Mailbag: incl. Where does the debt come from? November 3, 2024

23:52Google investment bonds if you want to learn a bit more about them. I don't do a lot with it. but basically there's a great article from stock spot actually so google stock spot investment bonds they're kind of like quasi-competitive to us but doesn't really matter basically you do better tax-wise the problem is they've done some work at a macro level and the average investment bond did much worse than the average etf so you save the tax but you don't make any return i'd rather make a higher return and pay the tax so for me my approach is scott phillips as trustee for son's name uh with his tax file number and any dividends we get at some point put into his bank account in his name.

24:29So it's very, very, very clear to the tax department. This is not me dodging tax. This is all about him and for his interest. And I can transfer them capital gains tax free when he gets to 18. So that's how I would do it. Ram, anything additional on that one? Yeah, it's not a great set of options, which is why I don't do it, honestly. I mean, we set up a family trust years ago. And I've said on the pot I regret doing it because I don't – with all the requirements around it. And the costs. Yeah, the cost. I don't know. I would have been better off. I mean, every household will be unique in its own way.

25:04I'm trying to think of the Russian author who said every family is the same, except they're all miserable in their own unique way. No way. Who was that? Anyway. I'm not sure. I'll look it up while you're talking about it. Yeah, it's a great, great line. So anyway, that's what we've got. So one of the good things about a trust is that I can split up the income. So everything is just invested in that. And at some point when the kids are older, they will just derive an income from that. So it's sort of, it's really a question of just how do you want to account for it? But in the real world where we occupy, the kids just know that I've got some money.

25:41How much? And where it doesn't matter. It's all there. You'll be fine. Don't worry. They're not at every age where they're that interested about it. But my goal is to make as much as I humanly can in that vehicle. and then like when there's a problem of transfer, like that's a good problem to have. I don't think it'll be miles worse than what some of the other options are because they're all bad options, right? Well, I mean, not bad even, just kind of, you know, under my example, you still got a six-figure sum for your kid, right? And yes, you paid some tax on it. Well, guess what? The tax department's got some money because you made a lot of money and that's probably fair and you can get some money and that's really good and you started with a small amount of money.

26:19so, gee, it's a nice problem to have. You know, would I like my entire fortune tax-free to compound at 140 % a year? Yes, I would like that very much. But in the real world, it just is what it is. Yeah. Hey, by the way, the answer is it's in Leo Tolstoy's novel, Anna Karenina, which starts, quote, happy families are all alike. Every unhappy family is unhappy in its own way. That's the one. I love it. It's a good one, isn't it? Very, very nice. Let's move on, mate, to a question from Rebecca who says, Please only use my first name Which is so common No one would know who it was anyway Except Rebecca Everyone knows who you are No I'm kidding What did I say I don't know if you're paranoid Just because everyone's after me She says hi to guys That go by many many names Scott and Andrew to be clear That's probably true I've been listening to your show For about eight months And it's become my absolute favourite podcast So thank you for all your work and advice Well Rebecca Clear doesn't say It's the only podcast she listens to But that's okay That can remain unsaid, Rebecca.

27:19Thank you. I am very new to investing, so my questions are as follows. I'm about to get a lump sum of money, and we'd like to invest in a mix of ETFs, stocks, and a bit of Bitcoin. At the moment, I use three investing apps, eToro, Raise, and Interactive Brokers, or IBKR as the cool kids say. First, is it a good idea to spread investments across the three brokers for security? Or would it be better to just stick to one investment app? Secondly, are any of those three better or worse than the others? Or doesn't it matter? Finally, is it okay to keep my Bitcoin, about 10 grand, in one of those apps?

27:55Or should I put it in something like Coinbase? Thanks again for all your help. And full on with the raised hands, which is one of my favorite emojis, Rebecca. Thanks, Rebecca. And I will highlight you a female slash woman listener. And I very much appreciate it as does Ram. Okay. Three investing apps, eToro, Raise, IBKR. Are they all the same, mate? Is one better? Is it something else you should be using? Look, I think as long as they're chess-sponsored, I don't really care. I don't think they are. Yeah, I don't think they are. And usually - Explain chess sponsorship for us quickly because Rebecca may not understand the term.

28:33It's this really old system built in the 70s by the ASX called the Clearinghouse Electronic Sub-Registry System. I keep promising I'm going to do a big rant on the ASX and how just god-awful custodians of shareholder capital they have been, despite their monopolistic character, which shouldn't. Anyway, they've just, anyway. So back to chess. Back to chess. I love a change. Don't get me wrong, but this was getting way out on the wind. Oh, man, the ASX, gosh. Tell us why chess is not. What it does is it means – so in the old and olden days, you used to get a piece of paper, a certificate. It was a bearer instrument.

29:14I could hand it to you. I could physically hand it to Scott and now you own it. It was like cash or gold or something or Bitcoin. And cash cash, not money in the bank, literal physical cash. Yeah, that's a bank liability. That's nothing, right? So, yeah. And then nowadays you've got the choice between issuer-sponsored and chess-sponsored. Issuer-sponsored means that it's the share registry that looks after you. You will get a certificate. You'll get a shareholder reference number. The good thing about that is you can take that reference number and you can transact through any broker. When you're chess sponsored, it's the broker that looks after it on your behalf.

29:48Now, the good thing about that is you don't have to do any paperwork, just buy and sell. They know exactly what you've got. They basically look after it for you. Not really. You've got a unique shareholder number that everybody knows, not publicly, but everyone knows that the shareholder 1, 2, 3, 4, 5 owns 50 shares in Woolies. Yep. And then the broker will say, well, you are shareholder 1, 2, 3, 4, 5. You are the person who owns those shares. If anyone ever asks, we have a record that you own them. Yep. And yes, they all participate in what's called the National Guarantee Fund as well. So if the broker happens to go under, then there is a fund there that will make sure that you are made whole and the rest of it.

30:23It's just a nice little investor protection. I've actually got some issuer-sponsored stuff somewhere. And I don't want to suggest that that's super reckless. It's not because, you know, Computer Share or Link or one of the registries will look after it. So it's not that great, but all else being equal, you want a broker, I think, that's Australian-based and owned and chess-sponsored because it just makes your life easier and it gives you a few added protections. What would you add? I probably could go a few. Just really quickly, if I had the third. So a lot of brokers own shares in what they call street name on your behalf.

30:55So there's issue or sponsored, there's chess-sponsored, and there's this third kind of area which a lot of these brokers are. if you want to scare yourself, look up. Oh, I'm going to forget it now. Opus Prime? Opus Prime, yes. Look up Opus Prime. Make yourself feel scared. A broker that isn't chest sponsored is allowed to hold shares and say, the broker owns a million shares of bullies. 50 of those, Rebecca, are yours. The records show the owner as Rebecca, sorry, as the broker. The broker says, yeah, but I've got these shares for Rebecca. If that broker goes broke, is not covered by the guarantee fund, you will get nothing or a small amount back.

31:32Opus Prime had exactly that. They took some risks as a broker. The brokerage went broke. And because their shares weren't chess sponsored but were in the street name of the broker, a lot of the shareholders got wiped out or meaningfully wiped out. Lost a lot of their money. And I think, I don't know about these three, I want to be very clear. I'm not casting aspersions because if they are chess sponsored, I'm not going to say they're not. I don't want to disparage them. What I would say is that if any broker is not chess sponsored, you are taking a risk that they will remain solvent and pay you back.

32:01If you're in a different situation and you are shareholder 1, 2, 3, 4, 5 under the chest system, it's not an absolute perfect guarantee, but it's as good as you'll get. And that is absolutely worth doing. So for my young bloke, I've just talked about my young bloke shares with the previous question. He has a chest number. I pay a little bit more in brokerage for those shares when you make transactions, but it's done specifically so that if there is a problem, it's cheap insurance. Really, really cheap insurance. The odds of something going wrong, really, really low. but the impact of that going wrong, really, really high.

32:33So being chess sponsored gives you a massively increased, but not perfect level of protection. So like Ram says, absolutely, I would never ever invest, well, I tell a lie. I would never invest any significant money in anything that wasn't chess sponsored. My young bloke also has a very small account with sharesies. It's got a couple hundred bucks in it, literally. He uses it to buy and sell his own, or not sell, he's buying his own shares when he wants to with his pocket money. And that's not chess sponsored because the brokerage is really cheap and it's 200 bucks. And if it goes badly, I'll give him 200 bucks.

33:01But for the money we're putting aside for him separately, he's not listening to this podcast, so I can say this, that's in a chess-sponsored account because I don't want to take the risk that something might go wrong. Very, really, really low chance, but really big impact if it happens. Yep. The other thing is there's... Because what do brokers do? They do nothing. Like, you know, back in the day, gosh, it must have been a brilliant business just as I was coming into the industry as the internet has disrupted virtually everything. I mean, they really just, they have a special license. It's the only thing that they've got that's unique about them.

33:36And they connect buyers and sellers. And it's a very commodified business. And over time, we've seen brokerage rates. I remember when I started, you'd pay$100 for a trade. Oh, yeah. $100 for a trade. Now, in places like Robinhood, it's free. And you think, the great line here is, if you're not paying for something, you're the product. Yeah, that's right. And it massively applies to blogging. Yep. You know, like, because they're giving you, they're selling the order book to big hedge funds who go, we need exit liquidity for all these pump and dumps. No, that's way too cynical, Andrew. We need some suckers at which we can offload to, or we need to see where the, you know, retail are buying and selling.

34:22and they're basically, they're farming out, they're collecting your data and they're farming out to other big sophisticated players and you're being taken for a ride. Yep. So I use ComSec. Why? Because I'm lazy and that's 20 years ago, that's where I put my account with. And they may be even getting in on that game too. But I do know that the cheaper the brokerage, they have to be viable in some other way. And the other one is that I lend the stock to short sellers so that the short sellers can sell and then buy back. And we're just fine as long as they sort of manage. It's like banking. Perfectly fine until it isn't.

34:57So I just think all of these apps on one hand say, oh, we're democratizing access to the market. Look how good we are. It's like, no, you're not. You're screwing over the little guy for the sake of the big guy, frankly, I think. I don't know. Am I being too cynical? A little bit, not much. That's exactly right. If you're not paying someone, they are using you to get money from somebody else. There is no other option, right? The only halfway house is they might be trying to upsell you to something else later. This is free, but pay more for our other thing. Either way, you're being sold to or you are being sold.

35:28You're the product. Exactly. Your data, your order book, your trade flow. I don't believe it can happen here, but in America, they can actually jump the price-time priority queue in the order book. How is that even a thing? Correct. It's a thing. It's a thing. I'm sure you can't sell the order book here, which is why most of the trading isn't free, because I haven't found a way to make it free. Yes. So it's less dodgy than the US, but the US is dodgy. Rebecca, I'm going to bring it back to very basics, right? For all the stuff that we just talked about, it's all true. So this is not a recommendation.

35:58I use Comsec, Perla, and Sharesies, and I like them all. I wouldn't use Sharesies as much as I love them for large amounts of money because they're not chess-sponsored, unless they currently own off a chess-sponsored, which goes great. I would not put any significant amount of money other than I said, my young bloke, because he buys$10 worth of Microsoft and$5 worth of Woolies, right? It's the process rather than the money for him, for this bit. I wouldn't put any significant money in anything that wasn't share-sponsored because the risk is not worth it. My house is probably not going to burn down, but I like insurance.

36:28Same thing for shares. Is it worth splitting over three different apps? Probably not. No. I mean - What a hassle. Well, it is. The problem with that sort of answer is if one of them eventually does go broke, you'll be like, see, I told you I should split them. And I don't know. So yes, but how many? Is it five? Is it 12? Is it 15? I have two. Why do I have two? because I use ComSec for myself, like Ram, and I have for years, and it's fine. Perla are good guys. I've interviewed them for the good oil way back in the day. Nick and the team are doing a great job there. I like them a lot. So when I was doing something for my son, I tried Perla.

37:00That's literally why I did it. I like them both. I would keep using them both. I have no commercial interest with either of them or any of them, including sharesies. So yes, I would definitely, I would only be chess-sponsored. I would use whatever app was convenient and useful and be chest sponsored. If I was starting today, because I'm lazy like Ram and I'm a creature of habit, I'd use Chrome, second Perla because I already do and they're fine and they're good and I know them and so why would I change? But you might feel the same about yours. Just please ask, check. If they're not chest sponsored, personally, I wouldn't use them.

37:34I'm not saying what you should do. I wouldn't use them. And I think one is enough, particularly if they're chest sponsored by definition, right? The chest sponsorship removes all that risk. If you're not chest sponsored, yeah, probably more is better. But again, think about three, right? You've got three of them. Are you prepared to lose a third of your money on one of them? Probably not. So use one that you trust rather than three just because there might be a risk is probably the answer. The other thing too is with brokerage. I mean, obviously, all else being equal, you want the lowest brokerage that you can.

37:59All else being equal. All else being equal. At the same time, I just think of all of the things you need to think about when it comes to investing. You are not going to be on your deathbed and go, gosh, if only I had paid$8.50 per trade instead of$12.90, my investment returns would have been so – Like they're just, it's a rounding error. So again, like I'm not here to say like pay as much brokerage as you can, like minimize it sensibly, but, but, but don't think about, I mean, your efforts really, if you want to make sure that you feather a really nice, comfortable nest for you is that you want to really focus on how you earn your money and maximize saving your money and then putting that into the best investments.

38:40Those three things in that order, frankly, you know, are the most important things. And when you get this, you get a lot of people who put the tail before the dog or what am I trying to say here? The cart before the horse. You go again, you don't do this after lunch. Afternoon podcast, never again. You know, it just, you know, people are trying, I'm trying to minimize tax. I'm trying to do all this stuff. And again, it's not that you would, why wouldn't you try and do that? But it's just, it's such a tertiary, quaternary, quinternary issue is to be so like, don't sweat the small stuff. Focus on the really big stuff that's going to move the needle.

39:16Yeah. I don't think Rebecca's trying to save money necessarily. She's looking at the apps and going, I don't know which one I should use. Should I use all three or not? They're all the same. As long as they're chess-sponsored, by the way. As long as they're chess-sponsored, but they will all tell you, well, we do this and we do that. Do they allow you to buy and sell fully paid ordinary shares? At an okay price. At an okay price. That's it. That is it. They will all say, oh, but we've got a really cool charting package and we do this and we have technology in the bed like that. Yeah. Bugger off.

39:43You are purely an, all I want is an execution only. Who's just going to take my order, process it in a timely and cost-effective manner. If you can do that, then fine. And frankly, you should be able to do that because that is frankly the raison d 'etre as to why you exist. Now, Rebecca did ask about Bitcoin. Okay. I'm going to, five minutes, your time starts now. up so we went through this this horrible period a couple years ago with ftx and celsius and all these things blew up you know and it's it's it really makes me mad because it burnt a lot of people but also it it tarnished like the massive structural shift that's underway and so 99 of humans on the planet when you say something like bitcoin they hear crypto and when they hear crypto they think scam and frankly one naturally follows the other like crypto is a scam by and large Or if I'll be generous, it's a technology play.

40:39It's a corporation by another name, right? So it's like investing in a very, very early stage startup that has some kind of technology that's sort of copied off something else that hasn't found a use case yet. That's what you're buying when you're buying crypto. And it's a nonsense and I wouldn't risk one cent of my own money on it, right? So I just really want to make this point because as we come into this next bull market, people are going to get burned again. But that lesson from a couple of years ago, why did everything go bad? Nothing happened with Bitcoin. Nothing happened with the protocol, right?

41:08We're back at record highs as we speak right now. But all those people lost their money because these cowboy unregulated outfits. Sam Benkman-Fried's in jail now and long may he sit there and rot because he deserves it, right? They basically said to people, jumped onto their app. They're registered in the Bahamas or somewhere like that. They said, I'm buying Bitcoin. And the app said, yes. Here you go, Rebecca. Here's your Bitcoin. It didn't exist. It was paper Bitcoin, right? And when it all collapsed, I want my Bitcoin. But it turns out we don't have it. We don't have it. And so get, I can't say this.

41:48Well, let me say something very clearly and then I'll add some nuance to it. Okay. Not your keys, not your coins. We need a sound for Bitcoin cliches. like when you when you start to really get into this you realize that the memes all are like bang on like oh that's why they say that here's the thing right like that one of the big deals about this is it's a bearer asset like i said before with gold or the old share certificate or cash you know and so why why should some weird crypto casino based in singapore hold your your asset when you can just write 12 words on a piece of paper and it's yours and it's free there's no charge and zero can go wrong like zero can go wrong now the the the wrinkle to this is is that okay but my 88 year old granddad's never going to do that like he's just never going to work out how to get a hardware wallet and manage all of these quite some of your 88 year old granddad it's someone like me who's like i kind of get it but i'm not going to go to that much trouble if i want to be kind of you're either telling me to not do it or to find a way to do in between.

42:53Look, you know what? It's so easy. I believe you. It's just unfamiliar. And you're the same vintage as me, and you will remember setting up your first email server. I was like, oh, my God. Pop3, IMAP, like which one do I choose? What's that? How do I do this? It's like email with the kids. You won't believe this, but email was a nightmare back in the early days, right? And it's just like it's the easiest thing in the world. And it is the same with Bitcoin. It's just unfamiliar. So educate yourself. If you don't want to, or if you're uncomfortable with that, there are third-party custodian solutions.

43:26One of the things that you can do is called multi-sig. So it's like having a lockbox with all your treasure in it, except it's got two keys. And you need two out of three keys. Sorry, you might have three keys and you need two out of three to sign or five out of seven or 12 out of 29 or whatever you want. Like this is the beauty of the protocol. It's programmable money, so you can do this kind of stuff. But there are Unchained is a good one in the US. There's a few others that are around that will manage it for you. And they'll do it in a way where it's sort of like, you'll pay a fee for this.

43:56But if you want the brain fart insurance, it's really good. Because if you get hit by a bus or there's inheritance planning, you won't have a stroke and forget where you hid your passphrase or any of these kinds of things. And that can be a nice, easy step. But for the love of God and the love of all that is holy, do not let Coinbase hold your coins. Like, do not let them do it. Because if they get into trouble and there is a litany of casinos, and they are, that's all they are, most of these crypto places, is getting into trouble and rugging holders. And you'll look there at your screen and, oh, look how rich I am as it's appreciating in value, only to realize it's not there.

44:40And do not be one of those people. It's not miles away. I will make a distinction between casino and brokers, but it's kind of the same with chess sponsorship, right? We're kind of saying, hey, maybe it's fine, but if it goes away, you've got no recourse. If you're chess sponsored, our chess isn't exactly your wallet, your keys, your money, or whatever you said, but it's directionally in that direction. What about a Bitcoin ETF, mate? Is that a viable option for people? Yes. Oh, sorry. Great option. Yeah. Great. I mean, it kind of misses the point. All it is really is a bridge to traditional finance to Bitcoin.

45:15It's a lovely sort of intermediate step. It wraps it up. It makes it nice and tidy for institutions. It checks off a lot of the compliance risk. It's just nice and easy. It's got BlackRock and Fidelity. You've got reputable fund managers who, in theory, have custodian or trustee arrangements. Yep. And they're backed off to buy the US government, right? So nothing's going to go wrong. That helps. That's the other thing. So that's a really nice, easy way to do it. And that's a really good place to start if you want to. But honestly, learn about it. Like don't, you know, yes, it's unfamiliar, but it's not hard.

45:49And I can do it. I can transfer you some coins. I'm not going to, by the way, Scott, but I could. I can transfer you some coins now or some Satoshis very quickly and easy. It's the easiest, like sending an email. It's like so super easy. But the first time I did it, it was very scary. I had to get a bit flessing of Bitcoin. You know what I mean? So anyway, it's sort of, it's learn the lessons of the past. We'll go through another hype cycle. People will get crazy. A whole bunch of people get rugged. All the cowboys will come in. They'll offer something new and the cycle and history will repeat.

46:21And those that survive are those that have just, you've spent all this money, sorry, all this effort and time saving up money and making an investment. And just to leave that in the hands of some cowboy crypto a-hole is just unconscionable. Don't do it. I think I've been pretty clear. I think it's pretty clear. For Rebecca, just to try and work it back a step, mate. Cold wallet is your preference? There's multiple names for it. Okay. But the gold standard would be to have a hardware air-gapped wallet. I'm reluctant to talk about it. I know where you're going, mate, but it's like we'll be here for another 40 minutes.

47:00And I'm just going to intimidate everyone. I'm trying to work out. Rebecca's got three investment apps. If she is particularly keen to do the air-gapped wallet thing, then she can do that. People will rewind to hear the exact phrase you just used because I've already forgotten. A Bitcoin ETF feels like it's about as safe as it gets if you're not going to do it yourself. I've got some. And I've got some because when I tried to transfer my super across, the Commonwealth Bank would only let me transfer small amounts at a time because of terrorists or something. So it's really crazy. So I was sort of forced to own a bunch of that.

47:35Ram has views. I have very – I mean, again, it's sort of – why am I paying – I don't want to name the provider, but why am I paying them 1.4 % to hold something that I can hold for free? You know, it sort of defeats the purpose. But it's got a use and it's a really easy – if you want exposure, it's a really super easy way to do it. And it's pretty safe. There you go. In which case, Rebecca, if you wanted to pursue a Bitcoin ETF, for example, you could use the same brokerage app or website service that you choose to use for your shares and your ETFs, excuse me. And you could buy the ETF on the ASX the same as you would any other ETF or any other shares.

48:16that may be the simplest option that isn't so simple as to be, as Andrew says, using the casino slash crypto exchanges. A Bitcoin ETF run by a reputable fund manager listed on the ASX is probably the simplest. It's not the lowest. Well, it might be lower risk than holding it yourself, you lose the piece of paper. But fundamentally, a very low risk way of doing it, having that exposure. Is that fair to say? I'm not trying to words you out. No, no. Honestly, I've got some myself and I'm very ill of sleep. very soundly at night, knowing that it's all there. Because I have all the normal consumer and investor protections I would if I had the S &P 500 ETF.

48:53It's the same thing. So if you're worried about ETFs in general, okay, then don't do it. But why would you be worried about it? You don't really need it. It's super safe. So just don't let Coinbase hold it. And if you are going to go to an exchange to buy the real deal, go to a Bitcoin-only exchange. I'll give a shout out to Bitteroo in Australia. Bitteroo, okay. No commercial affiliate, but they're Bitcoin only. They don't deal in all the rubbish. They're hardcore Bitcoiners, so they're there for the revolution, right? They're not there to try and scam retail. Come for the Kool-Aid, stay for the revolution.

49:28Oh, man, absolutely. Yeah, it's exciting. It's exciting times. And one final thing I will say about that for anyone else who's sort of curious is beware the unit bias with a lot of this kind of stuff. because usually I just, I've heard it a lot recently. So I feel as though it deserves to be said. And as we're recording this, it's hitting an all time high. So I can just feel people getting excited and it's going to get stupid again and all of this kind of stuff. So what you, people will go, oh my gosh, I'm too late. It's a hundred thousand US or 110 ,000 near enough Australian at the moment. I'm too late.

50:08Oh, pretty puppy coin over here is only three cents. Yes. That's like shares, right? It's exactly the same. Berkshire Hathaway is half a million dollars and you could have bought Mosaic brands last week for 3.6 cents the day before it went broke. Yep. And so it's a really natural thought. So I'm too late, so I'm going to get the next one. Well, firstly, it's a one-time invention. There's no electricity 2.0. There's no internet 2.0. There's no calculus 2.0 and there's no Bitcoin 2.0. That's the first sort of comment to make. And the other one is these things can be divided up into 100 million. and in theory even more down the track.

50:43So it's sort of like you can buy 10 cents worth of Bitcoin, right? Right. And the final thing I'll say is unlike a lot of – because there is no cash flow underneath it all, there is – you're not going to get to a point where it's sort of like, oh, it's overvalued. It's a really weird thing where the higher the value, the more liquidity, the more valuable the network becomes. So just avoid the unit bias. Don't try and find the next Bitcoin because there is no next Bitcoin. And just spend a lot of time reading about it. And if you're just buying this to make a quick buck, then you're gambling and you deserve the outcome that you will likely receive.

51:17There you go. Pretty clear, I reckon. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

51:29The next question comes from someone who signs himself anonymously from anonymous. Nice. And who starts with saying, anonymous, please. And as usual, the best way to do this to send it to our email address, info at fool.com.au because our customer service fools, our member services fools, make sure that the names actually aren't on what I see. So not because they don't trust me, but frankly, it's in your interest they do it that way because occasionally I have accidentally slipped. Anonymous says, Hi, Scott and Ram. Citric start. I found your recent chat about home brewing and alcohol tax fascinating.

51:59Though if your still is less than five liters in size, you don't need a permission slip from the ATO, says our anonymous questioner. I'm not going to confirm that. I have a suggestion that might be wrong, actually. you can buy them less than five liters I still think you can use them without a license from the ATO but I could be wrong that's if they know oh dear I am a home brewer says Anonymous who has just gotten into the craft beer game yes at a time when craft brew is a falling over left right and centre so talk about needing to be naive to start a business needing to know the exercise to pay requires high level education that's ridiculous as it changes based on not only the alcohol percentage but also what size of container it's being sold in.

52:38And not to mention wine and wine-like products have a different system of tax. No, it's just... You know, to give the PhD students somewhere to go and work. It is madness. If you look at the tables, there's... Brandy has a different one to spirits. Spirits different to wine. Wine's different to beer. Beer's different whether it's in a small packet or a large packet. It's ridiculous. Luckily, says our correspondent, I outsource production. So I don't have to worry about that. I just have the problem that at least here in Victoria to get a license to sell online, you need a license premise with a nice red line that points out exactly where and when people can and cannot buy alcohol, even though a remote seller's license doesn't actually allow you to sell face-to-face.

53:13So basically you need a licensed premises that people can't come to to sell alcohol online. Dear, oh dear. Then he or she says, I'm not entirely sure what my point is. Aside from that, it is really easy to start a business in this country when I forgot about reporting. I don't need to report retail sales, interstate sales or sales to people for the purpose of export. Just wholesale sales only in Victoria by downloading a macro-enabled spreadsheet that's been out of another spreadsheet that gets submitted to an online portal once a year. Oh, my goodness. Madness. Now, that rant is done, says our anonymous crowd.

53:46I feel you, man. That is just, oh, for goodness sakes. I said before, mate, I know you've had one. I can't imagine trying to start a cafe. Dealing with food safety and patrons and... Just a business full stop. Like, honestly. I suppose, yeah. But, I mean, think about food and then you've got, like, custom... Yeah. sales on a premises. You've got to be careful because I rant about this a lot, right? And people go, oh, so it should just be laissez-faire. Like, no. There is an in-between here, right? Like, I'm not saying no regulation, but you've got to make – you want people to start businesses.

54:23Do you not? Do you not think this is good, right? Like, people are out there creating value for their fellow human being. And, you know, it's the great capitalist experiment. like yes you do but you make it so onerous so difficult as to like yeah you business owners will spend most of their time trying to nap you all the all you do is you build up an army of middlemen rent seekers who are in there to clip the ticket because he's like oh you need that done you get better get a lawyer for that oh you need that better get your accountant to look at this is like and then all your money is on anyway i get it i get it now our anonymous chorus says now the rant is done i don't know if i meant their rant or the fact that i knew you were going to rant i'm not sure which but both rants are done now time to move on to something relevant to the pod machine who do we owe money to as a government and as a country the debt the government takes on to fund things where does that come from is it just government issued bonds or is it some magical world bank we borrow from this is my favorite topic government bonds if government bonds are part of what is considered debt then there appears to be something strange going on or maybe I've just been wearing my personally signed Andrew Strawman tin hat I bought off a very reputable overseas store on eBay for too long welcome to the cult my friend the government collects taxes from gains made on bonds then pay the bonds it's collecting tax on seems like a bit of a big ridiculous circle thanks for the pod full on and hopefully I'll one day have a full on brewery of my own where you can run a live pod from and I can get my satoshis personally signed by Ram in person as hopefully the whole bitcoin is so expensive owning one is beyond even us mere mortals.

55:56Full on, anonymously from Anonymous. Oh, dear. Do you want another timer? It's such a fascinating... Who do we have money to, Ram? Tell us. I feel as though it's sort of like really important and the only reason I'm so... Because I've only just recently discovered it. I'm nearly a 50-year-old man. I did most of my career without actually questioning the water that I swim in. Money, it's just money. Don't worry about it. But when you start picking at the surface, you're just like, it's really crazy. And I'll give you the answer in a minute, but you'll think I'm making it up. So fact check me, right?

56:40So the government hopefully takes in more money than it spends, builds up. That would make sense, wouldn't it? Or in an ideal world, just whatever it needs to spend, it taxes and one balances the other. And we get some really good public services for the money that we pay and society moves forward. And you say, I'm the optimist and you're the doom and gloomer. But we don't. We don't do that. We haven't done that in a long, long time. And every time we do do it, it's just a complete accident because commodity prices spiked and we somehow got out of jail free. so what happens is is that we spend more than we take in and we have to borrow money and where this is the question where does it come from well the government issues a bond and bond is just a fancy way of saying an iou hey scott give me some money now i'll pay you back in those different maturities i can give three month bonds all the way up to a 30 year bond there's some countries that have 100 year bonds like can i sell someone by the anyone listening i'll send you a 100 year bond right now right and i'll give you a three percent coupon a three percent interest rate on that don't worry i'm totally good for it do you want to do you want to like send a few million my way turns out a lot of companies institutions people do this so they and it's not by the way it's it's not a terrible idea because the people that you're lending the money to if whatever reason it comes due and they can't pay you back well they'll just print up the money like I was going to say literally, but almost literally.

58:11Not because there's a printing machine going and putting out notes, but because someone at the Reserve Bank presses a few keystrokes and money just appears. So you will always be made whole, which is why bonds are considered risk-free. Can I just stop you there only for a second? Because there are cases where foreign governments have defaulted on their bonds. So in theory - You say that as in a couple of times. No, no, no. That's the normal. But what you said was you're going to be made whole. They will just print the money. It will be fine. I'm sorry. I just want to make the point that in theory that could happen.

58:43The government could also simply choose not to do that and default and should not pay you back. Sorry. I just want to be clear, but it's not as risk-free as it may have always sounded. Thank you. Such a good point. So 160 sovereign countries out there that have their own money. And yeah, statistically, most of them do default. So Russia has done it a couple of times. Venezuela, Argentina or both have done it before. And if it's not an outright default, it's a default by another means through hyperinflation, right? Like it happens. And again, this isn't the exception to the rule. Fact check me here.

59:16This is the rule. But then we have places like the US, Great Britain, Germany, Australia. And we do the same except that we have historically been more prudent. And so when you look at different, like borrowing money off Scott, you would, or sorry, lending money to Scott, not a terrible bet. He's a good guy. He'll probably pay you back. Lending money to me, maybe less so. So I'm probably going to have to offer a higher interest rate to get your money. But over time, the world will tend to converge toward who's the safest. The safest right now is the US government. It is the world reserve currency.

59:56It is super deep. It is super liquid. If you happen to be a pension fund with$400 million that you want to lock away somewhere, where are you going to put the money, right? So you put it in. There are options. There are euro bonds and there are UK gilts and there are other things. But the US Treasury is the largest bond market in the world, frankly, in part because it's the largest economy in the world, but also because it's the world's reserve currency. And they've got the biggest military. Let's call a spade a spade. It's like, might is right. That is the history of empires. the history of the globe is the person with the biggest stick kind of writes the rules.

1:00:30By the way, the other thing of this is while they are the most creditworthy or considered the most creditworthy and therefore the lowest risk, because they're a sovereign, they can choose simply just to not pay because they just don't want to pay. Yeah. And so the risk you're taking is, it's a reputational one as much as anything, right? I would suspect that a combination of reputation and ideology means the US is far less likely to default in a traditional default to some way Russia or Venezuela or Argentina because they're like, well, it kind of hurts a bit and it kind of sucks. Screw it, we're not going to pay you.

1:00:57The Yanks, because of ideological other, I would suspect, you may disagree around, I would suspect the US because of ideological and moral and other reasons, self-imposed, I'm going to say moral, I mean their own morality, not mine, would say the full faith and trust of the US government is a thing. It's become a thing. It's its own asset because the US knows that if it ever defaults, it loses all that trust. So you never ever want to get to that position if you can avoid it. So they are probably not going to choose to default the way other countries have chosen to just because they chose to kind of get out of it that way.

1:01:26They are 100 % going to default, but not in that way. So yes, so you're right. Now, let's play that forward. Let's say it does. And just like a whole bunch of bonds come due and they just say, we're not paying it back. Overnight, the bond market collapses because no one is going to buy any of the new debt, which means that the government is bankrupt. And why won't they buy the new debt because you didn't pay the last lot of debt back. So why would you put your money somewhere that's just showing it won't pay it back? If you lend me money and then I don't pay you back and then I turn around and say, well, can I borrow another 50 bucks?

1:02:03No. Or borrow a 50 bucks from somebody else and they say, well, hang on, you didn't pay Jane back. Why would I? You want money from me, but Jane got screwed. Why would I give you my money if you didn't pay Jane back? You might pay me back either. Yep. So to answer the question, who lends them the money? We do, either individually or through the corporations that we own shares in or through the institutions that are managing our pensions and our super. And that's where it goes. They invest it on our behalf. Yeah. Very recently, was it the start of this year or actually the start of last year, the UK guilt market almost collapsed.

1:02:35That's right. The UK! Like, not Venezuela. Like, holy! And the only reason it didn't is because their central bank came in and just said, whoop, poof, here's money. Boom, I just created it out of thin air and we'll buy it back. And it's just like, so just another peel back over the onion here, another layer in deep. So at the moment and usually there is enough of a bid, enough of a demand from the private sector, whether that's in fact other sovereigns around the world or big pension funds that when the U.S. Treasury says, hey, we've got a bunch of more debt that we want to sell. They'll find enough buyers.

1:03:14But there, in recent times and certainly throughout history, a lot of examples where that just goes unfilled. It's just like, there's just not enough demand. In which case, oh gosh, we couldn't sell all of our bonds. And that's when the Federal Reserve says, well, I guess we'll buy it. So if that sounds to you like on one hand, they're issuing debt, but funding it themselves, Okay, different arms, different institutions. But it's the same thing, right? I'm lending money to myself and I'm just going to create the money that I'm going to buy. Now, this is why it's a default. And I use the word very deliberately here.

1:03:49It is absolutely a default because you're being, if you don't think that's a default, you know, shareholders get very upset when there's equity raisings that are unfair and all these new shares get issued that you didn't get to participate in. And they get very upset because they get diluted. Well, it's exactly the same thing that's happening here. And every six weeks, they add another trillion dollars in debt. Like, I don't know. I don't know. Like, at this point, we have reached a stage where, well, we're at the stage still where people are still happy to buy these things. However, that may come to an end.

1:04:26So, very recently, the Federal Reserve, as you know, cut interest rates by 50 basis points, half a percent. Now, what do you think the bond market would do under that scenario? Go on. Well, you think it would follow it down, right? Because it sets the floor. Bond yields have gone up. I'm going to let that sit there for a moment, right? So the US Federal Reserve said, we're lowering interest rates. Why? Because we've got that power and we decided, that's now the case. It serves as the benchmark for a whole bunch of other different things. that's the the rate that they will pay for commercial banks when they leave money in with reserves at the bank etc it's very complicated people think bitcoin's complicated oh my god is this stuff super super super super complicated um but the bond market went no i'm i'm selling bonds under that now there's an inverse relationship here so the higher the price of the bond the lower the yield when the when the bond prices fall the yield goes up people have been selling bonds even though the federal reserve has cut interest rates so that tells you that is that is someone standing on top of a hill screaming not everything is is okay to my bring me back down to earth mate because i know i know i'm i'm off on a leg i don't get away that train mate i've been there before it doesn't go well i'm like i'm 100 serious because i i do catch myself and go gosh this is just this is a bit tinfoil hattie bring me back to earth so there's a few things going on i'll try and answer the question from an honest adding some stuff to what you said and kind of address what you said coming at the same time um when andrew talks about default it's not technically default in the same way but what you're doing is getting back less than you wanted or expected because inflation is taking a chunk out of what's left and so default is you're not getting your money.

1:06:23Here's$100, you're not getting your$100 back, bad luck. The quasi-default Andrew said, well, he said it's exactly the same. I think it is and it isn't, mate. And I think only in the sense that I want to add the color, which is that if inflation was 10 % in the meantime, you give out your$100, you get your$100 back, but it's only worth$90. Yeah. You got$90 back. Right. You're being eroded away. It's not default as in we're not paying you back. You get it back, but the value of what you get back has been impacted by inflation. Now, the same would be true, by the way, of a term deposit at 2 % if inflation was 3%.

1:06:54You'd have exactly the same problem. The difference here is the government's making deliberate choices. And this is where Ram is 100 % right. They're making deliberate choices to keep those wheels turning. And the owners of cash, specifically cash, as opposed to other assets, which will appreciate hopefully in different ways, including shares and art and property and maybe even Bitcoin, but don't tell Ram that.

1:07:15The value of your cash is being eroded away while that happens. And so that's kind of where we join back up again, right? I think, is it a default? I mean, not technically. I don't even personally agree, mate, in the sense that it's not – default is a very specific thing in my mind. If you don't think it's a default, can you lend me$100 and I'll pay you back$90 next week?

1:07:39But default is you don't get paid back. I'm making a distinction here because it is not the same. But what do you want to be paid back in? Do you want to be paid back in a set numerical value or do you want to be paid back in purchasing power? That's what you've given up. You've given up money that you've earned. I'm not agreeing. I'm not saying it's a good thing. I'm not saying it's okay. What I'm saying is it's not – Default is you don't get your money back. Yeah. That's all I'm saying, right? That's what I agree. You don't get any of your money back. Default is you don't get any of your money back.

1:08:03Well, you're taking a haircut. You're taking a pretty – yeah. Yeah. Semantics. It's only semantics though, right? Yeah, kind of. I think words matter though. The definition of words matter. A default is a default is a default. Reducing and purchasing power, inflation is inflation. They're not the same thing as each other, right? I think that's a little bit. Technically, no. There's nothing more satisfying. Ben as well says, you give me$100, you're getting nothing back bad luck. I'm defaulting on my payment. What if they said we're only going to pay you back$90 because we're going to take a haircut on that?

1:08:34But you still get the$100 back. It's only worth$90. I think definitions do matter. I think your point is directionally correct. I just think at some point, you know, words cease meaning anything if they don't mean anything. So you don't care if Solpats issues 100 million new shares that you don't get any. Of course I care, but it's not a default. But you've still got your shares. Right. You still have the same number of shares that you had before. And it sucks, but it's not a default. Like, I think definitions matter, right? A default is a very specific thing.

1:09:01I consider it absolutely – you can – not you, because the professional and financial world treats it the exactly same way. But it is – the only thing that matters is the purchasing power. It's the only thing that matters. But then every bond has been defaulted on ever in history. Yes. Yes, exactly. But then it becomes accepted to the point where it doesn't – But the difference is in more sensible times is that the rate of erosion of that purchasing power is made up and then some by the interest. I agree. So that's okay. That's okay. And that's why I'm saying we agree on the facts that the labels and the terms we choose to use are different, and that's just because it's – Okay.

1:09:38I think it matters. you don't think it matters. That's cool, by the way, just different perspectives. They do say that being technically right is the best kind of right. So I'll give you that one. Technically speaking. Technically speaking. So look, but to the question of the, from the questioner, I think we kind of went down a bit of a, a little bit of a, a little bit of a rabbit hole. Scary? Scary rabbit hole? But also a tangent-ish kind of direction. Yeah, sorry. So yeah, no, you're absolutely right. And I think I've said, I've agreed with you before. There are real concerns about how the US managed to get itself out of this hole.

1:10:10Because it requires fiscal prudence or I don't think anyone knows what. I think this is where you're talking about the bond market. And Australia and Europe and Asia, by the way. Yes. But the US is kind of, I think, number one by a bullet, right? Like it's so extreme. The good news will be we'll see that. If it's going to happen to us, it'll happen to them first. We get to see what happens, right? By the way, and I'm not as negative as Andrew, but where we 100 % agree is if you're the Australian government and you have the chance to avoid taking the risk that it seems the US is taking right now, you should do almost anything to avoid taking that risk.

1:10:39Yep. And following the US, and we've said before, I've made this, use it before, being the least sick man in the hospital, still leads you to a hospital, right? And so we've got a choice to say, if the US blows up, it's going to hurt us a lot because the world is global and credit is global and money is global. But at the very least, if we have a sustainable budget position and a sustainable debt position, the impact on us will be ring-fenced to economic circumstances, which will be awful, but not financial circumstances, which potentially add layers and layers of compound matters. The dollar goes to the moon, right?

1:11:10Think as a nation, our purchasing power globally just goes through the roof. Because, again, it's a global world. It's like, do I want to hold the Aussie peso, which has been prudently managed, or do I want to hold the US dollar? If you can't understand the difference between the Argentinian peso and the US dollar, then I don't know what to tell you, right? Obviously, one is better than – they're both crap. But one is better than the other, right? And so in that scenario, at least just doubling down on your point here, if we have a more prudently managed currency, I mean, it's going to hurt our exports, et cetera, et cetera.

1:11:46But all of a sudden, the dollars that are in your bank account, you can buy a hell of a lot more from overseas. You're the man. And why would you not want to be in that? And again, the other thing, even if the US doesn't collapse in some version of the world around, can't imagine, and I'm kind of concerned about, if it doesn't, you're still more prudent. It's like investing. Don't use leverage because just don't, right? Because there's no point risking what you have and need, as we say regularly. At a national level, it seems to be the same. The answer to the question in terms of who owns the debt, you already sort of highlighted that.

1:12:15Everyone does. Anyone who's got cash, they want to invest in what's considered a risk-free rate. And by the way, there is, to Ram's kind of broader point, a misnomer about that idea of being risk-free because the inflationary element of that is still, again, even if it's never a technical default, and being technically right is the best sort of right, as you say. So, you know, it'll be eroded, right? No such thing as risk-free, yeah. Right. And so you've got to think about where you want to be invested, where you want the money to go. For the Australian government, it's a little bit easier, actually, than the US because it's just not so bad.

1:12:46And for the most part, well, there has been some money printing, particularly during COVID, also called quantitative easing. If you're not familiar with money printing, you will have heard quantitative easing. Because money printing just sounds terrible, so we need a technical term that sounds really sophisticated. Exactly, exactly. But it's totally more money printing. So we're going to make it easier to have more of stuff. That means more money, so that way we're printing money. And, of course, they don't physically print money. They just give the banks more cash, and that's – Yeah, yeah. There's a whole conversation with that.

1:13:08But generally speaking, the money is lent – the government money is lent to – sorry, people's money is lent to the government, and that is individuals, corporations, and other governments. And that's kind of just how it works. When I say corporations, I mean, we call it managed funds and others. So if you have a, frankly, superannuation, I don't worry anybody, a proportion of your conservative option super is invested in government money. I was going to say literally everyone listening to this will have some government debt. Almost, yeah, unless you're investing differently. But yeah. And so, look, that's – and that's, again, I'm much less worried about Australian government debt than US government debt for the reasons that RAM's already highlighted.

1:13:43But we're directionally going that way, right? Right, and that's the risk. At least we see the US do it hopefully first or we're smart enough to stop, but I don't put a lot of story in that either, as you said earlier. So, yes, people have excess cash and you put in term deposits with your bank or you buy government bonds. Companies have excess cash. They can buy government bonds. They can put it in the bank. They can buy other business. They can do whatever with it. Superannuation funds, managed funds have excess cash. They can leave it in the bank or they can buy government bonds or something else with money.

1:14:11That's fascinating, isn't it? Even when you say put it in the bank. Yeah. Like, pick it that. Pick it that when you say my money's at the bank. No, it's not. And, again, it's just like you sound like a crazy – No, it's, look at, open up CBA's annual report. Like the cash balances are a liability, right? They owe it to you. What do they do with that money? Well, they lend it out. It's like, it's not there. It's in Bob's house and John's house. And it's all used to Bob more than even the house because you'll get the money back in dribs and drabs over 30 years. Yep. Not duration matched. Yeah, correct.

1:14:42So, which is how Silicon Valley Bank got into trouble, right? It was exactly that kind of, when they're, bank runs are a real thing And the third biggest one in history happened at the start of last year. And the Fed had to introduce a special program to say, we'll recognize all this toilet paper that you have at face value, even though it's totally not that really worth that in the market. Literally what happened? Literally what happened? And it's just sort of like, and then you do it and then you go, oh, no one seems to care. Okay, cool. Let's just keep doing that. Except everyone's getting really mad and really angry right now.

1:15:21Everyone's talking about cost of living and everyone's angry at the supermarkets. It all stems back to what I would say the root cause of it is the funny buggers. They're playing with the money. And that's why it's such a massive deal. It affects everything. Why is housing going to the moon? Because banks are creating money hand over fist and giving it to anyone with a whiff of equity. That's where it's coming from. Where's the money? come from literally the bank creating it you know supported but collateralized by assets which are nominally very high but you know maybe well we talked about that earlier on in the pod as well it's pretty crazy man it's pretty wild i just i i i find this stuff obviously fascinating so so anonymous that that's the answer to your question the government does collect taxes from gains made on bonds um but that's kind of i mean it sounds a bit weird on some level you could not do it or you could do it it's kind of when government pays interest and collects tax it's kind of a net sum anyway like whether it could be a lower interest rate no tax a higher rate more tax it's kind of the net number that matters and yes they do collect tax rates yes they are kind of double dipping a little bit but it kind of makes sense because there's no reason why a government bond should be treated taxed differently to a corporate bond to a term deposit to anything else so from an investor's perspective i mean you could do it but then you kind of just get a lower rate and no tax and it's all a little bit drugs and drakes at some level you swings and roundabouts.

1:16:42But yes, they do make a bit more money from that in terms of the tax they collect, but they're paying more interest than tax. They're still going backwards. So there's no kind of secret idea where it's like, ah, we'll pay more return, get the tax, and we'll end up better off. The government, and by the way, that's the taxpayer, is worse off having borrowed money and paid it back even if they collect tax on the difference because the net result, you only pay tax if you make money. That means the government's actually paying out money even though it's collecting that tax. That's kind of how it works.

1:17:09It's a giant game of trust. and it worked and i'm not i'm not trying to be negative here it's kind of like it's sort of as long as you trust it it works really well right but it's it's when you have a financial crisis it's when the cracks appear on that that trust edifice and that was when trust goes everything like everything goes and and the one thing that we notionally should all trust i don't i can meet a complete random stranger from the other side of the world and we can interact because we both trust the money. So that's kind of important that we have that shared overlap trust. Once that goes, oh my goodness, it's pretty scary, right?

1:17:49In the US, I'll make the point that the second largest item on the budget is interest. In the US. In the US. But it's also why the Australian government can borrow at reasonable rates because it's a solid economy. The government has, in theory, unlimited power to, yes, print money to Ram's point, or raise taxes to pay those bills. Except they never do. Correct. But if you believe the government is going to pay you back and you want to get your money back, yes, in nominal terms, and I know that's an issue you've got around and you're not wrong to have it, but that's why government bonds have been considered a risk-free asset or at least the least risky asset because companies can't create more cash to pay you back.

1:18:26So if a company defaults, they can't say, well, I'll just pay you back in more Telstra bonds or more Woolworths bonds. You've only got money or you don't. Governments have that ability to tax more and or print more cash. So that's why the risk of default is considered the lowest. And again, I use default in the technical term, not the absolute term you're talking about, Ram, which is, again, I don't disagree with you conceptually and directionally. But that's why it's the lowest risk, because the chance of not being able to pay it one way or the other is effectively zero, unless you're Venezuela, Argentina or Russia and you simply say up yours, I'm not paying, which is why those bonds are, frankly, and you've talked about before, mate, why is Argentinian bond a higher interest rate or Venezuela higher than the US?

1:19:05Are you at 30 % rates of interest on those bonds? Right. Yeah. That's the market view of how it is. If you think that's a good deal, go have at it, right? And by the way, you might get away with it once or twice, but the third time, if you lose your money, you lose a lot. So that's why those rates are there. Yeah. It's wild. I find it so wild. Anyway. So I hope that answers your question, Anonymous. That was a bit of a tangency kind of ranty meandering. No, no, no. I know. It's a good thing. It's really good. I just wanted to, I want to make sure we came back from the actual, where's the money going?

1:19:35I wish journalists would ask these questions. When pollies get up and start talking about the submarine or whatever thing that they're going to buy, it's sort of like, can just one journalist put their hand up and say, how are you going to pay for that? Yeah. And then go, but where? And just ask five whys after that. Yeah. I'd love to see them tie themselves and not, and answer it. Christine Lagarde was asked, interestingly enough, I think it was a year or two ago. A couple years ago. And the journalist said it. Like, it wasn't a gotcha. It was like genuinely listening to her talk and then say, I don't understand, how do we get out of this situation?

1:20:07It was like, YouTube it, right? It was like, oh, it'll be fine. Well, can you expand on that? It'll be fine. And it was literally like that. I was like, holy, this is the second most important central bank on the planet for all of the entire Eurozone. And the best that she's got was a shrug of the soldiers and don't worry about it. It'll be fine. It'll be fine. Oh, my God. It's really why. Look, I think, and here's the thing. Where Rem and I do agree and overlap really significantly is the further you go out from the shore, the more risk you are in not making it back. And so from both of our perspectives, that's where prudence matters.

1:20:50Now, the US is further from shore than we are. That may not matter if we're also too far. Again, leave sick men in the hospital doesn't help. But that's why you want to be rowing back towards the shore. And for all of those people who want to believe that you can just print whatever money you need, and a special shout out to the modern monetary theorists who are listening right now, the idea that, oh, debt doesn't matter. You can keep running up debt as long as GDP grows. It's effectively saying as long as I earn more next year, my credit card balance can be higher next year. It's true. As long as nothing goes wrong.

1:21:21And this is the problem with leverage, right? Everything we've talked about the last couple of days, mate, today and Fridays, while everything's going well, there are no problems. That's objectively true. And that's what history teaches us is that things never go wrong. That's the lesson from history is that don't worry about it. There's never a pandemic or a war or any kind of economic slum. It's like we've got very good historical reasons to be perfectly comfortable because nothing will ever, ever go wrong. And the best response many people have to that is, well, everyone else will be in trouble too and we'll just find a way to be...

1:21:54It's like people who want to solve climate change by saying, don't remember taking action because one day someone will invent a technology that fixes it. It's like, well, maybe they will. Or maybe they won't. But at the point we go in 2052, oh crap, that didn't happen. And now we've got X years left. I mean, relying on that, the precautionary principle is the fundamental starting point here, which is, am I sure that in every possible conceivable, reasonably probabilistic solution or scenario, I will be okay? And the further out from shore you are, the fewer of those you can confidently tick the box on.

1:22:32If this happens, am I okay? Well, I can swim back from here. That's okay. A bit further out. Well, I can't swim back from here, but I'm within range of someone coming out with a boat. Okay, cool. A bit further out. well i could probably an airplane could probably come rescue me if i get my signal in time but i'm probably okay a bit further out should i'm among the icebergs now and maybe excuse my language and there's a chance i'll be okay but i'm probably too far to rescue now and if something does go wrong i'm i'm kind of at pretty serious risk here and i can choose to take the risk if i want but it's probably not the best idea particularly on behalf of every other citizen of the country who may have different risks and expectations and life situations and whatever and it's a crude example but it's not a bad one.

1:23:13I would rather be on shore. If the boat sinks and I'm on the wharf, that kind of sucks, but I'm on the wharf. I'm not taking those risks. And I think while things are good, and this is not even deep history, mate. Economic cycles are seven to 10 years. The fact that Silicon Valley Bank happened in part was because the US government relaxed regulations for smaller banks because they kind of went, oh, I think we have regulated the banking sector in the wake of the GFC. we should probably reduce regulation a little bit and all of a sudden literally it was 18 months later silicon valley bank goes poof and you kind of think you didn't you know again we can choose our different views on how and where it should be managed and where the responsibilities lie and all that kind of stuff but if you're making the rules and the and the impact is is massively consequential the precautionary principle says yeah we can give up some of the upside it's like investing 101 give up some of the upside to protect your downside why because going back to square one hurts like hell at a country level back to zero is you don't want to think about that that is you know it's not quite stones and baked beans and shotguns but it's you know decades of think about russia russia has never ever recovered from the the defaults in the ruble massive devaluation in some ways it's actually the genesis of a lot of its current problems because it had to become isolationist why because it couldn't trade with the rest of the world because it screwed itself up yeah i mean we're not going to be russia but do you want to take the risk i don't i'd rather say you know what things could be a lot better if i took some risk or a little bit rarer if i didn't i know which one to choose yeah i mean i just i cannot think of a more consequential impactful important thing that that we could be talking about um yeah i was listening history podcast the other day on the on the french revolution and the point we sort of made there it's like mate the end of any kind of sort of um empire is always financial in in origin it's interesting right like Same happens to the Romans, same time the Babylonians, the Greeks.

1:25:09It was just, they just, they get over their skis. They're just too much in debt. It collapsed. Someone's got to pay the piper eventually. And, you know, there's pretty good historical precedent for this kind of stuff. And yet the one thing, what's the saying? The one thing we know from history is that no one ever learns from history. I know we keep talking about it on the pod, but it's just sort of like, it's kind of important. So next time you ask the government to solve all your problems by giving you money, just remember that's like, Well, that's a solution, but just that money has to come from somewhere.

1:25:39And if they can't tax it, they'll create it and they'll get you one way or the other, right? So it's sort of, you know, there is - And take an extra risk in doing so too, by the way. Yeah, there's just, there's no, money is just a ledger system we just use to coordinate things. Like it's all made up. All of it's made up. All of it is made up. Even if you want to go to gold, well, it's just like, we just decide that that's got value, right? Like Bitcoin, we just decide it's got value. Money, US dollar, we just decide. And that's, it's kind of - Why not seashells? Why gold? Why Bitcoin? Why not gold?

1:26:04Why dollars? Why not Bitcoin? It's all of the above, right? Different components, different denominations. It's all made up. What isn't made up is the stuff it represents. It's the food. It's the machinery. It's the houses. Right. They're the things. And the labor. And the labor, right? They're the real things. And this is just an accounting ledger to sort of keep track of it. Which is beautiful and amazing. It is the most fundamentally important civilizationally enabling technology that we've ever invented. like there's language and then there's money without that where tribes are 500 people you know because you just only transact with people that you know by name and reputation because you can't go past dunbar's number which is about 500 people uh outside of that so it's just sort of like it i feel as like i'm over egging the pudding here but i kind of feel i'm in reality i'm under it's like it's like it's that big a deal it is that big a deal i'm not i'm not going to i'm not that I can work for a day and then in a couple of weeks' time buy a pair of jeans for the work I did a couple of weeks ago unless I believe I can trust the money.

1:27:12There is nothing. And I'm going to go only to someone I know and trust intimately and who my community says, well, if you don't pay him back, we don't give him the jeans for the work he did, we will ostracize you from that, as you say, that 500-person community. That's why you can't have more than that because at some point there's got to be, for any commerce to work, commerce with a lowercase c, any exchange of value, both parties have to trust that they will get fair value for the value they're handing over. And yes, you can do a watermelon for a sheaf of wheat, or you can do a day's work for a watermelon in a couple of days' time when they're ripe, if you trust both parties.

1:27:46But the combination of that, once you get bigger than that, has to be, I will get rewarded for my work in a way that another person who's completely independent of that exchange will also recognise. No one says, Scott, you did a day's work for the Motley Fool, so here's a pair of jeans. they say, I think that$100 is worth what you think it's worth. Let's swap. And that's literally how it works. Yes. Oh, man. So much to say. All right. And yet we are well and truly over time. We will leave it here, mate. It's been an absolutely fun and enjoyable conversation. Hopefully our three listeners that are left will have enjoyed it.

1:28:21A shaky start and a few sort of like mental lapses along the way. We got there. And more than one tangent to bordering on meandering slash leaving the orbit of the question. But we got there, had a bit of fun, hopefully helped you understand money a little bit better. It's a very, very, very messy world. And the good news about that is we'll have plenty to talk about next Friday. Will you come back and join me? Mate, if we get questions like that, you couldn't, wild horses couldn't drag me away from this microphone. Just quietly, keeping this to 90 minutes was a victory in itself. Until we speak next Friday, enjoy your week and fall on.

1:28:55Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.