WBD192 Audio Transcription

Beginner’s Guide #11: Bitcoin and the Macroeconomy with Travis Kling

Interview date: Tuesday 4th February 2020

Note: the following is a transcription of my interview with Travis Kling from Ikigai Asset Management. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In Part 11 of the Beginner's Guide to Bitcoin, I talk to Travis Kling, Chief Investment Officer at Ikigai. We discuss the great big fiat experiment, monetary and fiscal policy, social unrest and where Bitcoin fits into all of this.

“The concept and definition and role of money globally is on the brink of undergoing fundamental changes to the degree that we see once every couple hundred years.”

— Travis Kling

Interview Transcription

Peter McCormack: Travis, how are you?

Travis Kling: Doing well, sir, how are you doing?

Peter McCormack: I'm doing very good, thank you. So this beginner's guide to Bitcoin has been doing very well. People have really appreciated it, and are a good 10 episodes in now, covered a bunch of topics from why we need Bitcoin, how money works, what it is, how it technically works, and also helping people understand how they buy and how they protect your private keys.

We've covered a lot of topics and I think during this show though that I'm going to make with you, we're going to overlap in some of those, we're going to repeat some of them, but that's absolutely fine. But I didn't think there was a better person to get on and talk about macro and Bitcoin with. We've done it a couple of times, so I'm happy to do this with you again.

Travis Kling: Yeah, appreciate it! Happy to do it.

Peter McCormack: Okay, so you've done a lot of prep to help me in advance, so thank you very much for that Travis, I really appreciate it. The thing that really stood out for me when reading through all your notes, is that, the thing here for people that they won't realize is that money itself is just one big experiment. I have never known anything else, you've never known anything else, we've always had this money, dollars, pounds, whatever, but it is a giant experiment, and people don't realize that, right?

Travis Kling: Yeah for sure! One of the things we're going to touch on here a bit that I'd like to remind folks is that there's a history to all of this. I think it's easy in where we are in our lives that it's 2020, I'm 34 years old, the US dollar's a world reserve currency and my entire career has been in the backdrop of the global financial crisis. It's easy to lose perspective that there's a history to money, there's a history to central banking, there's a history to world reserve currencies, to gold and to all these different things. It's extremely helpful in understanding the value proposition for Bitcoin, a non-sovereign form of money to have a sense of what the history of some of this stuff, going all the way back.

So that's definitely some of the stuff that I want to touch on today. This monetary and fiscal policy stuff that we're going to go get into from central banks and governments globally, and just the overall global macro environment, is intersecting with social movements and technology in this really historic manner right now I think. This very interesting, potentially kind of scary but captivating way, it's apparent that the concept, the definition and the role of money globally is on the brink of undergoing fundamental changes to the degree that we see it once every couple of hundred years.

You don't have to look any further than that just to see that like, the digital dollar, the digital Renminbi, Libra, Venmo, WeChat, Alipay, all of these, the concept of money is changing. Another thing that we're going to dive into here in a second, again, going back to the historical perspective, we are in the midst of the largest monetary experiment in human history. That's not hyperbole, that's an equivocal fact. There is no plan to end that, and that monetary experiment has in a really straightforward way led to drastic wealth inequality that started a couple of decades before the financial crisis, but on the back of quantitative easing, has massively accelerated.

That wealth inequality is giving a rise to populism, and that populism is going to push for large scale changes that we're going to see across many facets of our lives over the next, call it 10 years or more. In my opinion, I think those changes, which are of a scale that are different to implement and are not often are easily implemented, they're going to be implemented on the back of, what I think is going to be a pretty vicious global recession and asset price collapse at some point, likely in the next decade.

That's going to occur right around the time that boomers are retiring and dying, and wealth and power being transferred to Gen X and to Millennials. That's a really important backdrop for Bitcoin as well too, because of the generational differences in how Bitcoin is approached from younger generations to older generations. Bitcoin's intimately involved in all of this and I think it's actually right squarely in the middle of it. So I want to start with a bit of a history lesson, and I'm going to talk for a while before we talk about Bitcoin, but don't worry, it's coming.

Peter McCormack: Yeah that's absolutely fine! That's one of the interesting things, is that I've often struggled to get some of my friends, my close friends, to really understand why Bitcoin is so important. I think this could be a show that I could end up passing them saying, "I've got this beginner's guide, but you know what? If you're not going to listen at all, just start with this one, because you really need to understand what money is, what this experiment is, how we can go wrong." Bitcoin isn't just this magic internet money, there is something behind it that actually can make money better.

Travis Kling: Yeah no doubt! So I think starting with the history of money which we've been using since before recorded history, people in crypto talk about this a lot, money is a method of exchange, a unit of account, a store of value. It is just generally accepted by a group of people in exchange for goods and services. From a textbook perspective, you talk about commodity money, representative money, and fiat money. Commodity money is money that you can use for something, money that has intrinsic value, like sort of in theory you could say that maybe a barrel of oil would be like a commodity money.

A representative money is something that you can exchange for something that has intrinsic value. So the US dollar up until 1971, when we got up the gold standard, you could exchange US currency for gold. That was representative money. Then you have fiat money, which is the sworn enemy of all Bitcoiners, which is money that has no intrinsic value and is backed by what is thought of as the full faith and credit of the government that's issuing it. There's history to all those different types of money.

We've been using gold to store value for a long time, there's been other things before gold. Sea shells were being used for money 3,000 years ago and up until the mid-19th Century, sea shells were still commonly accepted legal tinder in West Africa. Salt was used as money, again, as a commodity money, a method of exchange in the slave trade a couple of thousand years ago in Timbuktu, also going up to just sort of 500 or 1000 years ago. That's where this phrase "worth his salt" comes from, that people use pretty often.

Then you have these rhinestones, which are these really big heavy rocks that were used as money starting in about 1000 A.D in Asia-Pacific. They were given as dowries, as inheritances, to pay for ransoms and to pay for food in some cases. In 1760 B.C, there's this Code of Hammurabi in ancient Asia, which is like the oldest preserved code of law. There's a lot in the Code of Hammurabi that formalized the role of money in the society at that time

It set interest rates, it set fees, it set penalties and things like that. So when you look back over this 5,000 plus year history that we have for money, there is a commonly accepted framework when evaluating how good something is at a being money and it's the six characteristics of money; durable, divisible, portable, uniform, accepted and scarce. When you look at all the different types of money, going back through history, the stronger those characteristics are, the better the money. Accepted and scarce being two really important once there.

There was a quote, when I was doing research, that I came across from Aristotle in 350 B.C, where he said, "when the inhabitants of one country became more dependent on those of another and they imported what they needed and exported what they had too much of, money necessarily came into use." That was 350 years before Christ that he said that. If people are looking for books on this type of topic, "Debt: The First 5,000 Years" and "The Ascent of Money" are two really good ones, if you want to go further down the rabbit hole on this stuff.

Peter McCormack: But some people might be looking at this Travis, and thinking, "well why do I need to know about the history of money? Why do I need to care about this rhinestones and salt?" But really, what you're talking about here is the evolution of money, as a better money comes along and the old money dies.

Travis Kling: Yeah that's right. There's a reason why gold is a better money than salt, and it's within that framework of the six characteristics of money. When we get to Bitcoin, we're going to start talking about Bitcoin fulfilling those six characteristics of money relative to gold, or government fiat currencies. Along those lines with gold, we've got gold artefacts, jewellery and stone walled paintings that were depicting gold that started showing 4,000 B.C., so a really long time ago!

Gold is all over the Bible and it shows up in Genesis 2:11, right at the very beginning. The first known gold coins started showing up in 600 B.C. and then you fast forward all the way to the back of World War II, and you have the Bretton Woods agreement, which set global currencies around the world. They set the exchange rates of those currencies so that they can be converted into a certain amount of gold. Up until 1971, the United States was on this gold standard and Nixon took us off the gold standard in 1971.

People talk a lot about the volatility of Bitcoin, and I get it, when it gets moving, it's quite volatile. But a friendly reminder that the price of gold went up 275% in the first three years that the US got off the gold standard relative to the dollar. In 1971, it did a 3.5x! That's sleepy old gold that we're talking about here that was doing that. Just a reminder again, going back to history.

Peter McCormack: Why is it though that gold has maintained such a long and incredible history as a form of money? And probably, however successful and however much we like Bitcoin, it's still going to have a role to play for a long time still. It's more of an obvious safe bet for governments to be buying gold rather than Bitcoin right now. Why is it that gold has always maintained such value?

Travis Kling: I feel like it's kind of a cheap answer for me to say Lindy effect, but that was the first thing that came to mind. When you have people drawing pictures of it on cave walls 6,000 years ago, it goes back to that acceptability. I think there's an argument to be made that it was pretty, that it was shiny, so that way, way back in the day, the fact that you could make jewellery out of it, and people wanted to wear that jewellery, gave it this staying power. But the scarcity factor of it, understanding the supply... We've got a couple thousand years of history of gold supply.

We look back on it, the supply of gold has increased like 0.5-2.5% over the life of gold, and it's averaged like 1.5% or something like that. Understanding that supply, even though nowadays with technology that we have to dig more gold out of the ground, find gold and dig it out of the ground, you could create a whole bunch of more gold than 2% percent in a year if you wanted to. But there's economic reasons that companies wouldn't do that because it would collapse the price of gold. There's also a bit of just like a cartel thing that's built around gold producers right now.

Peter McCormack: Next let's look at the history of fiat, this is a really interesting point, and I did actually cover this a little bit with Parker Lewis, but one of the interesting things about fiat is that apart from the fact that it's very easy to transfer and very easy to use, it's actually a much worse form of money than gold, but has overtaken from gold. I think the history of this is a really important one to tell.

Travis Kling: Yeah for sure! The first thing that I like to remind people about fiat currencies is that civilizations have done this many, many, many times before. Governments have tried to print money with no intrinsic value to fund their activities for over a thousand years. Fiat currencies are established by governments, government regulation, they just decide this is money and make the people use it, and make the people pay their taxes in it. The Song dynasty in 1023 China, that government established a monopoly on money printing, that's the first fiat currency.

When I was researching this, one of the hilarious things about this was, they had that running for 100 years and then they got into war with the Mongols, and then they started printing a bunch more fiat currency to fund this war. The way that their fiat currency worked in the Song dynasty was, every three years, you were supposed to retire the old currencies. People brought in their old currencies and exchanged them for the new currencies with the government. But people started realizing that just a bunch more currency started magically showing up. So there was inflation less than 100 years later and it collapsed the currency.

That started this undefeated history of fiat currencies eventually collapsing. This is just since 1985, fiat currency collapses in Bosnia, Romania, Chile, Belarus, Nicaragua, Argentina, Brazil, Georgia, Turkey, Ukraine, Angola, Bolivia, Yugoslavia, Valenzuela, Zimbabwe, Zaire, Russia and Peru. The longest running fiat currency in history that's still going is the British pound sterling, which came in in existence in 1694, and it's still around, but it's lost 99.5% of its value versus silver over that period of time. So it's done a tremendously poor job of actually storing value.

Peter McCormack: But Travis, throw something in here for people to understand, because there will be people listening they've never thought about money in that much kind of detail. They might have just lived with this expectation that's like, "oh yeah, over time, we have this thing called inflation and your money can buy you less stuff." But they don't actually realize that inflation is an attack on their own wealth and their actual savings. Explain to them just very quickly, like what is going on here? What is it they need to be concerned about?

Travis Kling: If you're going to sum it up in a sentence, I would say it's losing the purchasing power of the currency that you're storing your value in. The prices of the goods and services that you buy increasing relative to the static amount of money that you're holding. That's happening because there's an increase in the supply of the money, and so the price of a good or a service priced in a specific currency increases the more the supply of that money is increased.

Peter McCormack: Right, so what you're really identifying here, the governments that you have listed, they've essentially put a firework under the money printing? It's very obvious with Zimbabwe and Venezuela, that's been in the news a lot recently, but most of these governments, they've essentially tried to print their way out of financial trouble?

Travis Kling: Yeah, and if you go back and look at history, it's incredible how often hyperinflation, which is synonymous with the currency collapse, is associated with war. Those two things over history have gone hand in hand. A country gets in a war, wars are expensive, they print more of their money to finance the war, they print too much, there's runaway inflation, the currency collapses and the vast majority of the time that specific government loses power, and there's a reset in that place.

There's one more quote that again, just sort of thinking through the how long we've been doing this, this is from Marco Polo in the 13th Century. This is when he was going through Asia looking at discovering these different Asian dynasties and civilizations, "all these pieces of paper are issued with as much solemnity and authority as if they were a pure gold or silver

Indeed everybody takes them readily for whatsoever a person may go, throughout the great Khan's," referring to Genghis Khan's dominions, "he shall find these pieces of paper current and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold." He was just amazed at this because he hadn't seen anything like it, because they weren't doing that type of thing in his part of the world at that time.

Peter McCormack: So interestingly and we're going to come onto this, I had a really great discussion with Dan Held about Bitcoin's monetary policy, and how simple and how beautiful it is actually. I guess one of the things as you're going to point the blame here is out at central banking, right? Again, central bank is nothing I've been educated on, nothing I've been really aware of and I didn't really care about it until I heard about Bitcoin, but whenever I told people like you, or other Bitcoiners, people who've got a good understanding of economics, they always point the finger back at central banking.

Travis Kling: Yeah and that plays a key role in all of this. When you look at the history of money, governments controlling money supply is something that dates back to the ancient Egyptians, going back 2500 B.C., but the Dutch actually pioneered a lot of really cool things from a finance and banking perspective back in the 1500, 1600s. So, they pioneered the central bank concept as we think of it today with the Wisselbank in 1609. Then in 1694 the Bank of England is generally considered the first modern central bank. Then over the next hundred years, over the 1700s, there's a bunch of different countries around the world that started following suit, the Bank of France was another big one at that time.

Then when you look at the United States and the Fed, the history behind the Fed is super fascinating to look into as well too. There was these series of banking panics in 1907, and it's easy to lose perspective because even though we obviously had an enormous banking crisis in '08, we think of the financial industry in the United States as being this behemoth well-oiled machine. Whether or not that's true at the moment is probably a separate topic of discussion, but back in the early 1900s, just a hundred years ago, that was in no way the case. It didn't have a good handle on banking, it was super fragmented and in 1907, politicians tried to undertake this large-scale financial reform.

This guy, Nelson Aldrich, was the guy that was leading the charge in trying to implement this really big sweeping financial reforms about how banking and money were going to work in the United States. Again, talk about repeating history! So this guy Aldrich was really good friends with J.P. Morgan and his daughter was married to John D. Rockefeller Jr., and he was the epitome of the New York elite. From the late 1900s into the 1910s, there's all kinds of back and forth push back trying to get a large-scale financial reform put in place.

Tons of scrutiny, and it's like the exact same type of scrutiny that we face today in terms of this view that Wall Street seems to run the government. When you look at how many J.P. Morgan and Goldman Sachs executives are inside the inner workings of the government, there's pretty incredible overlap there and there was the exact same problem 100 years ago. Even going back to the Founding Fathers of the United States, you go back and read their stuff.

They were warning that this is the key of one of the biggest risks to democracy in the United States was the way that banking and money were going to work and the potential for that to be corrupted. Thomas Jefferson in 1816 said, "I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." But for better or for likely worse, in 1913, the Federal Reserve Act was passed under Woodrow Wilson and the Fed was put in place as we currently understand it.

Peter McCormack: Okay, so if you had to crystallize, what are the main problems in the workings of the central banking? Where does this all go wrong?

Travis Kling: If I was going to pinpoint it down to one thing, I would say that it's a misalignment of incentives. It's the potential for a group of individuals, fallible, influenceable individuals that have the monetary policy under their complete control, and there's not an efficient set of checks and balances on that power, the incentive for business, which you should always assume that business is going to act in, it's the best interest profitable manners.

There's too much incentive for business to come and try and corrupt those individuals for the sake of those businesses' profits. That was what the Founding Fathers were warning us of at the beginning of this country's history. It's what the politicians that were against the Federal Reserve Act in 1913 were warning against, and it's the exact same problem that we're facing right now.

Peter McCormack: How intertwined are the central banks with government now? Because one of the things I always worry about, I think I brought this up with you when we made a show before, but government terms, they tend to work on short cycles, four to five year cycles. Most people in power want to stay in power. So my assumption is always that they make short term decisions for the benefit of trying to keep their economy afloat, trying to keep themselves in power, to give themselves a headline as we move into an election. But in reality, these short term solutions, usually lead to longer term problems.

Travis Kling: Yeah that's a huge problem, is that the overlap of, more or less, all of the government's monetary and financial operations are operated by, or have former Wall Street executives at the helm. It's just the potential for decisions being made that aren't in the best interest of the people of this country, it's obviously a conflict of interest.

Peter McCormack: Right, okay. So you've been talking about the Fed a lot, and I'm aware that the world reserve currency is the dollar right now, but that's not always been the case, right?

Travis Kling: No, that's exactly right. There's a history to that as well too, which is it's easy to lose perspective on that as well, too. But Portugal had the world reserve currency from 1450 to 1550, Spain had it for about 110 years after that, the Netherlands had it for about 80 years after that, through the mid-1600s to the early 1700s, France had it for about 100 years through the 1700s into the early 1800s and Britain had it for a little over 100 years from the early 1800s to the early 1900s.

As you look at from a historical perspective, as you transition from one world reserve currency to the next, there's always one or a couple events that you can point to that lead to that transition. More often than not, it's war. There's always a period of time in between one reserve currency and the next where there's a transition or an overlap period where there's two world reserve currencies.

The most recent example of that is in between World War I and World War II, the British pound and the US dollar were kind of co-world reserve currencies. Then World War II was so devastating on a global landscape and Britain had taken such a lump of the destruction of that World War and the United States came out relatively so unscathed, that the US dollar stepped into that world reserve currency status on the back of the World War II and it's had it ever since.

Peter McCormack: So is the lesson you're trying to teach here really is that there shouldn't be any complacency around thinking that the US dollar will always be the world reserve currency? Interestingly you've presented me with a chart. If you take Portugal out of the equation, most of these world reserve currencies tend to have a very similar period of time where they're actually holding that position.

Travis Kling: That's exactly right. So you look at the five prior world reserve currencies before the US dollar and their lifespans were 80 years, 110 years, 80 years, 95 years, 105 years. If you put 110 years on the US dollar starting in 1920, which is kind of on the back of World War I, then that takes us to 2030.

Peter McCormack: Just in time for Bitcoin to become the world reserve currency!

Travis Kling: Yeah! So that was a lot of history, but it's really important to have that backdrop. I say this all the time, knowing a little bit about monetary history really, really helps you understand the value proposition of Bitcoin, because we've just done a lot on this type of stuff before.

Peter McCormack: Yeah, so one of the interesting things is that you've presented some information about a bunch of the different countries which have suffered from hyperinflations, and currency collapses. For me again, someone living in the UK, I've never really lived under a currency collapse, but I did live through the 2007/08 financial crisis. Now, I actually bought my first house then and that was during the housing boom, and my house actually dropped in value over the next five years.

I also witnessed the UK Government having to step in and saved Lloyds Bank, they had to step in and save the Royal Bank of Scotland and those banks were going to collapse without their help. But also, then witnessed what happened across Europe, especially in countries like Greece and Cyprus where the government actually went and seized money from bank accounts. So I have a softer way on this, not maybe a harsher way in this as people living in countries like we've mentioned.

I was also in Latvia recently, and somebody I met there, they've lived under four different currencies, of which two collapsed. So we should probably talk about the global financial crisis, because that's a really important moment in time, and it's also something a lot of people listening to this can probably relate to. Some of these older histories are going to be difficult to relate to, but a lot of people will probably be able to relate to the global financial crisis. What happened there? Why was that such an important period in time, and why is that so relevant to now?

Travis Kling: Bitcoin was birthed in the ashes of the financial crisis in 2008, which began in 2007, with the subprime mortgage crisis, which grew out of this environment in the United States of low interest rates and lots of regulations, and easy lending standards, and massive securitization for the first time of these mortgage backed securities. The results are just broadly unchecked incentive structures across the financial industry, which at that time, led to this subprime mortgage crisis, that then metastasized into this global banking and liquidity crisis in the fall of 2008, punctuated by the Lehman Brother's bankruptcy.

All markets collapsed in the fall of 2008, and in Q4, the Fed, the ECB and the Bank of England, along with a few other central banks, purchased in aggregate $2.5 trillion of government debt and other troubled assets, which was again, not hyperbole, the largest monetary policy action in human history. Over that period of time, in the back part of 2008, the Fed and the Treasury, which didn't know what to do, and if you go back and read through the transcripts of them talking about that period of time, it's clear that they didn't know what to do. they just kept trying new things and the stock market kept going down, so they just kept doing more things until the stock market stopped going down.

They introduced this Term Auction Facility, and then they nationalized Fannie and Freddie, the mortgage companies. Then they bought AIG, the insurance company, and then they started insuring money market accounts, and then they introduced the $540 billion bailout of those money market accounts, as they started failing. Then they introduced the $700 billion troubled asset relief plan, and then they introduced a $1.7 trillion commercial loan program. Then they bailed out the auto companies. All of that was made up on the fly!

That's all fascinating history as well, too. There's great books that had been written about that and "The Big Short", which was made into a movie., was probably the most popular one, "On The Brink" and "Too Big To Fail" are also really good books about that period of time. We're 11 years on now into that and I think we're going to jump into this here in a second, everything that's going on in global macro financial markets, monetary fiscal policies, are all just the knock on effects of the response to the financial crisis in 2008.

It started with those things that I just listed and then came QE, quantitative easing, the first round of it in early 2009, and Ben Bernanke, the Chairman of the Fed at that time... So the Fed just starts buying assets, printing money to buy assets and to increase liquidity in the system. They're mostly buying US Treasuries and mortgage backed securities. They did one round of it in 2009 and 2010, then they stopped doing it, and the market started collapsing again. The stock market started collapsing again, so then they cracked up QE2 in the 2010, 2011 timeframe, and they did that for a while.

Then they stopped doing that, and the stock market started collapsing again. So then in 2012, they did this thing, Operation Twist, which is where they bought some longer dated treasuries and sold some early dated maturities, and they called it Operation Twist because it changed the shape of the treasury yield curve. They did that through 2012 and in the beginning of 2013. When they tried to stop doing that, the stock market started collapsing again. So then they started QE3, which lasted through the end of 2014, and all these other central banks around the world were doing some variation of this.

Some of them were doing more, some of them were doing less, some of them were doing different things, but all central banks around the world basically were expanding their balance sheet massively over that period of time. Specifically for the Fed, the Fed's balance sheet went from... Again, the Fed was created in 1913 and their balance sheet was under $100 billion for the first, call it 80 years of existence. Then through the 80s and the 90s, it crept up to, call it a little under a trillion dollars.

Then from the beginning of the financial crisis, when the Fed's balance sheet was like $800 billion, it went from $800 billion to $4.5 trillion through QE1, 2, and 3. That's where we find ourselves today. Along with the ECB, the Bank of Japan, and People's Bank of China, in aggregate, before the financial crisis, those four balance sheets were about $5 trillion. Then as we sit here today, they're a little over $20 trillion. That's what we've done to central bank balance sheets over the last 11 years.

Peter McCormack: Surely this just can't carry on forever?

Travis Kling: Yeah, that's where we find ourselves, and it's again, not hyperbole, it's why I wanted to go to the history part of this, because this is the biggest one of this that we've ever done in human history. Importantly, in the back part of 2016 and accelerating through 2017, the Fed tried to end this experiment and they started raising rates. The rates were at zero, they started hiking rates. The rate hikes accelerated in the back half of 2017. They also started rolling off their balance sheets, which means that they had bought all of these treasuries and mortgage backed securities.

As those came due, they didn't buy more. So, they started shrinking their balance sheet. That created what people called shadow tightening or double tightening, where not only where you're raising interest rates, but you're also shrinking the Fed's balance sheet, which had this double whammy effect, or an accelerating tightening of financial conditions and interest rates over the back half 2017 and 2018 timeframe. People called this quantitative tightening, so the opposite of quantitative easing.

The market risk assets in general started hating quantitative tightening in early 2018. That accelerated throughout 2018 and was punctuated by this, I refer to it as a dumpster fire for all risk assets in Q4 of '18. Markets were just hating this tightening and hating this increase in interest rates, which at that point the Fed's interest rate had gone back up to 2.5%, which is no means high by historical standards, it's actually really low by historical standards, but the market couldn't take that, especially in conjunction with the roll off of the balance sheet.

So the Fed in January 2019, right at a year ago, they did this capitulation and they went from this stance of tightening, and Jerome Powell, the Chairman of the Fed in December of 2018 used this term "auto-pilot" in describing how the Fed was just going to keep raising interest rates and keep rolling off the balance sheet. Then a month later he completely reversed course, he said, "all further interest rate hikes are on hold, and we're going to be accommodating by any means necessary."

All the other major central banks around the world started following suit, and by May of last year, the market started pricing in rate cuts, which in the summer of 2018, rate cuts were unthinkable. Fast forward less than a year later, the market started pricing in rate cuts, the Fed cuts for the first time in over 10 years in July of last year, cuts three times last year, and they're projected to cut again this year. So I say that central bankers around the world have no plan to end the largest monetary experiment in human history. That's a total accurate characterization of what's going on right now.

Peter McCormack: How much of this is interlinked? How much of this comes down to the fact that we are one global economy essentially now? I know we have separate local economies, but essentially due to globalization, all markets are global. If something happens in one country, for example in China, it could have knock on effects across the world. How much of this is interlinked and therefore is very difficult for a government to reverse or change the path they're taking, because it makes them anti-competitive compared to other countries?

Travis Kling: Yeah, it's a huge part of it right now, and it's something that the global economy is facing to a degree that we have never faced before. We talked a lot about history at the first part of this, but things do change and technology has flattened the global economy and made it interconnected in the way that we have not ever seen before. It's even materially different today than it was when we were going into the financial crisis 11 years ago.

You can't have monetary policies of major central banks, so the ECB, the BOJ, the PBOC, Bank of England, that get too far away from one another, because it starts to create this trade imbalances and shifts in FX that have some very clear and swift negative knock on effects. When Trump is on Twitter all the time chastising the Fed, demanding that we get some of that "negative interest rate" money, that's what he's talking about.

It's wild to hear the President saying these types of things, but he has a point about monetary policy of the United States relative to other countries having real tangible effects on the economy, and trade surpluses, and capital flows, and currency rates, and things like that.

Peter McCormack: Okay, right, this all sounds pretty scary Travis.

Travis Kling: I don't mean to fear monger.

Peter McCormack: Well no, but even somebody like myself who doesn't understand economics to a level that you do, I see something, like the negative interest rate, and I think to myself, "how can this be good? How can a negative interest rate be good?" It surely is a poor indication of the state of the global economy.

Travis Kling: Yeah, it has a weird knock on effect from the actions of central banks. We're 11 years into this thing now, quantitative easing is driving everything, all asset prices around the world move in conjunction with one another based on these central bank actions. Quantitative easing has driven what's called the Cantillon effect, which is an Austrian economics term, but it just refers to the change in the relative prices, resulting from the change in money supply, and where the specific injection points of that new money are in the economy.

When we look at the differences between modern monetary theory, MMT, and that versus just juicing QE while running trillion dollar annual budget deficits, the only difference between those two things is like, where does the money show up? QE, while running trillion dollar budget deficits, that money really shows up in the hands of the wealthy, by definition. So we've had a decade of that and that's what's given rise to the populism that we see today. It's actually really natural response to the wealth inequality that is fundamental to the way the quantitative easing puts money into the economy.

Peter McCormack: Well I'm going to throw in a quote of you last year, because I still think it was the quote of the year, and I'm glad you said it on my podcast because you sent Twitter wild with this. But it was true when you said, "quantitative easing is universal basic income for rich people."

Travis Kling: Yeah that's it! Now you have Andrew Yang running for President on a platform of MMT. He tweeted out a couple of months ago like, "I'm literally trying to give people free money."

Peter McCormack: Well, there was a great response to that, and he said, "no, you're trying to give away people's money."

Travis Kling: Yeah, that's right. So you've got all these weird knock on effects at this point, and this highly fragile global economic system that's fully and entirely addicted to cheap money, and it shows up in these weird places. There's a venture capital bubble, there's a private equity bubble, there's a stock market bubble, there's a luxury real estate bubble etc. The S&P 500 just put in tremendous returns for the last decade but fine art has outperformed the S&P 500, high end wine has outperformed the S&P 500, vintage Ferraris as an asset class have outperformed the S&P 500, NBA court side tickets as an asset class have outperformed the S&P 500.

I was talking to a buddy of mine that's in the film financing industry, and he just came back from Sundance Film Festival and I was asking him how it was. Apparently Sundance, it's apparently waning in popularity and exclusivity because it's not a good place to buy films anymore, to buy content like it was for years and years because Netflix and Amazon are so aggressively and so early on bidding up the price for new content, that there's no point in going to Sundance anymore. The only reason that Netflix and Amazon can do that is because their stock prices are so incredibly high that they can just issue equity to overpay for content.

I was just talking to him and it was just like this weird, like you see the knock on effects of quantitative easing 11 years on in this. It shows up in all these places and people talk about how inflation hasn't showed up, but in the headline inflation number, when you look at CPI, it has been okay and nothing... The Fed's mandate is to have 2% inflation, the CPI is around under 2% consistently over the last 10 plus years, but medical care in the United States is exploding higher, the cost of college is exploding higher, childcare is exploding higher, you have what's called shrinkflation in the price of food, where they don't raise the price, but they give you 30% less of whatever food it is that you're buying.

There's this really interesting chart from Deutsche Bank at the end of last year, when you look at the cumulative net purchases of US equities since the financial crisis, over the last 10 years, households and the foreign sector have been net sellers of equities over the last decade. The foreign sector has basically been flat but you've had something like $4 trillion of corporate buy backs. So the Fed keeping interest rates incredibly low and liquidity highly available has allowed public traded companies to just level up and buy back their stock. According to this analysis, that has driven all of the gains and stock prices basically, the net gains and stock prices over the last decades. It's just like this weird things where it pops up.

Peter McCormack: Let me ask you something. You talked about the knock on effects, you talked about fine arts, high end wines, vintage Ferraris outperforming the S&P, but is this because of the fact that the rich are getting richer, they've got more money to spend, and these are scarce resources, so there's more competition for buying these scarce resources? Or are these people are trying to dump it into things which will hold value maybe longer term? Because I can see both arguments.

Travis Kling: Yeah, it's a great question. In my opinion, I think it's the combination of both. I didn't look this up, but I would guess that professional sports franchises as an asset class have outperformed the S&P 500 over the last decade. It's places that you can park a lot of money, tens of millions, hundreds of millions, billions of dollars that only the most wealthy financial elite have access to. It's those areas, those packets of assets that have seen the most growth.

Peter McCormack: So, what's going to happen then? Because as you've said, central banks can't really tighten the rates, so what's going to happen with monetary policy? Is it just going to continue until it explodes? What's going to happen here?

Travis Kling: Yeah 2018 showed us that central banks can't tighten assets across the border, they're too dependent on this cheap money. The US Government can't pay higher interest rates, they have way too much debt to serve this. It's pretty simple arithmetic to run out if the United States has to... We've got a trillion dollar deficit, almost a trillion last year or in 2018, a trillion in 2019, it will be a trillion in 2020 and the Congressional budget office is predicting that it will be a trillion dollar deficit every year for the next 10 years, which means it's going to be every year for the rest of history.

When you're having to pay interest rates on all that money you're borrowing, the math just doesn't work paying 5%, 6%, which used to be normal interest rates back in the 70s and 80s. Back to the point we are just talking about earlier, the US monetary fiscal policies also can't be a lot more conservative in the ECB and the BOJ, which are doing wackier things than we are with their monetary policy. Our central bank, the Fed, has become politicized to a degree that we've never seen before.

Don't get me wrong, there's a long history of presidential intervention with central bank policy actions. Andrew Jackson I think, punched the Chairman of the Fed in the face 100 years ago, which is awesome, but you've got Trump tweeting things like, on August 23rd, Trump tweeted, "my only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" It's crazy! One of the things that I want to impress on people here today is, and the comparison I like to make, is "the chicken is involved in breakfast, but the pig is committed", which is a quote I heard the other day, which I love.

I think people don't realize how committed the Fed is in terms of being incredibly supportive with this monetary policy, because it has no choice. That started to rare its head recently in terms of increasing the money supply through this repo market dollar shortage situation.

Peter McCormack: Yeah, because that keeps coming up. That was something I've never even heard of before, I think a lot of people had never heard of before, and it was suddenly a new crisis.

Travis Kling: Yeah, so when you start to talk about cracks in the system, this is a great example of cracks starting to show up in the system. The repo market that blew out at the end of September and continues to not function as normal, currently is a symptom of this broader situation that's been dubbed the dollar shortage, which is just a knock on effect of the US dollar being the world reserve currency. This dollar shortage, it's from two main things.

One, it's foreign entities borrowing in dollars and you need to pay back in dollars. If your currency has fallen versus the US dollar over the last whatever, 5, 10 years, which the vast majority of currencies have, then, you're borrowing costs have increased, you need to find more dollars. But the bigger situation around the dollar shortage is the Euro dollar, which is something that the vast majority of every day folks have barely heard of or never heard of and probably don't have any good understanding of. The Euro dollar market is the largest market of anything, period, in finance.\It's like a quadrillion dollar market on a nominal basis. These are just unregulated offshore dollar deposits or dollar based loans that don't have any base money to pay it back. The explosion of the Euro dollar market over the last decade has tied the global economy, all these different pockets of global finance to the dollar, but the Fed has no control over what the monetary supply is of dollars outside of its purview, and it's purview is the US banking system.

So the repo market was this knock on effect of just weirdness and tightness in the Euro dollar market, and it's probably outside of the scope of this conversation to go too far down that rabbit hole. But I always just point folks to the Macro Voices podcast with Erik Townsend, he's had a number of guests on over the last nine months, or over a year now that had been loudly banging the drum around the dollar shortage and this Euro dollar situation.

But what's been apparent starting at the end of September is that in response to this dollar shortage repo market situation, the Fed has no choice, and that they realized that. So they've expanded their balance sheet $400 billion in September, and they're just going to keep expanding as long as these dollar shortage symptoms continue to show up, because if they don't, it really does risk global financial collapse because of the size of the Euro dollar market.

Peter McCormack: So how does the rest of the world react, and how does everyone react to the US? Is everyone just acting independently? Is the US leading? How does this all interlinked?

Travis Kling: Generally speaking, they all have to line up not too far away from one another, but what you do know is that the whole world is cutting interest rates inducing quantitative easing, to the extent they can do QE. Smaller countries can't really do it, because if they did it, their currency would collapse. So you have to have some amount of like... I don't know, you need to be a reputable country, or a country in "good standing". Just in 2019, Denmark cut interest rates, Eurozone cut interest rates, Sweden cut interest rates, Australia cut, New Zealand cut, Thailand cut, South Korea cut, we cut, Chile cut, Hong Kong cut, Peru cut, Saudi Arabia cut, Malaysia cut, the Philippines cut, China cut, Indonesia cut, Brazil cut, India cut, Mexico cut, Turkey cut, South Africa cut.

They cut for good reason because when there's a slowdown like you saw starting in the back part of 2018, a global growth slowdown that you saw in 2018, that accelerated in 2019, when we're in the summer of... People's view on the likelihood of a recession coming in the next 12 months had increased significantly, but you've had so much policy stimulus that the risk of a near term recession has pulled back considerably. There's also the peak China tariff war scare situation, which that's kind of backed off for the time being. But central banks cut because there's a very clear correlation between central banks cutting and the global manufacturing PMI peaking back up.

The global manufacturing PMI is a really good proxy for global GDP growth, and so these things work but the part that is important to realize is that you're starting this easing cycle from such a further down point than we ever have before in the history of central banking. Again, not hyperbole, we've never been in a spot before where you're starting an easing cycle with $13 trillion of negative yielding sovereign debt. When we started easing in 2007, there was no dollars of negative yielding sovereign debt in the world, and interest rates were 5%, 6%, 8%, depending on where you look in the world

So there's just way less ammo left from a monetary policy side to be able to go and do things to support global growth, which is why you're seeing this pick up in fiscal policy type of stuff. So monetary policy is just the set of rules about how money is created, fiscal policy is how it's spent, being simplistic. Central banks control monetary policy, governments, legislature control fiscal policy. You've gotten to the point, because on the monetary policy side, you're out of bullets, or you're close to being out of bullets, but fiscal policy is going to have to pick up. So, you got to start spending more.

That's really easy for politicians to do from a political perspective because headline inflation, the CPI numbers of State law for 10 plus years, and that's given politicians and the central bankers which have become politicized, the cover that they need to run massive deficits, and just print the difference. Imagine how great that is! If you're like a politician, it's like you're telling me that I can spend all the money in the world and I don't have to go tax anybody else to go do that? What a great deal for politicians, right?

So it puts us to a point now where in the same way that there's no choice from a monetary policy perspective, there's now no choice from a fiscal policy perspective, we've got to spend more. In the United States, it's going to look like infrastructure spending. Christine Lagarde just became head of the ECB and she's not a monetary policy person, she's a fiscal policy person. They've got her in there to figure out how to spend all this money that they're printing, and they're doing this...

She just got in October, has addressed the market a few times over the last handful of months, and is basically taking the first part of this year do a full review. But there's every expectation that she's going to come out sort of like both barrels firing from a fiscal policy perspective, because the ECB needs it worse than the United States from a growth stimulus perspective.

Eventually, all of this is going to come to a head from an unsustainability perspective, we're going to go into a recession and it's my opinion that once you go into the recession, that's when you get the really far out there fiscal policy ideas in terms of free health care in the United States, student loan forgiveness, and flat out monetary money theory, MMT, just printing money and more or less giving it to people. But under the opinion that all of that is coming down the pipe. We can argue about the timing of that over the next 10 years, but I think it's all coming.

Peter McCormack: Yeah, you know the only person talking about this? I had Caitlin Long on my show quite a while back, a good year ago, and she was ringing similar alarm bells, but you're not the only ones, right?

Travis Kling: No, not at all. I do come from an institutional investing background, but I'm just a guy running a crypto fund that trades a lot of BTC right now. But the smartest investors in the world are sounding the exact type of alarm bells that I'm talking about right now. Ray Dalio, the crypto eco-system he's gotten... I like to say that over 2019, Ray wrote a series incredibly bullish Bitcoin posts without ever saying the word Bitcoin.

Howard Marks has been sounding similar type of alarm bells, Jeff Gundlach has been sounding these alarm bells and Druckenmiller and Warren Buffett are sitting on more cash than he's ever sat on before. It's apparent that everybody's getting geared up for what the next leg of this thing is going to look like. Again, you can argue about the specifics around the way this unravelling is going to happen in the timeframe, but directionally, people realized that we're heading into really unchartered territory.

Peter McCormack: Right, but depending on who you are, which generation you're from, you're likely you're going to react to this in different ways. Because whatever has happened with the economy over the last year, 10, 20, 30 years that you've talked about, there has been winners and losers, right? Some people have done very well out of this. Even if we have some kind pending disasters, it's going to affect people in different ways.

Travis Kling: Yeah, so I say generational shifts show up in this conversation in a few different but really important ways. So one aspect of demographics that is key to all of this monetary and fiscal policy stuff is just the world is getting older. In 1970, you had 3.7 billion people on planet earth, in 2017, so 47 years later, you had 7.5 billion people. So, that's doubling of the total population growth, but the amount of people that are aged 65 to 80 went from 171 million to over half a billion over that period of time.

The age of people 80 and older went from 25 million to 137 million. So people are living a lot longer and the ratio of new birth, so just population growth, is shifting in some really noticeable long term trends. When you look at trends like this, I like to say the demographics like this are like gravity, because they move really slowly, but they're totally inevitable. Interest rates again, because you have many, many decades of analysis of this, interest rates move in inevitable ways as they relate to the age of a population.

There's something called the yuppie to nerd ratio, which is actually a common metric, which is just the ratio of people aged 20 to 34 to the number of people aged 40 to 54. So yuppies are spenders, nerds are savers, so just a ratio of spenders to savers. When that increases, interest rates increase. When that decreases, interest rates decrease, and you cannot get around that. It's inevitable, it's like gravity. As the world population ages, the interest rates have to go lower and monetary and fiscal policies have to respond accordingly. I would say that's like one aspect of the way that demographics in generational shifts show up.

The other one that's critically important to Bitcoin and I think this is the part of the conversation that we actually start talking about Bitcoin 45 minutes in or whatever, the older you are, the less sense you think Bitcoin makes. But then, the important part of the flip side of that coin is that the younger you are, the more sense you think Bitcoin makes.

Peter McCormack: Okay, interesting.

Travis Kling: You couple that with the fact that 10,000 baby boomers are turning 65 every day in the United States and globally an estimated $59 trillion of wealth will be transferred from boomers to millennials by 2061. People call this the great wealth transfer. It's the largest transfer of wealth in human history. Okay, if you're over the age of 65, you're not familiar with Bitcoin, you don't think it make sense, you're not interested in it, you don't think it's going to last, but you look at surveys of younger generation and it's the polar opposite of that.

So 20% of millennials, this is in the United States, 20% of millennials own some Bitcoin, 2% of people 65 and older claim they own any Bitcoin. Three times as many people aged 18 to 34 are at least somewhat familiar with Bitcoin relative to those aged 65 and older. In terms of adoption, 48% of people aged 18 to 34 think that most people will use Bitcoin in 10 years. It's almost half of people from 18 to 34 think most people will use Bitcoin in 10 years, while only 16% of people 65 and older think that that's going to be the case.

It's like you couple the great wealth transfer with the understanding and bullishness that millennials have on Bitcoin and it just paints this super bullish picture from a... This is a multi-decade type of thing that's going to play out. One other thing that popped out, that got a bunch of airtime in December in the ecosystem is Charles Schwab put out there a report of top equity holdings of self-directed 401Ks by generations.

So it's like, if you want to do a self-directed 401K, which you have to jump through some hoops to direct and invest into specific names, and it's like by generation one of the most popular holdings. The greatest scale of Bitcoin trust, GBTC, was the 5th most popular holding amongst millennials in self-directed 401Ks behind Amazon, Apple, Tesla, and Facebook. That obviously ignores Bitcoin held in Coinbase, Robinhood, Cash App, and all these different things. That just gives you a sense of directionally of, how do you think this is going to play out over the next 10 plus years.

Peter McCormack: We should probably do the bridge now though Travis, the bridge to Bitcoin and why it's so important here. Also, we should probably have a look at why millennials care, or the younger people care, and the older people don't. I will make a broad assumption that it's about protection of personal interest as well, right? I don't think it's within the interest of the boomers for Bitcoin to be a success and we're going to think about this whole new form of money, they just want to move into their retirement, spend their retirement funds and not worry about it too much.

Whereas the millennials are in a position where perhaps they can't afford to buy a house, they have got all these college debts, they have got this distrust of the financial system and perhaps they've got more of a reason to take a look at Bitcoin, and when they start taking a look at it, it starts to make sense. Does that all play into this?

Travis Kling: Yeah, the answer from a generational perspective is multi-faceted. Part of it is just the familiarity with technology in general, in a comfort around just the digital world, things existing digitally. How much time you spend playing video games, how much time you spend online, how old were you when you got your first smart phone, how often do you communicate with people face to face rather than as opposed to digitally or online etc. I think also part of it is the beginnings of Bitcoin.

It's a pretty classic boomer mentality to look at the beginnings of Bitcoin, "Okay, this is money for drug dealers to buy drugs on the internet" and to file Bitcoin away as that and just never reassess that stance. Like, "no, that's what Bitcoin is. Bitcoin is money for drug users. That's all it is" and not spend the time, and don't get me wrong, to really understand the value proposition of Bitcoin, it's not a short plot. It's not a blog post, it's not a slide deck, it is a multi-disciplinary approach. You've got to understand some amount of computer science, cryptography, game theory, governance, mechanism design, sociology and I would argue religion, a lot of different things!

So I get that it's not a super short plot, but back to your point, also part of it is just like there's not this incentive and people just don't like change that much. Things are working great, and that S&P500 can't stop hitting new all-time highs. Never mind the fact that it's because of these egregiously distorted monetary fiscal policies, but boomer wakes up at looks at his 401K every day and life's really good. So I get it.

Peter McCormack: But what is the bridge here for Bitcoin? We've talked about this history of money, we've talked about what's happening on a macro scale, we've talked about all the problems this could bring in. Let's talk about why Bitcoin now matters, why Bitcoin might be an answer to this and why it might be a hedge against what's going on.

Travis Kling: Yeah, I like to bang this drum a lot, but Bitcoin is a non-sovereign hard cap supply, global, immutable, decentralized, digital store of value. That's a bunch of adjectives, but they're all important.

Peter McCormack: But let's go through them one at a time, as it's a lot for someone to take in. Let's go through it one at a time slowly and just help people understand why each one of those itself is important when we compare it to what's going on globally right now.

Travis Kling: Yeah, so it's non-sovereign, it's not controlled by a government. We've done enough of a history lesson to know how important that is, and it's an important distinction. It's got a hard cap supply, so there's only going to be 21 million ever created. The manner in which they're created is controlled by open source softwares so that anybody in the world can verify that that is the new creation of Bitcoin. From an Austrian economics perspective, that is the hardest money in human history in terms of having golds gold, because we know that you're going to make about 1.5% more new gold every year.

Well we have even more provable scarcity around Bitcoin even relative to gold. It's global in the sense that it works all over the world and it's borderless. It's immutable in the sense that the record of transactions cannot be changed, cannot be tampered with. It's decentralized as it exists on 10,000 computers all over the world, there is no company that controls it. There is no single entity that governs it or access, an intermediary to make it work, and it's digital, there is no such thing as a physical Bitcoin.

It exists solely digitally, and it is a store of value because it addresses that function of money, I would say more fully than as a method of exchange. It is a method of exchange, but because the price volatility relative to say the US dollar, or relative to a basket of goods and services that you might purchase as volatile, it's more of a store of value today than it is a method of exchange right now. I think that's a good thing.

Peter McCormack: Okay, so, a lot of people I know who I've tried to get them interested in Bitcoin, they don't see all this stuff we're talking about. They don't see this best form of money we've ever have. They don't see about central banks. All they think is this crazy magic internet money, that a bunch of people got in early of and got rich off. They just don't understand it.

But actually what you're really talking about here is, and also, actually, let me add into that, you talked about fiat being an experiment, but Bitcoin also is an experiment, right? It's a new experiment, it's an alternative experiment to this fiat system. But what we're really trying to say to people is, "look, Bitcoin isn't definitely the solution." We're not saying throw all your money in there, but it is worth considering, it's worth considering ahead, just like an insurance against all these crazy monetary and fiscal policy."

Travis Kling: Yeah that's right, and that's how I like to frame it all the time. Certainly I would never advise anybody to put half of their net worth into Bitcoin. You need to choose an amount that is appropriate, but it is an insurance policy against monetary fiscal policy responsibility from central banks and governments globally. The comparison that I always like to make is, how much does hurricane insurance cost in Kansas? It doesn't cost very much. There's not even hurricanes in Kansas. How much does hurricane insurance cost in Miami?

I'm not even sure you can get hurricane insurance in Miami because of how many hurricanes they have. So the more irresponsible the monetary fiscal policies are, the more valuable the insurance against that is. I say this a bunch too, if there is no such thing as quantitative easing, if we're still on the gold standard, I think Bitcoin would still be a science experiment in the closets of a bunch of computer science nerds because the need for a non-sovereign form of money would be diminished if the sovereign money that we're using was being well-tended to. But that's not the world that we're living in right now.

Peter McCormack: Well, that's funny that you say that. It was Saifedean who said to me, he said, "the biggest threats to Bitcoin is governments' having good monetary and fiscal policy."

Travis Kling: Yeah that's important, but that's just not where we are right now. Understand that the underlying price is volatile, there's good reason why it should be volatile as the world has never seen anything like this before. It's also still tiny relative to, from a global capital flows perspective, its $170 billion market cap, but only less than 10% of Bitcoin is moved in the last 30 days. So a 30-day circulating supply of Bitcoin, it's like $15 billion or something like that. The blockchain that underpins Bitcoin has been creating new blocks every 10 minutes for 11 years now.

It was doing the exact same thing, when the price of Bitcoin was one cent, and $1, and $100, and $1,000, and $10,000, and $20,000, and all the way back to $3,000 in December of 2018, and when the price is $9,000 right now. The underlying Bitcoin blockchain has been doing the exact same thing the entire time, in that price movement, which by the way has been certainly up more than down, as the world trying to get their head around this new thing, this non-sovereign form of money based on blockchain technology that we haven't seen before. I think there's a lot of beauty to that actually.

Peter McCormack: Yeah and also from your notes, Bitcoin might be volatile now, you say there's good reason for it to be, but it's what it can morph into as well.

Travis Kling: Yeah the bet on Bitcoin, it's a good bet this year, it's a good three-year bet, it's a good five-year bet, but if you're investing in Bitcoin today, if you're betting on a non-sovereign form of money gaining mass adoption, that's a highly contrarian bet today. You're making this bet on the broad direction that the world is going to move in over the next 10 years, 20 years, 30 years. I'm of the view that eventually it's going to be a forgone conclusion that we're going to trust open source computer software more than we're going to trust humans and it goes back to what Thomas Jefferson was talking about.

It goes back to the push back that politicians had against the Federal Reserve Act in 1913. I think that with some hindsight, it's going to be viewed as silly to have ever fought otherwise. It's silly to look at the naysayers of the internet from the early 90s. Bitcoiners like to talk a lot about the separation of money and state, just like the separation of church and state. I think that, and I hope that in the context of this conversation, that's a really natural response to what central banks and governments have done with monetary and fiscal policy over the last 11 years, that we've got a technology that allows us to separate money and state, and it makes good sense to do that.

This analogy that I like to use a lot is that, to have a high conviction around a non-sovereign form of money gaining mass adoption, you need to be burning the candle at both ends. One end of the candle is this monetary and fiscal policy irresponsibility, which we have today. It's almost surely going to get worst into the future, directionally. Then the other end of the candle is society recoiling from corruption and abuses of power with increasing vigour and I believe we're starting to see that as well too.

Peter McCormack: Yes, because it isn't just about money, and isn't just about poor fiscal and monetary policy. There is this general distrust to governments over the last year, especially with the work I've been doing. I'm out here in Chile right now and I'm seeing the protests. The protests here aren't just about money, some of it is just general discontent with the political elite, the government, the establishment, but we're seeing that all around the world. We're seeing that in France, we're seeing that in Hong Kong, we're seeing that in Iraq, in Iran, it's been happening in Bolivia, there is just this growing discontent with the establishment.

Travis Kling: Completely! I use the term the trust revolution, because I think it's a really good summation for what you're seeing, and you're seeing it pop-up in a bunch of different places because in 2020, this globally interconnected society that we have now, is embroiled in security breaches, fraud, corruption and monopolistic abuses of power. It's happening from not just governments but centralized corporations. Those two seemed to go hand in hand, and society is recoiling from that.

Like you said, you've been going all over the world seeing the manner in which society is recoiling from these things. Here in the States, you've got Elizabeth Warren that's running on a platform to break up big tech companies, you got Bernie running on a platform to dismantle Wall Street's power and you've got Andrew Yang running on a platform that literally give everyone free money. Millennials, back to this generational shift, millennials feel that more accurately than older generations.

This feeling can be summed up as power tends to corrupt, and absolute power corrupts absolutely. These terms, "truth" and "trust", the definitions of them are being contorted right now. It's like we live in this world of deep fakes and a president that egregiously lies in public that people sort of just have come to accept it, like that's just what he does. But the world's recoiling from this, and you're seeing commonalities across different things that are rising up from a societal perspective.

It's Brexit and Donald Trump, and how did those two things happen at the same time and have basically the same underlying reasons, but they happened on opposite sides of the world from each other. Russian Facebook election ads, Samsung bribery, NSA spying, the Equifax hack, the Facebook hack, the J.P. Morgan precious-metals desk, the Libor rigging scandal, Black Lives Matter, Harvey Weinstein, fake news, Cambridge Analytica and the most recent and probably the ultimate one of all that is the Jeffrey Epstein suicide, which is like, in my view, I think with a little bit of hindsight maybe end up being a crescendo of some of this.

In terms of society's willingness to tolerate unchecked power failing at every level and in every conceivable way, because I think the world's ready for a change. Just in the last year, you've had political uprisings in Hong Kong, Chile, Lebanon, Indonesia, The Netherlands, France, Russia, Peru, Haiti, Egypt, Syria, Algeria, Ecuador, Barcelona and the commonalities across those things are what make this a captivating movement as we go forward into the 2020s and the way that that's going to intertwine with monetary and fiscal policies. With Bitcoin, I like to say that it looks like Bitcoin is created for such a time as this. It's a really incredible time that we're in right now!

Peter McCormack: But it takes out human decision really, doesn't it? That's the great thing. I'd advise anyone who's listened to this, who's not listened to the show with Dan Held, where we talked about Bitcoin's monetary policy, but the beauty is in its simplicity. There's no ability for anyone to abuse it for personal agendas, or political relationships. It just exist as this very, very simple monetary policy.

Travis Kling: Yeah, and look, the status quo, it's not like there's any reason to think the status quo is going to give this up to Bitcoin, and just roll over to Bitcoin. Again, you look back through history and money and political power is the things that human have been killing each other over for thousands of years. It's real straightforward. When it comes to money and it comes to power, unfortunately, civilizations were really willing to kill each other over that.

I'm much more of a realist than an optimist by nature, I just have a tendency to call things like I see it, but I am optimistic that there is at least a chance that is removed from generation to generation, and wealth and power transfer from boomers to Gen X, and millennials, and Gen Z after us, there is a chance that there could be, the analogy that I use is, humans could act differently around the bread basket. Historically, there's a bread basket in front of me and you. There's one piece of bread in it, you and I will kill each over who gets the bread.

Why would I think that right now would be any different? I think one of the reasons that you could have hope that it could be different this time around, and that we could be willing as a society to democratize power over money, decentralize that, which at its core that is what Bitcoin is, is taking the control of money out of the hands of individuals and decentralizing it, and putting it in an open source software code that's natural by anybody, is that we're entering into this period of abundance based on technological advancement.

The quality of life, which you can measure a few different ways, life expectancy is a good one, GDP per capita on an inflation adjusted basis is another really good one. There's this really long term chart looking at GDP per capita in 2010 dollars that's super interesting and it's like, GDP per capita on an inflation adjusted basis was really, really flat from 1000 A.D through 1400 A.D. Then 1400 A.D we got the printing press, and life started getting better. Then everything changed when we got the steam engine, because when we got the steam engine, you started being able to create things, not off the power of humans and horses, but off of mechanical industrial power.

GDP per capita went parabolic, starting with the steam engine. The world wide web and the information industry even added to that because now you're talking about progress that's governed directionally by Moore's law rather than linear progression. So we're at this place where GDP per capita.. Like the world's just getting a lot better. Sometimes it feels bad because we're in the information age and we can see everything that's going on across the world instantaneously, but objectively, statistically there's never been a safer time to live in the world right now.

We've never been killing each other less, babies are dying less, people are dying from disease less, things are getting better. That's happening because of technological innovation and I think that there's a chance that that technological innovation will lead to a willingness to act differently around the bread basket at this period of time, when at every shift from one generation to another, people just fight and scratch and claw over the transition of power and wealth from one generation to the next.

Peter McCormack: All right, then, Travis, I've got a big question for you then. I won't hold you to this, well, maybe a little bit, but how is this shit all going to go down?

Travis Kling: It's really hard, the timing and the specific manner around it, really hard to make a call. It's easier to make this kind of broad directional calls about the direction that this stuff is going to go, you can look for cracks in the system, dollar shortage, repo market, example of the cracks in the system. Looks like the US Government is just going to print money until it's okay. I think it's important to look at the areas of the world from a developed economy perspective that have the most unsustainable monetary and fiscal policies, that's the ECB and the Bank of Japan.

I like to say the US monetary policy is the best monetary policy house on a really crappy monetary policy block. I think most of the way that this stuff is going to go down, is going to be strong dollar, at least at the beginning of this unravelling, I think that the developing nations that have the least sustainable monetary policies are at most risk of being disrupted by BTC in the near term. Again, the US dollar has the world reserve currency status, but also to remember from the earlier part of this episode there's always been this multi-decade transition period from one world reserve currency to the next.

Given the set up that we have in front of us and given the technology that's now available for the first time ever with Bitcoin, what are the chances that the next world reserve currency is going to be a non-sovereign? Those are the things that I think I'm focused on. There's a real risk that the world could not just care enough. In terms of potential attack vectors to Bitcoin as this plays out over the next decade plus, or where I can just be wrong in assessing some of this, there's a chance the world could just not care enough.

Then, when the next recession comes, governments just pull out all the fiscal stops and that placates the masses into not demanding a large scale change. We should expect governments to fight back, there's good reason to think that they are going to fight back against this. From a game theoretical perspective, if two major developed nations are competing against Bitcoin, it's my view that the game theory around attempting to destroy Bitcoin starts to fall apart.

Let's say you're the United States and you see Bitcoin, you don't like it, and it's a risk to the US dollars, the world reserve currency, so you want to destroy Bitcoin. Well if you try to destroy it and China has got a whole lot going on in Bitcoin, they got a lot of hash power, unclear how much BTC is in the hands of Chinese, but it is a lot. If you try to destroy it but you fail and Bitcoin succeeds anyway, well now you don't have any and your main enemy on a global scale has all of it! I think that you do have potentially some sort of game theoretical perspective that if you have two major developed nations fighting over it, that that could put you in a good spot.

Governments could just suppress the price of Bitcoin, that's a big risk. There are some risk that like, my view on this monetary policy, monetary history stuff is just wrong, that Keynesian economics end up winning the day that the whole world can just keep printing inflation. One thing that I think about sometimes is that technology is largely deflationary.

It's just like technology allows something that cost a lot of man hours to do, to be done quickly and cheaply by a computer, or AI, or robotics, or whatever. There is some chance that technology drive so much deflation that you can print tremendous amounts of money, and have that hold up in a way that would never been expected when you look at prior measurements of debt to GDP and things like that. I think that's some of the things to keep an eye out for.

Peter McCormack: Well listen, go on with your analogy, you could have all the climate models in the world, and you can have all the predictions of when hurricane season will come, and where hurricanes will strike land, but the reality is you just don't know until it happens. It might not happen, and that's why you talked about having a hurricane insurance, if there are certain areas of risk.

What you're really saying here is this is a very similar scenario, that there are signs out there, there are risky things happening. There's things that are concerning you, but you don't know when things might fall apart. You're not guaranteed if they fall apart, but based on what you've seen, Bitcoin is a worthy hedge of a certain percentage of your wealth.

Travis Kling: Yeah, that's exactly right and it's a risk asset right now. Bitcoin is a risk asset, and it acts like a risk asset, but it is risk asset with a specific set of investment characteristics that become increasingly more attractive as insurance against monetary and fiscal policy irresponsibility, the more irresponsible those policies are. You take it level by level and event by event. When you have things like January 2019, when the Fed stops trying to end the largest monetary experiment in human history, that gives you increased conviction that this insurance policy is something that's going to be valuable.

Over time, again, gold has been gold for 5,000 years, Bitcoin was created 11 years ago, and it popped out of obscurity three years ago. So the world getting their head around this, and not taking time makes total sense. In my view over the coming... It's already doing it. Bitcoin is already shifting from a risk asset to a safe haven, risk off store of value type of asset that in my view eventually will rival gold. That shift is something that we have not seen before in an asset shifting from something that's super risk on to safe haven risk off.

One of the things that I thought about as a comparison was potentially maybe like Google stock, which when it first started out it was this "super risky high tech, it's the internet, we don't understand what the internet is" and it grew to such a dominant market position that throws off so much cashflow that has such a massive cash balance on its balance sheet, that now Google stock is actually like a pretty decent store of value.

I'm sure there's many, many people around the world that if they could store their value in Google stock, they would choose to do that. So that shift from risk on to safe haven, is my expectation of what we're going to see Bitcoin act like over the coming years and decades.

Peter McCormack: All right, cool. So kind of a tough question to end out before I have another a little of closing question, but if somebody's listening to this that don't have an economics background, they're hardworking, they do want to protect their wealth, they're finding a lot of this overwhelming, is there any kind of clear messages you would give to somebody in that position?

Travis Kling: The main takeaways from this is that we're 11 years into the largest monetary and fiscal policy experiment in human history. Humans and civilizations have been doing this type of stuff, just wacky stuff with money for a long time, with no exception. When you do something wacky like this, it ends poorly. Bitcoin is a new technology that presents a non-sovereign form of money and that is something that we've never had before. It operates as an insurance policy against that monetary experiment and the direction that that monetary and fiscal policy situation is going to go over the coming years, is going to make that insurance policy more valuable.

Peter McCormack: Right, okay. Well listen, final question to close out. This stuff is really interesting Travis, I had these conversations with you over microphones, but also over a beer. We've talked about it a bunch of times, I always love listening to you talking about it. You've got so much depth and knowledge here, but you're looking ahead as well. Have you ever thought of doing your own podcast about this? Because if you were doing a show like this every week or so, I would be checking in, I would be listening to see what's going on, what's the update, what's happening, what are you looking at? Have you thought of doing that?

Travis Kling: I appreciate it. You're not the first person that's asked me that and it's something that I've thought about before. There's no shortage of podcast out there, but the way that global macro and just social movements in technology are intersecting right now, it's a really important historic intersection and it's something that I'm deeply interested in. Bitcoin is right at the middle of it. I get something that people want to hear more of, so I don't know, maybe I'll show up with a podcast here sometime this year. I'll have you on!

Peter McCormack: I'm useless at answering questions, I much prefer asking them. I would definitely listen in, I hope you do do it. If you don't, you know you're always welcome back on my show to do an update every few months, but I really hope you do it because it's definitely something I'd check in to. I want to hear more about this, I want to understand about more what's going on with the global economy and I say do it, but if you don't, then you're always welcome back on my show Travis!

Travis Kling: I appreciate it!

Peter McCormack: All right, well listen look, to close out, let everyone know how to find you, tell them a little bit about the work you do, how they can keep an eye on everything you're doing.

Travis Kling: I run a crypto hedge fund, it's called Ikigai Asset Management. Ikigai.fund is the website. We've got a content depo with a bunch of... I write these monthly update letters and go out the first every month that people like and they're pretty in-depth. Twitter is always good, @Travis_Kling, so I really appreciate it man, it's a good conversation.

Peter McCormack: Yeah, well I appreciate you coming on. We nearly did two hours here. I think people are going to enjoy this one and look out for your show. I appreciate all the work you did upfront to help prepare for this, good luck with everything you do, I'm sure I'll see you in the next couple of months!

Travis Kling: Sounds good, thanks man!