WBD385 Audio Transcription
S2F, Gold & the Big Reset with Plan₿ & Willem Middelkoop
Interview date: Friday 13th August
Note: the following is a transcription of my interview with Plan₿ & Willem Middelkoop. 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 this interview, I talk to Bitcoin Quant Analyst & creator of the popular Stock-to-Flow model, Plan₿ and investor, entrepreneur & publicist Willem Middelkoop. We discuss S2F, gold vs Bitcoin and whether we are heading to a big reset.
“Because it is the best money and it’s so superior to fiat money, it’s so fucking dangerous to central bankers, and the elite and everyone in the system because this house of cards is on the verge of collapse. And then you have Bitcoin, which could eat it all.”
— Willem Middelkoop
Interview Transcription
Peter McCormack: Right, I've got the takeover today with Willem, welcoming him to the show, and Plan₿. I haven't seen you in a while, Plan₿, well I've never seen you actually, I've only ever talked to you; but how are you, man, are you well?
Plan₿: Yeah, I'm great. I've been sailing for the last couple of weeks and it was great weather, great boat, and I just love to do it. So, yeah, I'm fine. Thanks for having me on again.
Peter McCormack: Man, you're welcome whenever you like. Well, unless the stock-to-flow model fails, then everything's going to be over for you and us and our friendship!
Plan₿: Of course!
Peter McCormack: And by your suggestion, we've got your good friend, Willem, on the show. Welcome, how are you?
Willem Middelkoop: Yeah, thanks, I'm well. I'm in Switzerland now. My base is in Amsterdam; that's where my office is. I'm the Fund Manager of Commodity Discovery Fund, but I also have a setup here in Switzerland at the Bloomberg here; I have a better view. Finally, the sun is shining again, because the weather was very bad here.
Peter McCormack: Well, it's a bit windy here, it's a bit cold. We've had some good weather recently, but I'm off to the Caribbean on Tuesday and I'm going to have two weeks of sun and I cannot wait, and I can't wait to show off on Twitter and show everyone where I am and where they're not! Well listen, guys, great to catch up. This is going to be a fascinating conversation.
Willem, I do want to start with you, because I think your background's very interesting. You wrote a book, The Big Reset: War on Gold and the Financial Endgame. You are traditionally, I would say, a gold bug, but you might correct me if I'm wrong, but you're also now a bitcoiner. So, this is fascinating. You've managed to make the leap that Peter Schiff can't make, so there's a lot to discuss here.
But because you're going to be new to the listeners, do you want to give them a bit of a background and then talk about the book you wrote?
Willem Middelkoop: Yeah, I think there's a little bit more to explain, because I've been a journalist for 20 years. Actually, I started in 1980 as a freelance journalist for Reuters, as a stringer. But I also had this interest in investing and money. So, I started investing in real estate in the 1990s in Amsterdam when real estate was very cheap. I was very active in the buy-to-let market, which was very new at that time in Amsterdam. Made quite a bit of money in the 1990s, and I didn't put in any money of my own, so it was all mortgaged. 120% was still possible at that time, so I had eight properties all mortgaged.
Then, I thought I had huge leverage, so I should take benefit of this leverage, but I should also study economic cycles, because when the market goes down, this leverage can kill me. So, in the late 1990s, I started to study the monetary system and the business cycles, and became intrigued, because that was when the internet bubble was at its peak, 1999, 2000. At that time, I actually was working as a deputy editor-in-chief for Dutch Daily, and next to our desk was the economics desk, and I started to write about financial markets.
Then, I switched over to TV. I was anchor for Dutch CNBC, one could say, RTL Television. I did that for seven years and then I had the time to study full time on the financial system. So, this was all pre-Bitcoin, it was also pre-Lehman. And actually, my first book, which came out in 2007, I was warning in that book that a major financial crisis will arrive within the next decade, and it all happened within 12 months. So, that made me world famous in the Netherlands.
Then, I quit journalism, I started two companies, because I learnt from my study of monetary history that once a crisis arrives, people want to flee back to something like gold and silver, so that's why I became a gold bug; there was no Bitcoin at that time. I started a web shop, a bullion web shop, Amsterdamgold. I sold that one three years later when we had 100 million sales and I started the Commodity Discovery Fund, which was called the Golden Discovery Fund at that time, because I wanted to have exposure to as many ounces in the ground as possible.
I still run the Commodity Discovery Fund. It grew to an AM, Asset Management, of 200 million now. We only invest in the 100 best discoveries worldwide, gold, silver, but also other commodities. So, that's my background. And I want to stress that I only bought Bitcoin from 2018 in a serious way, but I mentioned in the Dutch edition of The Big Reset, in 2013, that Bitcoin was digital gold, in my humble opinion. But since I had so much gold and silver already, I thought I don't have to buy Bitcoin. It was a big mistake.
Peter McCormack: Well, that's a fascinating background. Obviously, a very successful career, both as a journalist, an author, an investor; it's quite fascinating. Let's start with gold; let's talk about your gold thesis. Why did you become a gold bug? What was it you learnt about the financial markets specifically, because that's going to be a real setup for our Bitcoin chat?
Willem Middelkoop: Well, the journey through the rabbit hole all bitcoiners are experiencing the last few years, I actually experienced that journey in the late 1990s. So, my first columns are still online and they are from 2002, 2003. I was warning everybody that it was a house of cards, the financial system was a house of cards, and one day it would all collapse and you should really prepare yourself accordingly. And, I've been advising people to buy gold and silver since the early 2000s, because as you might know, gold had been going down for 20 years, so bottomed out around 2000.
So, I bought my first gold around $300, silver for next to nothing, and I think I have a big following in the Netherlands, because for 20 years actually telling the same story; and I think Plan₿ is one of the people who knows me because of this background. So, it was very natural for me to look also into Bitcoin. And actually, I was tipped about Bitcoin very early on, because I had a large following, and I found it intriguing.
I had this gold bullion web shop and I remember thinking about connecting Bitcoin to the gold we had stored in our vaults. And our thinking, "Imagine you can connect Bitcoin to gold", that would be wonderful. But I was so busy, I was writing books and giving a lot of presentations and it was not my core business to think about Bitcoin. So, that's my background.
Peter McCormack: So, let's talk about gold and let's talk about specifically the book you wrote, The War on Gold and The Financial Endgame. You talk about, in your book, how the price of gold has been suppressed. For people who don't understand that, because people will have heard that, can you talk about how the price has been suppressed.
Willem Middelkoop: Yeah. Most people think that the price of any commodity, being it corn or gold or whatever, is because of the trading of the physical commodity, or the digital commodity in the case of Bitcoin. And, as I studied the financial system, I started to learn about the fact that the US was very aware of the fact that you can move asset prices, especially the price of commodity, by having very liquid future markets.
I'm also a fan of geopolitical topics. I studied geopolitics quite a bit and you might remember that there was this Cold War in the 1960s, 1970s and 1980s; it was capitalism against communism; it was US against Russia. And the US had been thinking very, very hard how they could bring communism down, how they could bring Moscow down.
This has been documented, and there was a plan and it was executed under the supervision of Reagan and Thatcher, to use the very liquid future markets in the US that were developed in the 1970s. And they have been experimenting by bringing down the price of oil, because as you might know, Russia's major source of income already at that time was oil and gas. So, if you could suppress the price of oil and gas, Russia would enter very hard times, because they had to import a lot of grain and other foods.
This actually, I studied history, this is the way they brought down Russia. That always fascinated me, and I learned it in the late 1990s, early 2000s, when I was studying the financial system. Then I became aware that the same techniques, the same price discovery mechanisms were used in precious metals as well, because precious metals, most people say, "What's so special about precious metals? Why would they do all this hard work to keep the price of precious metals in check?"
Well, as you and we bitcoiners understand, gold is the core of the money system. Look at central banks; not to be negative on Bitcoin, but certain banks aren't buying Bitcoin maybe yet, but they are buying lots of physical gold. They have been buying more physical gold in the last 12 months than almost ever in recent history. So, it shows you gold is still an essential element of the monetary system, and that's why it's essential for them to keep the price of gold in check, because a rise in gold price is a warning sign of inflation.
Even Paul Volcker, he was the guy who rescued the financial system in the late 1970s, early 1980s, when he was the Fed President; he said we only made one mistake in the 1970s: we should have controlled the price of gold more in a more severe way, because as you might remember, the dollar was fixed to gold at a fixed rate of $35 an ounce up to 1971. And, after Nixon closed the gold window and the dollar came a fiat currency, gold shot up from $35 to over $800 in less than ten years. That's why they're sitting on gold and silver. I would say it's like a ball, you know, which is pushed under water for too long a time; it will jump one day.
Peter McCormack: Sorry, what is the actual mechanism through the futures market for controlling the price, how do they actually do that?
Willem Middelkoop: Well, you could do it yourself if you open up an account with interactive brokers, or another broker, where you can trade futures professionally. And, if you put down enough margin, if you put enough money there, let's say $10 million, you can sell an awful lot of silver, because you can leverage the $10 million.
Actually, a recent study shows that the paper trade in silver, so futures when no physical delivery is ever made, so the paper trading in silver is 880 times larger than the physical trading in silver on a yearly basis; 880 times! So, you can send the price in any direction, but in the monetary history, there is not one example that manipulation of a commodity succeeded on the long term; it always ends.
We had a suppression of the gold price through the London Gold Pool, which was a collusion of western central bankers to keep gold fixed at the $35 an ounce. And that failed after ten years; it always fails in the end. Once it fails, you will see a huge jump, and that's why you have to be positioned in gold and silver as well. So, I always advise people, 25% of your net worth in physical gold and silver; 25% in cash/Bitcoin; 25% in real estate; 25% in equities. I've been saying this for a long time. I added Bitcoin in the last few years.
This portfolio is like an insurance, because we don't know what will happen in the future. We could have a deflationary collapse, we could have hyperinflation, we could have banks closing, we could have stock exchanges closing, stop trading. And if you divide your net worth, and this is advice for people who have over, let's say, $100,000 or euro up $100 million; and if you divide your net worth this way, you will always survive.
Peter McCormack: So, you think my 100% Bitcoin strategy is risky?
Willem Middelkoop: Well, you're young. I don't know what your net worth is. I can understand where Bitcoin has come from, but it's risky from a perspective that things can go wrong in life. Your house can burn down. It won't burn down tonight, but it can burn down; that's why you have fire insurance. And things can happen with Bitcoin. Even the strongest supporters of Bitcoin say, "I go all in, because I think it will go to $1 million or 10X, but it might go down to zero; we still don't know". There is a very small chance, so that's why you should diversify always.
Peter McCormack: It's a bit of a fun gamble. Plan₿, were you a gold bug prior to Bitcoin?
Plan₿: I was actually, and that's also how I met Willem, through his books first. But, yeah, I was and I think the gold investors and the Bitcoin investors share this belief in sound money and they really hate fiat money, because of all the things that fiat money brings; the control over money; the debasement actually of all the money. So, yeah, I was a gold bug. But to be honest, I sold all the gold and I had physical, but not the paper gold of course. After reading Willem's books as well, it's very obvious you need the physical thing. But I sold it all in 2015 and bought Bitcoin with it.
Peter McCormack: It's an interesting thing, because we have gold bugs who haven't been able to cross over to Bitcoin and I think it comes down to a few factors; one is that Bitcoin isn't this tangible thing that they're able to hold, and a few other things that they might not understand. I know some don't like the fact that it's inelastic. We have bitcoiners who refuse to buy gold, because they think Bitcoin is going to demonetise gold. And then we have people like Willem, who's having a balanced hedge bet across them all. I find it super interesting actually.
But what I find really interesting, Willem, is that you did make that journey across from Bitcoin to gold. We have Peter Schiff up here, where is he? He's my hero, Peter Schiff, who refuses to accept Bitcoin in any way, shape or form, and he won't cross that divide, but you did. So, you heard about Bitcoin early on, it obviously was on your radar for a while. When was the change for you; what was the trigger for you to go, "Hold on, I get this now, I need to start investing in it"?
Willem Middelkoop: That's an interesting story, because during the first run, one of the first runs, I was contacted by Dutch Media, "What do you think of Bitcoin?" and I tend to analyse markets from a technical point of view, and it was a clear bubble. So, I warned -- it's actually still online; I warned him, it was 2012 or 2013, that this was a bubble. I think that was the run towards $1,000, and then we got a correction. From my knowledge of monetary history and financial cycles, I thought this one's going down 80%, 90%.
Then it reached $100, I still remember, and I thought, "I should buy now". But I wasn't that cash rich at that moment. I still thought it would go back maybe to $500 or $1,000, and I forgot about it. Then it shot back up to thousands and then it ran towards $20,000. I had the same feeling, the same discussions. I warned people, "Be careful". It was in 2017. This was the late stage of the high phase, and it will go down another 70% or 80%, and that happened. And I warned on the internet, I warned friends, I warned on Dutch TV that I called for the top in December 2017. Then it went down another 80%.
Then I thought, "Well, I'd be stupid enough not to take advantage of the 80% down corrections. I shouldn't make that mistake again". So, I really started to study Bitcoin much more seriously and then, I started to buy around $5,000, $6,000 and I expected Bitcoin to bottom between $3,000 and $6,000 and I decided to put quite a bit of my net worth in it around that level. But that's my story to tell, because in our fund we have over 1,000 high net worth investors.
I made a decision, as a fund manager, being the Principal of the Fund, that we should add Bitcoin for at least 10% through an ETF, because we can't hold the Bitcoin itself. Then, when I proposed this idea, and we even did a survey, it turned out that there are many Peter Schiffs. Some of these people, they went made and they were so aggressive, and I couldn't do this. So, we took the plans off the table, because especially among gold bugs who are in this space because they want to see it and be able to touch it, Bitcoin is the most stupid thing you can do with your money. So, I understand.
Peter McCormack: And, you must have friends who are gold bugs. Do you still talk about it with them? Are people gradually coming over, or are there still some people who are like just done and Bitcoin is an always no for them?
Willem Middelkoop: If we take 100 of our clients, 10%, 15% is very negative on Bitcoin. There is, I think, 20%, 30%, maybe 40% -- actually, we did a survey and it showed 30% to 40% thinks it is interesting. 10% is very positive, but they don't know how to do it, because our clients are 50-plus; it's my generation. They still don't know how to do it and they will ask me to set up a Bitcoin fund. We looked into this, even with Plan₿.
But I'm almost 60 and I don't want to have several funds, and I want to specialise on the Discovery Investing, what I do; that's what I love. Let another fund manager have the Bitcoin fund. But there's very large part of our investor group who's very interested and after the corona crisis started and all the money printing we've seen in the last 12 months, this group is growing rapidly.
Peter McCormack: What is your personal Bitcoin thesis, because there are a number of different factions or groups of people that sometimes overlap? Some people just think of bitcoin as an investment and they don't really care too much about the fundamentals. They understand other people are interested and they invest in it; there are some people who see it as a tool for freedom, that support activists; there are some people that consider it the best form of money that's ever existed; there are some people that consider it a hedge against inflation. There are a range and like I said, they do overlap.
Myself, I'm more in the camp of, I think it's the best money and ultimately, people converge on the best form of money, which is why I'm invested in it. What about yourself; what is your primary thesis on Bitcoin?
Willem Middelkoop: I'm making notes, because I get so many thoughts. It's a great question, because this touches on everything. Yes, Bitcoin is the best money ever created, period; even gold bugs should agree. But they can only agree when they've studied it enough, and it's actually quite hard to understand. It's quite hard to go down the rabbit hole and understand.
Actually, the younger generations, they are much more aligned with the whole concept; and for people of my age, it's very difficult to understand. This hasn't to do with the IQ, it's where you come from. The concept of something being digital for the younger generation, that something is digital, is a positive, it's not a negative. But for the older generation, when something is digital, it's a negative, because you don't understand it.
But to come back about the money part, because it's the most important part, it is the best money. But because it is the best money and it's so superior to fiat money, it's so fucking dangerous to central bankers and the elite and everybody in the system, because this house of cards is on the verge of collapse. And then you have Bitcoin, which could eat it all. Actually, I've been in a call; we are connected to ONVIF, we're a part of ONVIF.
ONVIF is a private think-tank based in London, and actually is the only place where central bankers meet up with the private sector. And because we have a fund, we are one of the private sector actors who are allowed to join the discussions. If you pay a fee, like a membership, you are allowed to be in the discussions. Because of COVID, all these discussions, all these seminars are online now, so many more of the private sector actors are invited to join. And when you are in a meeting with Fed guys, and they know there are some non-central bankers in the call, but after a while they forget, because there is this strong group mentality and group think. So, I'm very selective what I publish from these meetings.
But I was in a meeting with a very high official of the US Treasury, and he was saying it like it is, that you have the fiat money system, you have Bitcoin; only one can win.
Peter McCormack: Well, we'll get onto the Infrastructure Bill, we'll talk about that soon, because that is certainly an attack vector. And I also need to talk about this house of cards ready to collapse; it feels like we are approaching a very extreme version of what happened in 2008. I definitely want to pick your brain on that, but I am just going to defer over to our mutual friend, Mr Plan₿, to ask him a few questions, because you've been pushing some interesting tweets recently. I saw your tweet regarding the overnight repo.
But before we do that, let's talk about stock-to-flow, man. This has become your thing. We spoke about it the first time we did an interview, I can't even remember when, it feels like it might even have been a couple of years ago, and you were very clear at the start of this. You said, "This is a model and it only works until it doesn't work", and I think we're going through a real test of the model right now. We know Mr Cory Klippsten isn't a fan of it, we know a lot of people are fans of it, but the model got a good test this last couple of months. How are you feeling about it?
Plan₿: Very good. And, it's actually the third test of the model to the downside, because a lot of people forget that when I introduced this model in 2019, at the beginning of 2019, price was very low. That was at the bottom of the bear market and totally out of the bands of the stock-to-flow model. So, it had to go up to validate the model, and maybe more so than right now. It was interesting at the time, but since that we have COVID of course last year, a big spike down. And now we're in the third difficult period, at the lower end of the model band, but the recent jump back up gave some confidence.
I never had any doubt, at least until -- no, I still think it will be $100,000 end of year minimum, and there's lots of time. I mean, we're at $40,000, so that's a 2.5X. We've done more in one or two months historically, so it can be done. I'm very confident. But, yeah, it's funny to see that we overshoot at the upside of this model as well, right. And it doesn't matter, people always complain, especially people that are not used to working with models, I guess, because when the model breaks the upside, or is at the upper band of the model, the price, then they say the model is broken at the upside and we will be in a super cycle, etc. When it's at the downside, it's invalidated; we go to $20,000, I still see people on the internet calling for $20,000 Bitcoin. I don't think that's going to happen. $100,000 by Christmas!
Peter McCormack: That was a buy-in signal for me. The people calling for $20,000 reminded me when people were calling for $1,000 or $1,500 a couple of years back. That was a buy-in signal. I actually went into the market and I bought at $32,000 when people were calling for that.
Plan₿: You know, Peter, what people sometimes forget is that the model is just a model. I need to have that. I'm from a quantitative background, I need to have some compass. It's very rough, but it's something. But people should not forget that I'm a former institutional investor, I managed bank balance sheets, insurance balance sheets, pension balance sheets. I have lived through three crises, and the last one of course was the COVID crisis, but before that the Global Financial Crisis.
I have seen this system. This system is very broken, the level of depth of the interference of the central banks. It's beyond anything we have ever seen before with the entire German yield curve below zero, negative interest rates. I've never seen that before; I wasn't taught negative interest rates in university. So, my strong belief in Bitcoin and also in the model, is also calling from that, from the 25 years of experience as an institutional investor, and knowing it will pop. That is, yeah, I sometimes think the $100,000 is even conservative.
Peter McCormack: Well, I've got a bet with American HODL, under/over $300,000. I took under and I think I might win it. What would invalidate the model? Say if it topped out at $90,000 and bounced around $90,000, would that invalidate it? Is there a certain level where you think the model invalidates?
Plan₿: Yeah, absolutely. It's just a linear regression, right, so it's very obvious when that regression is no longer valid. Everybody can calculate that themselves, but people want a level, some sort of target level when the model is valid, and that's how we came to the $100,000. Basically it says we should go up with the stock-to-flow ratio that has gone up since the halving, so we're sort of waiting for that. But when it stays down, so when we stay at $30,000, $20,000, $40,000 for a couple of years, for example, a couple of months, then it's obvious that this linear regression line is no longer fitting.
Peter McCormack: Yeah, they'll come after you, man!
Plan₿: Well, I don't care, I'll be the first to admit it, because I have money on the line! So, yeah, it is very easy to see when it's invalidated and people can do that themselves. And of course, there's outliers, right? The COVID thing last year was an outlier; the 2019 bear market was an outlier, and we bounced back. I think this is an outlier as well. That's perfectly okay within a regression model, well what the stock-to-flow model is.
Peter McCormack: Yeah. Well, I still think it looks good, I still think we will break $100,000. I don't think we'll hit the crazy $300,000s that people have been talking about, but I think Pantera predicted between somewhere around $115,000, $120,000, which I think is a fair prediction as well. We have been through a lot this last, not just few months, but year. I mean, the model was looking great. We've had what feels like coordinated FUD; we've now got this infrastructure bill; it's a wild time for Bitcoin. We've got El Salvador making it legal tender, other countries interested; it's a wild time and it will be interesting to see what happens.
But let's talk a little bit about what's going on in the financial markets. So, you put out a tweet the other day, it was quite popular, where you talked about the overnight repo market hit $1 trillion. Can you explain what that actually means, so people can understand why that's quite a scary situation?
Plan₿: Yeah. The repo market refers to repo actually, but it's a facility of the Central Bank in America, and it basically is a facility that banks and other financial institutions can park their cash. And, as we all know, there is excess cash at the moment in the market; the market is full of cash. In fact, everybody will recognise the problem, the big problem that we have right now in financial markets. It's a problem for institutional investors and also, for retail investors: what should you do with your money?
If you already have two or three or ten houses, a good equity investment, some stocks, maybe the 25/25 portfolio that Willem has been talking about, then what do you do? You buy maybe some gold, you buy some Bitcoin, but what else, where else do you go? Especially if you live in Europe, with zero or even negative interest rates, putting it in a bank is not very wise. In the Netherlands, you get negative interest rates as a retail investor on accounts, I think it's €25,000. Everything above that is negative interest rates.
So, that problem is also present with financial institutions. They have a cash balance at the end of the day, so they have investments that mature that will bring money on the account. They'll do investments that releases them of some of the cash; they have deposits of clients and clients taking the money off the account. But at the end of the day, they could have a couple of billion in excess cash that they have to park somewhere.
Normally, in a normally functioning market, they would park that at another bank, and they get some interest on that. But if they don't trust each other, the banks, and if there's no other investment that makes any yield at all and they're basically in the situation I described, they can now park their excess cash with the Federal Reserve. They get treasuries as a collateral for that overnight loan and so, it's very safe, it has minimal capital requirements, and it's obviously very beneficial.
But the strange thing, of course, is that it is at the moment $1 trillion parked at this facility. That's more than we've ever seen before and it's a sign. It's like the credit default swaps in 2008. It's a sign, like a canary in the coal mine, that something is really wrong. And, yeah, I think something is really wrong. It is strange that the central bank, the Fed, is actively doing quantitatively easing, so it's buying treasuries, bonds, equities, everything with freshly created money, so it's providing that cash to the market actively. Then, the market is filled with excess cash and then it has the facility to take that excess cash off the market again.
Why not stop QE then? That would be the same. You could just sell the treasuries again, you could do tapering. We all know what happens then. It has a huge impact on interest rates, all this. They don't want the US curve to go down; they don't want the US interest rate curve to go negative, like it is in Germany; but they also don't want the interest rate to go positive, because if interest rates go back to normal levels, 3%, 4%, this whole system explodes, because nobody can pay that.
So, it's very interesting and I advise people to watch it like a hawk, what happens there. And I see it, together with the balance sheets of the central banks, the same as a warning signal as the credit default swap spreads in 2008.
Peter McCormack: Yeah, I've got to defer over to you, Willem, because you obviously wrote your book in 2007 and, like Michael Burry, you recognised what was coming in, you said, perhaps the next decade, and it came the next year. You are obviously very tapped into financial markets and understand how cycles work, and you said earlier you think another financial crash is coming.
To me, as a very inexperienced investor and somebody who doesn't understand the financial markets like you, this feels way scarier than what happened in 2008. This feels like some form of major global economic collapse is potentially coming. Am I being hyperbolic, or are these similar feelings you have?
Willem Middelkoop: Yeah. Well, actually, I'm a little bit more positive than you and maybe Plan₿, because the title of my last book on these topics was The Big Reset, and I wrote this book in 2012, 2013, explaining that we're in the final phase of the current dual-centred financial system. And it's called Big Reset, because you can reset a monetary system. We've seen resets in the past. We've seen a reset in 1944, and the reset in 1944 wasn't a collapse of all financial markets, it was the start of all financial markets, because we had a collapse in the 1930s and the Second World War.
So, when the major financial trading partners in the world agree and join forces, being China, US, Europe, Russia and the Middle East, you can agree to change the system. There are three main parts of the reset pieces. One is that we need a debt restructure, because the main problem now, which we really haven't discussed, is the financing of the American budget. We can't go on much longer, because the primary dealers on Wall Street can't take the incredible amount of new treasuries being brought to the market and that's why we see all this repo crisis. I have a little bit different opinion on this than Plan₿.
The first repo crisis started in September 2019, and that was because the primary dealers on Wall Street couldn't take all the new option treasuries, US treasuries, onto their books, so the Fed needed to help them. That's why we saw an increase of the Fed balance sheet late 2019. Since the corona crisis, it all became a little bit more urgent.
But going back to the Big Reset, one of the main parts of the reset is, we need debt restructure worldwide, and a debt restructuring is a balance sheet restructuring, somebody has to take the losses, for example the pension funds. Well, if you restructure the debts and you also restructure the pension funds worldwide, you can make a new system and start again. But China has to agree, and that's why China has been invited into the IMF. China has one of the leading directors in the IMF; he's a Chinese guy. The Chinese renminbi has been added to the SDR.
The SDR is the IMF money, it's a currency basket by the IMF. There are five currencies in the SDR: the dollar 40%, the euro, the yen, the pound and the renminbi has been added in 2015. Why? Because China is part of the club now, because the financial system you should see it as a club. This club is totally concentrated of fiat money and that's why the club will never use Bitcoin. There's only one reason why Bitcoin could win: because the whole club collapses and loses control. But since the club can make laws and has the guns, this won't happen.
China is of the same opinion as the US, and the US is of the same opinion as even the Arabs in the Middle East. They don't want the fiat system to go down, and you don't want the fiat system to go down, because then you have Mad Max worldwide. And bitcoiners make the mistake, by being too naïve, to think that Bitcoin can compete with fiat and win. Well, good luck with that, but I don't want to live in that world. Then the bitcoiners say, "Well, we'll go to El Salvador, because there it's legal tender", but that's not the way the world works.
So, the only thing you can do, and that's the only success Bitcoin can have, is Bitcoin can be very successful as an alternative currency, as alternative money, the way gold and silver are; can be successful as an alternative. But gold is still part of this club. This club, the International Monetary System, is built around gold. So, the central bankers are much more willing to go back to a gold standard, and that's why I arrived at the Big Reset, that one day we might get a gold re-evaluation and they might bring gold back as the sixth currency in the SDR and restore trust in the monetary system.
Because, central bankers, they all know this. The bitcoiners only think they are the standard financial system; I can tell you central bankers understand a little bit more, because they created it.
Plan₿: It's an important point. Let me add a little bit, because I think that's also why, for example, people like Peter Schiff are still holding onto gold and not into Bitcoin, more than Willem, by the way, because Willem is in between Peter Schiff and me. But the fact that the entire system, the Fed, the US military has the same interest as gold is worth something. And, they're against Bitcoin, so that makes Bitcoin very risky. And I see that point; I mean, it's a fair point to make.
But I'm more pessimistic than Willem, because I think, and I'm not talking as a bitcoiner, but as a former institutional investor that dealt with the central bank on a daily basis, I think that they already lost control. I think they, of course, want the US dollar, or whatever successor currency there is, and gold to survive the whole system, but it will not survive, because they already lost control.
For example, one thing is they cannot raise interest anymore, so there is no yield to be made. There is no yield, nothing to be earned; it's a big problem for retail investors and for institutional investors, re pension funds. So, this yield is not gone, it's just suppressed. It's like water, it goes to places where it can live, and one of those places happens to be Bitcoin, but there are more. And I'm talking basically about volatility, because these central banks, also the government -- actually, I don't want to mention the word, but you see it with COVID as well. People are not allowed to die anymore; it's zero profit.
It's the same with banks. Banks are not allowed to default anymore, or companies, so they save it, but it cannot be done.
Peter McCormack: When I was doing my research into, what's his name, the guy that was working under Trump? Mnuchin. When I was doing my research into Mnuchin and how the FDIC stepped in to say they would provide insurance against all defaults, I was thinking it's one of these situations where you have to have winners and losers, and you have to let failure happen so the system can correct. If you don't allow failure to happen, you create a real bubble. People talk about a Bitcoin bubble; you create a real bubble.
We have to allow for failure in the system, and I don't understand why we've got to this point where we don't know our failure. It's a bit like kids' football at a certain age, they don't allow them to win or lose games, or win or lose trophies, they just play and every game's a friendly. It's like, why are we not teaching people about winning and losing? It's absolutely bonkers!
Plan₿: And it's not true, right? You can save the banks and you can save Boeing and the cruise ship companies and all that, but somebody has to pay. There are winners and losers always. So, they socialise the losses and it will introduce inflation, asset inflation first. That's great for the top 10%; that's too bad for the bottom 90%, or the people without assets. So, there are still winners and losers in this game.
For example, investors, if you look through technical glasses to the market, in the end it all boils down to volatility. The more volatile an investment, the more yield you can make. There is a huge amount of volatility in Bitcoin at the moment and volatility is an asset class, right; you can invest in volatility! That's, for example, what I find very interesting or disappointing or, as an investor, not that attractive about gold, there's no volatility, so where should the return come from? Maybe it spikes up, or it can be low risk for years and then it spikes up. Maybe it's that and it's with Bitcoin as well a little bit. But the volatility part and the suppression of volatility, defaults and debts by governments, that is not a zero-sum game and it will end badly.
Peter McCormack: Willem, you mentioned there were three parts to avoiding this financial crisis. You mentioned firstly the restructuring of debt; what were the other two points?
Willem Middelkoop: You're a good listener and you prepare very well! The first one is the debt restructuring. Well actually, the first one normally I'd say is to find a successor to the dollar, to find a new anchor for the world's financial system. If you truly believe in a collapse of the whole system, like we just discussed, we always say, "An optimist buys gold and Bitcoin, but a pessimist buys guns and canned food".
If you think about the collapse, if you truly think about the collapse of this system, sell your Bitcoin, buy guys and canned food, as much as you can, and a cottage in the Rocky Mountains, or wherever. If you buy gold and you buy Bitcoin, you buy those assets because you think they will go up in price. But for assets to go up in price, you need markets to function. If you have a collapse, you don't have functioning markets. So, Bitcoin should understand that very well.
But to come back to the thesis, we need to find a successor to the dollar. All insiders agree on this. Actually, I just wrote a piece on this this week, it will be published next week, in which I give all quotes and statements by central bankers, Mark Carney saying in Jackson Hole in 2019, "We need to find a successor for the dollar"; Jean-Claude Trichet, the former President of the ECB, stating last month that the system needs to change and we should turn away from the focus on the dollar to a multi-reserve currency system. What does he mean, with a multi-reserve currency system? It could be the SDR, you know; that's a currency run by the IMF. There are five currencies in there. You could add gold and you could add Bitcoin. Well, they won't add Bitcoin, but they will add gold, as I said.
So, that's the reset, that's the Big Reset, and this is openly being discussed among the elite in the system, and that's what my story's all about in the book and the piece which will be printed and published next week. And that shows you that central bankers and the elite, they understand that we're on the verge of collapse, and they understand that we need a reset, and that's why the World Economic Forum explains, with Klaus Schwab, the President, explains, "We have a small and closing window of opportunity to use the current corona crisis to change the system", and that's why they love the COVID crisis. I don't know how it started, I don't know; but the only thing I know that the masters running the club will use every crisis to change the system in a way they like.
Peter McCormack: Who's the loser? You talked about the restructuring of the debt, which primarily leans on the pension funds, so obviously anybody who has a pension might see a pension haircut, or might not have the ability to retire. That's a reality for those people. Are they the losers; is it the older generation and their pensions?
Willem Middelkoop: We all are.
Peter McCormack: So, everyone's a loser.
Willem Middelkoop: Except the people who are in the right assets, because what's the problem? The problem is not the debt restructuring, the biggest problem is always the one we don't see, it's the elephant in the room. The currency debasement is the problem, and who's a victim of currency debasement? Everybody, except the guys who own real estate, gold, Bitcoin and commodities.
Peter McCormack: So, okay, there will be listening going, "Okay, I understand, I agree this is coming". I think everyone I speak to, whether it's Lyn Alden or Caitlin Long, Travis Kling, Plan₿, everybody I know who studies the markets and the structure of the economy, everyone's predicting that a crash is coming. It's this kind of general acceptance. It's the shape of it that people don't --
Willem Middelkoop: It's not a crash; it's a reset. What might happen within a reset, they close down the stock exchange. You don't have a crash. You just freeze it. If you close down the stock exchange, it happened in Kuwait years back, it happened at the start of the First World War on Wall Street, it happened after 9/11; the things they are doing now, planning now, after COVID are so strange, I can imagine them telling us, "Because of COVID, we need to close down the stock exchange, because these are not normal times. We first need to come back to normal times in which COVID has disappeared. For the time being, we stop trading".
Then, you look at all profits and nobody will take a loss, and then they will tell us we need a financial reset, the Big Reset being part of the Great Reset. And, once we've reset the system, everybody's bank accounts, we need time for that, because it all had to be converted to the Bancor, to the SDR, and then we'll start trading again. And then after God knows, they'll say, "We'll still not ready for it". So many things can happen without having a big crash.
Peter McCormack: Okay, that's fair.
Willem Middelkoop: People will be surprised by the creativity of the members of the club.
Plan₿: I imagine it to be a bit like the introduction of the euro, because most Europeans went through this phase of losing their currency and getting a new currency. It's a bit like the dying of the euro and the dollar and the yen and replacing it by an SDR Bank or whatever. And also, with the introduction of the euro at the time, in 1999, 2000, there were winners and losers, right? I know the Dutch perspective of course best, but we lost 20% overnight of all our savings and pensions, and somebody got that 20%, which is okay, but that's what happens overnight.
Peter McCormack: So, how would you prepare, Willem, because some people listening will be like, "Okay, I understand something's coming. It might be a reset, it might be a crash, we don't know. It might be a crash before a reset, who knows?" But something's coming, something has to change. The global economy is fragile, there are clearly some very strong signals in the market with regards to the reverse repo market, negative interest rates, debt-to-GDP levels; there are enough signals in the market to say something has to change.
How do you think people should be preparing for this, outside of buying their guns and tins of food and locking themselves away?
Willem Middelkoop: Well, I always go back to scenarios; you have to think of scenarios. And I've said it before in this chat: what are the biggest risks? Inflation, number one. Inflation and currency debasement. Inflation, number one, could lead to hyperinflation. So, hyperinflation is horrible. Look at Venezuela, look at Weimar Germany, I studied them all; it's horrible. Don't be glad with hyperinflation in the fiat system as a bitcoiner, because it's horrible; it's Mad Max.
Second risk, deflationary collapse, the big crash, the big collapse, like happened in 2008, can happen again. The central bankers know it and they are prepared, and I always tell them, "Why did it collapse in 2008? Because the fire engines were still in the station". Now, the fire engines are all out on the street and the water tanks, they're all filled now. So, as soon as something is about to collapse, we will have a new repo facility or whatever, so that's why I don't believe in a collapse, because you can stop every collapse by throwing more money at it, like throwing more water on the fire. That's why currency debasement is a much higher risk, and hyperinflation is a much higher risk than deflationary collapse.
Once you know that debasement of currency and hyperinflation is the largest risk, you know what to do. Buy all assets that the government can't print. And even the Chief Investment Officer of BlackRock, he wrote an article; they took it offline, I still have a copy. He advised investors to buy all governments can't print. So, if you want to know why all governments can't print is going up now: stock exchange, real estate, Bitcoin, commodities, it's because the value of money is going down. You should always turn it 180. When everything goes up, the value of money is going down. That's the main force.
Plan₿: I agree with everything that Willem says and I hope Willem is right, I really do. Of course, the other scenario is indeed the Mad Max scenario. Maybe it has lower probability, but it's not zero, the probability.
Peter McCormack: And it could be pockets of Mad Max, right; not every country is going to be the same. We know different countries suffer at different points. We know, for example, the state of Venezuela, because that was brought up; we know that Lebanon is struggling; and we know when there are economic collapses are rising, crime and disorder and protests and such, every country could be different.
Plan₿: Yeah, and something better will eventually come from that. But I always look at the Roman system, the end of the Roman Empire; it started with debasement as well, right, the denarii, the silver content. And it led to the end of the Empire, because even the Roman soldiers didn't accept the denarii anymore as pay, they wanted gold. They said, "We will fight, but we want the gold".
Willem Middelkoop: But the difference now, with another 1,600 years down the road from the collapse of the Roman Empire, is that this system we have, we are a big village now, you know; we are all connected. So, there's this new Cold War between China and US, and actually that scares the hell out of me, because we could have a scenario, we haven't discussed this, that the US knows that they still have the military power to strike China; and China is very serious to do the same thing in Taiwan as they have done in Hong Kong, and this will be the big test.
This might be a larger problem for us than the collapse of the financial system, which could be the result of a kinetic war in the South China Sea. But if we pass that and we can convince China and US to work together to make this transformation towards a technocracy, I haven't used that word before, but communism has failed in the 1990s; capitalism is failing now. We don't have to predict it will fail; it is failing now. The club is working on the third system, which is technocracy.
What's technocracy? It's very limited freedom, it's state capitalism; what we have in China now. The best example of technocracy is China now, a government which is led by the scientists, the thinkers, who plan it all. Everything is planned, everything is controlled. And within technocracy, and I think they will bring that to the West in the Great Reset, and you see it in COVID; they always point to the scientists, "Look, it's proven". And you have to give in your freedom, because the scientists say it's dangerous to go out. It's a very cruel technocracy; read a few books on it. That's the big risk.
Within technocracy, we don't have free markets, but we'll have all these institutions, and we see it already, all these major corporates joining force with the World Economic Forum and they all want to be inclusive, and they'll all still buy up the bonds, because the government needs to be supported. So, this will morph into a system in which all powers and all big money, they all back the same system. It will be very, very difficult and very hard for us alternative investors to keep our freedom, and that's why Bitcoin is being fought.
Plan₿: Basically, communism, right?
Willem Middelkoop: Yeah, it is communism, but they call it technocracy.
Peter McCormack: Well, this is why I think people are very nervous about the Infrastructure Bill, because it looks like a backdoor way of restricting, and then ultimately banning Bitcoin. I mean, that's the US banning it, but it will have a catastrophic effect on price. I think your model might fail at that point, Mr Plan₿, but that's why I think people are nervous about the Infrastructure Bill.
Now, the Infrastructure Bill's quite interesting, because as I understand it, even if it gets through the Senate and then the House, it still doesn't come into law until 2023. It provides a real opportunity for other countries and jurisdictions to do the complete opposite, like El Salvador has, and be pro-Bitcoin. If enough jurisdictions do that, there's a chance that there will be bitcoiners who will be thinking, "Well, I might need to reconsider where I want to be". I don't know how that plays out; I could be completely wrong.
Willem Middelkoop: If China would have allowed Bitcoin to become a serious currency, then you could have a very good scenario. But I see all major forces in this world, all the major economic blocks, are making life difficult for Bitcoin and crypto. They're starting to roll out their own central bank digital currencies, and that's the most stupid cryptocurrency you can design, but that's their plan; no Bitcoin.
Peter McCormack: What about you, Plan₿, what's your read on the Infrastructure Bill?
Plan₿: Yeah, maybe it's hopium, but I hope the Senators Lummis and others will put amendments in there and reason returns. On the other hand, this is the Infrastructure Bill; I've seen the COVID Bill, the COVID Relief Bill, I've seen the bills after 9/11. Those were huge bills that nobody can read, and that were full of other arrangements that had nothing to do with 9/11 restructuring, COVID relief, etc, the entire Patriot Act and all the suppression, for example, of El Salvador.
Those things are all shoved into these big bills and it's, for me as a European, very strange to see the rule of law in America is like that, that you can make laws that have articles in there that have nothing to do with the topic at hand, that nobody can read in time. It adds to what Willem says, that capitalism has lost the game. We're straight back to communism; I fear that.
But on the other hand, I have this hopium maybe, this dream of the sovereign individual, that this same technology that empowers states and big companies, that that also empowers individuals; and that the open individual network always wins from the big, state networks that are big, but they're slow, they're not innovative and they're like David and Goliath.
Peter McCormack: They're a private members club?
Plan₿: Yeah. So, I think moving to jurisdictions where capitalism still has any chance is a thing of the future as well.
Willem Middelkoop: I'm in Switzerland now, sorry, Mr Plan₿!
Plan₿: No, good point!
Willem Middelkoop: I'm in Switzerland, because I hope this will be a feast of freedom within the ever-increasing powers from Brussels and the EU. The Swiss just went out of a very serious meeting in Brussels with the EU, and these talks collapsed, because the Swiss don't accept that Brussels will try to control more and more parts of the economy in Switzerland and of the regulations. And of course we hope, here in Switzerland, that we can be a small El Salvador. But we're surrounded by EU countries and when the EU wants to try to make life miserable for the Swiss, I hope the Swiss will win, but…
Peter McCormack: It's a fascinating chat. Yeah, I mean I'm going to take a trip down to Tesco now and get some tinned pineapple. I can't get a gun, but I can get a fork! I'm going to have fork, some Bitcoin and some tinned pineapple and build an underground base in my garden!
Look, I'm not that pessimistic. I fear, I do worry, I do fear a crash, or I do fear a reset that kills the pensions of people who were planning to retire in retirement; I fear a lot. It's a very tricky situation and it does this thing where it pushes me towards the anarchist view of the world, where I also always struggle to understand how an anarchist world will function. It's the problem with being a centrist; you can never really pin yourself to anything, you just float around, "That sounds like a good idea. No, that sounds like a good idea. Let's just make everything work!"
But fascinating chat. Great to have you both on. Plan₿, it's always great to talk to you, man; I always enjoy having your company. And, Willem, it's really great to have you on as well; I appreciate you coming on. If people wanted to read your books, check out your work, I'm about to go on holiday, so I'm going to order your latest book and take it with me, but where should they go?
Willem Middelkoop: Well, we made life very easy. You can download The Big Reset for free. Just google, "The Big Reset Download", you will end up to our website, Commodity Discover Fund. You can download it. You can also buy books on Amazon, there are some more books. I also wrote, The Tesla Revolution, which is a totally different topic. It's on the world on energy EVs. You can follow me on Twitter; just google on my name. That's the only social channel I really work on, and that's about it.
Thanks for having me, it was a great discussion, and thanks, Plan₿, for inviting me as well.
Peter McCormack: It's great, it's really great to meet you. I'm fascinated by your work and I will definitely be downloading the book to read when I'm lazing around with cocktails on the beach next week before everything blows up!
Plan₿, everyone knows who you are, you don't have to share that. I'll put it in the show notes anyway, but everyone listening knows who you are, so you don't have to worry about that. But it's good to hear from you, brother, and glad you're doing well, glad you've had a nice little sailing break and I'm sure I'll be in touch with you in a few months to say -- well, we're going to be looking at that model and going, "Did it work, didn't it work; what next?"
Plan₿: Thanks, Peter.
Peter McCormack: Take care, buddy, see you soon. See you soon, Willem.
