Doomsday Inflation and a Bull Case for Bitcoin — with Lyn Alden
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Today's number, $111 million. That's how much New Yorkers spent on hot dogs last year. True story. Buddha walks up to a hot dog vendor and says, make me one with everything. ♪

Welcome to Prop G Markets. Ed, I was at Jack's Wife Reader this morning and this lovely woman came up with her 11-year-old son and said that they were going to listen to

to Prop G markets. And so I have to clean up my act. We have to go PG-13 for a little while here. I honestly, I get that a lot. A lot of people want to listen with their kids. And they can't. Taking their kids to school, but they can't because of the jokes. Yeah. It's a serious problem. Yeah. I think it's worth it. I'm definitely going back to, you know. I agree. Yeah. Speaking of hot dogs, you know, my nickname in college, Ed. The dog? What is it? No, no, no. I can't say. I can't say.

Anyways. Tripod, Ed. It was tripod. Anyways, we're back. We're back. That's it. That's it. How is New York? It's fantastic.

If anybody wants to feel good about, you know, anything, come to New York and walk around. As long as you can lubricate it with tens of thousands of dollars. But there's lines to get in stores. The restaurants are amazing. It was beautiful this weekend. People are friendly. People come up and say nice things. And it's great here. You must be enjoying it. You're young. What did you do this weekend? I went back to college for reunions again. Really? Yes. Wow. How are the douchest douches in Doucheville doing?

It's good. It's good. It's getting a little tired, I got to say. I mean, third year in a row. Princeton's weird. I mean, everyone goes back every single year. It's like, it's kind of getting a bit much, so. Yeah, but that's, it's not because they care about you. It's because they're going to ask you for more money. Oh, yeah. Yeah.

So they can be a hedge fund that continues to offer classes and pay their faculty. That's right. And it's a good strategy. Yeah, it works. It was a fun time. Was it a fun time? What do you guys do at a reunion? What do they do at reunions in Princeton? I imagine them having Pimps cups and talking about redrawing the maps of the world with their Republican friends. What do they actually do?

You stand in the grass and drink beer all day. That's all you do. Sounds pretty good. I got to say, it's pretty impressive how fucked up people get. You wouldn't expect it at Princeton. You wouldn't expect that? Oh, there's serious alcohol abuse up and down the income ladder. That's not. Oh, my God. All right, get to the headlines, Ed. Let's do it. Now is the time to buy alcohol.

I hope you have plenty of the wherewithal. Elon Musk's artificial intelligence startup, XAI, closed a $6 billion funding round at an $18 billion valuation.

Funds from the Series B round will be used to bring the company's first products to market. The Justice Department is suing Live Nation for anti-competitive practices in the concert industry. The lawsuit alleges that, alongside its subsidiary Ticketmaster, Live Nation has engaged in tactics to raise ticketing fees for consumers and restrict opportunity for artists and venues. Live Nation's shares declined 8% following that announcement.

And finally, China has raised around $48 billion to increase its chip-making capabilities. The National Semiconductor Fund is part of China's efforts to reduce dependence on America for semiconductors and chip-making equipment. Scott, your thoughts? So, XAI, I think, you know, Elon is, like, he's pretty controversial. I think there's a lot of people who are now rooting for his loss, if you will.

pre-money of $18 billion post to 24. I think the kingdom's invested, Dubai, Andreessen Horowitz, Sequoia Capital. I almost see it as an option or putting a chip down on a number because, you know, I got to admit it. I had one of those moments. I was flying from Miami to

And I saw the pilots had looked over to the left and it was one of the SpaceX craft launching, which is just, you know, the guy's not making a photo sharing app or sending Viagra through the mail. He is doing big, big, bold things. On this flight, they had Starlink.

And my son called me on FaceTime and it was perfect. And I can't believe I'm saying this. My least favorite product of the year is Twitter. I think it's become the sewage system of a sewer. My favorite product is also from the same person that at Starlink. It is an unbelievable product. It really is incredible. And I think that people...

This is more of a FOMO, right? And that is people look at Elon's ability to sink incredibly big and think, okay, there's a pretty good chance this thing's going to go out of business or not live up to its potential. But there's always a non-zero probability when you invest with Elon Musk that it might be 10, 20, 30x.

So an 18 billion, while that's a lot of money for a startup, I think anything in AI that has potentially the customer base of a Twitter that has access to the data of a Twitter or the sheer amount of data, although I wonder how valuable that data is because it's just such a cesspool.

I don't want to say I'm rooting against Elon because that's a bias, but I'm definitely not rooting for the guy. But I think there's no denying with Starlink and some of the other things he's working on that I can understand why people would do this. What are your thoughts? Yeah, I think what's very interesting to me is the cap table. You mentioned some of those names. They're basically all of the biggest names in VC. It's Andreessen Horowitz, Sequoia, even, yeah, the Saudi Investment Fund.

Now, what's striking to me is that many of those investors are pretty significant shareholders in companies that are direct competitors to XAI. So, for example, Sequoia is also an investor in OpenAI, and Elon has made it pretty abundantly clear that his goal is just to replace them. So my question to you is,

Why would a VC like Sequoia Capital invest in the rival of one of its most significant portfolio companies? Doesn't that kind of go against their interests? And doesn't it certainly go against the interests of the founders they've backed? Yeah, these firms will all say that they support their CEO. But if there's an opportunity to make money, they will violate that. They will not stay out of an investment opportunity pretending to live up to their, you know, their previously stated expectations.

mantra of we don't fund competitors. They're not making a bet against any AI company, they're making a bet on the sector. And so they'll obviously bump up and Sequoia and Andreessen are so powerful that they can not dictate terms, but they can fund rival companies. And then the CEO of another company pops up and says, "Hey, you said you weren't gonna fund our competitors. This is making life harder." And they're gonna say, "Well, we're Sequoia, get over it. We'll do whatever we want."

Live Nation. I think the government here has a really strong case because the thing that has held back or gotten in the way of breaking up big tech or DOJ or FTC actions against big tech is that their products are for free. Now, traditionally, antitrust law is based on this theory, you know, the Bork theory, and that is consumer harm. And the best litmus test for consumer harm is

is pricing. So big chicken, it goes from 12 to six to three players. And then an economist gets up there and goes, and by the way, the chicken hasn't gotten better, but its prices have increased faster than inflation for the last 30 years because there's one king chicken. There's a monopoly on chicken or a duopoly or an oligopoly.

And it's an easier way to look at antitrust. And the problem with Google and Meta is it's hard to look at consumer harm. Now, the consumer harm comes in the form of, okay, my 15-year-old girl is engaging in self-cutting because of bullying she's getting on Meta. But that is hard for an economist to quantify.

and not an easy consumer test. That's sort of indirect costs levied on parents and society around the world. What's much easier is when AT&T continues to raise its long distance rates faster than inflation with shitty technology. And they go, well, an economist goes, if you broke these guys up, there's more competition. You're just going to see a massive increase or decrease in pricing and increase in innovation, more R&D, all good stuff. And eventually, greater shareholder gains. I think of all the seven

bells, baby bells that the original AT&T was broken up into, they were all worth more than the original AT&T within something like a decade. So I think they're going to have that type of ammunition here because my guess is, I think they will be able to show or demonstrate that pricing at these events has vastly outpaced inflation. Now, some of that is a concentration of power and they'll say it's all because of monopoly abuse. I think that's a little bit unfair. I

I would imagine if I had to speculate, the lawyer representing Live Nation is going to go, we're fucked. And not only that, consumer sentiment is against us since we had that debacle around Taylor Swift tickets. So I would bet that they try to figure out a way to go to the DOJ or the FTC and say, do you want us to sell this? Do you want us to spend this? Do you want to have a consent decree or whatever?

I think the lawyers at the DOJ are, I think they are salivating ready to get in court around this one. What are your thoughts? Yeah, well, you mentioned those price increases that they're going to prove that it's increased faster than inflation. We have the data. They have. In 2018, the average ticket price for a top 100 U.S. concert was $90. Today, that number is $120, which means, I mean, you look at inflation during that same time period, it's increased around 20%. Concert tickets are up 33%.

So yeah, the price increase is real. Those are pretty serious grounds for antitrust enforcement. Having said that, I would make two criticisms of the DOJ here. And the first is the following. Back in 2010...

Live Nation made a bid to buy Ticketmaster, which was pretty controversial at the time because Live Nation, as it is today, was the largest events promoter in the world. And ultimately, the DOJ approved it. They decided that under certain legal conditions, the transaction was lawful and

and it did not violate antitrust laws. Now, this lawsuit is plain and simply claiming that Live Nation merged with Ticketmaster is a monopoly, which to me begs the question, well, why would you let them merge in the first place? I think the answer is, you know, we made a mistake. We shouldn't have. I think generally speaking, that's just not a great signal to send to the market. I just think it erodes some level of faith in the DOJ. Yeah, it's insane. The best investment...

that taxpayers could make right now in terms of ROI on a short-term basis would be one, the IRS, they get 12 bucks back for every one they fund the IRS. And the second would be to double the size of the DOJ and the FTC and start breaking up all of these industries. You'd bring prices down, there'd be more jobs, more shareholder value.

more tax revenue. It is time for the great de-concentration. It is time to break up these industries across all different dimensions. Anyways, a bit of a word salad there. Any final thoughts on China's $48 billion semiconductor fund?

The chip race is the arms race. These countries, we don't want to get into a hot war with anybody, right? That risks nuclear war. What we have with China is kind of a cold peace. It's not even a cold war. Russia and the U.S. really hated each other in the 60s, and we're constantly trying to actively undermine each other. We are more interdependent than that.

the new front for this proxy or this cold piece is chips. And whether it's your toaster oven or the guidance system on an AI operated drone, these chips are everything.

And I think the Biden administration does not get enough credit for being very forward leaning and making a big investment with the CHIPS Act. I think it's about 83 or 85 billion dollars. And China has to respond. And what's interesting is that, I mean, to a certain extent, the U.S. is just pulling away with it. Our economy is so drastically dwarfs every other economy that it's going to be very hard for anyone to keep up with us, even China.

on a spending level. So I think this was very predictable. When the U.S. basically put pressure on, I think it was TSMC, is that what they're called, out of Northern Europe and said, do not sell these sophisticated chips to China or we're going to make life hard for you. And we've said the same thing to NVIDIA, that you can't sell your most sophisticated chips into these guys. That is going from a cold peace to a cold war because that is cutting off

you know, that is cutting off their lifeline. But the chips or production of semiconductor technology is the new front in the Cold War slash a cold peace. What are your thoughts? I think the stat that really shocked me is that China's on track to spend more than $140 billion on chip production so far. It's actually larger than the U.S. and Europe. So, you know, that statistic combined with the fact that the country's already dealing with

basically a massive economic crisis. I mean, they could be investing all of that money in anything else. They have a lot of other problems to deal with. But the fact that they want to put it towards this, towards chip manufacturing, aka AI, I think that just tells us how critical China considers this new technology to be. The only thing is, that number might be a little bit misleading because that's government spending.

and we constantly talk about, look at the amount of money that private companies are investing in this type of technology. And you can bet everyone, I mean, okay, Nvidia adds a quarter of a trillion dollars in five minutes post an earnings call. You can bet a lot of that is going to go back into chip research and design and IP, right? In addition, the biggest players and deepest pocketed players in the world, Amazon, Microsoft, Meta, Apple, are all like, I am sick of kissing Jensen Huang's ass.

So you can bet they are all investing tens of billions in developing their own chips. So I would bet that if we had a real number here, it would dwarf the Chinese number. Yeah, it's all corporate venture. All right, we'll be right back after the break for our conversation with Lynn Alden.

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Welcome back.

Here's our conversation with Lynn Ulden, independent analyst, full-time investor, and the author of Broken Money. Lynn, thank you for joining us today. Thanks for having me. Happy to be here. So we got lots to get into, but I want to start with just some of the more high-level basic stuff.

You've put out sort of an investing 101 memo. It's on your website. You did that for 2024. And in that memo, you outline what you believe to be some of the more common pitfalls, as you call it, when it comes to getting started as an investor. Could you just outline for us what some of those pitfalls are? Well, there's a lot of different pitfalls that people could run into. One of them is just not getting started. That's one of the biggest ones overall. Another one is overcomplicating it.

Basically, people, they get frozen by decision paralysis. They don't know how to get started. They get overwhelmed with options. A lot of financial investing content historically has been kind of jargony. It's kind of as though it's put out of reach of most people. And I think another big one is over-concentration. A lot of times when people do get interested in investing, they tend to get drawn towards something more high volatility or financial

things that don't really compound super well. It could be, for example, people get really into mining stocks because they're very volatile, even though they don't have a really good track record, or they get really into a big theme or something, rather than fully understanding what they're investing in.

And so there's multiple things that people run into. Yeah, we talk a lot on this podcast about the difference between investing versus trading. And I think you've described it as just gambling. And generally our view has been that it pays to be a value investor. Do you consider yourself to be a value investor in the traditional sense? And if so...

What does that term actually mean to you? For the most part, I do. That's certainly the kind of framework that I entered investing from. I would basically read Warren Buffett and that kind of content back when I was like a teenager. And I would look at

buying companies at reasonable prices based on their fundamentals for the long term. Over time, I've looked at multiple different investment strategies. Value often has the perception that it is opposite of growth, that basically it involves lower growth, cheaper companies, where I think a more holistic

understanding of value investing is that basically it's fundamental investing. So that can include a growth company as long as you're basing your research on the fundamentals of what you expect the company to do rather than, say, purely chasing things like price. And Peter Lynch really popularized that strategy back in the 80s, like growth at a reasonable price. That's basically, that could be kind of the intersection between growth and value investing.

In recent years, I've incorporated more macro analysis into my investing frameworks because I kind of started to view back in, say, 2017, 2018, that this was going to be like a macro-heavy decade, which means that things that are outside of any one company's control will move a large portion of the market.

So I do incorporate kind of a macro overlay that helps me determine potential growth rates of companies and things like that. But at the heart of it, I like to buy profitable companies at reasonable valuations that I think are going to be providing a good product or service over an investable time horizon, three, five, 10 years, and then let that thesis play out over the long term. Let's do that. Let's overlay the macro. What do you think are the big macro factors here?

A big piece of it is the fiscal dominance is how I would phrase it, that most of the past, call it 40 years of investing history, was under a period of monetary dominance.

which we can think of as central banks and commercial banks having a very big influence on markets. And so most economic expansions are these periods of heightened bank lending activity. And then most of the recessions are periods where banks are pulling back their lending, and often because central banks are tightening for various reasons.

But there are other periods in history where the fiscal side becomes as big or sometimes more of an important variable than the bank lending side. And so, for example, if you look at annual net bank loan creation and you compare that to annual fiscal deficits, it

In most decades, the bank lending would be a bigger sum than the fiscal deficits, especially if you also add corporate bond issuance, net corporate bond issuance. So basically, how much kind of private sector lending in various forms, either securitized or not, is happening compared to the size of the fiscal deficits?

But the 2020s and really kind of even like the year kind of leading up to that, like 2019 or so, we're now getting to a period where the fiscal deficits in a given year are bigger than new bank loan creation and bigger than even the sum of bank loan creation in net corporate bond issuance.

And the last time that the U.S. was in that situation was really the 1940s. So it's a very long-term historical kind of framework. Japan finds itself in that position today. And it's

in that kind of environment, you tend to, on average, run inflation a little higher than you would otherwise. You tend to have a little bit less cyclicality in markets because you have this background deficit spending that's happening. And you tend to get bigger bifurcation between different sectors. And so, for example, in the last year, if you're on the right side of fiscal deficits, you're

Meaning, for example, if your business is catering to recipients of Medicare, Social Security, defense, your business is doing pretty well. If you're in the travel, hospitality, restaurant business, you're doing fairly well in this environment. Whereas if you're not really on the right side of fiscal deficits, if you're more impacted by the monetary situation, like commercial real estate, for example, then you're in an outright depression.

And so when you have that kind of tight monetary but also very loose fiscal policy, you get into a very bifurcated type of market. And so that kind of led me to say be less bond-focused, more equity-focused, and to make decisions like that for my portfolio. And some of those have played out.

far more usefully than, say, avoiding one company or picking another company. Having those kind of big asset allocations reasonably correct has been a huge source of risk reduction. So I find this really fascinating. So we always talk about everyone's obsessed with Chairman Powell, whether his briefcase is especially full or not based on indication of where interest rates are going. And you're saying that the fact that

We're a household making $52,000 a year, our tax receipts, and our decision to spend $72,000 a year or 75 and basically rack up unbelievable deficits. That's overcompensating. That's really more important than whether there's a rate hike or not. I find that terrifying. Yeah.

Just because it feels like, one, you're just living on borrowed time. It just doesn't feel sustainable. And then what shocks me is that I speak to a lot of people and they don't seem that panicked about it. It's almost as if we've normalized the idea that we can take in $5 trillion in taxes and spend $7 trillion. What am I missing here?

So there's an interesting trend that I think led to this, and I agree with you. When you see people today talk about the risks of the debt and the deficit, you often see the response to that is people said, well, people have been concerned about this for decades, and look, nothing bad happened. And it's funny, when you look at when the national debt clock went up, that was the late 80s.

Ross Perot ran the most successful independent presidential campaign in modern history based on largely debts and deficits in the early 90s. That period was kind of the peak zeitgeist for public concern around the debts and deficits.

But the phase we went to for the next three decades was that China opened up to the world, Soviet Union fell, basically large amounts of labor and resources got connected to Western capital, a big burst of globalization, very disinflationary. And so we kind of had this period of 30 more years of falling interest rates and

And that offset a lot of our public debt accumulation. So if you double your debt, but you cut your interest rate in half, your interest expense still seems quite manageable. And I think people got lulled into a false sense of security that they kind of said, okay, we were worried about the debts and deficits. It turns out we didn't have to worry, we're fine. And then now people kind of, I think the pendulum swung the other way that people are saying, look, what we've learned is that they don't matter. But I think the key risk is that

Our interest rates have now, they bounced off zero. They're now going sideways to up. I think we're in a structurally no longer declining interest rate environment.

And when you have accumulated debts and deficits and interest rates are just going sideways, let alone up, that offset's gone and the debts and deficits actually start to matter quite a bit more. And then, as I said before, when that sum of fiscal deficits is larger than the amount of net bank loan creation or even the sum of net bank loan creation and corporate bond issuance,

That's just a much bigger factor on the economy. And then in addition, you can get to a point where the Fed rate hikes

could they lose their effectiveness to fight inflation? Because if you have an environment, let's say back in the early 80s, where public debt is 35% of GDP and most of the money creation is coming from bank lending, if you raise rates super high, you do blow out the fiscal interest expense to some extent, but you put a lot more downward pressure on that private sector lending. And so that tends to be a net disinflationary effect.

On the other hand of the spectrum, if you have fiscal deficits are larger than bank lending and you have an accumulated stock of over 100% debt to GDP on the public ledger, when you raise interest rates, which is what we've seen in the past couple of years, you do put some downward pressure on bank lending. But also you blow out the interest expense of the federal government by an even larger total number than the slowdown you did for bank lending.

And so it has a less disinflationary effect than it would if you had only, say, 35% debt-to-GDP. And if you go far enough, like if you get to where Japan is and you have something like 200% debt-to-GDP, then rate hikes could even be inflationary under certain circumstances because almost none of your money growth is coming from bank lending. It's all coming from monetized fiscal deficits and interest rates

increase those fiscal deficits. I'm a Debbie Downer, half glass empty kind of guy. I just, I'm not smart enough to figure out how monetary, you know, the theory that we can keep just spending more than we're making. What you're saying is a potential scenario that how it unwinds is just inflation that we lose bullets in the chamber. Our tool against inflation becomes useless.

because of the skyrocketing interest on debt, which explodes the debt further, which more interest payments, more money printing, because we have no choice. One, can we continue to do this? Some economists say, yeah, you can continue to do it. Do you believe we can continue to live above our means like this? And two is the

Is the doomsday scenario just inflation that we no longer have the weapons to fight? So yeah, that is how I describe the doomsday scenario. That's the limiter, is that we get structural inflation that is beyond our ability to fight with all the tools that we're used to doing. Because all the Fed's tools for controlling inflation are really about accelerating or decelerating bank lending. And they really don't do anything about the deficit. So if the deficit is the source, is the primary source of new money creation, then the Fed's

tools become limited and sometimes even counterproductive. To answer your other question, basically, I don't view it as sustainable. I think that these situations can go on a lot longer than people expect.

but it doesn't mean that they're sustainable. Basically, this phenomenon is not new to, say, emerging markets. It happens for emerging markets all the time. They have a lot less rope to, you know, they have a lot less road to go down because they often, their liabilities are denominated currency that they don't control. They're more reliant on external capital. The U.S. has a ton of road or historically had a ton of road

I think people overestimate the amount of road that it has when interest rates are no longer structurally declining. And so I do basically think that the long-term outcome here is on average higher inflation and inflation that is less able to be controlled by central bank policy of tightening. And that really the only way to try to get a handle on it is to deal with the deficits. But a lot of that is structural, right?

It's basically accumulated decisions over decades and things that are kind of third rails in politics to touch. And it becomes a very hard problem to solve, which is, yeah, I'm not very bullish on

the strength of currency or the reliability of bonds as long-term investment vehicles because of that underlying situation. One kind of background point I would make is that when people talk about debts and deficits in the US, and they talk about it being like a doomsday scenario, for people that kind of study global markets, like, you know, I'm in a few weeks, I'll be back in Egypt. I go there every year. They're dealing with something like 40% inflation right now.

And life goes on. It's obviously not great, but the things that people think of as the end of the world are happening all the time in multiple countries as we speak at higher magnitude than any of this likely leads to in the near term. So I think that's the optimistic point there is that there are always things that are more extreme. People are adaptable.

systems change over time and the end of one system or the switch off from one system to another system is often more of a handoff. And, you know, apart from the biggest tail risks in the world, like nuclear war or something like that, life goes on, right? So I generally don't like the phrase that it's doom, even though it is serious. ♪

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Could you give us your general assessment of the crypto market right now? Are you still a believer in Bitcoin? And how does it compare in your view to other digital assets? Digital assets, yeah. Basically, I've been a bull on Bitcoin as well as

stable coins is really the two categories that I've found to be high utility kind of signal to noise. I've been very critical in the rest of the crypto space. Basically, when we think about money edge, money is largely a ledger. So when people were using gold as money, they were basically relying on nature to provide the ledger. And we would augment that ledger with

you know, coinage and abstraction, but basically we're, we're kind of updating this ledger by physical possession of gold and nature's kind of setting the rules for how you can make more gold or, or how to move around or authenticate that gold. Modern money relies on central bank ledgers who basically we trust the fed to run a ledger and then banks are kind of a layer two on top of that. Um,

kind of centralized ledger. So we have this kind of two-tier money system, really kind of three-tier when you incorporate fintechs and things like that. So we have this kind of two or three-tier centralized money system. And the challenge there, so in the US, at least for the past half century, we've had it pretty good.

Our currency loses value slowly, and we have plenty of investment vehicles to save into. Whereas, for example, when you look at a country like Egypt, they don't have the S&P 500. Their stock market's not a reliable investment, kind of a wealth-building vehicle. They've got real estate, but real estate's, of course, illiquid. So there's all sorts of downsides with that. They can't obviously invest in their own currency in any meaningful amounts because you've got

on the average of double-digit inflation over a 50-year period. And so what things like Bitcoin and stablecoins do... And could you just explain what a stablecoin is? I'm sure it'll become clear, but... Sure. A stablecoin is when an entity holds dollars or things like T-bills, for example. You can wire them money. They will then give you tokens that are redeemable, at least by large entities, for those dollars. And so they're basically like banknotes in digital form.

And then even smaller entities that don't have the right to redeem them, they can still trade them around. And the main ability there is that it allows countries that have historically had a heart that desired dollars because they wanted some stable currency that's more stable than their currency but doesn't have the volatility of gold or Bitcoin or something like that. It allows them to access dollars more easily and in more digital form as long as they have

And so they're very popular in Argentina. They're very popular in Lebanon. They're very popular in Nigeria. They're basically, they, we live in a world where there's 160 currencies, more or less. They're all kind of central monopolies. So if you're in Nigeria, you've got to trust the Nigerian central bank and the

Nigerian government and how they're going to manage their currency. The borders are fairly tightly controlled, which is, you know, you can only bring so much value in or out of an airport. Bank transfers are quite controlled and often done at artificial exchange rates that differ wildly from what the actual kind of market rate for that currency is. And what stablecoins and Bitcoin do is, you know, if...

If there's a Nigerian graphic designer and she holds up a QR code on a video call, I can pay her in whatever money she wants. She could ask for Bitcoin, she could ask for dollar stable coins, and it goes to her around her local banking system. And she's able to then use that peer-to-peer. She can bring it with her wherever she goes if she ever leaves Nigeria. And she basically has more choice over what money she uses outside of her currency monopoly.

Bitcoin is the fully decentralized, fully scarce version of that. It's the one that's not, there's no central hub.

the thing you have to deal with is that higher volatility and the uncertainty of what it would be worth in, say, any given one or two-year period. Whereas stablecoins, the downside is that they are fully centralized. There's some entity that's holding the assets, and you have to trust them. You also have to trust their ability to operate in a regulatory environment. But the way I would phrase it is they kind of serve as offshore bank accounts for the working and middle class rather than just the wealthy. They kind of just compress the overhead of

of running one of those systems where if you're in Argentina, you might not trust your own government's ability to run the currency. You might not trust the banks because in the past, even if you store dollars in them, they can get confiscated away. But they say, well, for small amounts of working capital, I'll trust this offshore entity. Yeah, if you're in somewhere like Argentina or Egypt, Lebanon, Russia, Turkey,

Those are places where, comparatively speaking, you're probably going to have more faith in the value of a Bitcoin versus the value of, say, a Turkish lira. What I don't see, however, is how Bitcoin could serve any real use case for an American today. Sure. So one of the attributes of money, it is that which you hold, even if you don't intend to consume it yourself. That's kind of historically where money kind of came from. So, for example, if we hold a gold coin today,

we're not necessarily intending to melt it down into jewelry or industrial use anytime soon, but we're kind of holding it knowing that it's a useful thing that other people use. Store of value. Store of value. And as an American, to your point, we generally don't find ourselves troubled for payments or even troubled for savings. We have no shortage of savings vehicles that are reliable. But if you...

kind of view it as something that could be useful for billions of people around the world. Something like half the world lives under shades of authoritarianism. Half the world lives under kind of persistent double-digit inflation and multiple hyperinflations within our lifetime. Bitcoin is something that Americans often treat more as that investment. And it's one that happens to have outperformed the S&P 500, the NASDAQ, almost everything other than NVIDIA over three, five, 10-year periods. So

For us in America and Europe, it's often seen as an investment, which I think makes sense. But in, say, Africa, where there's roughly 40 currencies, or Latin America, where there's roughly 30 currencies, and every one of those currency borders is a friction.

most of those currencies are undesirable to hold, is something that's useful to them. And therefore, it is an investment for people that kind of understand that there is a use case, even if the use case doesn't apply to them. And like America, I do think that we are running this more structurally high inflation because of the things we talked about earlier in this discussion. But that doesn't mean they have to happen super quickly. It doesn't mean that things have to end quickly.

If you do the rough math, the Congressional Budget Office expects $20 trillion in net treasuries to be issued over the next 10 years. They also assume no recessions. So if there's recessions, that number is probably going to be higher. They generally undershoot the numbers. But let's say conservatively, $20 trillion in treasuries is going to be issued. If you look at how much gold is going to be mined over the next 10 years, at current prices, it's somewhere in the ballpark of $2.5 trillion.

And the amount of Bitcoin that's going to be created at current prices is something like $70 billion. Now, of course, gold and Bitcoin can change in price to accommodate more inflows if people want to put more money into them. But the point is, basically, if you're just kind of saying, what do I want to own that's pretty scarce? Obviously, good equities are one of the options. Good real estate can be one of the options.

art is historically one of the options, especially for wealthy investors, but also Bitcoin is because it's liquid, it's fungible, it's portable, and it's got a lower kind of new supply growth rate than a number of other kind of liquid investments. So I think from an American perspective, it's often viewed as an investment, whereas in other countries, it could be viewed as a lifeline. Isn't that the core value proposition of Bitcoin that

Over time, every fiat currency has failed because the temptation to think short-term results in printing of money and flooding the market of that currency. And that Bitcoin, whether it's true or not, has created the perception that we will stop printing at some point. And no other asset. There's more gold in the ground. There's synthetic diamonds. And there's

a fad in presidential cycles that just continue to print more money. At the end of the day, isn't it that they've convinced people we're going to stop mining Bitcoin at some point? Yeah. So basically the rule set of Bitcoin is distributed among the people that run nodes, it's open source software. And so it's built into the code since inception. So every approximately four years, the amount of new Bitcoin that's traded every 10 minutes gets cut in half.

So it's not that mining just one day shuts off. It's that mining starts out at a certain pace, and over time, it asymptotically approaches 21 million. So back in April, the amount of new Bitcoin created every 10 minutes got cut in half, and approximately four years from now, it'll happen again. And at this point, as of this latest halving, the annual supply inflation of Bitcoin dropped below 1%.

which is approximately half that of gold. Gold generally historically grows at estimates of something like 1.5% to 2% per year in terms of supply. The typical developed market currency grows at 6% to 9% per year outside of extraordinary years. Emerging markets like developing countries, they typically grow at double-digit currency supply growth over the long term. And so gold

Among fairly liquid monies or money-like assets, Bitcoin is now a very slow-growing supply. I mean, the way you frame it is very compelling that when you look at the actual gross amount out there, even with its price run up,

What you're saying is it's actually the perception of the run-up is not the reality, that because of this halving and a reduction in supply, the asset price is still reasonable. Is that fair? Am I putting words in your mouth? That's my view. And I think the total adjustable market is still notably higher than it is now. I don't know what it's going to do over the next three months. But yeah, I'm bullish with, say, a two-year view or a five-year view or potentially a 10-year view. I went through a long phase where I was—

you know, pretty skeptical on the asset. I was like, well, what if another currency is going to be better? Or what if the whole, what if the whole space gets so diluted? But once I saw the network effects really form, once I delved into the technology and why it's designed a certain way, ever since, ever since really early 2020, I've been pretty structurally bullish on it.

And that really continues to be the case, you know, over four years later. So just I just want to return real quickly to the macro discussion. And that is I'm trying to think of a soft landing scenario for what feels like reckless spending. And that is the following. And tell me if you think this is a potential scenario. We should got a way to raise taxes, lower spending in our deficit. We get our deficit down to one trillion a year.

And inflation continues to run at 5%, 6% a year, meaning in 12 years, the economy doubles or the dollar, notional dollar value of the economy doubles to 50 trillion. And we're running deficits at 2% of total GDP, which is lower than inflation, which argues that as a percentage increase.

of our GDP, inflation start to go down and the market perceives that interest rates lower and we're no longer in this cycle of upward inflation. Is that a potential soft landing scenario? I think so. But the main challenge there is that, and this is kind of unique to the U.S.,

Our tax receipts are very tied to asset prices. It's kind of just, especially since the 90s, because a large portion of taxes are from wealth individuals. So people exercising their NVIDIA options. Exactly. Yeah. And so you'll generally see with a short lag, tax receipts follow asset prices. So if we were to pivot toward austerity...

there's a decent chance we would get kind of flattish asset prices. And then therefore, you could ironically continue to widen the deficit anyway. It's a very hard...

tailspin to get out of, you'd have to, I think, not just tweak your revenue and spending model, but you'd have to kind of overhaul some of the ways it works, which would make it even harder to do in a very polarized environment. Generally speaking, when countries get out of this, like we got to similar debt levels in the 40s. We had much better demographics back then. We had a much stronger manufacturing base. But basically what countries do when they find themselves here

is they generally run financial repression, which is that they hold rates below the inflation rate. It kind of slows down the interest expense of the public ledger and therefore can kind of slow down the money supply growth. It makes your currency fairly undesirable to outside entities, which is not what we're doing right now. That's what Japan's doing. But I think that's kind of in the cards for the U.S., which is basically that...

We're going to have a period of time where interest rates are just not really keeping up with inflation. If you're holding currency or bonds, you get kind of gradually devalued. Technology – and part of what disguises the inflation is that we think of inflation as being compared to zero, but the baseline inflation rate is negative because over time, technology gets better, things get cheaper to produce.

but they go up in price anyway because of how we run our money. And so any sort of technological gain also contributes to the possibility of soft landing because as you get better at making stuff, if you're running money supply growth at 10% but you're 5% more productive at making things every year, then actual prices on average might only be going up at 5% per year. That's kind of historically how countries try to grow out of this type of situation.

but normally they don't do so without a pretty big currency devaluation along the way. And that generally shows up in whatever is scarce. So generally the high quality assets go up a lot in currency in those environments. If you get any sort of dislocation in energy production for a period of time, like if you're just not growing or a CapEx is not happening and you get a currency devaluation, that can show up in higher prices. That's generally what triggers devaluation.

pain in emerging markets as some of their key imports get very expensive. So there are ways to kind of smooth it out over a long period of time, but it's very hard to kind of structurally fix it until there's basically a big change in how taxes are done, spending's done, and probably the overall currency level as we kind of know it now. Every time we have you on, I think to myself, why don't we have

Lynn on every week. This has been fantastic. Lynn is a full-time investor, independent analyst, and author of Broken Money, Why Our Financial System Is Failing Us and How We Can Make It Better. Her work has been featured in the Wall Street Journal, Business Insider, Market Watch, and CNBC. And she's also served as a consultant to startup companies, hedge funds, and executive committees. You can find her research at lynnalden, L-Y-N-A-L-D-E-N,

She joins us from Lynn. Where are you? I'm in New Jersey, New Jersey. And you say it with pride. Well done. You say it with pride. Lynn, thanks so much for your time. This was fascinating. Thanks, Lynn. Thank you. Algebra of wealth. Scott, we spent a lot of time with Lynn discussing the deficit and generally discussing debt.

I want to stay on that theme, but switch it to personal. You often say that debt is a double-edged sword. You say wield it as a weapon, but don't let it cut you. Can you elaborate on that idea? Sure. So there is good debt. And most financial advisors will say to you, you know, debt is the enemy. But the wealthiest people in the world leverage debt. Apple, which never needs to have debt, issues hundreds of billions in debt. And good debt takes on a couple different types of complexions. One is

It's an investment in yourself, a limited amount of student debt in pursuit of a degree that I think, you know, where you'll get the certification, it'll pay off. I borrowed, I think, $15,000 to get through business school, which isn't a lot of money. It's been a huge ROI for me. The other type of debt is for assets that will appreciate in value. And that is, okay, I'm buying a home. I can get a mortgage for 6%.

and it's going to force me to save some money. I'm going to live in it. And potentially, I think that the price may go up at the same rate or ideally more. So occasionally having some debt, if it's low interest and friendly, and you're using the proceeds to invest in something that'll grow faster than the interest rate on the debt, that is what you call good debt. What is bad debt? Using debt for consumption.

I really want to go to Stagecoach because, you know, I love country music and it's my dream to see Willie Nelson and Post Malone. None of that is true, Ed. That's the wrong thing to use debt for. So debt for consumption, I think, is a bad idea because it puts you in a place where the credit markets or these companies will convince you that it's not real money. It doesn't feel nearly as painful.

And the temptation, there's so many amazing things that capitalist economy offers you, but just be very careful about getting into any sort of debt for consumption. Good debt is low interest rate debt that either enhances your ability to make more money in the future, or you can invest in things that likely over the medium and long term have shown a track record of returns that are greater than that debt. Does that make sense? Absolutely. Absolutely.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday.

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