Lyn Alden and Jeff Booth: Swan Signal Live E21

Lyn Alden, invest­ment manager and macro­eco­nomic thinker, and Jeff Booth, technology entre­pre­neur and author of Price of Tomorrow, held a lively discus­sion about technology as a defla­tionary force, long-term debt cycles, and Bitcoin as a solution to unpayable sover­eign debt. 

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Summary

00:00:00 — Introductions 

00:01:45 — The four models of govern­ment financing 

00:06:12 — The conse­quences of monetary manipulation 

00:15:23 — Bitcoin as a hedge against economic uncertainty 

00:20:32 — The conse­quences of fighting against deflation 

00:22:24 — Bitcoin portfolio alloca­tions and risk management 

00:26:34 — Legit­imizing Bitcoin as an invest­ment asset 

00:28:35 — Lyn’s Bitcoin touchpoints 

00:32:17 — Jeff’s Bitcoin risk analysis 

00:34:44 — The likeli­hood of a Bitcoin ban 

00:38:32 — Learning from monetary history 

00:41:02 — Fighting defla­tion with monetary inflation 

00:46:44 — A peaceful path to Bitcoin? 

00:55:07 — Price specu­la­tion and changing the unit of account 

01:00:38 — Treasuries and inflation 

01:09:18 — Closing thoughts

Fantastic conver­sa­tion between @LynAldenContact & @JeffBooth today on Swan Signal.

A🧵

cc @SwanBitcoin

— Rob Sarrow 💫 (@rsarrow) July 30, 2020

Transcript

Brady Swenson:

Welcome back to Swan Signal Live everyone. Glad to have you here. This is a weekly show that pairs bitcoiners together for compelling discus­sions. I am Brady Swenson your host and Head of Educa­tion at Swan. Before we dive in, a quick word about the service we provide here at Swan. We’ve built the best way to accumu­late bitcoin with automatic recur­ring buys. It’s very simple to setup. First you just connect your bank account to auto fund USD, we automat­i­cally stock bitcoin for you, and you can option­ally setup automatic withdraws to your own wallet. We do all that with very low fees, very compet­i­tive in the industry.

Brady Swenson:

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Brady Swenson:

Okay, we have two fantastic guests, I’ve been really excited for this pairing. We have invest­ment strate­gist Lyn Alden with us from Atlantic City. How’s it going Lyn?

Lyn Alden:

Good, nice to be here.

Brady Swenson:

Excel­lent, and we have Jeff Booth, author of The Price of Bitcoin. No, it’s not The Price of Bitcoin, The Price of Tomorrow. And that would be out of date pretty quickly if that book was published. Also an entre­pre­neur, Jeff welcome.

Jeff Booth:

Thanks, thanks for having me.

Brady Swenson:

All right, so Lyn we’re going to start out with you and we’re going to discuss a couple of topics, set of topics that you both have much exper­tise in. The discus­sion is outlined in both of your books in detail. I’m sorry, your book Jeff in detail and Lyn’s article, Quanti­ta­tive Easing, MMT, and Inflation/Deflation. So Lyn, like I said, we’ll start with you. You lay out four ways that govern­ments can finance spending a debt and the first two I think are well known, they’ve been around for a long time, it’s just tradi­tional borrowing from citizens through bonds or other countries. But I think there’s less of an under­standing of quanti­ta­tive easing and of the air apparent monetary policy, modern monetary theory among bitcoiners, and I think it’s impor­tant to under­stand. Could you start off our discus­sion with a summary of that and we’ll jump in from there.

Lyn Alden:

Sure, yeah so the four models of govern­ment financing that I went over in the article, so the first one is simple. So all four of the forums involve taxing the people and then redeploying that capital back into the economy in a way that either the govern­ment sees fit, or if it’s a democ­racy that the voters see fit on behalf of the govern­ment. And that’s kind of the main way. But then they also, if they want to kind of pull forward spending they can issue bonds that the public buys, banks buy, and so that basically extracts more money out of the economy and allows them to redeploy that money into the economy now. For example, back when under the Eisen­hower admin­is­tra­tion when they wanted to build the highway system. I use that as an example of a good one that you might want to pull forward for and get that bill right away because it led to a lot of productivity.

Lyn Alden:

The next set is if they kind of run out of domestic borrowers, you can only issue so much debt that domestic balance sheets are willing to hold, so you can also borrow from the foreign sector. A lot of our emerging markets use that strategy because they don’t have a lot of domestic wealth, but that sets up a lot of risk for them because they usually borrow in curren­cies that they don’t control. The US is a bit of an excep­tion because most devel­oped countries don’t heavily rely on foreign borrowing. The US is an excep­tion because as a global world of currency there’s so many dollars out there, so we basically run these persis­tent trade deficits and then foreigners reinvest a lot of those trade deficits back into borrowing our treasuries. So we’ve actually estab­lished a pretty big amount of foreign borrowing.

Lyn Alden:

And that’s kind of another way that you can pull forward wealth and try to boost your economy, but that starts violating the issue of people often say that federal debt is debt we owe to ourselves, but when you start borrowing from foreign sources you start to kind of move away from that model a little bit. Now the thing that those two models both have in common is that they can work in a variety of monetary system because it’s kind of like real money. They can work with dollars, they can work with gold, they can work with all these different kind of systems because you’re maintaining the currency, you’re extracting it from somewhere else and then you’re injecting it somewhere else.

Lyn Alden:

But when you move into the next two models, they only work in the current fiat heavy system where you’re not really constrained by anything hard. They have a variety of constraints, legal constraints, and they have infla­tion constraints, but besides that they’re pretty flexible. They have tons of conse­quences for that but there’s nothing hard that stops it from doing it. So one is that whenever we have these defla­tionary shocks, one thing they can do is that the Federal Reserve can create new dollars and use those dollars to buy treasuries. So we basically monetize part of the deficit. That’s often the case when you run out of domestic borrowers and foreign borrowers, or you just want to inject new capital into the system and try to kind of fight against the defla­tionary force.

Lyn Alden:

Then the last option, MMT is kind of a newer version of that where you almost cut out the middle man, you don’t even need the fed to buy it, you can just have the treasury directly print money into existence, and it’s kind of like a form of QE but with less checks and balances. Those were kind of the four models that I went over within the framework.

Brady Swenson:

So modern monetary theory is just kind of unleashing central banks and govern­ments from previ­ously existing limits on that power to create money. So Jeff is there any evidence from history that lets us believe that central banks and govern­ments can manage the monetary supply in a very complex system without worsening the natural cycles of capitalism, for instance?

Jeff Booth:

None, and I think this is where Lyn and I violently agree on what is likely to happen, the proba­bil­i­ties that govern­ments, what they’re going to do to try to stop the inevitable, and then the risk to curren­cies under­neath that. If you direct inject MMT, so debt doesn’t matter until it matters, and so I think there’s this almost fairy­land belief that you can print money forever and it have no conse­quence based on having a reserve currency. But a reserve currency means people trust that currency, and so can you imagine Venezuela having a reserve currency and who would trust that currency? And the reason they don’t trust that currency is because it can be manipulated.

Jeff Booth:

The rules of the game estab­lish why you can have a reserve currency, and if you change the rules of the game you unwind the reserve currency really quickly. Kind of bigger than this, and this is why I wrote the book. In the end it actually does all of this, is just window dressing. Technology is defla­tionary, right? We use technology to remove jobs. There is no company that’s using technology to say, “I’m going to increase the number of jobs.” You use it to gain benefit. We use it, businesses us it to increase benefit and it is factu­ally defla­tionary and it’s exponen­tially so. There is nothing govern­ments can do in the end to stop that force, it’s a bigger force, and the monetary policy that they’re trying to do to stop that from happening. Because they’ve created a system where we’ve lived in an infla­tionary system all of our lives, we can’t see the other side of that system what it could look like.

Jeff Booth:

So by trying to stop that they are just driving massive wealth in inequality. Today there’s hearings about the top five technology compa­nies and what they don’t see is it’s a pipeline directly, that QE injec­tion is a pipeline directly into the technology compa­nies that are doing it faster, right? That’s why they’re rising in price so fast because they can… Every company needs technology to produce labor faster to compete, and so we’re actually, ironi­cally, speeding the demise of the system because technology is moving so fast right now and the policies designed to stop defla­tion are actually making it worse.

Brady Swenson:

Lyn do you have any followup on Jeff’s comments there?

Lyn Alden:

No I think that’s true and one of the frame­works to look at throughout history is because they kind of want to have their cake and eat it too, that’s how policy­makers functions. So politi­cians want to kind of toll forward as much as they can, they want to promise as much as they can, and so they rack up debt and of course businesses do the same. And then when businesses have these big defla­tionary losses of debt and delever­aging events, always the impetus is to try to bill that out and try to reflate that and to create some sort of currency deval­u­a­tion to offset that to some degree.

Lyn Alden:

Over the five to 10 year business cycle this happens repeat­edly, right? But then after several of those cycles, like after you get to 50 years or 80 years or so, you get to kind of the end of the long-term debt cycle, that’s what Ray Dalio refers to it and there’s other ways to refer to it, which is that every kind of four gener­a­tions or so on average you hit this massive debt level. And you move the debt from say the private sector up to the federal sector, so if you look back and for example, 2008, there was a very big private housing crisis, and a lot of that issue, all of the delever­aging from the housing sector and from the banking sector, a lot of that was moved up to the federal level. So federal debt to GDP was about 65% back before then, and then it quickly went to 100% within a matter of years. That’s because they shifted that up to the sover­eign level. Histor­i­cally when you get up to the sover­eign level, that’s when there’s nowhere higher to go other than taking it out in your currency.

Lyn Alden:

That’s histor­i­cally what they do, because as a general axium, sover­eigns rarely default in their own currency, it’s very rare. I mean Russia did it 10 years into their lifetime as a polit­ical entity, but for estab­lished countries sover­eign defaults are very rare, but above a certain point you can’t mathe­mat­i­cally pay that debt back. As a general principle they gener­ally default in real terms rather than nominal terms. That’s why these long-term debt cycles, they often resolve in a pretty signif­i­cant currency deval­u­a­tion. Now sometimes it’s a hyper­in­fla­tionary deval­u­a­tion whereas other times it’s a partial deval­u­a­tion where the currency doesn’t lose all of its value, but it loses some substan­tial portion of its value. That’s, for example, the dollar is to be pegged by gold, so they would just reduce the peg, for example. They say, “Okay, instead of $1 being worth 1/20^th an ounce, they’d make it worth 1/35^th of an ounce,” as an example. Or they would take it off the gold standard entirely, or they would print a lot of money.

Lyn Alden:

That currency deval­u­a­tion has all sorts of ramifi­ca­tions, especially for debt holders, but these things kind of happen throughout history and it’s always a very messy environ­ment when it happens.

Jeff Booth:

Yeah I totally agree with that, that’s where we’re moving right now. There is no way to transi­tion right now without a messy environ­ment. Every single govern­ment is in the same boat, and so everyone is going to take currency deval­u­a­tion as trying to kick the can down the road further, and by doing so create more pain to society, and actually create this thing that they don’t want the most, social unrest. And the social unrest is going to drive… We don’t have capitalism anymore, right? There is no free market price discovery. Most of what we see is a govern­ment response every­where, and so in that type of market you remove the entre­pre­neurial failure, the cycles of the market and it’s no wonder that there’s a whole bunch of people that left out of that that look to very rich, wealthy creators and say, “You need to pay me some.” And you get socialism on mass, which is at the end of the cycle and repeats again to what Lyn’s saying.

Jeff Booth:

But right now unfor­tu­nately the debt is so high. You know when I wrote the book, pre-COVID, I predicted just any event, effec­tively technology is trying to reduce prices at a rate that’s compounded, that’s exponen­tial, and you need exponen­tial money printing or debt creation to try to hold things even. That exponen­tial money printing or debt creation is driving wealth at the same rate, wealth and equality at the same rate. Picking the pockets of some, giving it to others at the same rate, which means you have social unrest at that same rate on top of it.

Jeff Booth:

The numbers are staggering, and a lot of people look individ­u­ally at their country level and every­thing else, but to see that the Ps on the board all moving around you have to look up at Lyn’s saying because it’s moved up. It is so personal, it’s still corpo­rate, but it’s also govern­ment so you have to look at the total debt to GDP across the world and how fast it’s risen, and total debt to GDP, in the last 20 years has gone up $185 trillion for $46 trillion of real growth. So you know you can’t keep doing that, but here’s the thing, this was before COVID, it’s exploding and the GDP is down. At what sort of timeframe do you say, “Hmm, this isn’t going to work anymore.” That’s what we’re dealing with right now and unfor­tu­nately the unwind is going to be messy and people are going to lose fortunes overnight because when the exit doors close they close really fast.

Brady Swenson:

Yeah wow, I mean it’s a tough situa­tion and this pandemic is a very negative black swan that was inflicted upon an already, I think we could agree, fragile finan­cial and monetary system. Now we have bitcoin though. We have bitcoin and this is really what it was designed for. It was born out of the 2008 finan­cial crisis, just 10 years later we have a situa­tion that bitcoin was intended to help with, so I’d love to hear from Lyn what you think about how bitcoin would effect, the presence of bitcoin would effect the outcome of the current monetary… I don’t know, mess that we’re in.

Lyn Alden:

Well one thing it provides now is kind of an off ramp, so people have more options now to move their money and assets outside of the tradi­tional finan­cial system into things that can hold their value up through these cycles. Histor­i­cally gold and silver have played that role pretty well. So for example, if you were in any of these hyper­in­fla­tionary environ­ments and you held gold, you did fine. Even in these periods where it’s not hyper­in­fla­tionary, it’s just some degree of currency deval­u­a­tion, having say precious metals is helpful. But then it’s also other types of scarce assets like real estate unless it’s highly revalued, or things like producers of commodi­ties, things like that that tend to hold up pretty well. And bitcoin repre­sents a very flexible way for people around the world to get into that because it’s digital, it’s decen­tral­ized, it’s very challenging to confis­cate or outlaw outright.

Lyn Alden:

They can make it illegal but it’s still easy to operate, so it kind of gives people another on ramp or off ramp to that whole system. And because it’s a newer technology and because it’s still pretty small capital­iza­tion, it poten­tially has a lot more upside poten­tial if bitcoin continues to succeed in the way that it has been by building its network effect and building its view from partic­i­pants as being a reliable form of storing wealth if they’re willing to put up with that volatility that we experi­ence when it’s in this pretty small capital­iza­tion stage.

Brady Swenson:

Jeff how do you think the presence of bitcoin will effect the outcome?

Jeff Booth:

Very rarely in business does a business see what it needs to do to reinvent itself, it’s so rare. Block­buster doesn’t create Netflix, Kodak doesn’t create the digital camera even though they invented it, doesn’t capitalize on it. So it’s so rare because the existing struc­ture of a business, the system that sits together, and it’s not bad people, it’s so hard to see a new system. Bitcoin is that new system and as those on ramps on that network effect, as more people see that store of value, and I’m going to go into a couple of things, it accel­er­ates. It’s hard to believe that people say, “So why do you trust the money in your pocket? Why do you trust it?” Is it the paper, is the numbers on it, is it the face on it? You trust it because its implicit guarantee that that purchasing power is worth what the govern­ment says it is. And so we know factu­ally that govern­ments are destroying that purchasing power.

Jeff Booth:

And so people will look for other things that aren’t destroyed in purchasing power, and bitcoin is a really good example and it’s going to happen country after country after country because people are going to put their money into something that stores wealth faster. If you use the analog to real estate, and every­thing else that Lyn just talked about, histor­i­cally why do you think real estate’s so high? People say, “Well because it’s scarce.” I would argue if you didn’t print $185 trillion over the last… If you didn’t pull forward that demand, if you didn’t create that much debt in the last 20 years you’d see the real price of real estate. It becomes a store of value because every­body knows that if you’re in China or if you’re in Hong Kong you got to get your money out of there right now and you need to put it in some sort of store of value and real estate has always been a default store of value.

Jeff Booth:

But what’s coming next? Govern­ments have to tax real estate totally different and once you’re in it you can’t move it. And so some of these exit doors are going to close so fast, because the govern­ments are a stock, and so you’re going to see taxes going up like crazy on all of these perceived stores of value in other areas. I would say it’s negli­gent not to have bitcoin in your portfolio.

Brady Swenson:

Well we’re going to see these asset prices skyrocket because the monetary premiums on those assets will skyrocket. We also have the defla­tionary forces of technology, as you say, but the argument that comes back is hey, we have these defla­tionary forces on consumer goods, TVs are cheap, and every­one’s like well a lot of the monetary theorists will argue or ignore those monetary premiums on hard assets.

Jeff Booth:

But here’s the thing, connect the dots. That’s the thing that… For me writing the book I’m seeing what my kids were going to experi­ence and the next gener­a­tion is going to experi­ence if those dots weren’t connected. For 10 years I’ve been talking about this and it was driving me crazy that the only reason the assets are going up, the only reason rents are going up so high is they’re matching the asset price climb that are artifi­cially created. And so you could say technol­o­gy’s great and a lot of those technol­o­gists say, “Oh but people have way more power in their phone and they have all of this free stuff,” and that’s all true. But if they can’t pay for rent or food or medical bills because those are stimulus injected artifi­cial prices that were created, they’re going to get really mad. And they’re going to rise up with their pitch­forks and take the wealth back.

Jeff Booth:

That’s what we’re seeing in society today because of an inability… The real prices if you actually allowed capitalism to work and cleanse the system, you would see defla­tion every­where, you’d see defla­tion every­where and prices would contin­u­ally default along that, and that means the abundance from technology wouldn’t be concen­trated to just a few, it would reach every­body. Real wages would go up.

Brady Swenson:

Beautiful, I love it. So Jeff mentioned there that it’s negli­gent not to have bitcoin in your portfolio. I’ll be in a question from Dennis on YouTube, Lyn we’ll start with you. How do you think about bitcoin from a portfolio alloca­tion stand­point if you’re a young person who strug­gles between concen­tra­tion, wealth creation, and diver­si­fi­ca­tion, wealth preservation?

Lyn Alden:

Sure, if you look at bitcoin’s market capital­iza­tion and compare it to the amount of total wealth in the world. So Credit Swiss estimates that total world net worth is something like $360 trillion. So bitcoin is far less than 1/10^th of 1% of world net worth, so it’s a very small sliver. So techni­cally if someone is in 1% in bitcoin, for example, you are theoret­i­cally overweight bitcoin. And I agree with Jeff that it this point I would say it’s risky, for example, to not have any bitcoin in a portfolio, to have zero bitcoin. Part of that article I wrote the other day was basically I’ve seen it described as the case for having a non-zero bitcoin position. Even if you don’t want a large bitcoin position, I think having at least a small bitcoin position is a nice hedge.

Lyn Alden:

Now for people that want to go above that very small amount of alloca­tion, I think it comes down to people educating themselves on the asset class and under­standing the details of how it works and becoming comfort­able with it to the degree that they want to make their own decision on how far to go up. For example, some people because they specialize in the space, they can have very large bitcoin alloca­tions, they have high convic­tion for the asset class, they know what to look for, they know what the risks are, and so they can dial it up to pretty high percent­ages, especially if they’re young or especially if they’re just very knowl­edge­able in the space. On the other hand if someone’s not very knowl­edge­able I wouldn’t just say throw all your money into bitcoin and hope for the best because it’s not prudent for their own emotional toler­ance, the volatility, or to knowing what to do when something goes up or down in price.

Lyn Alden:

How much do you let it become part of your portfolio? How much are you invested just emotion­ally in its price action? So it really comes down to each person, and a lot of it I think is tied to their own knowl­edge of the asset class and how much risk they’re willing to take on relative to how much they think they under­stand the price action and some of the causes that can drive it to go up in value or they could cause it to have pullbacks along the way.

Brady Swenson:

Jeff how do you approach alloca­tion of bitcoin in your personal portfolio, or if you don’t want to address that to your live, what recom­men­da­tions would you make to someone like Dennis?

Jeff Booth:

I think Lyn summed it up really well. I would just add if you’re thinking about… So he’s a young person. Concen­tra­tion of risk produces wealth or zero, right? So being lucky, timing, and every­thing else and concen­tra­tion of something produces wealth. That’s what an entre­pre­neur does in a business, right? Concen­trate all their time in one thing. If they’re wrong and it doesn’t work out they go to zero start anew. If they’re right they create wealth, and once they’ve created wealth they diversify.

Jeff Booth:

So asking what somebody does without knowing what their finan­cial position looks like and what they should do is really dangerous. So when I said it should be part of somebody’s portfolio, what I mean is you should have diver­si­fi­ca­tion into your portfolio if wealth and this should be allocated as a portion. To Lyn’s point, depending how comfort­able you feel with this and how much diligence you could put around that based on your risk toler­ance. In a young person’s portfolio, because they could look at this… They might want to take a higher position and concen­trate, but under­stand the downside risk as well.

Brady Swenson:

So here’s a related question also from a viewer, this is from “Zender” in our telegram chat, and if you’re watching you can hop into our telegram chat at t.me/swansignal. Got over 1,100 people in there and then active chat happening right now. So this question is for Lyn. As bitcoin is still consid­ered very specu­la­tive or even dismissed by many macro people, what has to happen in order for it to be viewed as a legit­i­mate macro asset by pretty much everyone, widely considered?

Lyn Alden:

Mostly price action. The larger it gets and the longer it estab­lishes price history the more it can get… As it gets bigger it reaches new eyes, so I was aware of the asset class back in 2011, and it was a very small thing. But as it goes up through these stair step increases that its had, it reaches more and more people. For example, now we’re at a stage where insti­tu­tions are starting to become inter­ested in it because it’s big enough that they can put a percent or two of their portfolio in it, right? Whereas some of the biggest hedge fund managers like Ray Dalio have still dismissed it or even Warren Buffett, they’ve most dismissed it as just not big enough to really be on their radar yet and I don’t think they’ve put a lot of time, as far as I can tell, into under­standing it. Where you have, for example, Paul Tudor Jones, he came out in May as being pretty bullish on bitcoin.

Lyn Alden:

I think it’s a signif­i­cant matter price action, so if it does well in this having cycle and then it does well in the next having cycle, if it keeps growing in market capital­iza­tion it becomes harder and harder to ignore as an asset class.

Jeff Booth:

Building on what Lyn said, this is one of my favorite comments I saw on Twitter the other day was bitcoin’s price is a lagging indicator of people’s under­standing of money.

Brady Swenson:

I love that. Yeah, I mean bitcoin is teaching us what money really is, I like to say, and I don’t know what the US dollar has become can be called money in terms of what I have learned about what money, a good sound money ought to be. Let’s get back into that real quick, touch on your 2011 brush with bitcoin Lyn. In addition to your finan­cial background, also have engineering experi­ence, so I’m curious since you’ve first brushed against bitcoin there in 2011. How has your under­standing of the technology, looking at it with your engineering lens, effected your under­standing of bitcoin’s funda­mental value?

Lyn Alden:

Yeah, so from the very begin­ning I was inter­ested in the technology, like I got the basic idea right away. It’s a very beautiful design, it’s a very genius inven­tion that was put together by either the group or the person, we don’t know their true identity. So it was very well done. Back then in 2011, I think it was around 2011, basically you could still mine it on a computer so I knew someone that mined and I was like, “That’s neat, you guys should try that one.” I regret not doing it obviously, because bitcoin is very low in price back then. But my main issue back then is that I didn’t know how to price it. For me it was a very specu­la­tive cool thing that’s happening, so it’s cool that it’s scarce. My main concern at the time was that now that it’s known how to do it, other people could make cryptocur­ren­cies, right? So then my question was does this whole space just become diluted with endless cryptocurrencies?

Lyn Alden:

Or does one or two or three of them maintain enough network effect and market share to maintain scarcity? Because each protocol is scarce in their own way, but if there’s just a million of them and there’s no one that kind of becomes leader, it can become diluted. So back then I thought it was neat and I watched it a little bit but didn’t really look at it from too much of an invest­ment stand­point. And I also looked at it again in 2017 and that was during that big run up, and so I had a lot of people emailing me about it, and I kind of came to the same conclu­sion that this is becoming a very viable asset class. At the time senti­ment was very high and we were having that big alt season, right? So tons of other cryptocur­ren­cies were taking market share from bitcoin and bitcoin’s, their overall market share was kind of at its low point.

Lyn Alden:

But since then bitcoin has regained market share from that low position and it’s got the longest lifetime so far. There’s so much network effect and security built into that partic­ular protocol, whereas all these other proto­cols they try to, in their own way, “improve” on something that bitcoin has but they make so many trade offs and disad­van­tages compared to the original protocol and they don’t have that level of security and that level of network effect that really gives bitcoin a truer percep­tion of being money. Ever since when we had that big selloff early this year during the whole March big liquidity selloff that we had across all asset classes, including bitcoin, that’s when I started getting very bullish, back in early April was when I turned pretty strongly bullish on it. Just because we had a variety of factors working on it’s favor, and bitcoin in partic­ular among cryptocur­ren­cies, has estab­lished a very good track record of being money and having a strong network effect and having very high security compared to a lot of these other coins that are out there.

Brady Swenson:

Excel­lent, excel­lent. Jeff, what do you think about the technology? I mean as you came to learn about how bitcoin is built and how it functions, did that have an effect on how you believed it would be valued?

Jeff Booth:

Lyn artic­u­lated that really well. There’s still a risk of a currency having a faster network effect. Bitcoin it’s a beautiful design from a game theory, from a feedback loop, every­thing else is just an incred­ible design, so I suspect not, I suspect that nothing is going to replace that right now. I think it’s incum­bent upon anybody, even in bitcoin, to say where could risk come from and let’s explore that risk where it could come from before getting… Here’s where risk could come from. If all govern­ments got together today and said, “We are going to copy bitcoin’s proto­cols exactly and we’re going to deploy this in the big part of the market and agree on a principle,” that would risk bitcoin. Bitcoin I don’t think would survive that into… It might not go to zero but it wouldn’t go to what… Because you would have so much momentum on that protocol that you would overcome the network effect and drive it into a new standard.

Jeff Booth:

For that to happen every govern­ment has to choose. We’re going to cause a defla­tionary spiral going back to hard currency, and we’re going to not manip­u­late our currency for our own polit­ical agenda and for our own job agenda, so I suspect that there’s no chance that that would happen and a higher proba­bility that bitcoin keeps moving and emerges as a super strong network effect that reinforces on itself until it’s too late, which forces govern­ments to adopt it. That’s what I suspect, but it’s not prudent to go into something without looking at all the risks, so it’s worth talking about where there could be risk.

Brady Swenson:

Yeah absolutely. Monte, who’s watching on YouTube right now, brings up a good point and we hear this quite a bit. One of those risks being, maybe even the main risk that finan­cial investors might look at bitcoin and consider is that govern­ments will just try to ban it. Lyn do you think that’s even possible and let’s say the United States took a very hard stance against bitcoin how do you think it would effect it in the long run?

Lyn Alden:

I think it’s somewhat specu­la­tive because it’s really hard to predict what would happen in that scenario. I do think that’s a risk to consider, especially in the shorter term, because the shorter term price action could be impacted by that. And there’s a couple ways to look at it. So one is that there’s not much that they can do outright stop it from existing, all they could do would be to kill some mainstream demand by making it illegal to go through it, so they could shut down the access points, the exchanges, they can disrupt insti­tu­tional investors from going into the space, so that can effect the market capital­iza­tion, at least for a while.

Lyn Alden:

But it’s individual people that want to find a way to get into the protocol, which they’ll be able to. It’ll just be harder and riskier to do so. If we were to have major countries totally ban it, like say the United States or places in Europe, that I think would be a setback for the protocol, but also it could spark some backlash because people would see it as more overreach. It’s almost like if counties get to the point where they have to ban bitcoin that’s because something went pretty horribly wrong probably in their own currency, because at that point that’s the incen­tive to do it.

Lyn Alden:

If anything I think the risk over this past week of that happening was reduced because there are people that specialize in this more than me but we had that recent announce­ment about banking regula­tions in the US and how they can now custody bitcoin, and so I think everyday that the risk that major govern­ments will take a hard stance against it is decreasing, but it is something to be aware of and it is one of the risks that can effect price in unfore­seen ways. A lot of people would think it would negatively effect price and I do think it probably would in the short term, but it’s hard to say what kind of the full outcome of that would be and it would depend on the severity of the crack down and it would depend on how other countries respond to it. You can also have some countries take a more open stance to it and become kind of hubs for bitcoin mining or just for bitcoin adoption.

Jeff Booth:

Lyn’s last point there is actually probably really critical. Because of the way the network is created and a country banning it creates more incen­tive to the game theory, creates more incen­tive for somebody else to accept it and that thing drives the value. So there’s short term risk in it, but long term risk is something, at least for me, I’m well prepared. I’m happy to play out on a long term holder because I think all those things are actually benefi­cial to the network. Today if you were… Let’s use the example in another country, a country being hurt by say US policies and having to borrow in US dollars. You might be one of the first countries to start aggre­gating bitcoin and to say, “We’re moving to a new standard,” but not tell anyone. That is likely happening right now anyways, very slowly, very quietly if anything else, and I don’t think there’s anything that govern­ments can do long term to stop it.

Brady Swenson:

Agreed. Here’s a good question again from YouTube, this is from Josh. He’s asking if there’s a histor­ical example of a society transi­tioning from an old currency to a new currency. I guess we have many hundreds of years we’ll see a reserve currency last and then change a sover­eign reserve currency. Can we learn anything from those transi­tions as citizen to watch out for and to prepare for if a transi­tion from the US dollar, as the gold reserve currency, to a sound money either gold or bitcoin?

Jeff Booth:

They’re very rarely peaceful transi­tions, that’s what I would say. I’d love to hear Lyn’s thoughts but yeah they happen but they’re very rarely peaceful transitions.

Lyn Alden:

Yeah I agree, and usually they don’t harden their currency by choice, it’s usually something that forces them to do so. So politi­cians rarely give up the flexi­bility of having more and more devalued curren­cies. Usually it’s some sort of mandate or some sort of currency issue that they have to increase compe­tence in their currency by linking it to something. There are some countries in the world that have chosen to use external curren­cies, right? So there’s some countries in the world that have just adopted the dollar, for example, as their currency and they’ve kind of given up money sovereignty.

Jeff Booth:

Yeah.

Lyn Alden:

It’s already the case of that happening with things like the dollar, so yeah it’s kind of a messy history of different curren­cies. Curren­cies get devalued and then they get reestab­lished, so they go, “Okay, that’s the old currency. Now we have a new currency,” so you have kind of the reintro­duc­tion of a currency within a country after a currency failure. The European Union was an inter­esting example. The monetary zone they created with the euro because a lot of countries agreed to give up monetary sover­eignty and to link their curren­cies together, and that’s caused a variety of issues just because they haven’t linked their physical policy but they have linked their monetary policy and that’s something that 20 years later we’re still watching unfold and no one’s really sure how what timeline this is going to play out.

Brady Swenson:

So Jeff I have a question for you, again from our chat, this one in telegram. This is from Shimone. He says, “I love Jeff’s book,” he just finished it over the weekend. “There’s one scenario that was not explic­itly covered that he’d love to hear more on. Let’s say the true rate of techno­log­ical defla­tion is 15% per year, couldn’t the govern­ments keep increasing the money supply by 15% every year and use it to pay for something like UBI without causing any movement in prices? That way we don’t have a currency collapse, just a huge rise in monetary asset prices like stocks and bitcoin and a stable consumer prices.”

Jeff Booth:

In search of stable prices against this, govern­ment is the market. Just think about function­ally what… That’s what’s happening today. Exactly that and that’s what’s happening today. So govern­ment reaches in and protects the assets from falling because there would be… If they didn’t prices would fall, banks would fair, you would have a depres­sion that would be cataclysmic across. That’s why they’re forced onto this policy. So they’re pumping money into the system on one side. That side is holding asset prices higher and keeping them higher all the time, right? At the same time, those asset prices are higher let’s use housing as an example. Then rents on that housing need to go up, which means a whole bunch of people are hurt that don’t have access to the asset class that you manip­u­lated in the first place, and then you need more money to go and pay them to keep up to the high prices that you created in the first place.

Jeff Booth:

Yes, you could go on with this for some time. It will go on for some time, but not without conse­quences of destroying your currency over time. Because where does the money come… So you’re going to buy… By playing that road yes you can do it, but you concen­trate wealth faster, you drive dislo­ca­tion of society faster, and you destroy your currency faster. But that is what’s happening today and that is the most likely what politi­cians will choose while saying… It’s really easy to say, for a politi­cian, for somebody who’s hurting, “We’re going to pay you every month in UBI.” It’s way easier than taking the hard pain on what should happen for capitalism to survive. But that’s going to come at the expense of curren­cies at the end. The end game is going to destroy currencies.

Brady Swenson:

“We’re going to see collapse on the way,” says Jeff Booth. Yeah, I decided recently that UBI stands for unset­tled bitcoin investment.

Jeff Booth:

Can I just add on that?

Brady Swenson:

Yes, of course, sorry.

Jeff Booth:

I’m not saying that the currency collapse is right now or soon. These things can go on for a long time, just if you see the writing on the wall. So the US currency could actually… Right now it’s hurting. It should actually probably get a lot stronger as other countries are all in worse shape and are going to devalue their curren­cies as well. This game is going to likely play out for a whole bunch of times, but if you just go up a level and say, “Why are we playing this game and what does it look like,” it’s going to end.

Brady Swenson:

Right, that makes sense. Lyn did you have any thoughts there before we move on?

Lyn Alden:

Just two thoughts. One is that the bigger the number is for however we define say the percentage of technology related defla­tion every year, the bigger that number is and then the more money printing they need to try to offset that, that makes it harder to offset it properly, right? So if, in theory, had a smaller rate of techno­log­ical defla­tion, it’d be an easier path to try to offset that, but once you get into pretty high levels it becomes exponen­tially more diffi­cult to try to balance that out.

Lyn Alden:

And two, it really comes down to also physical policy because on its own, quanti­ta­tive easing and all these sorts of methods that central banks use to prop up asset prices, to Jeff’s point, that boosts asset prices for those that hold the assets, but it makes them less acces­sible to those that don’t have the assets. But one thing we find, if we look at different countries, is that there’s actually pretty wide, not very strong corre­la­tion between wealth concen­tra­tion and the amount of QE that these countries have done, and it’s in part because they have different physical policies that offset some of that. So for example, if you look at Japan, which has done QE earlier and larger as a percentage of GDP than pretty much anywhere else. They actually have some of the lowest wealth concen­tra­tion, and according to Credit Swiss, their wealth concen­tra­tion actually went slightly down over those 20 years.

Lyn Alden:

But it’s because of the types of things that they… how they manage their society. For example, health­care costs per capita are very low there, whereas in the United States they’re very high. So it’s kind of this really complex inter­play between monetary policy and physical policy that deter­mines thing and also geopo­lit­ical policy, so what curren­cies are the global reserve status, what curren­cies don’t have that, things like that that can effect wealth concen­tra­tion and how easy it is or how diffi­cult it is for politi­cians to kind of thread the needle and to balance it. So it’s a very chaotic system and it is hard to predict the timeline for how that plays out.

Brady Swenson:

I think Jeff has been pretty clear in this and we’ve heard Lyn on as well, but we’re getting a question from a concerned viewer on YouTube, Jason, and he asks, “Since Jeff and Lyn seem to say that these currency changes, and even partic­u­larly the one that we’re looking down the barrel at right now between US dollar and bitcoin perhaps, are not peaceful. Is there any peaceful path? We often hear the phrase that bitcoin is a peaceful revolu­tion. Is that a possi­bility, and if so what is that possi­bility? What would that path look like?”

Jeff Booth:

I spent a lot of time thinking about this, in fact it’s why I wrote the book to have a debate on this. Is there a transi­tion mecha­nism that we could talk about on how that looks? I still hope that that’s true, and things like this, really smart people talking about this and what could that look like, increase the odds. But what I would say is in policy decision and policy circles and every­thing else, there is not enough of this conver­sa­tion happening. It seems unlikely, and so let’s imagine bitcoin just for a thought exper­i­ment. Let’s imagine currency collapse tomorrow, bitcoin goes through the roof and its millions of dollars per coin tomorrow.

Jeff Booth:

Is society ready and what would your life look like if you were a holder or a non-holder of bitcoin? As a holder and there’s no educa­tion system, there’s no police system, there’s no roads, what would that look like for you? If you weren’t a holder what would it look like for you? You could see oh my God, we don’t want that. It’s probably worth­while that bitcoin happens slower over a long time and a broad adoption and network effects it gets bigger, because maybe we can build some of the connec­tive things to it over time. Because I am not for no govern­ment, I am not for completely sover­eign, every island. I think we need some sort of social safety net for people, but I am for less govern­ment, I’m for less big govern­ment. I don’t want 60%, 70% of the entire govern­ment in govern­ment spending. It doesn’t look like capitalism.

Jeff Booth:

But if you run that in a whole bunch of different exper­i­ments you kind of say… And then what’s the response rate from every govern­ment seeing their curren­cies failing one after another, what does that look like in transi­tions? What typically happens here, US is a really good example but Canada it’s coming five years later and I’m in Canada. It’s only less so here because we have a stronger social safety net. You see politi­cians creating us verus them narra­tives, and throughout history what you get here is you get I need to create an internal enemy. And then once I have power I need to create a bigger external enemy.

Jeff Booth:

You could look at right or left and Trump or democrat or something, creating internal enemies, it’s us versus them. Then after that happens you need to create China is the enemy. You need to create, and that’s how 99% of the people just follow along and say, “Oh yeah, that’s the reason,” instead of question the under­lying thing that’s happened.

Brady Swenson:

Lyn do you want to comment? Any peaceful path? If not of course, no problem.

Lyn Alden:

I agree, so there’s always a peaceful path. So in history currency deval­u­a­tions there have been peaceful ones, it’s just that it’s messy but sometimes it’s not disas­trous you can put it. So for example, in the United States one thing that made the United States get to the point where it is now is that whenever it’s had these similar crisis before it has managed to thread the needle to some extent and to mitigate the fallout and to be able to rebuild from that position. There’s always a path depending on how sophis­ti­cated policy­makers can be, they can taper it, they can do things like that, but then it comes down to what do you think the proba­bil­i­ties are of that happening?

Lyn Alden:

One example I’ve used before is Singa­pore, because they’ve histor­i­cally had a track record of fine tuning all the little knobs of fiscal monetary policy in a way that gradu­ally deflates bubbles and promotes something else, and they kind of recog­nize problems building ahead of time, and then they start addressing that. Whereas in many other countries they kind of ignore the problem and then the problem explodes and then it’s much harder to fix all at once. So there are always ways that they can mitigate issues like that. There’s almost no way mathe­mat­i­cally out of a currency deval­u­a­tion, but they could do it kind of in ways that are less abrupt than others or things like that. So it’s always a tricky thing with balancing the internal needs of the economy and then also taking into account how that effects to you polit­i­cally or how does that effect your standing in the world, how does that effect your trade.

Lyn Alden:

A lot of it comes down to game theory, so last time we had a long term debt cycle back in the Great Depres­sion era. We had a lot of combative tariffs like we have now. We had widespread currency deval­u­a­tion and that was a very challenging time for a lot of economies. It’s a trade off between it being theoret­i­cally possible to manage this in a way that’s… in some ways that are better than others. But it comes down to leader­ship, and one of the things that makes it challenging this time is it’s always exponen­tially more complex than last time, so the complexity of the global economy and how inter­twined it all is is pretty much imper­son­ated in the fact that all curren­cies in the world are on a fiat standard. So it’s the first time in world history where we’ve had all curren­cies are just paper, fiat, and that also that for example, virtu­ally all commodity pricing happens and the dollar, so we’ve had this pretty entrenched situa­tion where so many countries have dollar dominated debt that they can’t print.

Lyn Alden:

So we have an inter­sec­tion happening where we have the long term debt cycle in many countries becoming an issue, and we also have growing pains of the current monetary system, the post brick of woods dollar, petrodollar standard is kind of reaching some of its natural limits in terms of how well it can function. 2020’s are going to be a very challenging decade and there’s a lot of poten­tial outcomes for how they could go.

Jeff Booth:

If you build on that, the other thing that we haven’t seen before, never in human history before is how fast technology is bringing exponen­tially defla­tionary forces to a policy frame­work that drives infla­tion. And so every step on that exponen­tial oar it gets exponen­tially worse, and that fiat money. It gets harder to peace­fully transi­tion through that, and that’s why it’s hard to tell the timing, it’s hard to tell the… The conse­quences are so massive all around us. I end a lot of my things with stay safe out there because these are unprece­dented times. There is no histor­ical time that looks the same.

Brady Swenson:

Yeah, and I think educating yourself by watching shows such as this and being on bitcoin Twitter and inter­acting and reading the thoughts of people who are thinking about bitcoin and the future of money I think is one way to really give yourself a way to stay safer than you would other­wise. There’s a lot of questions coming in about price talk and specu­la­tion about where things are going, so lets move onto that. During this cycle, since bitcoin’s price seems to move in these roughly four year cycles, during this cycle do you guys think that bitcoin will be able to reach or rival gold to market cap? Lyn you want to start?

Lyn Alden:

So my base case is not for it to reach that market cap in this cycle. So if you look at the previous cycles for bitcoin, each cycle, despite the fact that it was very explo­sive and exponen­tial, was smaller than the previous cycle. Because the first cycle is virtu­ally infinite because it went from being zero to reaching over $20 at its peak. The second cycle had a 50 fold increase from peak to peak, so went up to about 1,000. Then the third cycle hit roughly 20,000 so we had about a 20 fold increase from the peak of the previous cycle. This cycle, of course there’s always… History is like a guide, it’s not a law that it has to happen like that, so there’s always tell risk that deviates bitcoin from its path. My base case cycle will have similar price shape of the previous cycles, which means… There’s a lot of good charts out there for people to kind of show how bitcoin has behaved over previous having cycles, including the launch cycle.

Lyn Alden:

And so normally you get a very strong price action in the first half of that cycle. Then you get often a crash unfor­tu­nately, and then you get sort of a consol­i­da­tion. My base case to see kind of the same general shape happen as most likely, but then the actual kind of magni­tude of that I think had a pretty wide range. My base case is that it would probably continue the pattern of being a smaller percent move than the previous cycle, which still means quite a bit of price depre­ci­a­tion. In that case I think it could reach over a trillion dollar market cap, poten­tially higher. But whereas gold’s market cap, depending on estimates and current prices, is somewhere in the ballpark of probably over $10 trillion now. I wouldn’t see that as a base case for this cycle.

Jeff Booth:

I agree with that. The only thing I would add is just remember why that’s happening and what’s the driver of it. What are we measuring it at and what price? You’re measuring that price in dollars that are being destroyed in value, so what unit of measure. If in Venezuela it would go up a lot higher but the real value, can it buy more things later? So there’s a whole bunch of models out there that are showing these prices, but it’s the real purchasing power of it that matters.

Lyn Alden:

Yeah, to add onto that so I often need to do that, for example, for stock markets as well. Over the long term, if you look at stock markets priced in dollars, it goes up exponen­tially over time, but if you look at stock markets priced in gold or silver, for example, it looks more like a sine wave where you have kind of the stock market having all these big peaks and then it has these big trows, and most of the out perfor­mance of the stock market over those meadows over the long term comes from the fact that they pay out dividends throughout that process. So you have this big sine wave, but the main differ­ence being that the equities pay out dividends. It can under­per­form over a 10 year period but then eventu­ally… Because gold and silver were at that point estab­lished things, eventu­ally you’d have equities out perform.

Lyn Alden:

Bitcoin’s inter­esting because you can remove the dollar compar­ison. In my bitcoin article I had the chart of bitcoin priced in gold, for example. It was how many grams of gold bitcoin’s worth, and so you can kind of remove the fiat currency portion of it and kind of fix something that’s also scarce. You could use gold, you could use silver, you could use kind of another scarce asset. The chart looks pretty much the same in log form when you look at it in gold, for example. Of course you’re off by some percentage because gold is also fluctu­ating in the dollars, mostly because dollars have lost value relative to gold. I do think that that chart also shows us some insight on what bitcoin’s doing relative to gold. If, for example, you were to have a big currency failure during a partic­ular bitcoin cycle, it could go up very high nominally in units of those curren­cies. Right now it’s going up very well in Venezuela in currency, for example, or Argen­tinian currency.

Jeff Booth:

Or Lebanon.

Lyn Alden:

Yeah, or Lebanon or Turkey. There’s all sorts of curren­cies that it’s doing very well in. But if you want to say how it compares to gold’s market cap, if you look kind of compared gold’s market cap in that same currency, so to answer that person’s question. So my base case wouldn’t be that it would catch up with gold in this cycle.

Jeff Booth:

I agree with that.

Lyn Alden:

Anything’s possible.

Brady Swenson:

Yeah, Eddie on the YouTube chat asks and we’ll start with you on this one again Lyn. Where do you see the US 10 year treasury rates going in this decade and do you think that it is the most impor­tant practical number that investors should be looking at?

Lyn Alden:

I think looking at real returns is probably more impor­tant than the nominal price. One thing I’ve done a lot of research on is the history of treasury yields during these long term debt cycles. For example, if you look back into World War II, if you look back into the 1940s, that was the only other time in US history where they reached over 100% debt to GDP because they were running these massive deficits to try to fund World War II. We actually had an MMT situa­tion there, right? So we had the central bank started buying a lot of the treasuries that the govern­ment was issuing to fund the war effort. And the way that they managed that was that they did yield curve control, so the central bank said, “Okay, yields are not going to go above 2.5%, and if they try to go above that number we’re going to print dollars and buy as many treasuries as needed to maintain that peg.”

Lyn Alden:

And of course because the central bank can print unlim­ited currency, it can maintain that peg if it chooses to. They had a low yield curve, but then you actually had spikes and infla­tion during the 1940s that in some cases reached the double digits, but they still held the treasure yields at 2.5% or less like clock­work. The result was that over that decade treasuries, even though they went up in nominal terms, so if you just bought a whole hell of treasuries over a 10 year period, you made 20% or 30% nominal gains because you had 2.5% a year compound over a decade. However, your real purchasing power decreased. You lost about a third of your purchasing power during that decade, that was part of the currency deval­u­a­tion to pay for that war.

Lyn Alden:

Going forward the central bank, the Federal Reserve’s already talking about doing yield curve control again. They started bringing it up in 2019, before COVID-19 happened, and then they’ve been talking about it again this year. They’ve been talking about it in their meeting minutes, some of the fed officials have been talking about it in press releases, and then I’ve actually argued that they’ve already done some soft yield curve control. For example, the treasury market became illiquid in March when foreign sectors sold about $300 billion treasuries, dollars worth of treasuries, and also we had risk parody funds run into problems and have to sell treasuries. So the central bank we had basically bid ask spreads on treasuries pretty much blew out, and we had a brief spike in treasuries even though it just had a decline in yields.

Lyn Alden:

What the Federal Reserve did was they bought $75 billion a day in treasuries. There was a three week period there where they bought $1 trillion worth of treasuries in three weeks, and they really hammered down that spike and they made the market liquid again. Since then we’ve had very low treasury volatility. Nominal yields I expect to be low for several yields because the central bank is very likely to hold them to low levels to try to let infla­tion run hot. Their best case scenario probably from their perspec­tive is to have all this fiscal spending lead to kind of a minor overshoot in infla­tion while they hold yields low and slowly taper some of this debt bubble that they’re having in to kind of spur infla­tion. Now whether they achieve that or not is another story. I mean they’re going to try to thread that needle and we’ll see what kind of curve balls they get and we’ll see how effec­tive they are. But yeah, I expect nominal yields to stay pretty low for a while.

Brady Swenson:

You answered a question about this on Twitter actually this morning. Russel Napier has an argument that they’ll fail at this trying to control the yield curve, but you still think they’re going to try.

Lyn Alden:

I do because the other alter­na­tive is to let treasury yields go up dramat­i­cally at a time when at that point, say a couple years from now-

Lyn Alden:

Yeah, so you could have treasury debt is 150% of GDP, and if you’re paying meaningful yields on that, you quickly lead to insol­vency. As a monetary sover­eign they have the power to cap yields, but the release valve is the currency, that’s how you can get a step wise reduc­tion poten­tially in currency. Right now we’ve had some dollar weakness, now actually we’re filming this during a federal FOMC meeting, so we actually could have announce­ments right now that they’re going to change currency markets around. However, we’ve had dollar weakness recently, but we haven’t had any sort of big moves in the treasury market. We haven’t had major selling pressure, other than that brief period in March.

Lyn Alden:

Now if you were to get hard yield curve control, so if treasury yields want to rise due to infla­tion, but they cap yields firmly, then you pretty much have the Federal Reserve balance sheet skyrocket because you can have a lot of sellers that just want out of that, and you can have a disor­derly currency move in a number of curren­cies when they’re forced to do that. It’s not without conse­quences, it has a lot of conse­quences with it, but they techni­cally have the power to cap nominal yields.

Brady Swenson:

Jeff you want to weigh in?

Jeff Booth:

I totally agree, they’re left with few choices right now. They’re stuck between a rock and a hard place and they’re not going to choose to default. Lyn’s right, they’re going to hold down yields. I expect interest rates to go negative, expect to try to get growth at all costs, and that being played out all around the world. The real value of the currency under­neath being destroyed. You have to ask when do people in the bond market, which is a big driver, when do the people in the bond market say, “Wait, why do I have money here? It’s not safe here.” Kind of when that happens, when we see a disor­derly unwind and some of these exit doors close, that’s what Lyn’s refer­ring to.

Lyn Alden:

Just to add onto that, we are seeing, for example, right now there’s been a pretty big diver­gence between infla­tion protected treasuries and normal treasuries. So we are seeing that there’s a pretty strong bid for the infla­tion protected types, they been outper­forming ever since this big policy response from late March to April and all that. We are seeing very minor signs of it that some people are positioning in certain ways to avoid that, but there hasn’t been any sort of whole­sale reputa­tion or treasuries, there’s no entities trying to get out of treasuries due to infla­tion concerns, they’re just hedging with infla­tion protec­tion and things like that. We’re kind of seeing early signs of discon­tent in the market, but this is still a… Because it’s such a large defla­tionary shock, so infla­tion’s not really on a lot of people’s radar, so it wouldn’t become disor­derly until it becomes more obvious. Right now we’re kind of in this very mixed period.

Brady Swenson:

Eddie had a followup question, and he said, “When you say real rates, measuring infla­tion is an imper­fect science so how does that work practically?”

Lyn Alden:

So in practical terms you can look at CPI, so it’s imper­fect in a lot of ways, in my view, to under­state infla­tion in many ways. Because they choose a basket of goods that they compare it to and then they can use substi­tu­tions and they can do things like that to alter it. But as a base case if you look at nominal yields minus the annual CPI increase, that gives you an easy to refer­ence real yield that’s going on. You can also do things like look at the per capita growth rate of money supply, for example, and use that as a… That’d be a higher figure because a lot of that is not trans­lating into consumer price action because of a lot of these defla­tionary forces. There’s a couple of different ways to measure it. I look at a combi­na­tion of CPI, but also just I look at pure money supply growth.

Brady Swenson:

Cool, that’s fantastic. Thanks for the answer. This has been a fantastic show. It’s about time to wrap up. I would welcome any final thoughts from either of you.

Jeff Booth:

Nothing from me. I appre­ciate being on. Lyn it was a real pleasure doing this with you.

Lyn Alden:

Yeah it’s been great. I really liked meeting you. I’ve seen you on a lot of podcasts and it was great to have a talk. The one thing I would leave it with is just that this is going to be a very uncer­tain time and there are a lot of people out there that they say exactly how they think it’s going to go, they’re like this is going to happen. Best you can do is speak in proba­bil­i­ties, and a way I like to look at it is to look at bottle­necks. I like to look at things in kind of a if else situa­tion. Either this is going to happen or this happens, right? You can find certain binary outcomes. You can say, “Okay, what is the proba­bility that the treasury is going to nominally default?” Near zero, right? So if they’re not going to do that what are the ramifi­ca­tions? What do they have to do to avoid that outcome? As one example.

Lyn Alden:

There’s going to be a lot of decision points for a lot of countries and businesses over this five, 10 years. It’s always best to view things in terms of proba­bil­i­ties and to try to identify bottle­necks where they either have to make one decision or another and to go through the steps of what that means and what the likely ramifi­ca­tions are based on their decision points.

Brady Swenson:

Fantastic. Thank you both so much. I really enjoyed this conver­sa­tion, it was an excel­lent episode, a great addition to the archive. Now we have 21 episodes at YouTube.com/swansignal. So if you enjoyed this one please go back and check out the previous episodes. We have another episode, a great one, coming up next week with Robert Breedlove and Swan founder Cory Klipp­sten. That’s going to be another great one. If you came in late and are looking for the recording obviously it’s on YouTube, but you can also find audio podcast, if that’s your jam, at swansignalpodcast.com. Of course you can sign up for Swan Bitcoin to automat­i­cally stack some bitcoin, dollar cost average into bitcoin at swanbitcoin.com. All right, thanks so much every­body for joining us. Thanks it for today.

Other Episodes

Episode 8 –Andy Edstrom and Ansel Linder

Episode 9 –Rockstar Devel­oper and Jeremy Rubin

Episode 10 – Bitcoin TINA and CK Snarks

Episode 11– Gigi and Knut Svanholm

Episode 12 –Adam Back and Preston Pysh

Episode 13 –Alex Gladstein and Matt Odell

Episode 14 –Robert Breedlove and Tuur Demeester

Episode 15 –Isaiah Jackson and Max Keiser

Episode 16 –Gigi and Udi Wertheimer

Episode 17 –Aleks Svetski and Jimmy Song

Episode 18 –Stephan Livera and Marty Bent

Episode 19 –Mark Moss and Ben Prentice

Episode 20 –Samson Mow and Parker Lewis

Links

Swan Bitcoin

• Swan Bitcoin — the best place to buy and invest in Bitcoin
• Swan Bitcoin on Twitter
• Swan Signal on YouTube
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• Swan Signal Podcast
• Swan Signal Telegram Chat Room

Lyn Alden

Lyn Alden on Twitter

Lyn Alden on Linkedin

Lyn Alden on Seeking Alpha

Lyn Alden’s Personal Website

“3 Reasons I’m Investing in Bitcoin” –Lyn’s Article

Jeff Booth

Jeff Booth on Twitter

Jeff Booth on Linkedin

Price of Tomorrow– Jeff’s book

Price of Tomorrow on Amazon