Stack rejoins me on the show to chat about Bitcoin and the four macro factors to watch: 

  • Contrasting different views on macro
  • Four factors to watch
  • Is the world done with US Treasuries? 
  • What’s the US Fed doing? 
  • What about the UK market? 
  • Deflationary collapse



Stephan Livera links:

Podcast Transcript:

Stack, welcome back to the show.

Speaker B – 00:03:19:

Thank you, Stephan, it’s good to be here.

Speaker A – 00:03:21:

So Stack, I see you’ve been tweeting it out hard and you’ve also got your new Stack pro macro. So we’ll get into that and all of this stuff and as well as chat a little bit about what’s going on in the world of macro and bitcoin. So I thought an interesting one to start is it seems that the narrative up until recently now, just for clarity, for anyone who’s not clear, we’re recording this on the 26 October 11:00 a.m. Here in Dubai, that’s my time, obviously stacks in Switzerland. And now recently one narrative has been that put it this way, we’re all at the whim of what’s happening with central banks and bitcoin is don’t like this because in one sense I could imagine bitcoin is don’t want to be at the whim of central banks. They would rather see bitcoin marching to the beat of its own drum. So I’m curious to what’s your view on this idea? Like is bitcoin marching to the beat of its own drum or is it at the whims of the central banks and government?

Speaker B – 00:04:19:

Yeah, I do agree, it kind of sucks. We are kind of trying to replace the Fed bringing a new monetary standard and we have the money printer just dragging us around. So it is very annoying, but we can hate it all we want, but we do have to acknowledge reality. And I think the last year has made it very clear that bitcoin is very much an asset tied to the macro environment. It’s a dollar price. It moves based on multiple things, credit cycles obviously being one market, hype cycles which we’ve had in the past. And I think those are at least partially driven by halvings but we are living at the end of a big debt cycle and I think this is what we’ll probably get into today. But if you consider like the Weimar gold chart that you’ve probably seen a handful of times, but the price of gold in Weimar Germany was just fluctuating around wildly during their hyperinflation. And I think that bitcoin is kind of a similar type of thing where it’s the type of asset that you can one bitcoin is one bitcoin just like 1oz of gold is 1oz of gold and it’s a dollar price that’s going to fluctuate when central banks are pulling liquidity and adding liquidity. So for me at least, I just try to keep my focus on the big picture so where I think it ends up and how bitcoin performs in that period. And really I think the big picture does favor bitcoin in the long term. So I just expect the volatility, I expect currencies to be increasingly destroyed until we get like a monetary reset of some kind. But to me a million dollar bitcoin is still totally in the cards and sometime in the next ten years I’d say. And this volatility doesn’t really it doesn’t really change that. It’s just something that we have to expect.

Speaker A – 00:05:59:

I think that’s a totally fair answer. And when it comes to playing these cycles in a way, perhaps we could say one thing that’s different this time around is that bitcoin perhaps historically it has seemed to move on this kind of four year cycle ish basis, although there are times where maybe it deviates from that. But now perhaps the bigger factor is more about what’s going on around the rest of the world. And just because bitcoin is so small relative globally, right, because bitcoin is a market, what is it, 500 billionish, whereas we have equities markets and bond markets and property markets that maybe 100 trillion or something like that in that kind of range. So it’s just so much smaller. Now I wanted to contrast some of the different views that are out there. It seems that there are different views in terms of what’s going on out there. So I guess at a high level there’s a few ones that maybe are popular. So one for example is this whole dollar milkshake theory. Brent Johnson, the Santiago Capital guy, basically talking about this idea of US dollar being the least dirty shirt in the room, therefore people are going for the US dollar. And then you’ve got this view of Luke Gromen which is more like the US fiscal house is not in order and that’s going to cause issues and I think many people would also agree with aspects of that. And then you’ve got maybe a shift style sort of dollar goes to zero. We’ve got like a Jeff Snyder view which is maybe more like central banks don’t have that much power. It’s all about the Euro dollar shortage. So I’m curious, I wanted to get your take on how you might, let’s say, compare and contrast some of your views with that. So do you want to maybe start with the dollar milkshake firstly? How would you characterize it and do you agree with that thesis?

Speaker B – 00:07:50:

Yeah, I think actually all of those thesis you named, I think I take parts from them. I think they’re all very actually I don’t think most of them disagree with one another. I think they’re more a matter of timing, to be honest. For example, Luke Gromen and Brent Johnson, I don’t think that they necessarily disagree. I just think it’s a matter of in a tight money environment like we’ve had this year, cash is going to be the thing that’s relatively more valuable. And in that environment, yeah, the dollar is going to crush all other fiats pretty much just because of and this ties into Jeff Snyder’s point, but just the way that debt is structured around the world. So when people are loaning money, they know that the dollar is the best thing to denominate the debt in because it is the strongest. And so whenever there’s, like I said, tight money like you have now, people are going to be trying to pay off that debt and there’s just going to be that structural dollar shortage. So yeah, I mean, I agree with the dollar milkshake, but maybe let me take a step back first and just kind of lay out my overall thesis because I think it can be kind of helpful here.

Speaker A – 00:08:52:

Yeah, sure.

Speaker B – 00:08:53:

So I like to keep it pretty zoomed out and I think there’s just like four things that if you have a good grasp on these things, then you can kind of know what to expect over the coming years and it’ll just help you ride out the volatility along the way. So the first one is the end of the big debt cycle and Ray Dalio is the one that turned me onto this. But essentially, just in simple terms, rates have been held at zero or negative for years. We’re at like 130% debt to GDP in the US. And so now it gets to the point where you can’t really grow your way out of it because the debt, you have like a dollar of debt and you only get about three cents of growth. So you can’t grow your way out, you can’t really surplus your way out. Some people think, okay, well, if we just reduce spending and increase taxes, then we can pay off this debt. Well, we’ve kind of just passed that point. If you turn the money printer off, you get job loss, falling tax receipts, and then plummeting asset prices and you end up in a worst debt to GDP situation. So really when it comes down to it, there’s only two options to this or two ways this big debt cycle can resolve. The first is by just mass default. Countries decide to default on their debt, but that never happens through history. Whenever a country can print its currency and push comes the shove, they end up just printing the currency. So the way that’s most likely to pay off the debt is just by devaluing the currency. And if you know that, then you kind of just have to wait for it to play out. And at the end you need to just keep your nerve, stay solvent and expect the currency to devalue.Right?

Speaker B – 00:10:24:

So you want to hold assets that are going to perform well in that environment. So bitcoin is definitely one. The second thing is inflation. So inflation acts as a major constraint. Central banks, like I said, they need to devalue the currencies to pay off the debt. But if you’re weakening the currency, that can increase inflation. And the reason that matters is just because you have real pain on the ground at that point. And so they want to keep the guillotine’s at bay. They don’t want people coming out on the streets and asking for them to be killed. Right? So to them, it’s like the next call it decade, whatever, is going to be a battle between devaluing the currency and fighting inflation. And so it’s probably going to feel a lot like what we felt in the past year, where you have huge asset price swings going up and then huge asset price coming down as they try to battle inflation. So expect that severe volatility. But I think one thing you want to do there is look at, throughout these swings, what are the assets that are performing the best in each sort of renewed cycle. So if you’re getting these cycles happening faster and more frequently, which it seems like we are, you’ll want to be holding the things that are performing the best and that have properties that can survive in the environment we’re heading into. So those are the first two. I can actually stop there and make sure you don’t have any questions so far.

Speaker A – 00:11:38:

Yeah, I think that makes a lot of sense. And actually that really echoes a lot of our first conversation also. So let’s say that’s the first factor, then the end of the big debt cycle, what’s factor number two?

Speaker B – 00:11:48:

Well, okay, so first was end of debt cycle. Factor number two was the inflation as a constraint. And then factor number three is war and demobilization. So usually when you have inflation picking up is when you have more chaos in the world in general. So it’s not really a surprise reaching the end of this big debt cycle, that we’re starting to have less global cooperation, more war, and these are all inflationary pressures. It really just piles on top of that second point because with breakdown cooperation, you get everything from supply chain breakdowns, resource strains, et cetera. So really what’s going on is you have these challengers in China and Russia and maybe some of the bricks thrown in and they see the Western world in a fragile moment right now, and they know that trust between nations is kind of breaking down as a monetary system gets more fragile. And so some of them are maybe Russia, China a bit, they’re trying to press on this a bit and make it harder for the west to devalue its currency and pay off the debt. Because to them, they wouldn’t rather the west go down in kind of a flaming heap rather than be able to kick the can and maintain their hegemony. So that’s what’s going on with war and deglobalization and deglobalization. It just kind of results from the hostile atmosphere. But like I said, it’s very inflationary as businesses need to rebuild supply chains and there were a lot of efficiencies of globalization which are going to be lost, I would say in the next decade. So that’s number three. And then finally, number four would be this natural search for a new store of value so away from US treasuries which were, I don’t know for how long, 60 years or so. Sort of the de facto store value even for, you know, for everybody from private investors, pension funds. But also it’s a nation states, a lot of them, they’re holding us treasuries sometimes trillions worth, because it was just seen as the safe store of value. In this conversation we’re having. If you and I can figure out that these Treasuries are only going to be paid back via the Money printer and that there won’t be any real returns, then nations are obviously figuring that out as well. So they do have an incentive to dump Treasuries or rather exchange them for something that can’t be debated or seized. So I see that also as sort of this fourth thing to watch because ultimately that increases the burden on the Fed who’s trying to they’re going to have to buy all these bonds and there’s just going to be so many and it makes their job harder to debase the currency and keep inflation in check. So that’s the top, I’d say the top four things that I’m thinking about constantly and have sort of my big macro view. And then like I said, for positioning, just expect volatility. I want to be mainly positioned for the Money printer, just destroying the value of currencies. So to me that means bitcoin primarily some gold thrown in there as well. And then other than that, just stay solvent during the deflationary periods like we’ve had this year. So don’t use leverage. I don’t try to time the markets and you know, I try to maintain cash flow and a cash cushion so I never have to sell at depressed prices. And the last thing I’ll say and I’ll stop, but just, you know, expect social volatility as well. In these types of moments it’s like the four turning moment where things just kind of go crazy. So you really have to prepare yourself physically immensely. I’d say build a community and just prepare for harder times than we’re used to. It’s not to say that everything is going to fall apart everywhere, but it’s always good to be prepared because like I said, these are the times that these chaotic moments pop up. Other than that, just be optimistic. And this is just one of humanity cycles, right? So on the other side of it is going to be a better world and one that I believe it’ll have bitcoin as that sort of core monetary instrument that can guide us into I think it can guide us into a new era of abundance of energy and less fiat insanity. So that’s sort of the positive vision I hold onto in the end.

Speaker A – 00:15:39:

That’s an excellent way to summarize things. I think you’ve nailed it in terms of what are the most important factors. So just summarizing for listeners, make sure everyone is following along. So, number one, we have the end of the big debt cycle, right? Yes, Dalio talks about this and I think a lot of people, even in the Bitcoin world, have been talking about this idea of cycles, people like Mark Moss or Brandon Quinn. And then secondly, we have this idea of inflation as a constraint because, let’s say the quote unquote, the powers that be, or the governments and central banks, there’s only so much that they can do, theoretically. Now, of course we disagree with inflation, but they are going to try it. But at the same time, they have the balance between printing and how much inflation that causes versus the social unrest that would be caused. That’s going to be caused because they’ve already put the world into a bad place. Now it’s about what’s the least bad way out? From their point of view? Of course, from our point of view, I think obviously the answer is pretty clear. It’s go to a Bitcoin standard. And then at number three, factor three was war and deglobalization and what kind of turmoil are we going to see because of that? What kind of supply chains are we going to see get disrupted because of that? And obviously people might be displaced and that’s obviously going to be very troubling and very concerning for a lot of people out there. And then fourth, as you said, the natural search for the new store of value. So I think at this point, it’s probably going to be an interesting question for most people to chat a little bit about US treasuries, where they’ve come from? And basically this question, is the world done with US Treasuries, or is it just a slow process of, let’s say, the rest of the world waking up to this idea that maybe you don’t want to hold a lot of money or a lot of your quote unquote, value inside US treasuries? I know even in places like South Africa there are businesses, like larger businesses who might still hold US. Treasuries because from the Fiat fractional reserve system point of view, from this multi layer fractional reserve system, from their point of view, they see US. Treasuries as the safe thing. Because they see, let’s say, maybe your bank account is not that safe for other reasons. So what are the ways in which the world is going to be dumped withholding a lot of US treasuries or at least less than they previously did?

Speaker B – 00:17:54:

Yeah, I think, especially again, going back to this tight money concept where all assets are worth less except for cash, which we’ve seen this year. And cash can be things like T bills, which maybe that corporation holds short duration Treasuries. So in that time, Treasuries are going to look, they’re going to look more appealing. But in the long run, I mean, everybody can kind of see where it’s headed, which is all currency derivatives. So the US dollar currency derivatives like T bills or bonds, they’re all going to be debased, they’re going to lose purchasing power. So that’s not a secret, it doesn’t happen overnight. And so yeah, treasuries are super Liquid. It is the US dollar, which is relatively more valuable than whatever fiat currencies on the ground around the world. But at the end of the day, it is going to lose purchasing power compared to other assets. So that could be things like Bitcoin or gold or even shares in S&P500, right? So the dollar is losing to those things over time. So it’s just a matter of what’s your timeline? If it’s a short term hold and you just need liquidity, then it could make sense to still hold these Treasuries. But in the long run, there’s a lot of countries that see this and they just don’t want to be financially repressed. So it’s like all of us, right, if we see this bond scenario playing out, we’re going to naturally avoid bonds. And that’s what happens at the end of these big debt cycles until the government actually comes in and mandates people to hold them. I found this out recently and I still think about it, it kind of blows my mind. But Social Security in the US. Is 100% allocated to US treasuries, so there’s kind of a captive audience that they can essentially steal from by crushing the value of these bonds or rather the purchasing power of these bonds. But what often happens is they find other groups do that too as well. So they’ll mandate pension funds to hold a certain amount of bonds. They’ll very often try to ban inflation hedges, so that’s we saw that in the with gold. But essentially what they are trying to do is financially repress people, forcing them to hold these bonds and essentially take the loss, hold the bag, right? And so nobody wants to do that. Some people are forced into it. But if you’re a sovereign nation, the only way you can really be forced to do it is via war. And so unfortunately, that’s maybe part of what’s going on in the world right now where there’s more conflict is like, okay, the US would like the system to hold together so that they don’t have to buy all these bonds all at once. And it’s not just because of that. I think that’s just one factor playing into conflict right now. But that’s one thing that I have my eye on. But yeah, I don’t think this is something that happens overnight because on the other hand, nations that are holding large amounts of Treasuries, they also have an incentive somewhat to hold the system together a little bit. If everybody dumped their Treasuries at once, then pretty much everybody’s holdings are worthless. Right. It forces the Fed to buy everything with monopoly money and the system essentially resets. Right. So I think it’s kind of a game. It’s a little bit of a slow move, like you said. Let me try to exchange some of these for more valuable things. And we saw Russia do that already. They unloaded a bunch of Treasuries over the past ten years and bought a bunch of gold. China is now below a trillion in holding, so they’re kind of slowly doing that as well. And then I just saw this week, Saudi Arabia is almost openly taunting the US over this NOPEC deal, which yeah, so they’re kind of saying that they’re going to be dumping Treasuries as well. They’re kind of holding that over the US’s head as a sword. Now I think they have something like 100 billion something treasury, so it’s not the biggest deal. But at the end of the day, these are all net sellers when the Fed is also trying to sell and private investors don’t want to hold bonds because they don’t want to get crushed. And yes, at the end of the day, I think it just ends up with the Fed buying them all. It’s just a matter of timing.

Speaker A – 00:21:31:

And the funny thing with that you mentioned as well, with the Fed having to buy them all is for years and years and years the central bank leaders in the Fed have been saying, oh, don’t worry, we will unwind our balance sheet, we’ll bring it back down. So just for listeners who are unclear, basically a lot of the critique was coming from various people, people like Ron Paul as well, who were saying, look how big your balance sheet is. Are you actually going to bring it, are you going to bring it back down to normal? And they kept saying, yeah, we’ll do that. But as you say, Sack, if all the other big players start selling all of their Treasuries, then how can the Fed conceivably, incredibly, make the case that they will lower their balance sheet back down?

Speaker B – 00:22:12:

Yeah, I mean, the simple answer is they can’t.

Speaker A – 00:22:13:


Speaker B – 00:22:14:

It’s all a confidence game. They want people to think they can, but they can’t. I don’t know if you saw the clip, but when somebody asked Christine Lagarde that very question, she just said, oh, it will come in due time, it will come. She had no answer. Right. It’s a confidence game. And she’s not even a great well, she’s a con artist in some ways, which is not very convincing. Right. So? Yeah. I don’t know. I mean, I don’t think there is a chance they’ll do it I don’t think that’s going to happen. Just quick shout out to Ron Paul. One thing when you brought up Peter Schiff, I don’t really listen to the guy because I think he just is kind of like rigid mindset, doesn’t really want to have an open and honest conversation. But one thing I’ll say about gold bugs is like they were on top of this for years and years. They were the one class of investors that were kind of holding down the sound money for it and calling this out, calling the Scam out the entire time. It’s a shame that most of them just missed the boat on bitcoin. And I think the reason they did is simply because it’s kind of silly, right? They expect bitcoin to behave like gold, but obviously a monetizing asset is not going to behave the same way as gold, right? It’s going through its cycles, achieving its eventual market cap. And to them, they look at it and they’re like, oh, just another volatile thing. But they’re ignoring the actual properties of bitcoin, which is actually an improvement on gold in so many ways. But I will say kudos to them for keeping the bigger picture in mind while most of the world just completely forgot about it.

Speaker A – 00:23:37:

Yeah, of course. And there are, of course, bitcoin friendly gold bugs like our friend Lawrence Lepard and others in the world, like some of the guys over at Incremental. I was chatting actually recently with Mark Valek as well. So they are in the, let’s say bitcoin plus gold camp, right?

Speaker B – 00:23:54:

Yeah, I would put myself in that category too. I definitely like way more towards the bitcoin side. But I do hold gold and I respect it for what it is and I see a slight differences and see enough reasons to hold it. So I’ll leave it at that.

Speaker A – 00:24:10:

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Speaker B – 00:26:36:

Yeah, definitely. I think at the end of the day, it comes down to, again, this concept of financial repression and almost a threat of force, right? Like in the US. If they have jurisdiction over their citizens, they can force us to hold bonds. But if it’s a foreign country, I mean, better force via militaries is definitely one way they can convince those nations to do it, or if they’re the protectors. So maybe like a lot of these western nations in Europe, they might be hesitant to torpedo the US. Because if you’re the Ramifications, I do definitely think that that’s part of the calculus. And I’d say in general, it seems like they’re kind of all in the same team. So I don’t see strong incentives. Besides the fact that they’re going to lose purchasing power, I also see the strong incentive to try to hold things together. So I think the bigger ones you have to worry about are more like the Russians, the China’s, the bricks that are kind of like, hey, we have resources you need, so we’re going to not hold this bag and you’re going to still pay us in whatever we want. I think that’s the thing that’s coming.

Speaker A – 00:27:34:

And as you mentioned, the pay us in what we want right now. I think that part maybe gets a little too much play. But I’m curious what you think. Right, but let me lay out some thoughts and I want to get your reaction on that. So some people say there’s this notion that all because they are expecting you to pay them in their currency, that that’s going to be bullish for that currency. But the way I’m seeing it is if I had to pay somebody in some random altcoin, let’s say, and I had to do it because I need this thing from them, it doesn’t necessarily mean I would hold more of it. I might just change it, might trade just a small amount just before the moment that I need to pay that person, right? So in the same way it’s not necessarily bullish for the ruble or the one. What matters more, I think let’s say the more important factor is how many bag holders are there, how many people want to hold it, right? That’s the key reservation demand. And that’s an important concept for us as Bitcoin as well, because we’re growing the base of people who are willing and want to hold more Bitcoin. So I’m curious, your view on this idea that just merely because oil deals are priced in some non USD Fiat, does that boost the demand realistically?

Speaker B – 00:28:47:

Yeah, I think that’s a good question. I don’t have tons and tons of thoughts on that. I think the main thing I would say is it kind of depends more on where they store profits at the end of the day, right? So if they pick something like Gold or Bitcoin to store their profits in, I think that adds demand for those types of assets. Because at the end of the day, those other Fiats, they’re all going to have their own monetary policies. And I think that and quantity that they print and stuff like that, and I think that will end up having more of an impact. Now, if one country decides like, hey, I’m going to like really limit the amount of, let’s say it’s Russia, I’m going to limit the amount of rubles I print and you have to pay me in rubles, I think it goes up against the dollar, but kind of just because there’s fewer of them, right? Yeah.

Speaker A – 00:29:31:

So I think the other question that’s interesting is with the US Fed, right? So everyone’s watching them, they’re going through this rate raising cycle. We’ve seen multiple instances where they raise rates. Now the big question is, will there be a conflict between the US Fed and the US government? Because the US government wants cheap debt. So who’s going to blink first? How does this play out in your view?

Speaker B – 00:30:00:

I think at the end of the day, they’re going to get their ability to spend because I think the only way to get out of this trap is to debase the currency, right? So that’s going to entail spending and probably some investment. If they’re smart, they’re going to invest in energy and productive means and not just we won’t just have share buybacks and a bunch of weapons and things like that. So I think at the end of the day, they’ll get it. But in the period that we’re in now, what we’ve seen in the UK recently, and then also just in Japan last week, is like as soon as there’s some sort of divergence where the government proposes some huge spending bill or cutting taxes, it shows up immediately in the bond and currency market. We saw that in Japan so last week, actually. So you know the yield curve control, right? Everybody knows they’re pinning the ten year yield, so you can’t see anything in the bond market. But last week they announced they’re going to spend $133,000,000,000 to fight inflation. So it’s more genius. Government plans to fight inflation by spending money, so they’re going to do that. And as soon as they announced it again, you couldn’t see it in the bond market, but their currency just felt to the floor. So, yeah, that was one example. We saw the same thing in the UK where the government announced some crazy plan to I don’t want to call crazy, but they announced a plan to spend more money and cut taxes and this was obviously running counter to what the rest of the world is trying to do. So, you know, you saw the guilt market in the UK explode and you saw the pound head towards near parity with the dollar, which is just absolute insanity. And this is really what it comes down to, is like the central banks right now, they’re in a fight to maintain credibility. And so any move like this by the government is going to really, really hurt their central bank, right? So they want to bring inflation down. The central banks know that this is all really just a confidence game. And so if governments kind of get in the way and blow up the currency markets and the bond markets, you get what happens in the UK, where, okay, they’re at 10% inflation and suddenly the bank of England saying, okay, actually we have to do unlimited bond buying, right? So they went from quantitative tightening to unlimited bond buying overnight, and that just makes them look silly, right? And so that hurts this whole confidence game. So I think that is a battle that we need to watch in the short term. Just governments versus the central banks, right? And so, yeah, that’s just something I’m keeping my eye on. But I think in the end, though, the plan will have to be to spend the money, ideally once the inflation comes down. I think right now in the US with the Fed, what they’re trying to do is they’re trying to get enough deflation signals before having to turn around. Basically, they want to get enough deflation signals before either the treasury market blows out or they turn around. So that’s what they’re aiming for. We’re finally starting to see some which is good, there’s some deflationary evidence, things like the PMI finally falling down, it hit like 49, which is below expected forecast, and then housing prices I saw yesterday are falling at the fastest rate since 2009. So things are starting to look deflationary. And I think what’s going to happen is, well, either the treasury market is going to blow out, they’re going to raise again and the treasury market is either going to blow out or they’re going to have enough signals where they can slow down, but there’s definitely a chance that they overdid it, right? If we think about this, is there anything in the past 5, 10 years that makes us think that they’re going to be able to control this thing just right? Probably not. So in all likelihood, they’ve probably already overtightened and we’re going to start getting some crazy deflation signals, job losses, housing price crashes, insolvency is going up and then we’re probably just going to this is my guess, right? So I’m not saying this is certain, this is what I think is probably going to happen is we probably get like one final great bond bull, right? So, like, these bonds are at like 4% now. I think the Fed is going to end up panicking, they’re going to bring rates down low towards 0 or 1% again, bond bull is going to ride it down and they’re going to sell the top and the Feds is going to have to buy all these bonds from them. So I think that’s probably what’s coming. I think once we start seeing some crazy deflation numbers, that’s what’s going to happen. And it’s a matter of, like, do we see that first or do we see the treasury market kind of blow out, right?

Speaker A – 00:34:22:

It’s an interesting navigation that they’re having to do between these two things. Now on the UK market reaction, I’m curious, a bit of your analysis. You’re touching on some of this now. Do you see it like it was a bit of a temper tantrum because of proposed spending and tax cuts under Liz Truss, the former UK Prime Minister? Or do you think that maybe it wasn’t sold the right way or was it just that they wanted more spending and they wanted more borrowing?

Speaker B – 00:34:52:

Yeah, I think the markets in the UK were already in a fragile place just because of the I guess maybe I should give a little bit of background for those who don’t know what was going on this year. The basics are you had the pension funds in the UK that needed to take on some risk because of the low interest rate environment, right? If they wanted to meet liabilities and be able to pay the pensioners. And they actually had to take on a little bit of risk because they couldn’t cover it with 0% rates. So upsteps our good friend BlackRock, who says, hey, we have this thing called an LDI, so liability driven investment and we’re going to help you meet all your returns, right? Like, you won’t have to worry, you just have to take on a little bit of leverage, which means you got to have a little bit of collateral sitting at BlackRock. But don’t worry, we’ll handle all the derivatives, everything will be fine and you’ll be able to make your payments. So a lot of pensions bought this sales pitch from BlackRock. And essentially what the LDI does is it uses leverage and kind of just takes bets on the market with derivatives. And as rates started rising this year, it was kind of the bets going the wrong way, right? So like these 30 year guilts in the UK, the yields started rising, these plans ended up needing more collateral, which made the pensions have to sell bonds to add collateral. And then it all came to a head when Liz Truss, who was the new PM, and her finance minister, they put out this unexpectedly fiscally irresponsible plan. It was kind of like more spending mixed with tax cuts. And essentially immediately the debt markets sold off and the markets knew like, okay, this is only going to be funded via more bond issuance, right? So more bonds apply, they started selling off. And this created a really bad feedback loop with this LDI thing. So they had already been selling these bonds to add collateral, but when the market moved so drastically, they ended up having to sell even more. And so it became this downward spiral and the bank of England had to step in and buy, which was kind of a nice reminder that central banks will always choose to print before letting things unravel. So even with the 10% inflation, the bank of England was like, all right, well, we have to buy these bonds. I think it was mostly just it was already a fragile situation and this kind of unexpected plan threw everything off and BlackRock being at the center of it, of course. But one of the interesting things in the end is like, okay, Liz Truss she lost her position and then we end up with this Rishi Sunak guy who I guess seems to be kind of like a World Economic Forum approved guy who seems to be in the CBDC. So it’s just interesting, like the connections between BlackRock and then we end up with this guy who’s into CBDC. So I guess it all works out in the end, right? But besides that, I think the main takeaway is like, yeah, like fiscal recklessness at a time when central banks are tightening can just cause rapid debt and currency moves. And so if there is going to be this debasement moving forward, like, it’s going to need to happen in concert. So you’ll need like nations working together to do it and that obviously gets harder when countries are at war. So that was my main takeaway from the whole thing.

Speaker A – 00:38:01:

Right, and so, yeah, as you say, it’s one thing to have tax cuts, which is great, but if you’re not also spending, doing spending cuts, then it’s just irresponsible and so I think that’s a very key point. And so what happens over time is that the population become complacent or they get used to handouts or they become used to big government and they expect big government. So then politicians struggle to actually build the consensus to actually cut and abolish those government departments until something goes really wrong, right? It seems that until something gets really bad, they don’t have the license to come out and say, yeah, actually we’re overspending and over taxing and over everything. We need to massively reduce the size of the government. That would be the right thing to do to make it a lot smaller. But it seems that in practice, they are scarcely able to achieve that, right?

Speaker B – 00:39:02:

Yeah. And I think in practice, actually, we’re just past that point. We’re just past the point of austerity being able to fix things. Austerity is going to send people out on the streets. Then you just have general chaos and it probably is not going to allow you to pay off the debt at this point. Right. We’ve had too many free lunches and at the end something has to give, right? And it’s unfortunate, but I think we’re going to have to live through a very difficult period, especially in certain places in the world. And that’s just kind of how it goes. It’s like you take on too much debt, there’s only one way through and it’s by printing a bunch of money. And that causes tons of problems of its own, unfortunately. And it’s just like when push comes to shove, they always choose to print and then that creates more problems. You get these crazy fiat distortions in society, you get chaos, you get violence and you just get general upheaval, right? Like, that’s when all the heads get lopped off in France or you get wars and things like that. So it’s unfortunate, but that’s what happens when you screw up the money so much, right? And so the hope of Bitcoin is that enough people and businesses and countries can kind of organically shift to Bitcoin during this process and start rebuilding this parallel economy that’s on more solid foundations. And maybe there will be some countries, like maybe El Salvador is going to end up being a sort of a safe haven for people to go to and get out of the fiat chaos, right? Who knows? Bottom line is, like, too many free lunches, something’s got to give. And a lot of times it’s just the quality of life, right, or it’s even the population sometimes, unfortunately. And that’s how this goes. That’s how history has repeated in cycles and yeah, that’s the consequence of screwing with the money so much.

Speaker A – 00:40:41:

Yeah, that’s a good point. I mean, it’s already hard. Even if you rewind the clock 20 years, it’s a hard sell to tell people, actually, we’ve been living beyond our means and actually we all need to take less, we all need to live with less and live with a lower quality of life because fundamentally, we just can’t afford it. It’s a hard message, and only libertarian, Austrians and maybe others who are maybe a few conservatives who could maybe buy that message, and so the rest of society is just kind of plodding along, just driving off the cliff. And it’s sad, but that’s unfortunately the situation we’re in. And I think to circle back to another really good point you’ve made as well, and I’ve seen you make this on Twitter also, is that how do you blow up the financial system? You get all these people bought into chasing yield or pushed further out on the risk curve. And this has happened at so many levels of society, right? So, for example, we saw even government entities were caught up in the whole celsius blow up. We see individuals all being pushed into, let’s say, the housing market. So we see everyone becomes a house flipper, right? So we see the cultural acceptance of cultural and institutional pushing of the idea that it’s normal everyone should just have a massive mortgage that is a massive multiple of your annual income, and we just create these massive housing bubbles, and it just becomes normalized. What does the process look like to actually unwind that? I mean, it’s going to look scary, isn’t it?

Speaker B – 00:42:14:

Yeah, I think it is going to look scary. And, you know, frankly, I don’t know exactly what’s going to look like. It’s really hard to it’s really hard to see. But I think just generally turmoil, a lot of lost wealth, especially bondholders getting completely and I mean, think about that, right? Like, again, Social Security being allocated to us, treasuries. What does that mean then? If those Treasuries don’t really buy anything anymore, you have a bunch of retirees that can’t really pay for things. I mean, yeah, there’s a huge ramifications, right, for society, for just security, and in general, it’s going to be harder times, I would say. It’s kind of what to expect. In a lot of ways, we’re already in kind of harder times than we realize, I think, like frogs in a potty thing. But I had this realization the other day. I was in a cab in London with my wife, and we saw an ad, and it was like a woman with holding a cat, and it said, oh, your cat is your baby. Treat it like your human baby. I was like, wait a minute. Okay, so the fact that this resonates with people is kind of crazy, right? We’re at a point where having a kid now, it’s too much for people. You have the health insurance cost, you have the food, you have the education. It’s very expensive. Having a kid is almost becoming a luxury in a lot of places, and that is, to me, I’m like, okay, well, we’re just like, already in the depression then, aren’t we? Because you have both people working. A lot of people can’t even get ahead enough to have kids. And it’s just like this hard environment where nobody feels like they can get ahead. Right? And so in a lot of ways, I think we’re already there when you compare it to, you know, back in the day when you could have one person working, one person at home and have more than enough to feel comfortable. So I think that’s another thing that we don’t really realize is like, just the damage that has already been done and the environment that we’re already living in. And I think a lot of us bitcoin is hyper aware of the societal it’s called distortions going on right now and how fiat is related to that. But I think it just continues to accelerate. And every time you get another wave of printing, it almost it gets more extreme. And in some ways, actually, I think, like this down period when everything is kind of down, like, you always get less of it. I don’t know about you, but I’ve always sensed that this year the fever pitch has not been as high as it was last year. Right. Maybe it’s just like the lack of shitcoinery, but it kind of feels like a lot of things are less extreme than they were like a year ago. Right. But what I fear is that with another wave of printing comes another way of just complete buffoonery and we’re going to have to deal with all kinds of nonsense again. So I don’t know. What do you think about that?

Speaker A – 00:44:48:

Yeah, the way I’m seeing it is we’re arguably already in a recession and maybe globally going into depression. But on the other hand, I think this is something that we should also make clear. It’s that we shouldn’t buy into government narratives on certain things. So, for example, in 2008, they were saying, oh, if we don’t do these bailouts, it’s going to be Mad Max on the streets. Your debit card is not going to work. They have a bit of an incentive to exaggerate how bad things will get. But if government simply got out of the way, right, lowered its spending, lowered its taxes, lowered its regulation and let the free market work, things would go on pretty quickly. And there’s a bit of a perverse nature to this because historically there have been times where, let’s say it might have been a depression, but actually the government just didn’t even notice. And by the time people kept on building and doing businesses and things and it pretty much got out of it. And really what made the Great Depression was actually government’s attempts at intervention because of crisis, right? So crisis becomes an excuse per se, quote unquote excuse for the government to come in and do something. And what sadly ends up happening is those interventions prolong the depression. And so what we should those of us who are trying to think rationally and freeminded should make that case and at least make it clear governments are hurting the situation and actually we would be better off if they did less than if they did more. But unfortunately, it’s a hard case to make, right? Because as we were saying, people have been used to so much, the expectation level is so high, and it’s difficult to lower that expectation and say, no, I’m sorry, we have to learn to live with less. We need to live within our means. It’s not a fun message to hear.

Speaker B – 00:46:34:

Right, right, that’s definitely true. Yeah. I think my question around that, and this is just probably a lack of education in that realm is in that scenario, let’s say the government steps back and just stops spending. The central bank stops buying bonds, et cetera. In my mind, it’s like, okay, you get a bond crash down to like super low levels, you get mass defaults everywhere. I guess my thing there is like, okay, maybe this is going to happen anyway, so it doesn’t matter, right, but it seems like all the pensions are screwed, so everybody’s retirement is completely gone. So then you have a bunch of old people with like, what do they do to survive, right? Hopefully the ones that have kids, I guess, can move in with their kids. But if their retirement is completely gone and then you get kind of like a deflationary spiral, maybe it’s just like, yeah, look, there’s going to be hard times, there’s going to be a deflationary spiral, but in the end, we’ll be better off for it, and the money will actually mean something again. But I don’t know, what does that period of transition look like where the government just steps back and you have basically all debt gets defaulted on, people lose jobs, like everybody loses jobs, and then what does that look like in the restart?

Speaker A – 00:47:41:

Yeah, sure. So, look, I think I am very much informed by a lot of Austrian economics as long time listeners to my show. No, I think a really great short booklet to read is called Deflation and Liberty by Jörg Guido Hülsmann. Fantastic short booklet. And this was written around 2008 or around there, but the point being a lot of people fear deflation, but from an Australian perspective, okay, yes, the damage was done on the way up, so either way we’re going to suffer. The question is more about will those resources still be able to be put to productive use? And so the answer is yes, right? That there are still tractors out there and there are computers and printers and all kinds of capital equipment that’s out there. The problem is what’s happened is mal investment, and therefore these investment and resources have been put into projects that are literally not able to be completed because we don’t have the resources to complete them. So what will happen under this deflationary environment that we would go into if the government were to actually step back. Yes, I mean you’re right, there would be some very bad ramifications but the damage was done on the way up. And so this is like the equivalent of to use a Peter Schiff analogy, it’s like saying the patient is like a drug patient and instead of going to rehab the central banks just keep giving them drugs. Like just keep jabbing, keep going, keep taking more drugs. Now, while I’m with you, I agree with you that from the government’s point of view, they see it like, well, we’re in this situation, we’re just going to have to print our way out of this because that’s the paradigm they’re in. Whereas if you’re in a more pro deflation camp, then you could make a case that really yes, businesses and even people who are working in different jobs, they’re going to have to go work in jobs that are actually economically sustainable, but there’s no other way than to go to a sustainable and sound money. And so of course that’s what bitcoin comes into it and that’s where basically the people who get wrecked are the ones who lent out and made bad loans. In a way it’s sad because as you said, a lot of people are coerced. They are forced into effectively lending to the government because in the US case, Social Security is held in US treasuries, as you said. So there’s no easy way out. There are just less bad ways out is how I’m thinking of it.

Speaker B – 00:50:06:

Yeah, I see that. And I’m going to read Deflation and Liberty. That sounds like a worthwhile read. Not to bring it to a dark note there, but I think sometimes I wonder how much of the like, if you look at the population chart it’s gone like absolutely vertical. Well, it depends on the axis of course, but it’s really, really grown past 100 years and a lot of that has to do with technological advances. But I often wonder how much of that is just this insane credit cycle that we’ve been on. It’s supported we pulled so much productivity into the now, right, and at expense of our future and then how much does that end up having to adjust or how much does it adjust? And that was the one thing I was thinking of, like, okay, well, if we let the system that we’ve built right now, if we do let it collapse, how much of the population just naturally goes with it? Right, so that was another thought I was thinking of. But I want to read that book because I think it’ll inform me better on all this topic.

Speaker A – 00:51:00:

Yeah, right. I mean, look, at the end of the day we should also remember that freedom breathes through these little cracks in that system and that people will find ways to go and build things and produce things where they are given an opportunity. So I think we shouldn’t. Be too pessimistic. I think we have an opportunity now to create this parallel system and that’s really the opportunity of bitcoin, is that people can start opting into bitcoin. And over time, I believe those people who are valuing their net worth in bitcoin and trying to value and price things in stats where possible, they’ll do better. And as a result of other people seeing the success of bitcoin, people doing that, they’ll start copying. Now I think there’s a little bit of an overall apathy problem. I think a lot of people just they’ve got their job, they’ve got their family, maybe they’ve got a little bit, they’ve got some hobbies or whatever. They haven’t really taken the time to go deep and actually really understand Bitcoin and really understand the sociological and economic impacts of bitcoin, why they should be using it, why they should be trying to be self sovereign. All of these things that we as bitcoin is, we just take that for granted, right? If you’re in here listening to this podcast or if you’re in this circle. But I think as these cycles play out, it will just become more and more clear that bitcoin is what you should be holding bitcoin is what you should be using to give yourself an opportunity. So that’s kind of how I’m seeing it. But it is not going to be an easy pathway. So I guess let’s just kind of close with a few high level thoughts or sort of bring it back to where we started. Right? So as you said, the four kind of factors the end of the big death cycle, inflation as a constraint, war and de-globalization. And then lastly, the search for a new store of value. So I guess that’s probably I actually really like the framework. I think it’s an interesting way to think of it because it’s not just economics, it’s also you have to understand a little bit of the politics of what’s happening also. So anyway, let’s chat a bit about your new publication. You’ve got Stack Macro Pro, so tell us a little bit about that.

Speaker B – 00:53:13:

Yeah. Stack macro pro. It’s just something I just started. It’s really for anybody who enjoys conversations like we have today, I have a couple of things on there. I have called a newsletter that I put out pretty much every day and then a private podcast that I put out once a week. But yeah, for me I got really frustrated with most media reporting on current events and economics, et cetera, because it just seems like they don’t really take those four factors into account. They’re just kind of unaware of this end of the big debt cycle and the economic tensions between countries and things like that. So on Stack Macro, what I try to do is cover events with those lenses in mind. And then the other aspect of it is just having a community that also understands those things and we have a forum and a live chat on there. So it’s just nice to connect with other people that see what’s going on in the world and not feel like you’re the only one who sees it. Right. So sometimes we’re going through life and it feels like nobody around us has any clue what’s going on. So Stack macro’ss is the way I can bring some people together and we can help each other survive and kind of like thrive through these long term trends. That’s the idea behind it.

Speaker A – 00:54:20:

Fantastic. And so, yeah, we’re in this time where we have to be flexible. I think people have to be willing to if things get really bad where you are, do you have some kind of backup option? Do you know how to take bitcoin payment for your business or your service? So that way if you get shut down by the likes of PayPal or whoever else, that you have an alternative? So I think these are some of the things that we have to keep in our minds just as things are going, but we should still be optimistic about the future we can create if we can encourage people to look into bitcoin and really, actually dive deep on bitcoin. So I think that’s probably a few closing thoughts for me. Do you have any closing thoughts for listeners?

Speaker B – 00:55:04:

Yeah, I love that message. Stay optimistic. And going back to your previous point of like, people can always try to create value, and I think there’s optimism just embedded in that, whether it’s perfecting a skill at your job or creating your own company or whatever, I think that that’s kind of what keeps the economic gears turning. And also, yeah, there’s just optimism built into that. So when it’s really hard or when times seem tough and markets are crazy and the world’s crazy, it’s easy to be pessimistic. But at the end of the day, we do have agency and we do have the ability to model our world kind of like how we want, even if things seem bad around us. So we’ll leave it on that. We’ll leave it on an optimistic node. But this is really great, Stephan. I appreciate that and looking forward to meeting you in Lugano.

Speaker A – 00:55:51:

Yeah, I’m looking forward to meeting you also. So, listeners, make sure you follow Stack. He’s on Twitter, his handle is Stack Hodler and his website is Stack, thanks for joining me.

Speaker B – 00:56:02:

Thanks, Stephan.

Speaker A – 00:56:03: You can get the show notes over at, and reminder For those of you interested to attend the fantastic upcoming conference, pacific bitcoin by Swan Bitcoin. That’s it for me. I’ll see you in the Citadels.

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