From the guy who's read more about Bitcoin than anybody else, you know, this is a guys take episode. But inflation is good for the economy were told inflation produces economic growth. That ladies and gentlemen is a load of shit. So we are diving and I hope you guys are doing good today because I had a really really late night last night. If you listen to deflation of Liberty part 2 I was up until about midnight recording and then still had a couple things to take care of. I was up much later than I should have been very very busy week, but it's felt good. I got a lot done. Happy busy week. Not a bad busy week. So I'm feeling pretty good. We're at the end of the week here. I am about to have a very fun weekend getaway with the wife. And yeah, so we're going to talk about talk a little bit specifically we'll do a lot of referencing to her ghetto Horseman's piece that we just covered on the show. So deflation and Liberty, I'll probably be dropping some references to Simon Lutz piece on the and errors of time and demand because those are critically important to this entire discussion. Like when we talk about inflation what really the definition we're talking about is the inflation of the money supply that's like that the core like technical definition, but we're also talking about the increase in the price level, which is typically the consequence the price level inflation is a consequence of the money supply inflation. So it gets a little bit confusing. Using sometimes you're trying to break down to the actual specifics, but I'll try to make sure I'm clarifying which one I'm talking about because we have the exact same thing and deflation an actual lowering of the money supply versus a lowering of the price level. And now when we're talking about like credit deflation, like when we have a credit crisis deflation is legitimately the lowering of the money supply where money starts disappearing from the economy because people are defaulting on their debts but in the context of Bitcoin even though it has a lot of the same effects on it kind of in an inflationary currency environment. Like if you have a deflationary quote-unquote one where the price level of the monetary good is continuing to increase in value and therefore all the prices of all the goods are decreasing. Well, then you actually create a lot of the effects and a lot of the same pressures that credit deflation causes or deflation in the money supply, but just not to the extreme and in a very different way because the credit deflation is actually correcting an imbalance. Whereas the the price level deflation is actually happening because of growth and we'll talk about that. We'll talk about that in a bit. And I haven't even Iron Man introduce the show. Welcome. Welcome. This is the crypto economy with guys Swan. That's me. The guy who has read more about Bitcoin than anybody else, you know, and probably anybody else on the planet and Today's show is going to be all about inflation and deflation basically crushing the myths of inflation and and also it will be a pseudo follow-up because this is kind of The what we've been reading obviously in the last two days a follow-up for deflation and Liberty by her guiteau Horsemen, but if you have not listened to that, I will be referencing it, but I'll mostly be re-explaining a lot of the ideas. So it's not super necessary that you listen to it, but I highly highly recommend it because it's a really really good piece and it will certainly make this give you a much better Foundation. And for this conversation, so the first thing will actually hit holtzman's kind of foundation for starting his entire piece and something that he kind of referred back to a number of times. Is that a change in the supply of money does not have any real consequences just adjust as the nature of the change like a the example he gave is if all prices were cut by 50% tomorrow. There would be no changes in production process. There would be no changes in like we didn't we don't have any less machines like any fewer machines. We don't have any less production capacity. We don't have any fewer resources nothing like and we don't even we've not even lost the ability to profit because Prophet is not the ability to you know, make back a certain nominal amount of money like a certain like specific number. It's the fact that what you is is the difference between what you sell and what your costs are. So like if you're yeah, you might have to sell a product for half the price but you're also buying all your factors of production at half the price so it's no different there has been no fundamental economic or physical change. Everything is exactly the same we can wake up and you could just knock a zero off of everything and Much everything would still work. Right? We just work under a completely different set of prices. So that's really important to start from is that decreasing or increasing the money supply is just only has redistribution effects. It does not change the nature of the economy and the resources and machines and factors of production that are available it shifts resources from Group a to Group B. And the question is who is group a and Group B in each of these situations if we're talking about inflation or deflation or taxes or whatever it is. Basically everything that the government does is just re Distributing resources from the people who actually made it to the people. They think deserve it and then paying themselves enormous amounts of money for deciding who is important enough to deserve all the money. And it's all managed through politics, which we all know is a very morally sound and high standard form of communication. So regardless the key takeaway is just that the manipulation or changes in the supply of money is only has redistribute of effects. All right, let's start by talking about how great inflation is. So inflation is we talk about inflation. There's kind of a couple of different things that we mean one obviously is price level inflation inflation is what you see in housing prices in education prices health care prices stock prices, like all of these everything that's like an asset or has a lot of money being pushed into the industry all of these things have Edible amounts of inflation and a temp typically affects assets far faster than expected effects, like consumer products and like things like that, but it does obviously happen kind of across the board. But what we actually the reason we actually have inflation is the increase in the money supply. So that's inflation in the price level and it happens because of an increase in the supply of money available and and that mostly happens in our economy because of the fractional Reserve System because of the creation of new debts what happens is people banks are essentially this is a gross oversimplification of it. But what actually is occurring when you look at the Grand picture of things is that when you have a hundred dollars in the bank the entire banking system ends up loaning almost $900. Or a thousand dollars backed by your $100 and that's just kind of like a general overview that doesn't account for the fact that they leverage to far far more insane degrees with other sorts of types of loans and credit issuance and stuff. And in that situation when we're just talking about the fractional Reserve we're ignoring the fact is the federal the Federal Reserve can just issue loans out of thin air. There's no Reserve. There's no no, Nothing, they literally just they can just issue credit to Banks and large financial institutions all day and they do this with the bailouts this week QE quantitative easing. That's what all this stuff is is just dumping new money. And again no change in the production process or how many Goods we have how much time we have available to us. How many machines we have working? None of that changes. This is just a huge flood. Of new cheap money to certain very specific institutions and people in the economy. So we are told that the main the one benefit of your all the time is the economic growth can't happen. It promotes economic growth to increase the money supply and that it encourages investment because otherwise people would hold on to their savings they would they wouldn't they wouldn't spend money and of course. It encourages spending which is the which is the supposed argument of it increases in economic growth. And really that's kind of the bulk of it that everything else is just like a consequence of that because you think about it. Like we're just increasing the price of money. So you just have to go down this list of like, oh all these great things happen when stuff gets more expensive. They argue that asset prices going up stock prices and stuff going up is good. And it's only good for the wealthy. It's not good for the poor. It's good for the people who own the assets, but we're going to talk about why all this stuff is wrong first. We know No, no, it doesn't it does not increase economic growth. Whatever. It is a change in the money supply. It moves value from one set of people to another set of people and there's a very important question as to who is losing value and who is gaining value in inflation. And this is something that I don't think herg guiteau Holtzman in the previous thing deflation in Liberty. He doesn't quite hit. This aspect as much as I would think he would and that's the the key thing that always that always feel like the redistribution is really happening between even though there are a lot of other players and stuff is just between Savers and debtors people who have debt and people who have savings that's what's being shifted when in an inflationary economy where the money supply is being inflated it is being taken away. From the value is being confiscated from the people who have savings and it is being transferred to the people who are taking on debts. So we know people are can be conditioned. Right like people are creatures of habit and creatures of social order. And you know, if you do the ring the bell experiment with the dog and make them salivate you can do that. Very same thing with humans like we And to incentives incentives matter massively so stop and think about what it means for inflation to be costing Savers at the expect at the direct benefit our guess you can say indirect. I don't know that the benefit of debtors what's happening is the value. Of the people who have already produced resources the ones who are responsible for all of the resources that we currently now live off of is being taken. It is stolen from the Savers to benefit the people who are going into debt the debtors being those who are then consuming and using up all of these resources and choosing not to produce them back and return. Maybe they do. But they haven't done it yet. They're taking the resources out of the economy making the economy poor and we're promising them where it's interesting actually weighing. We're hooking a giant counterparty risk on the entire economy that we have just now exhausted all of our resources or the however much is given to debtors. We've given them all these Resources with the counterparty risk and trusting that they will pay it back. We are disincentivizing the people who have actually made resources available. We are punishing those people and rewarding the people who merely consumed and in deflation, you're seeing the opposite the value is shifted from the debtors to the Savers is almost kind of like a and again we're talking really about price deflation here in the money supply issue deflation is actually just a consequence the price level. Inflation is a consequence of people defaulting. So like her agitos been talked about is that you have these quote-unquote deflationary spirals that happen when debt gets out of control because the you know, this this loan gets depart gets defaulted on and then the institution that's hold at all these defaulting loans gets defaulted on and then whoever gave them the loan etcetera etcetera. It just goes up the tree and you have this huge, you know, you know one Catalyst event or something and then this huge huge domino effect of just default default default default. And then money is Vanishing from the economy not actual money not like like cash money or gold or anything like that. But all the money substitutes the the dollars in everyone's bank accounts that they think is there and all the value of their stocks and their asset prices which they think is real money, but is not real money. It's all propped up on that counterparty risk that were talking about if those debtors cannot pay if those people would debts can't pay their Resources back cannot produce the same level of record the resources. Well done. All that values actually frivolous on that value is entirely dependent on a bunch of promises. But this is what makes Bitcoin a little bit different because Bitcoins money supply doesn't shrink. It's just such a scarce asset that it's price goes up. So you're expecting consistent or or you have expected price. Level deflation on to occur. And what's interesting there particularly when we've already met like after we go through the s-curve of Bitcoin adoption and we've reached Market saturation. You have to remember exactly why price levels would go down because people would say it's like oh deflation in that context with sound money would stop economic growth and you know people would hold on to just their money, etc, etc. but at that point It doesn't make any sense because we're not talking about the money. Supply hasn't trunk. The money supply is stable, which means the only way for nominal prices to fall is if the economy grew so not only is it not anti economic growth. It's a measure of the consequences of economic growth that is already happened. It happens. It's like specifically because the Has now more resources and higher productivity. So the value of other Goods in relation, like if you know somebody is producing a hundred shirts an hour and well then, you know shirts have a certain degree of scarcity and difficulty to obtain in certain degree of costs. But if someone can use those exact same resources and start producing 10,000 shirts in our wells a whole lot easier to own a shirt shirts become far greater in Supply and less every each individual shirt becomes less valuable because it's not it's no longer difficult to just make a shirt. So when you're talking about deflation in the price level after we have Market saturation of sound money, it is explicitly because of economic growth. So not only does it not deter economic growth. It is the measure of a current economic growth. It's like a real GDP as opposed to the joke. That is GDP trying to actually measure economic growth you would Be able to measure it in if you had a stable monetary Market, you would just measure it in the price declines of typical Goods like that would be reverse CPI and we'd be measuring how much the economy grew and how much more efficient it became and how much we are how much more we are able to produce at aggregate. So again inflation is simply adjusting value and resources. To those who are going into debt, which makes perfect sense as to why all the banking institutions and the government hail it as a savior of the economy because of course, they think themselves as the most important things in the economy the government thinks as long as I can have the as long as we have the Department of Education there is education they equate themselves and their own greed and their own profit and their own political power as that of the nation. It's a Weird religious thing and so in doing so it makes perfect sense that they would hate the constraints on only being able to borrow a certain amount of money. Anybody would I'm particularly if they believe themselves to be, you know saviors of the world. Obviously, I have to have unlimited resources at my disposal and everybody hates constraints, you know, like nobody likes to run out of resources, obviously our goals and our dreams are always way. A bigger than what resources we have available to us. It's the natural state of things. And so it makes perfect sense that they would absolutely promote it as hard as they can because they profit off of it directly and massively like it makes them the most powerful institution in the world. How would you do what could you what other possible incentive could be as powerful as that is? Holy crap, if I just tell people this and they believe me, I'm the most powerful institution on the planet end of story. We're at least in the country and the US government gets the benefit of having the world Reserve currency and that power gets to extend outside. But so we have all these like really silly justifications for inflation one that I actually heard that I thought was really laughable was that because of wages have to move like, you know, so wages are sticking right Horseman actually talks about about that in the piece And I love that his he's a little snippet on that now hit it just a second. But literally that because wages are declining in value. They have to constantly move and I've literally read in multiple places that the argument was that because wage wages have to move regularly that there is high wage Mobility that therefore productive workers have a greater greater number of opportunities. Tuna T's to get paid more. So everyone having to chase the same value every year everyone having having their wage the value of their wage chipped away is good because productive workers might have a couple more opportunities to request a higher wage because they have to request a higher wage because otherwise they get a pay decrease. That is the most laughable backwards excuse for stealing money from people I've ever heard but I love her work her ghetto holtzman's a little quote on this which I just I was just like so perfect wages are sticky only to the extent that workers choose not to work. So the crucial question is how long can they afford? Not to work. Beautiful just beautiful. The only reason wages are sticky in a high debt High inflationary environment wages are not sticky in a high savings low debt environment because in a high debt, I mean in a low debt High savings environment people can afford to say fuck you for not paying me enough like you can just walk away and take a couple of weeks and find a new job. Because you have savings to fall back on as soon as you know, the average worker runs out of savings. Well, then he's just gonna be he's just going to look for any possible job that he can get hold of and he's going to do it at whatever rate where the wage rate that he can manage. And again people respond to what they are rewarded for doing and or punished for doing so a inflationary economy that punishes savings and takes away. The interest rate for savings takes away the value of your savings over time. I mean think about this a double there's those are the only two rewards for savings is to have the same value or more of it after two years of savings or to get paid an interest rate for savings for not consuming resources, when you could consume resources, what you're doing is you're leaving resources available for everybody else in the economy who may need it more desperately than you you can afford to put a little while put a look put a little away. If you don't get either of those two things why the hell would you be saving and when at the same time your debts are declining in value and somebody's offering you 0% for six months when all the price doing the prices of all the debt is being highly manipulative artificially pushed low. Why wouldn't you finance your project with alone or consumed on debt as opposed to savings that are just going to be gone if you hold it. Like why would you hold it for any length of time? I wouldn't you just use up all of your resources really as quickly as you can. So what you end up in a situation where and these incentives are compounding, you know, like this. This isn't just a something where like, oh it might have a couple more people who take on debts or it Into deflation might lead to a couple more people savings. Now. This is the this is incentives across the entire environment. It changed changes what people think as they grow up people don't people only think what their social group things like if you raise a kid in some I don't know a tribe in some third-world Nation whatever. It has some very specific Customs. They will grow up thinking those Customs are very important in that whatever values that that social group values are the most important things to care about and what they believe is what they believe and if you grow a that same kid up in, you know Rural America or in a city in America or in a very old traditionalist city in You know Europe or something. Like they will be different people and have different values based on where they grew up. It's we are a product of our environment and it has massive cultural and social implications across the board. Like if you ask I mean go just think about like your grandparents World versus your world like you could never you would never ever have been able to buy a house with zero down in the 50s. And you know what else it also didn't cost you your entire life's work to buy a house. Like it's a completely different set of incentives people save my grandparents save to a degree that looks ridiculous. He saves cups. He seems cups from like fast food places until they don't hold water anymore. It doesn't make any sense, but it was a big part of the culture. It was how a lot of people Grew up, and it was because of the economic incentives. It produces different people. It produces different habits. It produces different ways of thinking and everything like Ron Paul says money is one half of every transaction that you ever do in your entire life. And when you start manipulating that you push You you mold people in just the way that's perfect to create exactly what you want you chip away at them every day every transaction. It's something that's just constantly there and they start to realize the trade-offs. They start to realize what rewarded them and what didn't when I have dollar savings in my bank account. I had a couple of thousand a couple thousand dollars in my savings account. And I remember yeah, I just I laughed out loud because I actually had it in there long enough to get a return to get an interest payment and it was like 27 Cent or something. I can't I can't remember exactly what it was. But genuinely the piece of paper they were sending to me was worth more than what they were telling me I made in interest and I thought I was going to die. I just laughed. Hard because all I could think all of this went through my head. I was just like these are the incentives in our economy. This is what people think is going to people think we have problems with debt people think we have problems with like a bad culture and completely calm people completely losing touch with reality and the actual cost of things and then the only person that I know that has any savings and this is the reward this is the payout and people think that this is going to be fixed so It's just such a it was such a like like that key moment of just like everything falls in line and you're like we are begging for all of these problems. She has to begging for them. We could not work harder to produce them. So it's just crazy but what it ends up meaning like when we talk about these huge cultural shifts and inflation when we're when inflation starts pushing people into debt when it starts making zero percent financing like the Room and every single person that buys a house is doing it with tiny percentage Downs just to keep just a prop up the price of housing absolutely insane, but when debt becomes a part of everything when the average person just doesn't have savings you create you create a trap. You create a society where people cannot leave their jobs. Oh my God, this this will all Stood with the whole sticky wages thing that that you can't those people are stuck there without savings. They will never be able to leave their job. They get stuck in meaningless jobs that they hate for exorbitant amounts of time because they can never make any Headway with savings. And anytime they do start savings saving their value is chipped away and everything they buy their paying a hundred and fifty percent of the price to pay it off. And getting artificially low prices for using up other people's resources. So it traps it creates this massive buffer against Mobility its it halts social mobility and at the direct benefit of the money manipulators, the people who are being able are able to make all of these loans and print all of this money out of thin air. These people are getting enormously wealthy and at the same time everybody who is getting trapped into debt the the middle and lower classes. Are just getting stuck while a society that incentivizes deflation that well, excuse me, a society of sound money or a period of deflation will incentivize and reward savings massively it will it will pay high interest rates to Savers particularly if we're talking about sound money where the to take out a loan you actually have to have savings. Well, then the interest rate that you know that 23 percent interest rate on your credit card. A large portion of that should be going to anyone who has a savings account because that is supposed to be the resources that they're swiping with the credit card. You're supposed to lock your money up and you have a one-to-one. You can't loan something out that you don't have the same reason. I can't loan a car that doesn't exist. So because this in that sort of environment a deflationary both price and a money supply situation rewards savings. Well that proves that provides Average for employees they could easily walk away from a drop job that's mistreating them or is dissatisfying to them. Whereas an inflationary environment traps them in it and gives them no leverage and basically puts them entirely in the dependency. They're genuinely just kind of subservient to whoever is willing to pay them at the time and they have to do everything because they're going to have Have a debt, they're gonna have a bill every month. If they don't have money coming in. They're screwed. They're going to dig themselves into a hole. I mean, imagine two months of not paying any of your debts. Holy crap. You would get Not only would you accrue the interest but you get late charges because you didn't pay and those are usually like, I mean the the amount of money that you would owe in a very short amount of time would be hilariously like like I have to laugh just to not cry. And I've been there I have been there before so I know exactly what it's like to laugh because I didn't want to cry I have missed bills on credit cards when I did not have any money to my name and no income coming in and it is an awful awful thing to have to deal with and it takes years years and years to correct for a bad month or two. Holy crap, it is hot and this blankie for today. I don't know if I'm getting riled up or if it's because I'm drinking a little bit, but I have got to take a break. I'm sweating in here with my screen. All right, let me guess that's gross. Okay, let me are this thing out a little bit and get a drink and we'll hit our sponsor real quick for anyone who has a podcast anchor cannot be beaten particularly for trying to get The ground their entire platform is free. This includes unlimited hosting both in audio that you upload and how much your listeners download. I have uploaded an incredible library of audio now and I've never paid anchor a dime. In fact, they connect me with other sponsors and have run an ad consistently on my show. So they've paid me for exposure to my audience that's really hard to beat even if we ignore that I can record. Directly in the app or my browser. I don't need any other software. If I don't want it I can edit at sound effects clips and they automatically published to all of the top podcasting platforms. I never had to do a thing. So if you were thinking of starting a show or already have a podcast, there's no better platform out there check out anchor by downloading the app or go to Anchor dot f m-- today. so the difference between in an inflationary and deflationary like incentive structure like what each one of them produces on an individual level when we're again, we're talking about wages and inflationary system puts the employee in a system of Orion a position of weakness and dependency it it means that they are constantly having to fight and they are in the position of responsibility to Go to the employer and fight for a higher wage. And if they do nothing, well, then they get paid less and their value is stolen from them. Whereas in a deflationary environment. You have the exact opposite. They're in a position of power. Where now it's own the employer to come to them to try to figure out to negotiate a decrease in the wage. And if the employee does nothing they continue to get paid more and more they increase in value. So you've got a completely different set of scenarios there. Then they're in a position of weakness in the inflationary environment again, they're less likely to have savings much more likely to have lots of debt in which they cannot afford to fight for a wage and then not get it. So now they have now the the cost and the barrier to increase their wage and fight for what would actually be their value looks much more painful because The all the costs are higher if it screws up. In deflation, you have the exact opposite. They are more likely to have savings and very little debt because there is no incentive that people are paying them to say they're getting paid in interest rate. So obviously you would do that and interest rates are very high because credit isn't free and cheap and just thrown around like it doesn't fund everything. So now they have the power to if their employer does something they aren't happy with or if they find They're not dis they're not satisfied with their occupation. They have far more openness to just fall back on their savings and make a different decision in their life. And think about this at a societal level like this is just kind of like a basic individual idea. We're talking about across a whole society you're talking about the really the same to like those two different scenarios applying to everyone to some degree a a society that is deeply in debt where one person's value like the value of one person's asset is actually dependent on someone else paying back their debt. You have counterparty risk spread throughout the entire economy and you create an entire society that is frail and volatile one. That is something as simple as a hurricane can cause an economic catastrophe that would take years to recover from instead of just merely weeks or months. If you have no Savings in the economy to fall back on well, then you have no You have no capacitor to sort out the volatility of the real world the volatility of the whether the volatility of available resources the volatility of Seasons, you know, you can only grow stuff in the spring and summer not the winter like the the environment and the world is very volatile. The economy is there to create a buffer a capacitor to level out all of that incredible volatility any society that is incentivized to go into debt that is incentivized not to save that is punished or savings and where stored value is confiscated from the people who were actually producing and given to the people who were needlessly and frivolously consuming and trying to just take power and purchasing power and resources for their own ends, whether they're productive or not. That's a that's a week society. That is one that is always standing on the edge of disaster. But a society that incentivizes savings one where price levels fall where you have sound money is one that strong because it has savings it it can weather a storm with hardly any significant downturn it can quickly recover from these things. It's the equivalent of having a backup Jetty at the in Katrina in New Orleans like not only did we not have a sufficient one but in that's that's that's kind of what it's like it's savings is having multiple just in case one fails and being in debt and always living on the edge is like having a very weak one. That's not kept up very well. Well, you could clearly see what the consequences of the two different Alternatives would be so You create wholly different the economic product of just the simple difference between a sound money and a constantly inflated away money. And this is again, this is before we even get to all the ethical nightmares of some political power basically having free command to put resources to confiscate. Everybody's resources, whatever Mission or goal they They see fit or to implement their vision of the world on to all the people are actually producing all the resources and making the like making all the stuff. But even before we get to their a one where the money supply is constantly being increased has awful incentives just awful incentives and we even know when we talk about you hear that silly excuse that it encourages spending while thanks to Simon Lutz's piece on the Keynesian errors. In time and demand, we know that all that does is encourage people to spend today rather than spend in a year from now, it just encourages people to waste all their savings or all their resources and not save and it all the money goes into like low-order consumer goods rather than higher order production Goods where it would have gone so you have and that's the kind of thing that gets you like cheap plastic crap. App that gets people spending frivolously for no reason because there's no incentive to do anything else with your money and all the resources that could have gone to Growing the economy and making us more productive and more efficient by by spending those resources on the better production processes on creating a new and better products to make available is instead. It's dumped into rushing out the current product to Market. It's used for frivolous and short-lived consumer goods and for cheap like Fast production low lifespan products. So you lose your remember. We all have scarce resources. We can only use it for one thing or the other you're pulling resources from the bettering of the production process and the investments in higher order goods and in better efficient systems, you're pulling the resources away from those missions from those those goals and you're pushing it into consumer goods and creating consumerism incentivizing more debt and creating. Bloating the market for current consumer goods that is completely unnecessary encouraging people to spend stuff so that they just don't have it later. So the idea that it's boosting. The economy is Just an Illusion. It's just a temporary spending boost where we won't realize that our production processes are stagnating and the actual economic growth is being halted and slow down. Because you know won't be for two years before we realize like why is this production process? Not any better? Why have we not you know mating any improvements to this? It's incredibly difficult to see that cost because it's slow its overtime and the benefits are very easy to point to look we sold twice as many cheap crap things that we thought we were going to sell very easy and wholesome and talks about that too about how the The benefits of inflation are easy to see where as the benefits of deflation are hard to see and the cost and incredible disadvantages the the consequences the negative consequences of inflation are really hard to see and the benefits of deflation are also hard to see so you have this like kind of this kind of perfect scenario to make it incredibly easy. E for people to believe something this entirely not true because it's just it's just easier to point to something that you can see rather than explain to somebody something that is incredibly hard to correlate. It's it's time separated by time and separated by the actual people who were involved like where those costs are. Oh that reminds me. There's actually a really good book kind of about that very idea on because it's kind of like stage one, you know, like being able to think about things very at the high high level surface and Thomas Soul has a book you should read all of his books, but this just reminds me of Something economics applied applied economics Thinking Beyond stage one and it's all about how like, okay. Well, this might be the direct and immediate consequence of inflation's like okay more spending right here, but where does that spending come from? What is that spending at the expense of and it kind of kind of the same thing of like kind of the broken window fallacy the idea that you could literally break somebody's window and then you've created economic production because they've saved They had to spend savings. Well, no, it means that somebody has to work a lot to get back to their their old standard of living like you've just destroyed something in the life like you could just as easily say it's like, oh we just bomb downtown like if that principles is true. We could just bomb downtown and then we'd be infinitely Rich if that was actually what it meant to be wealthy was to just be busy doing something. It's absurd when you think be on stage one, but that's a really Good book if you if anybody has not does not know if that book. It's applied economics Thinking Beyond stage one by Thomas Soul. So let's go ahead and get into. Let's wrap this up a little bit and talk about how this is going to what do I mean when I say Bitcoin is going to end the state or bring down the state and I mean it kind of in the sense of what the set of Elites are in today's society. Who is it? That's actually running the economy who is directing the majority of the resources toward what ends and you know, I think I want to start this off just by reading the conclusion again from her agita Holtzman from deflation in Liberty because I really loved that last section and it's only a page. in conclusion, let us restate the main point deflation is far from being inherently bad quite to the contrary it fulfills the very important social function of cleansing the economy and the body politic from all sorts of parasites that have thrived on the previous inflation in a word the dangers of deflation are chimerical, but it's Charms are very real. There's absolutely no reason to be concerned about the economic effects of deflation. Unless one equates the welfare of the nation with the welfare of its false Elites. There are by contrast many reasons to be concerned about both the economic and political consequences of the only alternative to deflation namely re inflation, which is of course nothing but inflation pure and simple The purpose of these pages is not to appeal to the reason of our monetary authorities. There is absolutely no hope that the Federal Reserve or any other Fiat money producer of the world will change their policies anytime soon. But it is time that the friends of Liberty change their minds on the crucial issue of deflation false thinking on this point has given our governments unduly way of which they have made ample and bad use We need to take control over the money supply out of the hands of our governments and make the production of money again subject to the principle of free association the first step to endorsing and promoting. This strategy is to realize that governments do not indeed cannot fulfill any positive role whatever through the control of our money. so when I say the state in this instance, I don't mean it specifically as like the state just the general institution, which it may I'm not discounting the fact that that is a possibility simply because Bitcoin changes the nature of the payoff and risks Associated the it's the payoff the visibility and the risks associated with using violence to confiscate resources and inability to do it through inflation and having to do it through direct taxation is going to change the nature of government in a massive massive way what we have known of as the state and the degree of government power over society and moving funds and resources to their ends rather than ours in the last hundred hundred twenty thirty years or so is going to change drastically really like that idea of that level of State institution. I do not think is possible in a world where something like Bitcoin is the dominant monetary instrument. So I'm not meaning that the state will just vanish as an institution any more than I think science would make the church vanish make but it takes away the power it makes it more of a figurehead in some degree of a voluntary. It takes away its teeth and I think Bitcoin. I think just in the nature of deflation and how it works as it becomes a dominant form of as it becomes the dominant monetary good like it stops. It will stop inflation from being possible. It will start it will prevent them from being able to use their political position and their a printing press essentially to hide the They're confiscating resources and that will make it much like right now like when people are like, oh my God housing is so much more expensive rent so much higher health care so much higher. Will they get pissed at each other when it you have to but that's that's the that's because of the compass the trillions of dollars confiscated from the economy those resources and the immense amount of inflation that's happening behind the scenes that they don't see but when you have to send a you literally have to to pull the money from people's accounts or directly tax to get that actual purchasing power available that you no longer have a monetary Authority. I mean in a world with Bitcoin, there's no such thing as a monetary Authority that has anything that is of any consequence the idea of banks being the largest buildings in the city, like the tallest buildings at banking license has comes with no privilege to Reduce your own money anymore. You cannot issue debts. Like you may you may be able to run a saw a short turn a short-term fractional Reserve but you're just going to end up like mt.gox. That's what that's what Mount gox did this fractional Reserve. They didn't have enough money to cover. Everybody's withdrawals. Like that's not you can't do that. Systemically, you can't do that society-wide and it is a fraud. It's a it's a ripoff no matter how you do it. So it's the only degree the only reason like we have this political institution in this system that we have now is because they get to hide the fact that they're being completely fraudulent. It becomes very difficult to see and they justify it because they decide what we learn in school. It's really kind of insane. And it would be it will be the end of central banks central banks will not be even if they are still there and they have their own currencies. It will be because they hold Bitcoin and gold to actually back their currencies, but it will call all of their debts do they will no longer be able to just loan themselves in anybody else as much money as they want. They will be a massive barrier to doing that any decision that they have will have immediate consequences and those immediate consequences will be in the loss of their purchasing power to do anything and then the loss of trusted that they're holding any real value to have a safe currency. Like like Bitcoin will be that resistance. It will be there in every boardroom in every committee and Xin like every political any every Central Bank board. They will not be able to make decisions. Means without accounting for the fact that this is what it will mean. This is what people will do like push into Bitcoin or into real money instead of hours. They lose all of their power. And with that you you fix you fix all of the massive Miss allocations now don't get me wrong. The transition is going to be rough. The transition is going to be crap. People are going to like my house is probably not going to be worth a third of what I paid for it after this collapse. I kind of bought a house knowing that that was probably going to be the case after this, you know, next collapse happens unless they of course. Like inflate to the winds and yeah, there's no telling but if we had a large credit crisis, I at least and I sat in that I said, okay if this happened can I live with that? Is that okay? So my luck would be that they continue to inflate the currency away and they steal the money from all of the producers of society and devalue my mortgage on this house. And that's probably what they'll do until they don't have any choice but in the short run it will probably be a deflationary credit spiral where the actual value of the actual supply of money is getting cut because of defaults defaults defaults the vaults, etc. Etc. So having a deflationary currency having a sound money that puts a check on all of that power will destroy the institutions that only survived because of inflation it eliminates the entire advantage that being able to obtain inflation based debt, like like the whole financing world that profits off over inflated stock prices and asset prices and gets inflation based debt at incredibly cheap rates before everyone else in the economy. Got remember this. Another thing is that this is one of the ways one of the many ways that they have even more power is Whoever gets the money first is able to pay the higher price is even it credit or the printing press whatever it is. Whoever gets the money first and even worse at a lower interest rate than they that they then they offer it and loaning out to other people too. They get it first and now they can afford the higher wages. They can afford the better workers. They can afford the resources before the prices go up and now everybody else in the economy. We all the producers in the middle class and the poor they're working their butts off to keep all of this stuff. Alive Now sees the prices of all their goods being bid up the prices of gas the price of gas going up the price of healthcare going up the price of all these assets going up their rent is going up and they don't get the money until you know, ten twenty steps down the line when they're finally getting paid and all the prices are already high. So the banks and the financial world that gets these gets this money the closer you are politically or economically to the printing press the more power you have it's the entire thing revolves all the power revolves around how close you are to the ability to get the money for nothing and all of that. Genuinely breaks away in a world with Bitcoin and it does so without even attempting we're not even instituting reinstituting a free market Bitcoin has made money this weird social good that no one owns and I mean it does that's kind of a thing about Bitcoin is that it is entirely based upon voluntary Association that you can't force anybody to use Bitcoin and so it is essentially a free market in money, but it's no longer the free. Market as her agita Holtzman was talking about it in the freedom to Mint and issue paper substitutes for gold. We have an entirely different environment where Bitcoin is this collectively managed monetary policy that know it just it's fascinating and it's going to it is going to completely flip I think people discount how much of And Banking and like Financial power comes from just that one that one differentiator. It's not taxes taxes obviously are the the government has the ridiculous moral exception that they can take from someone and it's morally okay and if I take from someone well, it's morally terrible like it's bad. They get that bizarre religious exception to the what is a Real truth they get to actually hurt people for good reasons. And that won't really go away that will that will still be there but taxes are not where they get the most of their power their power is in debt with no cap in deficits that can just run wild the ability to bail out any institution that they want to keep running and to essentially buy you the Federal Reserve is buying assets. Think about that the Reserve is buying things from the actual economy actual stock propping up all of these prices if purchased loans and it means the it's insane. They are literally soaking up they own all of these Assets in end quote unquote altruistic efforts to fix the world. We're going to own everything to make in order to make everything better how ridiculous is that but most of the power most of the most of the redistribution of resources is in the fractional Reserve System where loans are being created constantly just within financial institutions and like they have the right to do it just themselves and then in the ability to run up debts as far as they want to at the government and Central Banking level and by extension deficits, you could just it doesn't matter how much you bring in just spend whatever you feel like you need to spend and you know, as long as we say It's for jobs jobs or any jobs. Well, then, you know, it's great. You know, no big deal will just invent money out of thin air. And of course it will grow the economy and everything will be wonderful and it'll be great Bitcoin is a cap on all of that power. All of it. It it ruins the advantage and the ability to actually maintain fractional reserve. It destroys the ability to just make whatever decision at the Federal Reserve that they want because it has immediate effects because there's a there's a quick and instant Escape valve that they cannot control. It makes individuals more self-reliant. It will incentivize savings again. We'll have a robust economy people will Invest in long-term projects hold or will be a cultural Nationwide Global phenomenon, and it will be the it's the it's the proof of the cultural effects of savings on a hard money asset granted. We're obviously in the monetization stage of things, but it will essentially always be like that and this is just kind of a an exaggerated version of the sentence just because it's being monetized. So you're seeing exponentially greater growth than you would actually see in like a market saturated environment. But by 2028 Bitcoin is going to be the hardest money the most sounds most disinflationary money that has ever existed ever and it's completely open. You can sa it. You know Assa why you can verify what it is and that you're using real money. Every time you make a transaction. No big deal you it's at that just can't believe that people don't see Ah, that's not true. I can't believe it but It's upsetting to me how powerful of a tool and a technology this is and the people don't get it. I mean, that's why I'm here doing this show is because I want to share it out. You know, I want people to understand exactly what we're dealing with here. This is not this is this is on the level of centuries and centuries as far as the amount of change. This is going to bring two. how we organize and cooperate as a society and I don't think I'd really don't think you can overstate it because I think we're thinking evitable EU Miss second third and fourth level changes that you just wouldn't think of, you know again with the Thinking Beyond stage one. It's very hard to sometimes it's really easy to like obviously of the first effects and then second layer effects, but there's third fourth fifth layer like it continues to compound again. And again, the number of changes in the amount of change that is going to come as a result of this I think is really really really hard to overstate. And this all obviously on the hinges on the fact that Bitcoin continues to be successful and continues to be resistant to governments and resistance resistant to the ability to inflate its currency away, etc. Etc. But I don't think that's hard too. I kind of think we're over. I think we're past the point of no return. I don't think we can go back and as much as the transition will inevitably be painful. It's the funny thing is is it's not really Bitcoin that's forcing the pain when you think about it, the the financial system is destroying itself. The financial system is committed suicide like there's no way for these debts like they was going to be Relation one way or the other. It's actually kind of a miracle that we have an escape valve to so that we do not expose ourselves to it so that we're not completely trapped in paying the consequences of their fraud and their Miss allocation and their massive massive Miss allocation of resources. Somebody has to pay the price. It should be them Bitcoin makes it so that it can be them. Em as long as you know, we use that as our Escape valve. All right, I think we'll ankle start wrapping this up. The only other thing I wanted to say, which I didn't want to dwell on a whole lot just because I think it's silly but I guess it's important to address when they talk about like the deflationary spiral is how everybody will hoarding money. Well a hoarding money doesn't take resources away from anybody money is not a consumable resource if you hoard money and it creates Price level deflation. Well, it just means that stuff gets cheaper for other people. So they need less money to obtain it like again money is just money is just a proxy for actual resources. So if you withdraw money from the economy, you're not actually taking resources from other people you're leaving resources available. You're putting resources into the economy because you produced and then holding the money in its place as a promise that you'll be able to get those resources back in the future. But all you've done is made resources available to other people. So it's literally the exact opposite. It's not a case where people are hoarding money and therefore others cannot afford stuff because they don't have the money. It's people are hoarding money therefore the prices and availability of all the other goods are higher. The prices are all lower because the availability of all those goods are higher because they are hoarding money. Therefore everyone can afford stuff. So is the exact opposite if you had Incredibly High savings rate. I mean look at all the look at all the prices today. Everything is fueled by debt and spending all prices are going up. Right? Well, you'd have the exact opposite if everybody was saving and you didn't have constant increases of the money supply. Well, then, you know things would become more affordable like so to argue that hoarding money would make resources less make it harder for people to afford things would be to argue that all this debt and spending and everything is making things more affordable for everyone and that's not the case ask anybody if Health Care is more or less affordable than it was 20 years ago housing 20 years ago education anything and then the other one that I consider hilariously absurd is that a deflationary spiral would mean people just hold onto money and they never spend it on anything. well, you've got a Why is that? Why would why would people do that? Because they want to hold money because they think is going to go up in value right? Because they want to hold value that does not decrease or does not go away and they want their future to be better than the present. They're doing it to make their lives better. So when you say inflation will keep people from doing that like obviously it's not going to change people's tendency to want to hold something that obtained that keeps its value. And to want them to make their lives better in the future, like that's not going to go away. It's not going to change what they are trying to do and what they want to do with their value. They just won't do it with money anymore. They'll do it was actual resources and commodities and assets which means it will be taking real resources away from other people when they're holding money. They're leaving those resources for other people. They're they're hoarding money and again making those resources available if You're not hoarding money. Well, then now you're hoarding assets. Now, you have the situation like Connor Brown's article that we read. I'll be going has no utility and that's great. Something is named something like that. I'll try to remember to put that one in the show notes to the that article. He talks about how like now real estate and land is the number one place for the wealthy to park their money and it was something like I can't remember the exact percentage but something like 30% of luxury homes in some area I think was in the California or something sit empty for the vast majority of the year because Wealthy people are just parking their money there so that it does not lose value. They're soaking up all the supply of housing increasing the the price of Housing and making it harder for RIT for poor people and middle class people to live because they're buying up all the actual assets. They're buying up all the houses. They don't need to live in they've got plenty of houses already there just soaking it all up because they can't park their wealth in money. It will lose all of its. Its value. So again, it's the exact opposite is what they claim and then also just the silliness that oh people will just hold money forever and then never spend it. Well, the only reason you hold money is so that you can consume money is pointless since like it's like saying like you only use it like oh God, okay easy easy example, you know what happens when people start holding money and the price goes up. Exponentially, well people start spending it because they got wealthy and because the whole purpose of actually Holdings an asset that increases in value is to then use that value at a later date and then it crashes. You know, how we know that that's how it happens. You know, how we know that it does not last forever. No matter how scarce the monetary good is well because it's happened like six times in Bitcoin happens all the time so we know exactly how that ends. It's not infinite. It just goes through cycles and those will start to ease out. They will they will level out and become less volatile as its it continues in the future it already has if you see like the three or four major major bubbles that have happened you put them on a volatility chart and they're less volatile it just as the economy becomes more liquid that's going to become less and less of an issue. And we already know it doesn't last forever. We already know what an economy looks like. We already know that the Bitcoin Bitcoin economy has vast amounts of investment. There is no shortage of capital going around because tons of people have savings to start their own businesses tons of Odes Bitcoin. Oh, geez, we've been in this space. We're really onto long time are starting up businesses and becoming producers because they have savings because this economy creates huge incentives to hold your resources for later use in the future to leave those resources available to other people and hold your money and to save to save this is a savings technology that fixes the imbalance of the inflationary and the fractional Reserve System. The only real problem that the Bitcoin economy has is the fact that people don't buy frivolous crap. If you don't have a real product this worth something to somebody nobody's going to buy it from you. Probably the only thing you can get is lightning stickers that will actually sell but that's the kind of the thing is it it just changes incentives. It changes the nature of the economy and priorities. It changes people into a long-term time preference talked about many times on the show the difference between short-term and long-term time preference and the Bitcoin standard if you haven't read it, what are you doing? You need to get it? On that and I don't know it's just going to be we're looking we're genuine. This is why I call it a new world. This is why when I close out my show I called the crypto Kana me a new economy. I consider it completely at odds with the incentive structure with the the fundamental systemic model of the Legacy economy. What we have is fundamentally different here and Young it's still just being born but you can see where it's going to go and it's going to change everything that's going to change culture. It's going to change incentives is going to change savings rates is going to destroy this debt based. It's going to make this debt based system. Finally destroy itself is going to be the Catalyst that I think actually allows us a way out of all of this. And which is hard to believe that that's actually available to us. I don't know of any other time in history in which there was there was a way to possibly shift your way out of the consequences of this type of debt crisis not on an economic like not only whole society scale like Zig Global Escape valve. Essentially. I'm so never to this degree. Do I know of it ever being possible like it would be It'd be a huge historical event obviously and I probably set it up million times, but it's just I don't think we could be living through a more exciting and more consequential time in history. Like the fact that we are here right now seeing this happen and seeing this unfold I think it's just extraordinary. Okay, I'm out. It's I'm tired. It's been a long day. I hope you guys enjoyed this guy's take episode where I just ranted all about deflation and inflation in the difference between two the two different economies that are at war in a sense and the different incentives and what type of people and what type of structure they will produce and I want to give one more. Thanks to Jesus not org. I hope you guys listened to deflation and Liberty by her gido Holzman because it's amazing and I loved it such a good piece. Lots of great info in that one. And of course if you haven't and you want to go you want to go 300 Pages deeper into this read the ethics of money production. It's extraordinary. It's based on the same theme the same idea just taking NG it to just far deeper than you can imagine. So it's amazing. I'll definitely check that one out. You know, I'll link to that in the show notes to I'll try to remember I got like Simon Lutz's time and demand Keynesian errors article we've got deflation in Liberty you another really good one is why does Fiat money exists that one really has a lot to do with the essentially the one good reason why the government Would always want control of our money. Wait. Wait, is that what it's called or why does government controller money? I don't know. I figured out check the show notes. I'm gonna have a lot of great episodes for follow-ups and deeper diving into this topic. Thank you guys so much for joining me. You're listening to the crypto economy and I am guys Swan. I hope you all have a wonderful weekend and I will catch you back here with another episode. Don't forget Monday we got The interview with Aaron van Werdum coming at you and it's a really really fun when I think you're going to enjoy it. So I will catch you back here then don't forget to subscribe share this out with everybody, you know in the Bitcoin and crypto Khanna me space and follow me on Twitter at the crypto economy and until then take it easy guys.
Inflation, or manipulation of the money supply to the benefit of the politically well connected, is quite possibly the most pervasive frauds of modern society. It creates multiple layers of compounded resource misallocation, it benefits the debtors and manipulators at the expense of savers, it puts a constant downward pressure on living standards, and it enables more unchecked corruption and abuse of power than any other aspect of our political systems. Following Hulsmann's work, Deflation & Liberty, we have a foundation to understand how deflation, and sound money, strips the false elites of this power. Bitcoin isn't a new player, Bitcoin is a whole new game. Today we have a Guy's Take follow-up to Hulsmann's great work, and a conversation on how Bitcoin could bring down the state. Other Episodes & Works mentioned in today's show:  Jorg Guido Hulsmann's, Deflation & Liberty https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_278---Deflation--Liberty-Part-1-e4q6gc https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_279---Deflation--Liberty-Part-2-e4qpvp  Conner Brown's, Bitcoin Has No Intrinsic Value https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_249---Bitcoin-Has-No-Intrinsic-Value---Thats-Great-e43bcm  Simon Lutz's, Keynesian Errors on Time and Demand https://medium.com/coinmonks/bitcoin-has-no-intrinsic-value-and-thats-great-e6994adbfe0f   Thomas Sowell's, Applied Economics: Thinking Beyond Stage One https://www.amazon.com/Applied-Economics-Thinking-Beyond-Stage/dp/0465003451  ---   This episode is sponsored by  · Anchor: The easiest way to make a podcast. 