Lawrence Lepard (Investment Manager, Austrian Economist) of Equity Management Associates joins me on the show to chat about living through the burning house of fiat money. We chat: 

• What’s changing in the world today and why so many took it for granted
• The insecurity around property rights
• Holding paper assets vs physical assets
• Change in monetary order
• Economic ignorance in the world today

Links:

• Twitter: @LawrenceLepard
• Site: Ema2.com

Sponsors: 

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• CoinKite.com (code LIVERA)

Stephan Livera links:

• Show notes and website
• Follow me on Twitter @stephanlivera
• Subscribe to the podcast
• Patreon @stephanlivera

Podcast Transcript:

Stephan Livera:

Lawrence, welcome to the show.

Lawrence Lepard:

Thank you very much. Very nice to be with you. I’m a big admirer of yours.

Stephan Livera:

Fantastic. I’ve seen some of your commentary and I thought it was really interesting what you’ve been saying about what’s going on globally in terms of the economics of things, and what’s going on with currency and money. And as I’ve seen on your profile, you’re also interested in Austrian economics—I’m definitely keen to chat about that also. Do you want to just tell us a little bit about yourself and where you’re coming from from an economic perspective?

Lawrence Lepard:

Yeah, so very briefly, my background: I’ve always been an investor. I was a venture capital investor for the first and largest part of my career all the way through 2000. Then I semi-retired and was managing my own money and then the GFC happened and I became radicalized for sound money, I like to say, when I saw how much they printed as an Austrian economist and—Uh-oh, this isn’t good. My savings aren’t gonna take me to 90+ years old. And so I pivoted and started investing in sound money—the best sound money stocks—which were gold and silver mining stocks at the time. You have to remember Bitcoin was just getting launched, so that wasn’t an alternative at the time. I believed we were gonna have massive inflation coming out of 2008. We certainly had a lot, but then they got it under control. And so the best place to be in an inflationary environment before Bitcoin was oil and gas and gold and silver. I didn’t understand the oil and gas market. It was tricky, a lot of politics, but I did understand gold and silver and gold and silver mining. So I now run a fund that focuses on those. But as I’ve watched—I bought my first Bitcoin in 2013—skeptical, small position, but over time I’ve become more and more orange-pilled, and Bitcoin’s now a meaningful part of what we do. But I haven’t given up on the gold and silver because they both have a role—they’re different. I think Bitcoin wins longer-term, but gold’s not going away tomorrow.

Stephan Livera:

Fantastic. So we’ve just seen all of these big crazy events happen recently. And so I think maybe it’s important to situate things, because we’ve been in this environment where people have up until recently just treated it like the US dollar is the world reserve currency, US treasuries are risk-free assets, and you can take that to the bank. And now, what’s changing?

Lawrence Lepard:

Well, you know what’s changing. I do too. I mean, there are weeks when decades happen, right? What happened here in the last 3-4 weeks is really monumental. Akin to when we went off the gold standard in ’71. So three big things. One—it’s a small thing, but it actually is a bigger thing—the Canadian truckers protested, and the premier of Canada viewed that he had the right to freeze people’s money when they did something that he politically disagreed with. No due process, no courts, no rule of law—nothing. Just, I can grab your money. Wow, what an earthquake that is. What an argument for Bitcoin and gold that is. So that was step one. Step two followed up by something even bigger, obviously, was Mr. Putin decided to create a war in the Ukraine—and our response to that, which was huge—an illegal war. But very much the same—our Iraq war was illegal as well. And our response to it was to freeze him out of SWIFT—fine, but also to seize his sovereign reserves that were in our system, which is really an act of financial war, or an act of theft. I mean, a possession is 9/10ths sort of thing is a counterpoint to what he did. He did it kinetically—we did it financially. And so suddenly, the message just got sent to every country in the world that if you have financial reserves in the United States, in the US or Western banking system, and you do something that really pisses them off—they can be frozen. They can be taken away from you. So India saw this and the Saudis saw it and Brazil saw—everybody saw it. And it’s huge. And the implications for the dollar are quite obvious, and I think are gonna be very, very severe over time. And that is: that the dollar as a reserve currency is going to be replaced. Even chairman Powell himself said that there’s a chance we might have more than one reserve currency, and I think that’s a certainty. We’ve also seen since that event a lot more talk about people trading in their own currencies for things they want. Just recently we just saw that China was gonna use yuan and the Saudis were gonna accept yuan to pay for oil. Well that’s an earthquake, right? Part of what’s held the dollar together in terms of its relative strength and its overall strength is it was the petrodollar. The Middle Eastern oil producers would only accept the dollar for oil, so there was naturally a bid for the dollar. That’s gonna be undermined. So these are really, really big things. And I hear people saying, Well, okay—great. So how come gold’s not going to $2,500? How come Bitcoin’s not at $100,000 yet? Well, markets breathe, right? They did run up quite a bit and they’re breathing and coming back in. And it wouldn’t surprise me at all. I think Turd Ferguson—Craig Hemke—pointed this out last night in this podcast, I was listening to it. He said, It wouldn’t surprise me at all if the US government is printing paper oil right now, and printing a lot of paper gold right now. They know that we all saw it, and they need to keep these things under control. They’re doing their best, but my view is they’re not gonna be successful. Oil’s come off $30, but oil’s not going back to $70, in my opinion—oil’s going to $200, eventually. And gold’s going north of $2,000, and Bitcoin’s going north of $69,000. But markets breathe: they go up, they go down, and they were all pretty overbought.

Stephan Livera:

I love that saying, Markets breathe. I think that’s an interesting and good way to put it. And I also like your comment there around the paper gold. Now I know you’re a gold man and obviously a lot of serious gold people have very strong thoughts around the concept of paper gold and using the paper market to suppress, let’s say the physical asset itself. So you mentioned there this idea of paper oil, also. For listeners who are unclear how that idea works, could you just explain a little bit what’s the mechanic there?

Lawrence Lepard:

Yeah. Let me talk about it a little bit. Years ago, the Plunge Protection Team was set up. Basically, chairman Greenspan got it going post-1987, if you really read into all the papers very carefully. And they created something called the Exchange Stabilization Fund, which the New York Fed runs. And so the New York Fed has the ability to intervene in markets when they think prices are doing things that are gonna disturb the markets, or cause damage to the US financial system. And obviously, massively spiking oil prices, massively spiking gold prices—just as when the bonds collapsed and went no-bid in March of 2020—they were in there trying to prevent that from becoming a problem. Then, ultimately, Jay Powell came over the top with huge, We’re gonna do whatever it takes—he imitated Draghi. So they see all these things, right? They have accounts in the Cayman Islands. They don’t have a balance sheet that can be audited, and they can do things that we can’t see and we don’t know that are happening. So to some extent, none of these markets are truly free markets with absolute price discovery. They’re all markets with an overlay of manipulation. And in the gold area—which is what I’ve been in for so long, and I’ve done all this studying, and GATTA and a lot of other people have done fabulous forensic work—you can just see the footprints everywhere, that they know that if gold were to break free and run hard that they would have a serious problem with the trust and credibility of the currency. Gold is a fire alarm. And actually Luke Groman coined this phrase—just like Bitcoin is a fire alarm. Bitcoin’s probably the only fire alarm that still works. When Bitcoin went from $5,000-$6,000 up to $50,000+ on that last run—boy, you can bet the alarm bells were going off at the ESF. And there are Bitcoin derivatives, Bitcoin futures, but they’re not nearly as large and as suppressive as the gold stuff. In the gold area, we think that they are between 50 and perhaps as many as 1,000 ounces of paper gold for every 1 ounce of gold that really exists in the world. Yeah, right? I know—your eyes light up, right? They’re running a fractional reserve gold system where, if everybody said, Please give me the gold that I think I have in my contract, there wouldn’t be enough—not at these prices, anyway. And so there’s a chance for a very high and rapid reset in gold, which is part of what’s kept me in gold and not just to go 100% Bitcoin..

Stephan Livera:

Right. The other aspect that really stuck out to me from what you were saying there was around just this idea of seizing foreign reserves—like, just seizing somebody else’s assets now.

Lawrence Lepard:

It’s huge. I mean look—why is the West great? The West was great because we got a rule of law. It was laws, not men. It was always somewhat corrupt and there were things wrong, but coming out of World War II, there was a peaceful system that we set up. And it wasn’t perfect, but you know what? The most troubling trend I see is this rule of law breaking down. If we go back to a rule of the jungle, that’s not gonna be good. A lot of people are gonna get hurt. Imagine if we had a nuclear exchange? Sane people think there’s absolutely no—I used to think there’s absolutely no way we could ever have a nuclear exchange because of MAD. Who would ever think to start something like that? But then I realized that some of these people who are running things—there’s psychopaths. They might actually do something that stupid. What’s 10, 20, 50 million dead people to them, if it’s not them? I’m not suggesting that’s gonna happen, but frankly it has become more of a concern given this whole rule of law thing breaking down. It’s a slippery slope—tit for tat, right? You seize my foreign reserves? Well, therefore I’ve got the right to do this. Oh, well, you didn’t do this? Okay, well maybe I need to go into the Baltic states. Maybe the Ukraine’s not the only place I start—maybe I go one step further. And then it’s just back and forth. You see people now in the US calling for a no-fly zone. If we do a no-fly zone, we might as well declare World War III. So that’s, to me, a very, very dangerous prospect. All these people at the top—Putin included—ought to step back from the ledge and start trying to figure out a way to talk to each other in a sensible manner and to listen to the other side, because in some cases the grievances are legitimate, and the only way to solve grievances is to talk them through. But unfortunately, you don’t see a lot of that going on right now, and it is concerning, honestly.

Stephan Livera:

And how much of the financial system and the world as we know it is reliant on people being able to trust in property rights, being able to trust that their wealth is not going to just be arbitrarily seized? And especially in the case of foreign reserves, whose even are they? Like, if it’s not necessarily the governments’, or it’s not necessarily Putin’s reserves—if it’s relating to somebody else’s assets? Or some citizens’ assets?

Lawrence Lepard:

Well, that’s right. Like I say, you get to the rule of the jungle. If it comes down to who’s the strongest, does that mean that the strong are gonna have food to eat and the weak are gonna die? You’ve got to decide what set of rules you’re gonna live by. And unfortunately, the trend in this area is not good. It hasn’t completely broken down yet, but again—it’s a slippery slope. And so, yes—one of the things I think you’re going toward is just how bulletproof Bitcoin is. I love Jason Lowery and all his talks. Here you are, you’ve got a mathematical system that replaces armies, because people can’t steal your stuff. If you’ve got the 12 words, they can’t steal it. I think that’s one thing a lot of newbies into the Bitcoin space don’t understand just how important that is—that ultimately, this thing’s gonna outlast these governments. And that’s a thing of beauty. I know one of my great concerns when I first got into it is, Oh my God, this really threatens fiat currency—government’s are gonna shut this shit down. They’re not stupid. They’re gonna figure out a way to shut it down. And obviously, China’s tried to do it, and others have, but I don’t think they can. 12 words and I’m self-sovereign—I love it. I think that’s how all hardcore Bitcoiners feel and should feel, and I think that, ultimately, time is on our side, because we’ve got a better solution. Having said all of that—gosh, there are gonna be a lot of bumps in the next few years. I’m sure you see that—we all see it. It’s concerning, right?

Stephan Livera:

And I think for those people who are new, or maybe they’re just leaving their coins on a platform, or they haven’t really thought through their security, their backups—all of these aspects. And using their Bitcoin under more adversarial conditions, let’s say. These are things that everyone has to think about and really think deeply about using it in a more self-sovereign way, because as an example, if you don’t, it can be easily seized and taken. Even the Bitcoin can be seized if you are not securing it correctly.

Lawrence Lepard:

Absolutely. And there’s been a lot written and said about this. Because the government’s listening, I don’t necessarily want to go into how important that is and what I’ve done, but yeah. Not your keys, not your coins. And didn’t we see recently? I think Coinbase was grabbing some Russian accounts. And I was very sad to see that happen. I mean, I was thinking, They’re not Bitcoiners. But they were like freezing some of their customers who had Russian ties. And I was like, Really?—What’s that all about? So once again, as we go towards the rule of the jungle, possession will be 9/10ths. And so yeah, you want to make sure you’ve got your keys.

Stephan Livera:

And in this environment, we are seeing it almost like an animal threatened can be very, very dangerous. And so, if governments are backed into a corner, what kinds of actions could they take? I guess these are all questions that we’re all thinking now.

Lawrence Lepard:

It’s a great question. So Roosevelt does Executive Order 6102 and he grabs all the gold in 1933, right? One thing we know about governments is that their job is to perpetuate themselves—and they will change the rules. They will lie, cheat, and steal, and they will break the rules. The fact that Roosevelt grabbed people’s individual property in 1933 and that the Supreme Court backed him up, it’s just shocking to me. My grandfather was just appalled by that, just how bad that was. That’s not what the constitution says. You can’t take people’s shit. And since then, there’ve been just a long list of these things. I was short the financial stocks in September of 2008—they outlawed that—it cost me a huge amount of money. Look at what just happened with nickel, right? Nickel does a GameStop and goes no-offer—straight up—well, the LME changes the rules, cancels a bunch of trades, makes it liquidation-only. They did it to the Hunt brothers in 1980. One thing I think we all can be sure of—and one thing I think we should not underestimate—is the lengths that these governments will go to, to try to maintain their privilege, so to speak. And this is historically the case as well. I just tweeted it out recently: I reread this weekend Andrew Dixon White’s Fiat Money Inflation in France, which is the assignats story from post-1789. They were executing people who had gold and didn’t report it. They were going to the guillotine. So governments can get to be—I’m not suggesting that we’re as primitive as that a couple hundred years later—but I think it’s safe to say that the people in power in governments are gonna take the moves and do the things that they can to try to hang on to the privilege that they have. And so we should assume that some bad things will be coming our way. Having said that, like we talked about earlier, you can be self-sovereign, and we can wait these things out. Ultimately, when the entire fiat currency system collapses—which I believe it will, the only issue is the timing—ultimately, when it all collapses, a new government will come in, and Suarez, the mayor of Miami, is gonna be president, right? We’re gonna have Bitcoiners running the government. But that’s definitely 10 years out or something before that happens. So in the interim, I think we all owe it to ourselves to be prepared, and then not be naive about what these guys can do, because they can do a lot of stuff.

Stephan Livera:

Yeah. And so even on things like predicting the downfall of fiat, I’m also wary as well. Obviously being into Austrian economics, I think there is obviously a fundamental issue with fiat money, but at the same time, there are critiques I can appreciate and understand. People might say, Look, you Austrians, you’re always too bearish, always calling the end of everything. And there have been Austrians who’ve made high inflation calls and unfortunately got them wrong, even during the GFC times.

Lawrence Lepard:

Oh, I’ve been one of ’em—I’ve been dead ass wrong. Look, here’s the problem: it’s really hard to time a once-in-a-hundred year event. And that’s what this is. We had a smaller version of this in the 1920’s and 30’s. The US chose deflation, and Russia and Britain and France chose inflation. But when you get to a sovereign debt crisis—which is what we’re in now—it’s gonna get resolved. It has to—the mathematics are there, so it has to. Now, we can all look like idiots—and I have looked like an idiot in the past, and I’ve been wrong plenty of times. I thought in 2008 it was all over. It was so obvious to me that fiat was gonna fail that I went and pivoted and put 100% of my fund in silver and gold. It worked great for a few years, and I was really confident—overly confident, obviously. Because from 2011-2015, they did Operation Twist, they brought in a bunch of paper gold, and they managed to get the gold price back from $1900 back down to $1100, and I watched half my net worth melt away. So what we gotta understand is the other side is crafty, they’ve got tools, and they control the narrative. So anyone who thinks it’s gonna be an easy fight is mistaken. You gotta be ready for a long, hard battle here. But having said that, I think history and math are on our side, and I can’t actually imagine that it’s gonna take more than another 10 years for fiat to be basically dead. By 2032, it’ll be over by then—I think it’ll be over a lot sooner than that, but I don’t know the exact timing. Nobody really does, because nobody knows what the other sides’ moves will be. Look, if they go to full MMT, fiat could be dead in 3 years if they start printing money like crazy—which, who knows?—with gasoline at $7, they may have to do. You’re not in the United States right now, I know—the pain here is starting to get pretty significant from gas and food prices, and it’s gonna be a real issue.

Stephan Livera:

Yeah, absolutely. And so, as you were saying, the difficulty is that there are so many variables up in the air at the same time. It depends on what one side does, or one person or one organization, and then the response from the other. And I’m curious then, if we were to try and game out some of those responses, what would some of the likely responses be? As an example, I think probably central bank digital currencies might be very likely.

Lawrence Lepard:

Absolutely. You’re very smart to point that out. I agree, I think they’re trying to go there—that’s where they want to go. To get a little more micro and a little more dialed in on the US, I think that Powell’s gonna probably today—he’s gonna raise rates. He’s signaled 25 bps. I think he might surprise and go higher. Who knows? But they’re trying to fight inflation as best they can. It’s a joke—25 bps against 7.9% inflation print. It doesn’t really make a difference. But I think eventually the stock market is gonna go down, and then I think we’re already starting to see the 10-year bond market, the prices of those bonds going down—the yield going up. It’s broken out into some new high territory we haven’t seen since early 2019. And I think eventually they’re gonna be forced into yield curve control where they have to buy the bond market, because the US, with 5% interest rates, everybody’s bankrupt—it doesn’t work. Everyone’s so levered, and what they did was just enormously distorting, this whole ZIRP—zero interest rate policy—this just distorted the financial system beyond measure. And getting out of it is gonna be so hard, if not impossible. And so I think they’ll go to yield curve control. And when they do that, that means their balance sheet grows more. So that’s the ultimate pivot. And people have said to me, Well okay, Larry, you’ve been saying hyperinflation forever. You’ve been wrong—admittedly. What’s the trigger event? Well, from the books I’ve read and everything I’ve studied, the trigger event for hyperinflation is when people realize there’s absolutely no way out, and they’re gonna have to print forever, and they’re gonna have to print more and more forever. Now, I think 5% of the population—you and me, other people, Austrians—we realize that, but it’s gotta get to the point where like 30% or 40% or 50% of the population realizes that and they’re like, Holy shit, we’re in this burning fiat house. Our money is gonna get wiped out—sell all my stocks, sell all my bonds, give me gold, give me Bitcoin. And at that point, those two assets, the prices just go up infinitely against fiat. And there is no demand for fiat, because everyone knows it won’t buy you anything, and it’ll buy you less in the future. But it’s the psychological recognition that creates a tipping point, right? That enough people come to that. There’s a law for this—Gresham’s law. You can Google it. It’s a guy from the 1500’s in Britain and he said, Good money drives out bad money. People have to realize that the government monetary system is programmed to debase and get worse consistently and faster. And when that happens, you get a substitution effect. And so people just dump the money—they don’t want the money anymore. They’ll buy anything—they’ll buy toilet paper, they’ll buy food, they’ll buy houses. You’ve seen this already to an extent. US housing prices are up 20% year-on-year. That’s the greatest—that’s the Hugo Stinnes trade going on right there. People are saying to themselves, Hey, I can buy this asset and I can use leverage—I can get a 30-year at what used to be 3%, but now it’s 3.8%—I can get a 30-year at 3.8%, I got this asset that goes up 20% a year. Give me some of that—that’s a no-brainer. So it’s coming, it’s definitely coming. With each of these waves, more people figure it out.

Stephan Livera:

I think that’s right. And what we are starting to see is some of the personal finance content creators, whether they’re on YouTube or TikTok, I’ve seen some of them now, and very mainstream ones—we’re talking guys with over a million followers or subscribers—and he’s saying, Yeah, I went out and took out this massive loan because otherwise I didn’t want to just be a sitting duck in the burning house of fiat, as you say. And so he’s saying, Oh yeah, I went out and took out a loan—I didn’t really even need it. But I thought, Well, the best way is to buy a property, so I bought a property with this loan, as you were saying, because he can access cheap credit. Then it will become a real—and again, this is not nice to think about—but really, it’s going to become a game of haves and have nots. He who can access very cheap credit will win. And he who cannot will suffer.

Lawrence Lepard:

That’s exactly right, which is just so tragic. This whole damn thing is so tragic. But look, I didn’t create the system. I’m not a central banker. So my view is: seeing it and understanding it, what I’ve tried to do is just educate people and help them to understand what they can do to protect themselves. And as tragic as it is, I also want to try and be optimistic, because I think Bitcoiners really are optimistic, and that’s one of the fabulous things about them, is that Bitcoin does fix this. When we get to the other side of this, things are gonna be a lot better—they really are. And in fact, if you study hyperinflations throughout history—of course, they’re horrible. People get wiped out. People see their life savings get destroyed. It’s horrible. Having said that, when they do reset to a sound currency, things come back really fast. People are smart, people are industrious, and if we can do it without killing 50 million people like we did in World War II, if we can do it without kinetic war and death, what really happens is just the wealth shifts hands. It goes from the people who had bonds—those bonds are now worthless—to the people who have real assets, and they’re much better off, relatively.

Stephan Livera:

Yeah. And so I guess along those lines of what the typical responses in a high inflation environment are—so typically taking out loans because you can borrow the bad money to buy something that’s going up—if you look at other examples (and I’ve done episodes on the show also, so listeners, you can check some of those out), looking at examples like Zimbabwe, where, in a high inflation environment, we’re seeing people take out loans to buy things. And this is before you get to that final monetary hot potatoes point where people are earning money, and then as soon as they earn that money, they run and buy things in the store because otherwise the value just disappears or—

Lawrence Lepard:

Prices are going up, yeah.

Stephan Livera:

And so in that scenario, I guess part of it is also thinking about what are the likely governmental responses, because eventually at some point credit markets may tighten up. You may not be able to access cheap credit. You might be an entrepreneur on the premise of, Oh, look, I’ll be able to roll that loan over to keep my business running, or, I’ll be able to keep doing these loans to keep stacking more houses—if I’m a property entrepreneur, let’s say, trying to be a property mogul or whatever. But then what happens is, if credit seizes up and they get that next loan, then they’re in trouble.

Lawrence Lepard:

That’s right. And that points to a risk that I would point out, of getting too overleveraged—you don’t want to get too far out over your skis. Okay, so you’re leveraging properties, you’re borrowing to do it, you’re renting them out—say, for example, what happens when your tenant loses his job? Because you’re in a depression-like set of conditions. So you gotta be careful with the Hugo Stinnes trade. You gotta make sure you’re not gonna lose the assets. I saw it on Bitcoin, some of the people were following the Plan B model and they were absolutely convinced we were gonna be at $150,000 by now, and so they levered up their Bitcoin. And then—whap-o—we had another big drawdown, and we all know it’s volatile, and they got blown out. It’s tragic. I think the other thing you can count on as a government response—I was thinking of it when you mentioned that—is wage and price controls. I was around in the 70’s. Gerald Ford put in wage and price controls, and we all wore buttons that said Whip Inflation Now. It was kind of stupid, and wage and price controls, we all know how that’s gonna work. Okay fine, you put in controls, you’re not gonna get anything—you’re gonna have shortages. You’re gonna have black markets. They had wage and price controls in World War II, and basically they had to go to rationing—gasoline and butter and other things. So the government’s gonna try lots of different things, but none of ’em are gonna work in a long-term sense. The solution is for the government to reset right now. But I mean, look at our government—half of ’em are drunk. You saw that Twitter clip from one of the representatives speaking the other day. They don’t understand what’s going on, and they have very little ability to think through what the correct solution would be, which would be to reset the currency. That would be the fairest way to get to the other side, but I think that’s unlikely.

Stephan Livera:

Right. And so they can just keep trying to point the finger and blame somebody else for their problems. And I think this also points to—I think this is an interesting point, and I’d love for you to touch on this idea—is that we actually need to study economics, not just for some kind of theoretical intellectual hobby, but also to perceive the world in a better light, and to understand a little bit more about what’s going on. So I’ll give you this example—as I’m sure you’re seeing it, and I’m sure listeners are seeing it—is that apparently a bunch of TikTok influencers were given a briefing from the White House on how to basically blame Putin for the gas prices and for inflation. And so this is just an example, but at the same time, if you actually study Austrian economics and you actually try to understand a little bit more about what’s going on in the world—in a macro sense, from an interest rates point of view, from a monetary point of view—you can actually see through that lie a little bit better, wouldn’t you say?

Lawrence Lepard:

Oh, absolutely. I’m shocked. I was not aware of that fact—that’s just so fitting. And so descriptive of our times. It’s, Let’s give these people online a way to push our false narrative. And more recently we’ve also seen the false narrative—a couple of different government officials came out, Marty Bent had a great tweet about it—that government spending is not what’s creating the inflation problem, which is just a blatant lie, and an attempt to gaslight us. The government spending increases the deficit, the increased deficit’s not funded because we don’t have buyers of our bonds, therefore the Fed has to fund it, therefore the Fed has to print the money, and ultimately inflation comes down to the excess money. The reason we’re enduring the inflation we’re enduring is because the Fed created 46% of the historical money supply in under two years, in reaction to the COVID thing. So while they’ve slowed that down, I don’t think the markets are gonna hold together long before they’re gonna be forced to going back to that. And that pivot—when that pivot comes, I think that will be a big building block in the earlier argument we were talking about of when everyone realizes they can never stop [printing money]. The Fed’s like, Okay, we had COVID—and it’s convenient. It’s annoying to me that this war broke out because it’s like, Okay, now Putin gets to say the Ukrainian dog ate my homework, right? It’s not my stuff—it’s inflation. It’s not the fact that we’re running a $2 or $3 trillion-dollar deficit and monetizing it. That’s not what’s creating the inflation—Putin did it! It’s just extremely annoying. And yes, as more and more people become educated—I think that’s key. And the other thing I learned from you just now is that I didn’t realize some of these more mainstream people are talking about it. I did get picked up in Barron’s this past weekend, and there have some articles in the Wall Street Journal talking about the dollar losing its reserve currency status. And I will say this—I manage a fund in the gold and silver space—I’ve never had the amount of outreach from mainstream institutional asset managers that I’ve seen in the last few weeks. When this whole thing came down and we sanctioned the Russian reserves, I think a light went off in an awful lot of the money management community. A big part of the money management community said, Oh my God—this is serious. This inflation issue is serious, it’s persistent, the world is changing, and we can’t just assume that keeping score in the dollar makes sense anymore, because the dollar is going to be debased. And it’s already been debased. And so, between there and what we need next, Stephan, is we need the world to realize: not only is it gonna be debased, but it’s gonna be debased—it can never stop—and that debasement is accelerating. When those three beliefs become wide stream—it’s all over. At that point—hyperinflation, because there’ll be a rush for the exits. I did a tweet thread on this: we could wake up some morning and there’s no bid in the bond market, and the Fed will be forced to step in and buy those bonds. And maybe they’ll do it quietly, surrepetitiously, but I suspect some of it will have to be announced. And when that announcement gets made, that’s just another building block that says, Okay, here we go—they can’t stop.

Stephan Livera:

So as you were saying, I think a big part of it comes down to government debt being cheap and accessible, and obviously the bond market is an important part of that. And so as you were just saying how you’re seeing more money managers reach out to you and talk about this in more of an honest sense, because let’s say they can’t necessarily benchmark against the US dollar, or use that as part of how they index or benchmark their performance. And so I think in a similar way, we’re seeing a lot of people who just—by default—they just do the 60%/40% stocks and bonds. But what happens when people wake up and realize, Wow, 40% allocation to government bonds that are just guaranteed to go down. Do you think we see a change in that behavior, the typical 60%/40% stocks and bonds?

Lawrence Lepard:

I think so. I’m not really close to the Suze Orman crowd, the day-to-day people, but I do know some stockbrokers, and I think their clients are becoming aware of the fact that something’s not right. If you’ve been in a bond you’ve been losing money the last year or so. And for the first time ever, the more interesting thing is actually the stock market, right? This year is a very instructive year. The only things that are up this year are natural resources, commodities, oil, and gas, and gold stocks. All the major US stock indices—the Dow, the S&P, the triple QQQs—they’re all down. And of course, I know what’s going on right now—everyone’s buying the dip, because the typical stock investor post-2008, the right answer has always been to buy the dip. And I have to say, every time it dipped down before, I think, Okay, here it is—it’s gonna go lower. So I was dead-ass wrong. But the point is: one of these dips you’re not gonna want to buy—it’s not gonna come back. I happen to think this is the one, but I’ve thought that before and I’ve been wrong, so I caution: don’t follow my advice on stocks. But one thing’s for sure: if we go to a higher interest rate environment, that’s gonna slow down the economy. And also a higher interest rate environment means that the PE multiples that were at aren’t as justified as they were. And so I think stocks are in trouble. I think bonds are in bigger trouble—but I think stocks are in trouble, too. And so when people start getting their statements and they see their statements getting smaller, they call up and they ask questions. Why am I in this? Why isn’t it working? And I know—because I’ve talked to ’em—I know what the average financial advisor is saying. Oh, this has happened before—be calm, you’re okay. Da da da da, we gotta buy the dip. We gotta hold tight. Don’t sell in a panic. And every single time in the past they’ve been right. I mean, I was advising some people to sell stocks in March of 2020—that was a dead-ass wrong move, because they brought it back again. And they may bring this one back again. It’s possible, when Powell does this pivot which he’ll be forced into doing—one of the things I think they’re gonna probably have to do at some point, I think they might actually do yield curve control where they buy the bond market. They might also buy the stock market. Janet Yellen signaled this a couple of times in the past. Switzerland has done it, Japan’s done it, others have done it. And it’d be pretty easy to get it—I mean legally today, the Fed isn’t allowed to buy the stock market. But, wouldn’t it be easy? The stock market is down a lot, everybody’s IRA is hurting, everyone’s clamoring for someone to make it go away, make things get better. And so Congress passes the Protect the US IRA Act—we are now giving the Federal Reserve the authority to buy the stock market. Okay, fair enough—the stock market would go up, no doubt about it. But in turn, what would they buy the stock market with? Money that they printed. And so the money would continue to get debased. And I think if they were to take that move, the bond market wouldn’t like it at all. So look: they’ve got a big bubble based on printing money and low-cost money and mispriced money based on ZIRP. You can’t taper that—you just can’t. It’s either gonna implode or you’re gonna print like crazy. And by the way, the other reason I think we’re closer to the endgame is that every time they print, it has to be more. Look at the ’08 example: from ’08 to ’11, ’12, ’13, they printed $3 trillion. It took ’em a bunch of years to print $3 trillion. This time I think they printed close to $4 trillion—they did it in less than two and a half years. In fact, they did a lot of it—they did a couple trillion—bam, right out of the gate. And my sense is the next one will be bigger still. The Fed balance sheet is at $8 [trillion] now. My gut is it’s going up $15 or $20 [trillion] on the next one. It’s because—think about it as it’s like a balloon—you gotta keep putting air in this bubble or else the thing’s gonna deflate. That’s the analysis that I use as I model it. But when they do each of these things—that’s the tough part—we don’t know what they’ll do, when.

Stephan Livera:

Absolutely. And so as you rightly point out, each time, they’ve gotta do even more. And each time they’ve gotta print more, bail out more, each time is more and more, because otherwise the whole thing comes tumbling down. And this is all the game of exactly how long can they keep the party going. How long can they just keep kicking the can. And thinking back—and as you were pointing out that it’s almost unjust that they’re using COVID as an excuse, or of other things going on in and around the world. I wonder how much of the history of some of these big crises really does come down to inflation, and then we are just pointing at something, but really the underlying cause of a lot of that was the monetary malpractice, malfeasance going on?

Lawrence Lepard:

You’re an Austrian economist, so you know it well. It’s a fat pitch for me to hit. Look, monetary mischief has caused a lot of the problems in the world, and that’s why my Twitter handle is Fix the Money, Fix the World. If you study it carefully, I think you can see that inflation and credit growth and misguided monetary policy has created enormous problems over the years. Pre-1913, we didn’t have a Federal Reserve, and gold was money. And there were problems, there were various crashes, and companies got into trouble and so on and so forth. But, having said that, from 1789-1913 was probably the greatest increase in human prosperity in the history of the world—ever. And we did it without a Federal Reserve. We did it without a Federal income tax. And it was when politicians and powerful interests got involved—remember, the Federal Reserve is not really part of the government. It’s a private organization that works for the banks, and so it does what is in the bank’s best interest—full stop. It was what was used to finance World War I. They founded it in 1913 and they said, Oh yeah, we’re only gonna discount bills with sound credit at high rates of interest. Three years later, they broke that. Three years and they broke it, and they printed a lot of money to create World War I, which then led to the bubble. It led up to ’20 and then led to a bigger bubble that was ’29. So it’s bad stuff. And that’s the beauty of Bitcoin, right? The beauty of Bitcoin is, human beings by our very nature—we’re all flawed, and everyone will, at the margin, cheat. And math doesn’t cheat, right? If you have a formulaic system that we all participate in that you can’t cheat or game, that’s the best monetary system ever—completely—for sure. It’s better than gold. We don’t even know how much gold we have. We claim we have 8,300 tons, but Fort Knox hasn’t been audited since the 50’s. I don’t think it’s there. Ron Paul told me he doesn’t think it’s there. So it’s a mess. It’s a mess. This monetary stuff is a mess and it’s gotta get fixed, but fortunately or unfortunately—unfortunately in terms of the pain, we’ll have a huge blowup—but fortunately, because it’ll then lead to it getting fixed, our kids and grandkids won’t have to deal with this problem. They’ll have some other problem to deal with. Global warming—whatever it might be at the of time. But it’s not gonna be this one.

Stephan Livera:

So going into this idea that we are moving into a multicurrency world, right? So even Jerome Powell has come out saying the US dollar may not be the only reserve currency. It’s implying there’s this multipolar world, or as you said, we’re seeing Saudi Arabia looking to sell China oil denominated in yuan, and we’ve seen I believe India looking to boost non-dollar trade with Russia also. So we’ve started to see the beginning signs of that. Do you have any thoughts on what a multicurrency world looks like? And obviously, where do you see Bitcoin playing into that over that medium-term?

Lawrence Lepard:

Yeah. I don’t—there are people who are better at macro than me. I’ve always been a stock-picker and an investor and good at analyzing companies. I’m not a macro guy. I would point people to Luke Groman, who I think is probably the best macro guy in the world right now. I think that ultimately what currency gets used—the thing to keep in mind is that financial transactions can be done very quickly. Even if people like Russia was selling oil for dollars, but then the minute they got paid in dollars, they turned around and used the dollars to buy gold. They didn’t hold the dollars, they got rid of all their dollar bonds and a fair amount of their dollar reserves. I guess they held onto some—they probably needed ’em to operate. But remember that you can convert into whatever you want. So currency’s got a couple of different roles. One of ’em is transactions. The other is store of value. And right now the dollar is the most liquid currency, no doubt. It’s the reserve currency, but fading. But there will be others. But to me, there’ll be all these various currencies, whether it be the rupee or the yuan or the yen or the euro or whatever it might be, there’ll be a lot of different currencies. But what really matters to me is not what currency you’re paying in, because you can quickly get paid in a currency and swap out—what matters to me is what currency are you saving in? Where do you want to put your reserves? Where do you want to put your excesses? Are you comfortable holding dollars? Are you comfortable holding dollar bonds? Are you comfortable holding Chinese bonds? I wouldn’t be. But I’ll tell you what I am comfortable holding: I am comfortable holding gold. I am comfortable holding Bitcoin. And I think more and more people will get and are getting comfortable holding Bitcoin. And what they’re gonna realize is that all of these fiat currencies are getting debased. This is Brent’s Dollar Milkshake Theory, and he’s right. The dollar is still the best of a lot of bad fiat currencies. I don’t really care which fiat currency wins. What I think is gonna slowly but surely happen is: gold and Bitcoin are gonna become the savings reserve currency. Transactions might get done in lots of different things, but again, what do you go back to? You gotta reserve? What do you go back to? And this is Saylor putting Bitcoin on his balance sheet. I think you’ll see gold companies putting gold on their balance sheets. You’ll see saving in the thing that they believe in. You’ll see Bitcoin companies putting Bitcoin on their balance sheet. And it’s not happening as fast as I’d like, and in the Bitcoin case, a lot of people argue against that because of the volatility. They’re like, Well, I don’t wanna put something on my balance sheet that goes up and down a lot—Okay, fine. My argument on the Bitcoin volatility is just what we’re trying to do is we’re trying to put the ocean into a swimming pool—and it’s gonna be volatile. And unfortunately—and I think this is truly unfortunate for Bitcoiners—the Wall Street guys have gotten involved. If you look at some of these big exchanges like FTX and other guys, they’re offering enormous amounts of leverage and they were former derivatives traders. Caitlin Long has pointed this out. And there are derivatives growing up around Bitcoin. There is paper Bitcoin today—sadly. It’s not big. I don’t think it’s driving the price at all, but people are writing Bitcoin derivatives. By the way, when this whole thing collapses, I think one of the things that’s gonna be important is to have a new Glass-Steagall, but also to have a banning of derivatives, because the minute you let people—in an unlimited fashion—leverage things, what you basically have said is the guy with the most money runs the world, because when you can use leverage and you’ve got more than anyone else, it’s like playing table stakes poker. You know what table stakes poker is, right? All you can bet is what’s on the table. Well okay, if you’re at the table and you have the biggest balance sheet, you have the biggest pile of chips, you can have a shit hand and play it out to the end, put everything in and nobody’s able to call you because they don’t have the money to call you with. And so this is what derivatives are, right? Derivatives can be used to manipulate and shove the prices of these things around. And by the way, who has the biggest hidden balance sheet in the world? The US Fed and the BIS, right? And so they’ve used that to control our world—they’ve definitely used that. That’s why farmers don’t make any money. That’s why commodity guys have suffered at the expense of financial guys. But guess what? It’s changing—there are cracks in the system. The LSE is on its last legs. Basically, the LSE just said, You know what?—We’re not playing by the rules anymore. So again, think about everybody who’s dealing with the LSE. Wow—they can void my contract? Huh. Do I really want to be trading there? Do I really want to use that organization? Once again, back to 9/10ths.

Stephan Livera:

Yeah. Fascinating points.

Lawrence Lepard:

And trust. All these financial institutions, it’s all based on trust. And things are happening which are basically putting a lot of doubt in whether that trust is justified.

Stephan Livera:

So the way I’m seeing it is: in a fully free market, there is a reason for derivatives to exist. Perhaps it’s just that they’ve become distorted and too much a part of the system in the fiat world, it’s that fiat has enabled this Frankenstein monster of a financial sector to balloon to a level beyond what it would otherwise be if we were living in a fully free market with fully market-chosen money?

Lawrence Lepard:

Maybe, maybe. I have to disagree a little bit. I think that the minute you allow unlimited leverage, you give power to the person with the most money, and that in and of itself is inherently evil. Unless you want the people with the most money to rule the world and control the world and make themselves richer at our expense. Look, I think a futures market should exist. The futures markets originally got started to allow farmers and to allow producers to hedge the price so they know what they they’re gonna sell their product for, and for buyers to lock in a price of what they were gonna buy their product for. I think futures in connection with legitimate commercial activity should be allowed, but to go beyond that, I think you open a real can of worms that has led to some of the problems. But you may be right—if we go to a sound money system with fair interest rates, right? Part of the reason why these markets have gotten so big is their carrying costs are zero. If they can borrow from the Fed at 25 basis points, you can carry an enormous position for almost no money. If you had to put up a legitimate margin and pay legitimate interest rates on that margin, then maybe what I’ve described wouldn’t be so prevalent.

Stephan Livera:

Yeah. And that’s kind of the line of thinking I was going down as well, because you could say, Okay, you’re a farmer and you want to sell forward. And what is that other than derivatives? But to your point is that we would not see them to this level, and to have certain players who have the kind of power that they have right now. And here’s the other point: I think that if you make the wrong bet and you lose, you would lose a lot of money. Whereas today, we are living in bailout culture, right? It’s big government bailout culture, and you can be saved from your irresponsible choices.

Lawrence Lepard:

Absolutely. And we’ve seen it over and over again. LTCM, that blew up Wall Street—they saved them all. They saved all those banks. They just saved this Chinese billionaire. But we also now learned that J.P. Morgan held part of his bet. So the LME just helped out Jamie Dimon—no surprise, right? Apparently there were over a billion-five of losses at JPM on the nickel bet. So yeah, the bailout culture—it’s a great game. Heads, I win. Tails, you lose. Lloyd Blankfein’s been on Twitter waxing forth with some opinions on this, that, and the other, and I’m like, Dude, you should shut up, because you wouldn’t even be here if the government hadn’t bailed out Goldman Sachs in 2008. You basically ran a company into bankruptcy and the government bailed you out, so I’m not really very interested in what you have to say.

Stephan Livera:

I love that point because it’s like we are living in this age of false prophets and false heroes, right? These people become elevated because they were simply winners of the fiat casino, as opposed to genuinely skilled investors, entrepreneurs, workers—people who are providing some kind of tangible, genuine value for the world or for the economy, and for other people. Instead we are lauding and raising and praising these very unimpressive people.

Lawrence Lepard:

I completely agree. I call them the fiat masters. There are some people who’ve gotten insanely rich off of this system, and it’s sad. It’s sad and it’s wrong. It’s just sad. As an example, in my earlier days I respected Warren buffet as a value investor, but ultimately he really became a player in the fiat system, and a lot of his things were bailed out. And maybe you don’t blame the player—blame the game. If the game is set up that way and people want to be successful, they’re gonna game it, but it still doesn’t make the game right.

Stephan Livera:

Of course. And I think even another example to what we were just saying as well is you see these billionaires who are very reluctant to criticize China. They’re very supportive of human rights abuses or very silent on human rights abuses because it’s lining their pockets, and they don’t want to rock the boat.

Lawrence Lepard:

Absolutely. Yeah, don’t get me started on all the narrative wars. I don’t even want to go there. There’s so much hypocrisy in the world it’s just impossible for sane people to bear it—that’s how I look it. I look at most of what’s going on in the mainstream press and I just assume it’s a lie. Somebody’s pushing some narrative for some reason. It’s the Latin, Cui bono? Who benefits? You’ve gotta apply that to all this stuff.

Stephan Livera:

So in an age when people can’t trust media or the propagandists, what comes next? Is it individual creators? Is it name-brand people who people start to trust? It seems that that’s the shift. Even people are looking at, say, Glenn Greenwald’s Substack as opposed to some publication that he may have written for in the past.

Lawrence Lepard:

Absolutely. Look, people crave information. They crave the truth. I think one of the things that Bitcoin’s doing, one of the things that’s happening in the world, is these big sclerotic organizations are failing. We’re getting into a more decentralized thing, and people know bullshit when they hear it. And that’s why there was a great chart that showed the viewership of Joe Rogan as compared to all the networks. Joe’s not perfect, but he’s crushing it in terms of getting alternative points of view and trying to get honest answers to difficult questions—which you can almost be assured that the mainstream media is not providing. So yeah, I think we’re heading to—and it’s a beautiful thing, right?—the Internet started it, it was the Gutenberg’s printing press, and then Bitcoin’s bringing it to the monetary sphere. But I think what we’re heading to is a much more decentralized world where people can pretty quickly realize, Are you being honest or aren’t you? And people aren’t stupid—they’re gonna follow the honest people and they’re gonna ignore the bullshit. And that’s happening. But there’s still a lot of people—it’s like taking the pill. There’s still a lot of people who are trapped in the old matrix. We need to help ’em get out of there. We need to orange pill ’em and we need to red pill ’em. It’s frustrating to me when I hear people arguing about what’s going on on TV, and I’m just like, Oh God. I don’t even know where to start.

Stephan Livera:

So taking that idea of handing out the orange pills and helping people, where do you see that we can make the most impact? Where are we going to have the most bang for buck? Are there certain communities we should be prioritizing our message? Or are there certain people to try to reach first who are more amenable to the idea?

Lawrence Lepard:

Yeah. Well first of all, I think the millennials as a group in general get it—my kids get it. They know how they’re being screwed: they can’t afford to buy a house, they’re not making any money, their wages aren’t keeping up with inflation. They see these greedy boomers who want all their benefits and think the existing system is great. So I think millennials are probably gonna be the hero generation in this Fourth Turning—they’re gonna fix it. I’ve dedicated myself to trying to orange pill gold people, because I think Bitcoin and gold are somewhat compatible. I think Bitcoin’s superior, but I don’t think gold’s totally inferior. The notion that gold is the enemy—I dispute that. I think that fiat’s the enemy. We need to drain the fiat system. And people who buy gold, they’re buying it for the right reasons. They’re much more aligned with Bitcoiners than most Bitcoiners realize. I gave a speech down at the New Orleans gold show, and I think your audience might find it interesting that there were 500 people there and it was asked—somebody said, How many of you hold Bitcoin? And half the hands went up. So the gold people are coming around, but you gotta remember that boomers hold a lot of the wealth, and many boomers are afraid of Bitcoin. And when inflation comes, they’re gonna go to gold first. And to me, gold is like the gateway drug to mainlining Bitcoin. But I don’t know. Look, the whole nation needs to be saved. I think the most important thing we can do as individuals—assuming we want to get this thing going as quickly as possible so that our kids and grandkids enjoy better lives—is to just everybody in our sphere of influence, try and spend the time to help them see and understand and educate them, that the fundamental problem is the base layer of money, and that if we solve this problem, things will get much better. So that’s what I’ve been trying to do. That’s why I’m such a loudmouth on Twitter and why I’m active in these audio interviews and everything else. I’m not doing this for the money. I’m doing it because I want to fix the system. The system’s badly broken—I think it’s very unfair.

Stephan Livera:

Fantastic. I think you put it perfectly just there. So let’s wrap it up here. And for listeners who want to find you online, where can they find you?

Lawrence Lepard:

Yeah, so I have a website, and all my quarterly reports and a lot of information is free there—it’s ema2.com. You can download the PDFs. And then I’m really active on Twitter. As I said, I’m a loudmouth. So on Twitter, I’m @lawrencelepard, and you can follow me there. And I would give a shout-out to Twitter—I can’t believe Twitter’s free. I’m sure you feel the same way. The amount of information and input and intelligence—if you’re careful, you’ve gotta block the idiots—that you can get on Twitter. It’s really quite stunning. So those are the two ways to access me. And I try to respond to every DM I get, and I try to respond to comments as much as possible, but I’ve got a day job too.

Stephan Livera:

Fantastic. Well thank you, Lawrence.

Lawrence Lepard:

Oh, thank you very much. I’ve really enjoyed it. Obviously you’re doing great stuff. A lot of respect.