I was asked if I could make time to go to this webinar this morning (9-10am), and I could, so I did, and of course, I took notes. I always take notes. And I'm continuing to share them - so hopefully they are useful to someone out there. I have to say, I saw Danielle DiMartino Booth in an interview for the first time last week - and was superbly impressed. Today, she went from being a self-proclaimed "old timer" who hedges with GLD (Gold) - to someone who might finally understand the great big case for BTC (Bitcoin). WOW. And Jeff Booth did an amazing job building up the case and really pushing for logical thinking and thought experiments. Now, I am following @JeffBooth - as I am also a newly minted fan.
Here are their bios for reference (I don't think they are related.):
Feedback welcome on the notes. Too much? Too little? Different format? Let me know! And here's the link to the full interview: https://blockworksgroup.io/ia-inflation-vs-deflation?SQF_SOURCE=webinararchive
[Jeff Booth] Technology is driving deflation - exponential efficiency, exponentially deflationary. People are trying to plug the hole from technology deflation. Everything else is a by product of that. Why does anyone use technology - it’s to FREE OUR TIME. It removes labor. That’s why prices should go down. We are fighting that natural order - which is concentration wealth, power, etc.
Michael - There has to be a reset one way or another. It’s an epic battle of our time. Do you agree? —>
[Danielle] Same but different prism. COVID acted as an accelerant. Small businesses employed 40% of people in the US - found US labor for their purposes was cheap. Now they are automating even more now. Customers want EVEN LESS human interaction than before because of COVID. 26,000,000 collecting unemployment - that’s DEFLATIONARY itself. 1/3 of American households have lost income - Still have households that have lost income. Jay Powell is running like a mouse on a wheel by trying to create asset price inflation. Only works if the banks will lend. Asset price inflation in stocks. The old Alan Greenspan playbook is in play too - Fannie is all about refinancing, all in the last 6 months. People are pulling out of cash out of their homes - interest rates at 2.6%, all of this engineered by Jay Powell. Wealth effect NEVER trickles done. The bottom of the “K” is where we are seeing deflation. The Fed is creating a housing bubble. The Fed cannot print JOBS. The Fed cannot create cashflow.
Michael - The K shaped recovery is the best manefestiation of the Fed. They inflate asset prices so people feel wealthy. This is causing real dispersion. Real income inequality. What’s the outcome? ——>
[Jeff] This isn’t just the FED. This is a global phenomenon. Logical step by step. If Tech is deflationary at the rate I am talking about, and IF as you print more money and more capitalism - it’ll force businesses to implement technology faster. Period. Full Stop. Means everything else globally, if you’re trying to drive inflation, you’re trying to drive WAGE deflation, You’re trying to make debt cheaper. You’re picking the pockets of the people LEAST able to do that. You’re driving society breaking. They’re pointing at each other. Fundamentally - revolution, political divide, …. The system is being forced to change. This is the most important topic of our time. If that cannot work together, monetary cycle and inflation. 1) let it happen. - capitalism would call for this. Assets are so overpriced. And they will fall by 80-90%. Banks would fail… It’s not bad people anywhere. They are TRAPPED. The time to fix this was 20 years ago, Instead of fixing it they made it worse by making bigger and bigger bubbles. Populations on booth sides are pointing at each other. …. then it’ll be “Euro’s fault”, “China’s fault”… the only other way is to drive inflation. At some point, treasury might coop the Fed, the next step, then you’ll get more inflation, in the name of HELPING people. Whole people cannot pay for these prices (inflation). Then people will come back and say ’Save me!” — massive printing all around the world will be picking the pockets of people (wages, savings) — which will cause revolutions in the street. The Fed is the firefighters, but also the arsonists.
Michael - The Fed feels trapped. Enemy of the Fed has transitioned.
[Danielle] Jay Powell came into office, the Dow Jones closed in triple digits in January 2018. He thought it was not the Fed’s job to backstop Wall Street. Fed has been inflating the household bubble, and now the exchange market bubble. Massive disconnect. He said QE was a bad idea - and then he reversed that statement because the Fed is Trapped, because of the magnitude of the bubbles. There’s also massive proliferation of dollars throughout the world. The weight of the world is on the shoulders here too. It’s a MESS.
Michael - it’s a tough situation. Money printer go “brrrrrr”. The Fed is in an unfortunate position. Fiscal policy will play a bigger role. Lots of deflationary forces.
[Danielle] If you create a working class that doesn’t have opportunities, we're going to be in trouble. Germany in 2005 took opportunity to retrain their workforce. US is doing the opposite thing - stimulus bandaids. This is going to head to a STAGflationary situation. This will swing too far on the other side…. Rising interest rates, people out of work… this may be the worst of the 1970s.
[Jeff] They have to try and create inflation (let’s thought experiment). Take it logically. Deflation is happening from technology - which SHOULD bring prices down, which SHOULD be a benefit for society. Where’s the evidence? Last 20 years, preCOVD, we had 35 trillion global debt. … the problem is that is looking backwards. Technology is moving forward. 30 trillion dollar debt, it’s nothing compared to what’s going to happen. It has to explode mathematically. That money is going into asset prices. It’s robbing from the free market, because it’s trying to protect the value of the money. China takes their money out and puts it into real estate - to protect its value. That steals from the economy. It’ll move into authoritarianism. THere’s no way out of this right now. There will be hyper inflationary. It won’t be right now. When the FISCAL side comes on - it’ll be stagflation, hyper inflation, etc… at that point, as currencies are destroyed all around the world. The feedback is like what we’re seeing in Turkey. Remove that market from exports, the feedback will race around the world and take it down. You’ll just keep on going. We have to LOWER our dollar value in relation to the world. Now, how does the Treasury get out of the debt box? Inflation is trying to make the debt cheaper? What government will take this on? The fed has taken the risk. The bank has taken the risk. You’ll collapse the entire economy and the Fed, because the Fed has absorbed the entire risk of the market. I really wish these weren’t as binary situations…. But we cannot. The next 10 years…. In order to get stronger, the dollar HAS to get weaker. Where in safety is that? Where are you personally going to do? How to look out for your family? That’s the greater conversation for our time.
Michael - Absolutely. How do you position yourself in this crazy world? What does the transition look like over the next 10 years? Stagflation, hyperflation, this is globally something we haven’t seen for a very long time? How does this look for the next 10 years for the dollar?
[Danielle] Correlation between Euro and growth of the US balance sheet = is like 80%. Jay needs more product. Whoever is winning the balance sheet battle… Christine has more product and is winning right now. You can see the Fed will have 3-5 trillion out there between now and Q1. That’s when the Cares act goes away. Trying to buy time - but not in a productive way. The currency, whoever is printing more money the fastest will win. Jeff’s scenario is dire. In the background, as you become more authoritarian and more dependent on the state and not spending on infrastructure - and throwing NONproductive stimulus cash of people NOT working. We will DEglobalize - this is what will SET off the authoritarian state. Events folded from 1914 - 1930, and the war was decided on who had the least amount of debt.
[Jeff] Let me build on what Danielle just said. Why infrastructure projects? US should spend on infrastructure projects - not just printing. A road, bridge - this will decrease time between home and office, the short term benefit of labor, long term benefit of faster commute which is more productivity. Here’s the problem with that today. Everything we do, zoom calls, digital doesn’t care about this. Where does the money need to go to have long term benefit? There’s no job in Canada from zoom. Technology is borderless. IF tech is coming in right now. Lots of working from home forever. I don’t need real estate - real estate will crash. If labor can work from anywhere, wouldn’t you hire the best at the cheapest? Talent is extraordinary anywhere. If we are working from home - how fast tech is deflationary is incredible. We have a house of cards that’ll kill people. You cannot train fast enough once this all falls. This will force businesses to look for better cheaper everywhere. I wish that would be the debate. If we start having this debate - on how we PROSPER fro this, instead of feeding a system built for a different time - you’ll see what saves humanity makes all of the abundance broadly based, is right in front of our nose. Let’s question the system? Can it work any more?
Michael - this is the system today. It’s not working for everyone. It’s contributing to economic inequality. Russia and China are working on alternatives. We can see evidence that the system today is NOT working. Question is what a transition OFF of the US dollar will look like? 80% of global trade in USD, how do you even do this? It’ll be messy. Current system is not working. What does the new global monetary system look like?
[Danielle] As messy as it will inevitably be - as long as you have 1 government that is methodical about it. World history doesn’t work like that. Egos don’t work like that. China will be methodical. They are methodically reducing their treasury from $1trillion to $800billion. They put it in writing. Think again about an economy that has it’s people relying on its government leads to socialism leads to authoritarianism…. It leads to something like the Roman Empire. There is no alternative to the Yuan. There’s no viability. It’ll come about in a military kind of way.
[Jeff] I agree with Danielle says, look at the pendulum of time. What we are seeing, this is history repeating itself. Go to to China as an example. No country ever that has created debt to GDP as fast as China. It’s a house of cards exponentially. Why do they want their own digital currency - if they can do that, they OWN the world. That’s why the US is going to create a digital currency. It leads to more and more control and isolation. Game theory perspective. What government in the world, after seeing a fiat currency in the US that can be manipulated, which exports their problem to the rest of the world? Absolute power corrupts absolutely. Last week — Chinese billionaire in real estate went to jail for 15 years because he comment publicly on China. That’s what happens. … Take a business landscape look at this. What happens to an existing business, like Blockbuster, … it wasn’t bad executives. The minute download speeds change. Their business relied on people driving to the business. Netflix hence took off. There’s nothing that the government can do - they’re just adding “candy isles” to the business - making the problem worse like blockbuster. Bitcoin is a new business - it’s a new monetary policy. It works on a network effect. I suspect governments will be forced to peg to it to bring ORDER. What is trust? What is money? As that happens, …. Small folks, small businesses, small nations, … this problem will be solved by something NEW. It deals with game theory. It becomes an incentive for governments to peg to this earlier. The incentive structure built into it is greed - which drives early adoption. At least that’s the hope. If Bitcoin went to zero, and if we could safely transition in a safe way, … I think it’s the safest way to transition society. It’s the biggest benefit for society without wars.
[Danielle] I’m bitter about the fall of the Roman Empire (being Italian blood). I don’t know how to get there. It’s the most peaceful route what Jeff said. That means cooler heads prevail and there’s order to it. Greg Iprit wrote a Wall Street society about dominance of China in the tech space on telecom equipment - 30% market share on equipment. If China passes the 50% mark on marketshare, we’ll be in trouble. Australia is looking into the origins of COVID, and is speaking out against China (116 countries joined in) — technology is the future of where power lies, then if there’s not 1 country where all the power lies, then we can have a more ORDERLY way to transition. 5G, AI, etc… that changes the game.
Michael - Let's dig deeper into this. There’s a lot of stigma around Bitcoin. … regardless of your thoughts on Bitcoin, a form of sovereign free currency possible? Game theory. It’s like the prisoner’s dilemma being played out on the global stage. Our currency is causing a lot of problems today. Game theory - there actually is a strong possibility of a sovereignless currency.
[Danielle] If you have a gas station on one corner, and Costco comes across the street with better cheaper gas. There as to be a peaceful change of power. This has to be REALLY different this time to be able to happen. I’m FED UP with undisciplined monetary policy. I would rather the purpose be more peaceful. I’m worried about human nature.
[Jeff] That’s why I use the example of Blockbuster. It’s not bad executives, their business model was around something that didn’t scale. You can’t charge for things that are in abundance. Technology creates that abundance. WE are trying to manipulate the system - and we’ve made the system more fragile by design. Very rarely in the existing system, do people look at anything holistically? Do you believe housing already goes up? People individually - people are in the system and cannot see the big change that’s already happen. People are STUCK in the system (matrix). Banks fail. They only see it in the way of the system. Bitcoin is the release valve - that’s what’s going to happen. People are starting to understand. It’s network effect. The more people understand it in relation to currencies - more people will trust it. This will happen country after country. The onramps - the trust to Bitcoin will get higher and higher. The value to the entire network will become extremely value - it’ll take time. The existing system will not go quietly into the night. Bitcoin is the safer more peaceful route to change.
MIchael - it seems like minor disagreements. The one key takeaway is that we are going through a period of transition. A lot of volatility. How can I preserve my wealth? Asset prices could fall 80-90%? How do I make sure that my wealth can be protected from a downdraft that serious?
[Danielle] We express it in gold. In deflationary times, gold outperforms as long as there’s enough disruption. Personal philosophy, if you see an extraordinary company and you see an opportunity to seed it, do it. There will be survivorship. There will be great companies coming out of this.
[Jeff] I’m fortunate because I get to work with leading technology companies at early stage. I spend the majority of my time in tech. You can do very well in tech companies. Mike you made a good point that if asset prices drop 80%, and governments stop printing - they you’ll want to get out of assets and into currency. You’ll want to get out of banks too as the system clears. BUT Governments have no choice. They have to keep printing. This is binary in nature. Opposite example —— governments will continue to print. Need more leverage and get into assets, that should do well if governments keep printing. The problem with that is that later on governments will have to tax this at different rates. This will happen thorough history. All assets will be in local currency - houses, businesses, assets, etc…. - than you go through a reset at some point and there’s no way out. In times like this you get the rise of authoritarian regimes. If you looked at Germany in 1920s-1930s. People were wheelbarrowing money to get bread. Extreme joblessness. People didn’t realize it. … Once you’re stuck in a currency and all your wealth is in that currency. How do you leave? People don’t leave because they feel richer as society is getting poorer. IF I leave, then I become a refugee in another country because I can’t take my wealth with me. That’s another case for Bitcoin - you can take it anywhere.
Michael - feeling the need to end on a positive note…..
[Jeff] Technology should happen on its natural course, there would be abundance in the world. Let it happen. Stop trying to manipulate it. For the first time in history, we can solve the abundance problem for society.
Michael - how can people reach out?
[Danielle] I can barely keep up with Twitter. Find me on Quillintelligence.cmo
[Jeff] @jeffbooth on twitter.