be poked and prodded like cattle to make sure that you spend enough to keep the economy going.

49. 21:09Claim

    There's probably a reason why they are scared. You want to hoard when there is fear because you want to use less reserves because the future is unpredictable.

50. 21:43Claim

    If things are bad, you want to assess the situation and make sure they're not going to continue to be bad while you burn through your energy reserves that allow you to survive.

51. 22:14Analogy

    You want to continue to eat. If you are hungry, you want to continue to eat because it's going to give you the energy that is necessary to survive.

52. 22:14Claim

    Specialization creates a better world for everybody. But it also creates a world where we are dependent on one another for survival.

53. 22:47Reference

    As we discussed in the last episode about value, it's determining where do we want to consume?

54. 23:22Claim

    The goal of investing isn't just to employ people and keep companies going. That is the narrative. We can use that to leverage it, to transform more energy reserves. We want more energy reserves and we need your money to be able to do that, so you've got to get out there in the economy and spend it.

55. 23:22Reference

    The other side of this coin, aside from consumption, comes down to this investment fallacy.

56. 23:56Claim

    That isn't the case if you are paying people to waste energy. We've already talked about how the government is the worst allocator of energy in the history of energy allocation. There can be nothing as inefficient as government spending.

57. 24:29Claim

    In a world without government intervention, you have to transform energy in the real world to get that money. Yet we take it away from producers to get investments.

58. 25:01Quote

    The dollars, that is not the energy. That is proof that you transformed the energy and allowed someone else to consume it.

59. 25:01Idea

    Those are future calls on energy. You can call in, you have ultimate energy optionality in those dollars. You can turn those dollars into future energy, but you can't get them unless you've already transformed energy in the past.

60. 25:38Reference

    The other thing that Keynesian economists will rely on is this pay cut fallacy, trade unions, individuals, they just cannot fathom a world where prices go down and therefore wages go down.

61. 25:38Claim

    Your work is worth more today than tomorrow. Why? Because you don't have the ability to get easier by leveraging past energy transformation unless you have the original energy, unless someone did that original work.

62. 26:09Claim

    We as a society are able to continually push is because we have access to reserves that allow us to meet our day to day needs.

63. 27:16Claim

    The supply of Bitcoin cannot be inflated. The monetary policy of Bitcoin is known by all participants. So that asymmetry of information that I talked about in the Eurodollar system is completely removed.

64. 27:46Claim

    If everyone knows that, that information is already priced into the current prices. It's already thought through. And that is why the current prices are the way they are, knowing that future monetary policy.

65. 27:46Reference

    The ability for government to be the first under this, the Cantillon effect of the spigot of money, they get access to it first.

66. 28:29Claim

    On a gold standard wars were significantly shorter because you had to have the support of the people. You couldn't just use government spending to fund these things by mandating that banks hand over cash for treasuries in exchange for bank reserves that a certain entity can just print out of nothing.

67. 29:51Claim

    By removing money creation and making government opt in versus this ability to constantly tap and to constantly pick pockets whenever they desire, by removing those two things, we are moving the key elements of what is squeezing energy resources in society as it stands now.

68. 29:51Prediction

    The only problem left to solve really is what happens when the Satoshi to value exchange is so great that there are things smaller than Satoshi's, we need a unit smaller than that, and Bitcoin is already sold for that, because it allows for divisibility to be elastic.

69. 30:22Quote

    But this is not Bitcoin is not a system that is built for the next 10 years. This is a monetary network that is designed to eat the world forever.

70. 30:22Prediction

    While it may seem a distant far off future in 100 years from now, things will probably not be priced in Satoshi's. There will be units even smaller than that.

71. 30:53Claim

    All that has to remain is the fixed supply in total. And as soon as you move the money creation from banks, as soon as you remove the ability for governments to fund themselves without notifying taxpayers, you make for a much more efficient world that Bitcoin ends up dominating.

72. 30:53Prediction

    You make for a much more efficient world that Bitcoin ends up dominating.