 We're in the upside-down world. The time value of money is negative, debts are assets, and revenue streams are liabilities. As we wrap up this crazy year, there's a topic that I think is worth revisiting. Inflation, now at 40-year highs by official metrics, is starting to concern the folks steering the ship. Or at least it's concerning enough to normal people that the people in charge can't just wave it away as if it doesn't exist, as we've kind of been doing for a while with this old transitory word. So anyways, it's a topic worth discussing, and we're going to do that on today's show. But before that, introductions. I'm Adam B. Levine, and this is Speaking of Bitcoin. For today's discussion, we're joined by the other hosts of the show, Andreas M. Antonopoulos. Hello. Stephanie Murphy. Hi. And Jonathan Mohan. Hey. So, I feel like we're banging a drum at this point. But at the same time, this is a drum that kind of needs to be sounded. No, that's terrible. No, that's good. This is a drum that needs to be beat. That needs to be bunged. So I was somewhat gratified to see a couple of days ago the US Federal Reserve then followed by the Bank of England finally starting to elevate rates. And of course, as we've discussed on the show before, this feels like it's going to be a temporary phenomenon because effectively markets have been trained that good news equals bad news. And so in reaction to this, we saw markets go up. And stock markets continue to be near all-time highs, perhaps in recognition of the fact that bond purchases from $120 billion down by $30 billion per month, that's going to cause problems for markets because they're really acclimated to this. And so as a result, that means that the Federal Reserve will in the relatively near future be reversing that because the markets need further support. I feel like we've seen this movie before, but it's possible that I'm just totally jaded at this point. The other thing about this that's interesting is that the news that has markets right now happy and will eventually have them probably not so happy is this idea that the Federal Reserve is going to raise the core interest rate to effectively 1.25 to 1.5% from the current core interest rate of 0.25%. We're living in a world right now where inflation, the official reading just came at 6.9%, which is the highest number as I said during the intro in almost 40 years. You compare that against the prior episodes of high inflation and interest rates at those times were ridiculously high. I think my parents got their first mortgage in the early 80s. And at that time, I think they were paying an interest rate of about 14%. And so you look at that, you look at, well, here's what it took to solve this problem in the past, assuming that we believe that it was these interest rates that actually solved this problem and then what they're doing today and how much concern there is about all of that. And it just makes me wonder, what is the path out? Or do we even have a path out from this? Well, it's also important to note that, like, let's not use their Orwellian language. Everyone's saying this is the worst inflation in 40 years. If you use the definition of how inflation was calculated 40 years ago, the inflation rate that is occurring today is 14.5%. And so when they compare the 1980s 15% to today, they're lying to you in that the X-axis is changed every couple of years with how they even use that number. And so if you just were consistent and take the way that it was described in 1980, we have inflation literally on par with the worst year in the 1980s. And what that means is if everything you own and everything you make didn't go up by 15% this year, you got your wealth stolen from you by the federal government. Let that sink in. We can talk about numbers and percentages and they're stunning and shocking. But I think that most people have a felt sense of what's going on because when they go to pay their bills, let's say for heating their house this winter or buying groceries at the grocery store, you notice a big difference. Hey, that's not normal. That's not like it was the last time I went to the grocery store. That's not like it was last year. That's not my usual food budget. I mean, if you make a budget for the year and you're trying to live on it, and then by the end of the year, there's price changes of 15% or more on certain things. It's pretty hard to stick to that budget unless you really make some drastic cuts in your standard of living. And at the same time, people are being told by pundits and government officials that there's nothing to see here. Everything's fine. It's the strongest economy ever. I think there was actually a meeting of a bunch of major mainstream media with some government people saying we need to basically pump up the narrative to make it seem like the economy is good, as though that could solve all the problems or something. And people are basically being gaslit at every turn about what they're experiencing with the higher cost of everything. Wages are not rising to match the pace of inflation. Some people say, oh, well, inflation's not a big deal as long as wages are also inflating, but they're not. That's the thing. So the net result is that people feel poorer and they are poorer because their purchasing power is being eroded. And it's a big problem. And I don't see any signs of it that it's peaked either. Well, wages are going to rise. It's a good thing for those who get better purchasing power because their wages increase. But it's simply another indication that inflation is going to start bleeding through into the labor market. Right now, what's happened is in the absence of better wages people are quitting jobs and saying, well, you can stick it and we're going to wait it out. And that's a supply crunch in the labor markets, which is going to lead to, by necessity, higher wages. Companies that pay higher wages are able to hire right now. And those that are not willing to pay higher wages are finding themselves outside of the supply curve of that market. There's definitely an adjustment period, though, where there's shortages, labor shortages, and shortages of goods. Well, that's going to end well, right? Like, let's digitize every single job in America, make it so that it doesn't matter where you are to do that job, normalize that so even the most rudimentary job can now be done over the internet, and then get every American to ask for a pay raise when an Indian could just do the job for 60% less. Well, yeah. And that leaves service jobs that have to be done in person. And for years, bosses have been telling workers that we'll replace you with a robots. And a lot of workers have said, go ahead, try it. One of the things that I've been tracking, in addition to the unemployment rate and the inflation rate and things like that, again, official statistics, as we've talked about on the show before, we had that episode with John Williams a little bit earlier in the year, who does shadowstats.com, which does continue to track all of these different metrics, sort of in the way that they were before the sort of changes started to happen in the 1980s. Another thing that I've been tracking is the labor participation rate. It's not really, I think, well-known, but labor participation, in terms of the number of people who are of working age within the US, who are actually working, that actually peaked in the year 2000. I didn't actually realize that. I thought that it perhaps peaked earlier than that, but it was the year 2000. And it's been going down slowly ever since. When the shutdowns hit, then we saw a very sharp spike down. And so now we're at about, I think, 64% in terms of labor participation, which is the lowest rate that it's been in almost 20 years, with the exception of that first couple of months of the shutdowns. All right, so if inflation is coming, this should be fixed or is already here. This should be fixed fairly easily. I mean, all the government has to do is increase rates, right? But, oh, hang on a second. When the government increases rates, that affects the repayment of debt. In fact, it increases the burden of debt repayments significantly, both for individuals, and more importantly for the government, which is in even more debt than individuals. So how's that gonna play out? I mean, how is the debt repayments going to be handled? It's already eating up, I think it's like a quarter of the federal budget at the moment, is debt repayment? Yeah, and you also have to point out that there's absolutely no signs of them stopping the spending that is actually driving all this debt in the first place. Spending money that the government doesn't have and has to get from somewhere, it's gonna come out of your pocket one way or the other. Yeah, I'm looking at the T-bill rates right now, and again, we're talking about inflation, right? And again, the whole idea of investing in something that's safe is that it provides a low yield, but you still gain relative to inflation. Now, spoiler alert, anybody investing in T-bills who isn't the Federal Reserve or the Treasury Department themselves is not really doing a favor to themselves. They are effectively just giving money to the government in order to do this. And so again, increasingly people are doing it less and less. And so increasingly people are finding other ways to spend their money. We're gonna talk about this in another episode that'll be coming out next week. But yeah, I mean, I don't know, like I don't wanna go down this super dark rabbit hole that we've already gone down here, but I'm having a little bit of trouble seeing the light at kind of the end of the tunnel here. Typically economic signals like this would be really, really kind of bright red lights that would say to a responsive leadership class that something needs to change because this is unsustainable and that unsustainability manifests in multiple ways. One of those ways is it makes it more difficult for me to retain the power that I have to determine how we do things. And I kind of have lost faith, I suppose, in the system to do that. I think I have faith in the people to get increasingly upset about it. And I kind of feel like our system in the U.S. is really built around this idea where we just mostly wanna be left alone as individuals. And then if the government does something that is so dumb and destructive, then it sort of forces the issue and forces people who would just rather live their lives and not get involved with any of this stuff to then get involved. And that even has kind of become challenging because everything is so politically polarized. It seems like there is no sort of appeal to reality that I think that in past cycles may have been a little bit more present. Well, I'll tell you one thing. The one conversation that isn't happening in political circles is about inflation. There's a lot of other things being talked about, mostly distractions here and there, but the inflation and some of the things that are feeding the spending are not being discussed. Well, I hear it discussed. I don't know, maybe it depends on what kind of chatter you're listening to, but I do hear it being discussed. Well, I don't hear it being discussed much in Congress. Oh, you mean among politicians, okay. Yep, the people who could do something about it. Yeah, exactly. They just passed a $786 billion defense spending bill, $30 billion more than last year, with absolutely no discussion at all. And of course, all of that's being financed by debt. Yeah, I don't know. It starts to look like obviously none of us can predict the future, but I'm kind of with you, Adam. I'm not sure I see a way how we get out of this. I'm kind of just hunkering down and bracing for the storm. So let's talk solutions. Like how do you define hunkering down and bracing for the storm? What's your prep plan here? I don't know if I wanna get into this, but I have actually changed my life a lot over the last couple of years. I moved out to the woods and I started producing a large percentage of my own food through gardening and raising animals. And, you know, Andres called me privileged once when I talked about this, but I do feel privileged. Honestly, I feel like this is like a really fun thing to do. It's something I've always wanted to do. Now I'm lucky that I had that desire to do it. And I know not everybody does and not everybody can live out in the woods, but that's a good solution for me. And, you know, I feel like with what's going on in the world, it's a good move and it's been good this year. I think it's important for people, not necessarily to come away with the conclusions that we have, but to establish that what's happening is you're being paced. And pacing is when, if I asked you where your red line was and you gave me a number and you said, that's my number. But instead of doing that, I just kept moving you like a frog in water, boiling you slowly, I'd get you way further than the point that you would have said, you would have stopped because you just kept going along. And so we've been talking about inflation. We've been talking about Bitcoin. We've been talking about hard money. Most of us, our entire damn lives, like this is it. Like people need to think through what is the level of inflation that for them is the red line where they then need to take steps in their lives that are non-trivial, that affect their friends, that affect their family, that affect their wife, that affect their kids, but that that's the line that they know they now need to do something about it. And maybe an official rate of being 7% isn't that line for you. But right now, while you're listening to this think is 12% that line is 15% that line is 20% that line. When is the number high enough that you will actually do something about it and think about it's better to be a year early than a day late? Because when this goes bad and you're a day late, you're gonna wish to God you were a year early. Are you talking about investment strategies or like lifestyle stuff? Just everything. A bit of both. Let's talk investment strategies. I mean, you mentioned growing your own food and raising animals. And we've also talked, so that's a great life strategy, being self-sufficient for reducing your costs, being as independent as possible. It's partly also because like, I don't like what's going on in greater society right now and I won't be away from it as much as possible. Yeah, and that's great if you can do that. And so for investment strategy, what do people do? Because right now, a lot of people are probably looking at crypto and Bitcoin specifically and thinking it's risen so much in the last two years, do I really want to buy into this? Or is there some other way that I'm going to invest my portfolio or split my savings or do something? A lot of people are buying assets. They're buying assets they think are durable assets. Whether that's cars that don't depreciate, secondhand market for cars is actually to the point where you can sell a secondhand car two years after you bought it for pretty much the same price you bought it for because the market's so squeezed. You know, we've talked about countries where inflation hits so hard that people buy washing machines and keep them in their packaging because that's a durable investment. And second cars and third cars. Real estate, I mean, can you even get into real estate at this point? I think that one's being played out completely. Yeah, real estate's risky too. And people have talked about precious metals also as a hedge of inflation. If you're not into crypto or if you have questions about it or you're not sure, okay, fine. Like maybe you're a gold bug or something. You could get interested in precious metals but there's another strategy that I've been interested in for a while called the Permanent Portfolio which doesn't include crypto but it's basically like this back-tested strategy that you keep a certain percentage in different asset classes. And it performs like, you know, pretty well in a passive investment strategy in almost any economic conditions. I don't even mean buy Bitcoin. I'm not even trying to say that. But what I am saying is that if you think that there is a 30 or 50 or 90% chance that three years from now your red line is gonna be hit then like as a man or as a woman, as a father, as a mother it's your responsibility to start thinking through what you can do about that. And what that could be is just saying, okay, three years from now I need a job that is something that I can move wherever I want. And so maybe what you should do is take $500, put it aside and learn how to buy things at Walmart at discount and then put them on Amazon and start making money becoming a reseller. Start generating cash flow that you control that isn't someone giving you a job that then allows you years from now be physically independent and be able to move should you need to do that. Thinking about just the little things that aren't buy Bitcoin, HODL, do nothing. But just all of the different ways that people make excuses because they make the bar too high, they make the bar high enough that they don't need to do anything and then they get to just live by being a victim to the reality that they're in rather than do something. Yep, there's always something you can do. There's always something you can do to take control of your situation, take back more power and empower yourself to live the best life you can. Jonathan, I like what you said a couple of years ago about investing into education and building skills. That's another way that you can give yourself more freedom. That's an investment that doesn't necessarily have a monetary value, but it could open up a lot of possibilities for you including the possibility to make money. Well, it's funny, right? Because people don't really think through the implications of lower interest rates, right? And so when the government cuts the interest rate in half, what they're saying is that anything that can emit cash flows equal to what it was before now needs to be double. So if you've had $100,000 and that $100,000 used to give you $1,000 a year, when the Fed cuts rates in half, that's the government now saying, well, now $100,000 should only give you $500 a year, right? And so if you think of yourself as an asset, what the government is saying is every time they cut rates, they're saying you as a person, you as a productive vehicle, you now need to be that much more capable in order to make the exact same amount of money per year. Because all a person is a bond, is a vehicle of value that generates a dividend each year of a particular amount. And so when the Fed cuts rates and you need $10 million instead of $5 million to emit $60K a year, they're doing exactly to you what they're doing to your money. And so thinking about ways to generate cash flow to improve your personal value so that you can generate more capital is what that's all about. Because right now, if interest keeps going up and rates keep going down, you're gonna need to literally be worth a million dollars in capability to make 50K or 20K a year. And that's the reality we're going to. In the same way that bonds, you're gonna go from needing 100 million of bonds to a billion dollars in bonds to make a million a year. You're gonna need to go from having skills, capabilities and a knowledge set worth a million dollars to a hundred million dollars just to keep making what you used to make. And you look at that and you go, that's freaking impossible. Right, that's why you can't succeed or live in Venezuela. That's why you couldn't succeed or live in the Weimar Republic. And people just need to look at what's happening right now, look up the crack-up boom and figure out where in the fucking line is their line for them to get the fuck out and just think through like, this isn't alarmist, this is just understanding the way that these things are playing out and having you come to your own line in the sand rather than just be a victim to what's happening by not thinking about it and just going along with it until it's too late. Let's talk also about debt and what this does to debt. I think it's important to realize that the environment we were in where interest rates were really, really low hurt people who saved money. It hurt them because they got no return on their savings. So what happens when that changes? We're looking at an environment that over the next five years is probably gonna change fairly radically. We're gonna see much higher interest rates. And what that means is that if you have money in the bank you can actually make a bit more interest. So savings are going to get encouraged by this. But the corollary to that is if you have a fixed rate loan, if you owe money, but you always had a fixed rate and you are lucky enough to get that in before the rates go up. So you get a loan now at 2, 3, 4% we're never gonna see those rates again. It's as simple as that. So if you have a fixed rate mortgage the inflation is gonna drive the value of your house up and the purchasing power of those dollars if you had them otherwise down. So having a fixed rate mortgage right now is going to be a very good investment five years from now when the rates is three times higher. That's one way to look at it. Another way to look at it is if you have student loans and those student loans are fixed rates stop paying them right now. Because what you wanna do is take that money it's basically 3% or 4% or whatever it is. Stop paying them and let inflation erode the value of those loans. A lot of people are doing that anyway not because of a brilliant strategy but because they can't. Yeah, but what Andreas was saying is that we're in the upside down world. The time value of money is negative. Debt are assets and revenue streams are liabilities. Yeah, exactly. That's what happens in that kind of environment. And you know, like I'm hearing all this stuff and thinking about it especially some of the ways that you're putting it Jonathan, I really like the way you're expressing it. And I'm thinking, gosh, this is depressing. And it is. And it's okay to feel a little bit depressed sometimes. Like you have to reach acceptance with, okay, this is where we're at. I can't control it. But there are things I can do to improve my own situation and let's get creative and think of solutions that can help. And you know, it's okay though to feel like first of all, you're not alone. A lot of people are going through the same thing if you feel like, hey, this isn't fair. And you're right, it's not fair. You know, it's okay to feel that and sit with it but you reach acceptance and then you figure out ways to empower yourself as best you can and live your best life. I'm not to the acceptance part yet. I think that you said that very well, Stephanie. And I think that that's probably the biggest challenge that I see with all of this is that like, you know, we've been doing the show for eight years and like that's four years after I came to the conclusion that the system was pretty darn rigged and that if you played the game by the rules that were on the box, then you were gonna lose because those aren't actually the real rules, right? And I feel like that a lot of people I know are in that same situation. I think that we all again, you know, had concerns that led us to take different paths in lives than a lot of people. And you know, on the one hand, that's great for us and I'm happy that I paid off debt years ago and all of the other things that I did. But on the other hand, it just makes me so sad about the reality that people who didn't take the time to do this because the signals weren't obvious, right? Like they were there if you really cared, but like I've been so hopeful that we were gonna avoid this fate and we've been continuing to walk down this path. And I don't know, I really go back and forth on whether the idea of optimism about these things is just fundamentally misplaced when it comes to the walk up to it. Well, optimism is understanding what the best possible outcome available to us is and doing everything you can to have manifest that. Fantasy is when there's no path to achieving your desired vision and yet you wish that that could be the case, right? And so the IPCC said that unless we literally kill billions of people in stopping all CO2 output, we will literally do nothing to prevent catastrophic climate change as defined as the IPCC's understanding of it, right? Anyone who thinks that literally anything we do is gonna prevent what the IPCC describes as catastrophic climate change is living in a fantasy. Now you can be optimistic about what we can do to mitigate the harm from that but to think that we can prevent that is a delusional fantasy because that's not a reality available to us to manifest, right? In the same way, there is no way out of this crack-up boom. This crack-up boom is coming. All that you can control is at which point you tell yourself that the social costs, the connections, the relationships that you have, that you need to let go of that and not let go of it in a suicidal way but just say like is being in New York, is being in California, is being in America because I like the nightclub I go to and the friends I'm around worth destroying the life of my parents, my children and my wife. And I'm not even saying we're there yet. I don't even think you think we're there yet but what I'm saying is you need to literally take out a piece of paper and write down when it's gonna be apparent for you to get the fuck out because unless you do that exercise now and then hold yourself accountable to it, you're just gonna be here until you wake up one day and all your money is worth nothing and your family's future is gone. I don't think you're talking specifically to me there but I do think it is a good point. Well, let's see, Adam, what's your number? When will you get out of America? Well, I mean, is getting out of America, does that actually solve the problem? I mean, that's what I'm kind of pushing back on here. Yeah, that's a great question because where do you go to? Where do you go exactly? Yeah. I mean, like there are other places that you can go that have different equilibriums but fundamentally this crack-up boom that we're talking about here, that's not an American thing, that's a whole system thing. We've kind of had this double down, double down, double down and certainly the U.S. is at the forefront of that but it seems like it's a global problem. The UK's right behind, the European Union is following shortly thereafter and China, Japan and Korea after that. Where are you going, Jonathan? Your summer house in Botswana? I think you're getting too caught up in, again, if you can make the outcome of what doing something looks like so high that you can then dismiss doing anything then you can do nothing and feel fine about it, right? And so what did Stephanie do? She changed her life to have revenue that was generated outside of her physical employment location and then moved to the middle of the woods and the middle of the woods in New England is as close to a different country than New York and California as a fricking person can be in. Yes, I agree with you, Jonathan and thank you very much and I agree with you and I feel like I've done a virtual exit. Like I have not physically exited the country but yeah, you're right. Like I do feel like I'm living in a different land, I guess, or a different domain and there's definitely something to the idea of like you take away your consent from the system or you take away your presence or something like sometimes your presence is the only leverage you have and if you take your presence away you can use that to set a boundary. That's what I'm trying to do. I'm trying to draw a boundary with many things I don't like about what are going on in the world right now and I'm trying to be as happy as I can. But again, so like having your wealth tied in a physical asset that isn't around other people with revenue streams that you control from your own business with food that you can source yourself and with assets that are completely unaffected by what the crack up boom is doing to the dollar related value is exactly how you get out of this. It's not like I need to take all my kids and move to Antarctica and since I can't do that I can justify doing nothing. It's just figure out when you should start doing something. I'm not even telling you where that is. I'm just saying unless you think about this now you're gonna be five years from now realizing you did nothing. You're gonna be the frog that boiled in the pot if you don't think about it. Right. I agree, you have to set a boundary somewhere and it is good to think about it sooner rather than later when it's still theoretical versus when you're actually facing it. Since I was literally 15 years old and learned about hard money I have spent all of my free time debating with everyone I know about just acquiring assets and the dollar is doomed. And now the phrase it is illegal to go to work. Right. And now that it's not illegal to go to work and now the supply chain is destroyed and now you have the highest inflation in your entire living memory and people are still not doing anything. And not only are they not doing anything they're not even sober enough to just sit down and spend an hour and say what will the signals look like before I then hold myself accountable to doing something. And I'm just saying for good God if the highest inflation numbers in living memory isn't enough of a signal not for you to do something but to sit down and say what will it need to look like before I do something then why the fuck are you listening to this podcast? Well, not entirely in living memory for two reasons. One, I've lived a bit longer than you Jonathan. So my living memory includes the 1980s. Secondly, in the 1980s I lived in Greece where inflation was much higher than 14%. So for me, it's kind of warm but it's not really hot yet. Yeah, but we're in the middle of the story. We're not at the end. Yeah, I was just thinking about that. I mean, things are not good, right? But at the same time, things are also not over and there is still time. I saw the other day that strike came out with daily dollar cost averaging for purchasing Bitcoin and I thought that was actually something that I might use. Minutely dollar cost averaging. Yeah, exactly. Is that what Jack's doing now that he got away from Twitter? Yeah, maybe. With Lightning you could do it. Minute based dollar cost averaging. Do you guys see the potential for a major revolution in the economy, the rebirth of a different kind of economy out of this? And do you think that would be a good thing or do you want to keep the current system or? Well, this is an easy question. I mean, it seems like it's a situation that could go both ways but if you're somebody who's been interested in Bitcoin since before it was worth a whole bunch of money then chances are the reason why you're here is because you're interested in alternatives to the current system because it doesn't seem like the current system is going to change and it doesn't seem like any existing alternatives outside of sort of this new cryptocurrency on the internet, you know, not just cryptocurrency on the internet but the internet broadly as this connective layer that allows us to coordinate, you know, independent of geography almost instantly. Like those are important things. Those are great points. I think we're going to see more than a change of the current system. I think we're going to see a fragmentation of the current system and we're going to see the coupling of different regions and industries, activities, geographies, nation states, et cetera from each other. Sort of a detangling and perhaps a bit of de-globalization that's going to happen not because anybody wants that or I mean, some people want it. Not because people want it but because it will have to happen because of crisis. So for me, I think we're going to see lots of different parallel systems, alternative systems, gray systems, underground systems and that means different currencies, different economic cycles, different economies operating. So the big fragment is coming. Well, I would welcome the big fragment because I think when you don't know what to do it's always great to have like different solutions to choose from. You just know that the current system isn't really working. It's always good to have different things to choose from and maybe the solutions will be different for different people in different circumstances. Yeah, competition and options that allow people kind of at the edges of the network rather than folks who are running the center of the network to decide what individual people should do. Like that's always a better solution. So yeah, I think that that makes a lot of sense. I was just going to say, the world as it is established now is like a great oak and when a tree dies the only people that are happy are the fungi. Fungi are people too. Drop some mushrooms. Yeah, drop some mushrooms. That might help with the transition, right? It will expand your consciousness. And on that note, that is all the time we have for this episode of Speaking of Bitcoin. Today's show featured Stefty Murphy, Jonathan Mohan and Andreas M. Ansonopoulos and myself, Adam B. Levine. This episode featured music by Jared Rubins and Gertie Beetz with editing by Jonas. If you have any questions or comments, go ahead and send me an email at adamitspeakingofbitcoin.show and we'll be back next week with another episode of Speaking of Bitcoin.