Operation Choke Point 2.0: The latest war on decentralized money w/ Raoul Pal & Coins Podcast

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1:50We're here today with Roger Ver, known as Bitcoin Jesus. And on this episode, we'll go over the fact that there is a war coming over the currency you keep in your pocket, and the open secret is that it started a long time ago.

2:08In our superficial world, it seems that in fact what determines who has the power boils down to a question of who controls the money? From the times of trade and barter to the Romans with their silver, to the Federal Reserve and central banks today, one thing's for sure, money controls and is involved in every aspect of society. Our homes, our transportation, our food, our clothes, our businesses, our schools, even our entertainment. Everything costs money. Every action, every decision we make, inevitably, in some way, makes reference to money. And it's an indisputable fact that in almost every country on this earth, the people who dictate the policies and make the laws that shape the way the rest of us live, well, they're the ones who control the money.

3:03Money just isn't power. Money makes the rules. Now, what if I told you there's an opponent out there ready to knock the traditional idea of money from its throne? because it knows money better than money itself. This is where we meet our star player, Bitcoin. Bitcoin is power because Bitcoin, as you'll see, plays by a very different set of rules. Do you mind kind of giving a little bit of historical context as you see it? A little bit of almost like the history of money from barter to gold to gold-backed currencies? It's such an important question when we start talking about this topic because we are at an interesting point in history in regard to this point about money and particularly fiat money, which we'll get to here in a second.

4:05So money is a pretty simple concept, although it's actually very complex in all of its different forms, but the basic concept is you have something that you're good at, a service, or you have a good that I desire, and we want to exchange. And in the earliest days, we would exchange things, right? You might be really good at building houses, and I might be really good at catching fish, and so we would barter. We would exchange fish for construction. But barter has its limitations right you have to be physically proximate you actually have to have the environment to do your thing I have to have the tools and you have to have the resources and so people figured out well what if we had a representation of value that we could exchange for a good or service and so around 700 BC which is pretty amazing the Chinese came up with this idea that they could create a paper version of money.

5:09And it would basically, you could deposit your coin or coins in some repository and you could have an issue of a paper note that would represent the value of those coins and that we could exchange. Why does money matter and why should we even care about it? The way I think about money and the role money has played in the development of human society and the world we live in today is if you think back on the way humans lived many millennia ago, we were highly localized. We couldn't travel vast distances in physical space, but also society could not travel effectively through time, right? Architecture was really the only enduring means we had of carrying civilization through human history, right?

5:57Physical structures. And money for the first time really emerged in a world where humans were trying to spread society beyond the borders of their physical world, right? So how do we carry culture through space and time? Well, Julius Caesar really perfected this when he stamped his face on a gold coin. And the symbolic gesture of putting the emperor's face on a gold coin was really carrying the idea of empire and everything it embodied, not only through the Roman Empire itself, but through to all of the counterparties the empire would trade with, bordering countries, bordering nations, and those coins have also persisted through time.

6:39So money effectively is a way to convert the energy generated by human activity, whether that's raising chickens or growing wheat, and to transform it into something durable that can travel through space and time. Now what happened is as humans became more mobile, as societies grew beyond these natural physical constraints and limitations as to how far we could travel, one of the things that started to emerge is, well, if you have a lot of gold, you're vulnerable to attack. So what did we do? We built citadels and fortresses and what eventually became cities around large repositories of gold, right, of money, which became the most sort of durable form of energy that we had.

7:20And money and state became tightly coupled, and state and empire grew sort of in partnership, right? You have a sense for what$100 is worth and what it can purchase, and so do I. But years ago, it was a seashell. It was wampum. It was salt that the Roman centurions were paid in, which therefore the name salary comes from the word salarum, the word salt in Latin. There are coins that had the stamp of a political figure's profile on them. We traded those. And what you learn in here about money and gold is that there are three or four components to it, but one of them is the trust factor in terms of what we all agree that it's worth.

8:05The second thing is, can you move it around? Is it storable? Can somebody take it from me? No. Remember, people were carrying gold or diamonds with them when they traveled because they knew that they could always trade that with other people. Money is kind of this esoteric thing, right? Like we see it in this form of paper or physical metal or digits in our bank account, but it's something much more fundamental. Money is a representation of time and energy. You spent time or energy to earn that money, and you can spend money to unlock other people's time and energy. So money is a much more fundamental part of the economy than just this thing that we think about as government-issued paper and digits.

8:48And if we go even further, money also represents the measuring stick, the measuring stick of entrepreneurial outcomes. So it's the measuring stick of who has successfully allocated capital to make a profit. Companies, the purpose is to solve a problem for their customer. And if they do that well, they make a profit. If they don't, then they fail because they have a loss and they fail. So money is sort of the measuring stick for outcomes in the economy. So money is much, much deeper and I think not many people think about it that way, but that's kind of the core fundamental nature of what money is.

9:26Over time, people adopted this paper currency. And in Holland, they had the dollar, which is where the American dollar came from. We took that word and we created ours and we created the Republic in the 1700s. And what's really interesting to me about money generally, particularly paper money, it was always backed historically by metal. It was backed by gold or by silver. I mean, let's take the pound sterling. The pound note, back when it was formed about 380 years ago, was backed one pound note would get you a pound of sterling silver. You could exchange it for the actual commodity. Today, you'd need 174 pounds of sterling silver to get a pound note.

10:15So that's devaluation of that currency over time. And I think you wrote that average currencies last about 27 years, if I'm not mistaken. So fiat currencies, if we look throughout time, going all the way back to the Romans, the inevitability that they will print more money than they have and that they will devalue their currency is at a near 100%, including the pound. The pound is one of the longest-running fiat currencies in existence. And the pound, if we look at how the pound has held value through time, the pound has lost 97 % of its value over time because there's more and more printed and then eventually the pound went off the gold standards so there's nothing tying it to anything in reality.

10:56Most people know that the dollar was backed by gold and or silver at certain points in its history. That was the case up until 1913 when the Federal Reserve was created. Hey everyone, we're going to take a quick pause and hear a word from our partners. We'll be right back.

11:20And even after the Federal Reserve was created, dollars were still backed by precious metals. normal people couldn't convert the dollars into metals but large organizations and banks could. So the dollar was still basically just defined as a specific weight of metal. And this was the case until 1971 when Richard Nixon essentially pulled off the greatest financial scam in history without anyone even really realizing what happened. Richard Nixon essentially disconnected the dollar from the gold standard entirely. So before this the dollar was a specific weight of gold. After Nixon severed it, the dollar was nothing.

12:06It was just fiat. It had value by fiat, by decree that the government said it had value. So while most people think the dollar has been around for like hundreds of years, in actuality the dollar as we know it today is only about 50 years old. Bitcoin is like 20 % as old as the dollar at this point. Bitcoin is like half as old as the euro at this point. What is it that is problematic to a government with a gold standard? What's problematic for a government is that a gold standard puts restraints on how much the government can spend. If you look at the United States and you look at the dollar from 1971 to today, it's not a great look.

12:49The dollar was buying$35 was buying one ounce of gold in 1971. It takes$1 ,700 to buy one ounce of gold today. And so we've crushed the dollar from a purchasing power perspective. Why are we doing that? That's because since the invention of the currency, right, from 1776 to 1913, a dollar was worth a dollar. And for that whole period, now there was some fluctuation around wars, but it was pretty much worth a dollar. Well, since 1913 to today, a dollar is now worth a nickel. And so the problem is the average person who's going to work every day and taking that money is unaware, I believe, that they are being stolen from every single day through this thing that they have been told to believe is inevitable and positive called inflation.

13:55Inflation is not inevitable. We don't have to have it. In fact, it is engineered precisely to steal wealth from the average person or the middle class and channel that wealth up to the top. In fact today, right, a hundred years after, almost a hundred years after the creation of the Fed, we have the highest income and wealth inequality in history because inflation works really, really well to confiscate your wealth. It's a wealth tax. Under a gold standard, a government can only spend what it taxes and what it borrows, which it just has to tax in the future. If you remove gold and you have a purely fiat money like we do today, the government can literally just print the money as much as they want whenever they want.

14:47The reason that this is so insidious and which I would consider a huge financial fraud is that when the government does this, they're able to buy goods and services or pay out the services that their voters want. And over years that money circulates through the economy and prices rise with time. But the government is able to benefit from the newly printed money before the prices have risen. This is basically something that no normal person would be permitted to do, right? If you or I printed money and went out and spent it, we'd be thrown in jail for counterfeiting. But politicians are able to do this.

15:26And it's disastrous. I mean, over time, basically, the US dollar has lost 98 % of its value. And everyone kind of understands that prices rise every year. But they don't really understand why. They kind of think that prices rise because of capitalism or because people are greedy. And so just prices go up almost like as a force of nature. The reason prices go up over time is because money is being printed and debased. From the creation of the United States up until about 1913, general price levels did not increase. Like a loaf of bread in 1913 was actually a little bit cheaper than it was even 150 years earlier.

16:12From 1913 on, the inflation starts getting worse and worse, accelerating particularly after 1971. one. And of course, now a loaf of bread is drastically higher than than it would have been even 10 or 20 years ago. This is a scam because the government is stealing the purchasing power away from everyone who holds dollars. And if you're a if you're a sophisticated financial institution, you understand this and you can manage it. But if you're just a normal person, you're having a few percentage points of your money stolen from you every year without you knowing. People would be, I think, rightly outraged if every year two or three percent of their bank account just disappeared and the number went down by two or three percent.

16:58But that's not what happens. The bank account stays the same and the prices of what you're buying goes up by that same amount. And amazingly, that tricked everyone into thinking that nothing illegitimate was going on. So that's inflation. That's why governments print money. For the average person who's hearing about these warnings, but they don't really know how to calculate it in their lives, right? It's more of a thing they hear about, and it almost sounds like more of an elite term in inflation. And they hear about the gallon of milk going up a little bit, but it's a little too slow for them to realize.

17:32What are some warning signs? If there is an economic tsunami coming, are they going to get a warning siren? And what does that sound or look like? There is no economic tsunami coming. it's a relentless rising tide and when you look back you go oh my god it's gone up further and further and further everyone waiting for the tsunami if we didn't get it in march 2020 we're never going to have it at all so you have to realize that there's something different so let me put it in perspective for others to understand what this means a millennial and a boomer father and son. The father, when he was 30 years old, was probably, it was about 1980, 81.

18:17Then they had record low valuations for the stock market, a P of seven. Record high interest rates. He saved money to stick it in bonds, made 18 % or 15%. Record high credit on corporate debt and really cheap property. So the baby boomer had this huge set of opportunities ahead of it. And gold was pretty cheap too, but was going up quite rapidly. So when you look at the percentage of those assets that they could buy with their wages, we get a number. Cut forward to the sum, 32 years old, 2021. They can buy 60 % less in property than their parents could for the same median wage. They can buy a lot less of the S &P, a lot less gold.

19:13So what are those things? Those are assets. The price of milk must be about the same, but it's the assets. Why assets count is assets are where you save. Those are the things you own that go up in the future and you release the money from and that's your return on investment. But a young person now can make a lot less investments than their parents could. That is what is going on slowly over time. Your share is becoming less and that is what's driving the rich-poor divide because the rich all get access to this free money and can buy more of these assets that go up. The more they go up, the richer they get.

19:58The guy on the median income who's 32 years old can't own any of that stuff. Look, I'm old, right? I'm almost 58. And when I was growing up, the average price of gas that I put in my car was 31 cents. Now, I visited my son here over the weekend. And to get a gallon of gas now here is$4.31. cents. It's the same gallon of gas. It does the exact same thing. In fact, arguably it's a little less good because now it has some ethanol in it, so it's not quite as combustible as it used to be. The gas hasn't changed in that 40 years. What's changed is the currency is less valuable. And part of the story of Bitcoin is that as well, is when we talk about Bitcoin, we don't talk about Bitcoin in isolation.

20:51We talk about Bitcoin priced in dollars. When we talk about the stock market, we don't talk about the stock market price in isolation. We talk about it priced in dollars. So when the nominal value of something increases, sometimes it's not because the value of that asset is rising. It's that the value of the currency you're denominating it is falling. And so it's that subtle, slow, again, theft, And what's really interesting is it's like the tail of the boiled frog. If you drop a frog in hot water, it will jump right out. But if you put it in cold water and slowly turn up the heat, its muscles will relax to the point where when it gets to the boiling point, it won't be able to jump out.

21:37And that's kind of what happens with this slow, insidious devaluation of the currency. So again, the government job is to extract the wealth from the people that create the wealth, the labor. And they do that through this tax of inflation. Hey, everyone. We're going to take another quick break and hear a word from our partners. We'll be right back to the Real Vision Crypto Daily Briefing.

22:08now do you think the average joe and main street understands this this taxation through inflation concept and if not why not well because they're not studying it you know the average person is working and the average person is focused on their job and many people are using they're not in the capital markets business where capital is helping them make their money uh they're usually most people have their time and their labor and their physical and some of their mental energy involved in making them money. And it's not necessarily tied to capital, so they're not as focused on it. But it's something that they need to understand if they want to get ahead.

22:48And it's something they need to understand if they want to prepare themselves for their retirement. The government's printing more money so it can pay back the debt that it borrowed with dollars that are worth less than the ones that they borrowed. And that's a long-term recipe for a catastrophe, frankly. And what it does is it erodes the middle and lower middle classes. The dollar, you could take two$1971 that has the same purchasing power as$100,$2021. That's fine for people that have assets because their assets have gone up in the nominal fiat currency. but it's not good for labor because labor never catches up with asset growth.

23:31And with 20 plus million people unemployed as a result of the pandemic, you can see that frustration spill over into politics, spill over into anger-based populism and nationalism. Yeah, they probably don't understand it, but they need to. They need to understand it to protect themselves. A lot of people are rightly worried about wealth disparity. So just the idea that some people have so much money and some people have so little and that the distance between those groups is expanding. It's a complicated topic obviously, but it bears noting that there are certain regulators like the SEC in the US that actually legally prevent non-rich people from investing in startups.

24:20So there is something called the accredited investor. And if you're raising money, if you're a startup and you're raising money, you're generally only allowed to raise that money from accredited investor. And that means someone who either has a net worth of over a million dollars or I forget what the other criteria are. It's like a combined household of 250 a year or something. Yeah. So basically you need to have a bunch of money or be making a bunch of money in order to invest in these projects. Obviously, the SEC has done this to prevent, you know, normal people from getting burned, so I get that, but they've made it illegal for poor people to invest in projects.

25:00I think that's disgraceful. I think anyone, any adult in a free society should be able to make their own economic decisions. That seems like fundamental. It's paternalistic at best, right? The idea that if you're poor, you can't make decisions for yourself. so nanny government will make sure that no one gives you any kind of opportunities which might harm you. It's paternalistic at best and downright insulting. If it's so obvious and we talk about things like monetary policy or inflation, printing money, what's really going on with banks, do you think the average citizen is aware of this? And if not, why not?

25:41Well, look, first I think that they're not aware. And the government and our central banks, the Federal Reserve, do an excellent job at not explaining it to you, right? So I think I'll give you an example, right? The Federal Reserve is neither federal nor has any reserves. So it's just called a Federal Reserve, but it's really a private institution whose job is to create money and effectively run the financial system. but it's not a government entity, right? It's not owned by the government or operated by the government. And actually, for example, JP Morgan is the largest shareholder, owner, or participant in the Federal Reserve.

26:24They get about 11 to 13 percent of the dividends that the Fed pays. When the Fed makes money, it pays its banking partners, its owners, a dividend. So it makes, JP Morgan makes billions and billions of dollars every year from its ownership or participation the Federal Reserve. So most people don't learn about this neither in college or even if you got a PhD in economics, you're not going to know how money is created, who creates it, who controls, who is the invisible hand behind the curtain. You will never find out because it doesn't come in a manual when you get your first paycheck. Your paycheck or your dollars don't come with a manual that says here, this is how the money is created.

27:09This is what the best practices of how you supposed to store it, you know, like your car or your guitar, come with the manual, right? But none of these things do because if all of us knew how bad the system is, we would probably stop working and stop depositing money with the banks. So what happened in the last 30 years is really that the Federal Reserve, the central banks all over the world have been lowering rates. Now they're either zero or negative all over the world. So your money doesn't earn any money and on top of it, basically your dollars are losing value very, very quickly. Most people pay attention to the consumer price index or CPI, but really your dollars, 26 % of all the dollars ever created were printed in the last year and 76 % of all the dollars ever created were printed since 2008.

28:04So you obviously lost close to 80 % of all the value in your dollars just since 2008. And in the same time, your salary didn't go up. It's not like you're earning much more. You just basically, your purchasing power has dropped. Well, one of the things that's always really interested me about your story is you're kind of recognized as being one of the few investors that kind of got the 2008 crisis right. And at the same time, this is when Bitcoin is kind of born. Do you draw any parallels there? It all really started around 2000 when that bubble popped. The Federal Reserve decided the only way forward was to use interest rates to drive kind of demand.

28:47And it was a massive debt boom that followed. That debt boom, as we know, blew up in 2008. And for many of us in the macro world, that was something that we could see. It was pretty obvious it was going to happen. I was one of the people at the core of that, predicting what's going on. And many of the famous people in the big short were kind of subscribers of my research service, the Global Macro Investor. We kind of all knew it was happening. But people in the street didn't. So people would come up to me and say, well, why don't we know? And I realized that that information hadn't really got out there.