MI Rewind: Why Deflation is Key to an Abundant Future w/ Jeff Booth

0:00You're listening to TIP. Hey guys, on today's show, we're resharing some of my favorite episodes from the past for a few reasons. First, we get a lot of new listeners each week, so new listeners may never have heard this episode before. Two, even if you've been listening for a while, you may have missed it when it first came out. And three, even if you've heard it before, it can be a great episode to reinforce your learning. If you're not interested in this episode, no worries, you can pick back up with us next week with a brand new episode. Everything going forward is from the original episode, and I hope you guys enjoy this one.

0:31their rents are going up. Food prices are going up. They're working two jobs to try to stay solvent. They're getting more and more mad. You can see what ends up happening around the world through that lens. And essentially, they're going to either tear the game board down through revolution war. That's what typically happens. Or you need a new system.

0:54Boy, is the audience in for a treat today as I'm joined by Jeff Booth. Jeff is a technology entrepreneur and founder of BuildDirect, which is now a company with a market capitalization of over$500 million. He sits on the board of many technology companies, multiple of which he founded himself. Jeff is also the author of The Price of Tomorrow, Why Deflation is Key to an Abundant Future. Jeff's also one of the major thought leaders in the Bitcoin space. During the episode, we chat about inflation and deflation, why inflation isn't necessarily good for a healthy and thriving economy, why so many people are missing the fact that deflation and technological innovation is too powerful of a force to stop, why Jeff believes that Bitcoin is positioned to perform well over the long term, what Jeff is seeing from private companies in terms of Bitcoin adoption, and much, much more.

1:48Jeff outlines many of the things he lays out in his book, The Price of Tomorrow, which gives an overview of how we're living in a system that must have inflation, which is counter to the force of technology, which is deflationary. For those who aren't familiar, inflation is the increase of prices, which means the dollar is falling in value. Deflation is the decrease of prices, which means the dollar is rising in value. For example, you could buy a house for say$100 ,000 in the year 2000, and that same house might be worth$200 ,000 today, which would mean the price is inflated by 100 % overall.

2:28This inflationary system that we live in has incentivized people to take on loans to buy assets such as real estate. And that has worked out very well for many of them because they are able to pay off their loan with dollars that are worth less and less over time. And on top of that, their asset, which is real estate, tends to go up in value over the long term. Jeff essentially comes to the conclusion that the inflationary system we live in is not sustainable, which led him to be a big believer in Bitcoin, which is a deflationary currency. The reason that it's a deflationary currency is because there's a fixed number of coins, but the demand for people to hold those coins has increased over the years, which means the price per coin has increased over time.

3:11On the flip side, the value of the dollar has generally decreased over time against other assets as it's an inflationary currency. Bitcoin is a deflationary currency while the dollar is an inflationary currency. Even if you're not a huge fan of Bitcoin, I think it's important to recognize the current environment we live in and think about how you want to position yourself as an investor. For me personally, I own mainly index funds and Bitcoin. The index funds get me a lot of exposure to the large, big technology companies like Facebook, Google, Apple, Amazon, Tesla, and so on. And these are the companies that have benefited from this increasing concentration of power as a result of the system we live in, which Jeff is going to dive deeper into in the episode.

3:58You might decide that you want some exposure to commodities or precious metals or real estate to try and hedge against the risks this system poses. Each asset class has their own risks and benefits, so it's up to each one of us to decide what makes sense for us individually. With that, I encourage you to really think about where we are at today with low interest rates, high inflation, and high stock valuations. Jeff's book had a massive impact on how I think about the overall economy and my own investment strategy, and this episode helped reinforce a lot of that for me personally. If you find the conversation interesting, I recommend you check out Jeff's book, The Price of Tomorrow.

4:35All right, now without further delay, let's dive right into today's episode with the brilliant Jeff Booth. You're listening to Millennial Investing by the Investors Podcast Network, where your hosts, Robert Leonard and Clay Fink, interview successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

5:03Hey, everyone. Welcome to the Millennial Investing Podcast. I'm your host, Clay Fink. And on today's episode, I have the great honor of being joined by Jeff Booth. Jeff, welcome to the show. Thanks, Clay. Thanks for having me. So you wrote a wonderful book called The Price of Tomorrow, Why Deflation is the Key to an Abundant Future. And you have been on a ton of podcasts talking about this exact topic. And I must say that your book has had a huge impact on how I think about my own portfolio and how I think about the current market environment that we live in today. So before we dive in to talk about the ideas behind your book, tell us a little bit about your background and the companies you're working with today to give the audience some sort of vantage point for what you've done up to this point.

5:49I've been a technology entrepreneur most of my life. And starting out as an entrepreneur, but then seeing how in the building industry largely, but then seeing how technology could play a huge role in our lives and moving into the technology space and created numerous technology companies throughout that ride. Today, I sit on 10 different technology related companies, boards, and founder of probably five of them. So all different spaces, largely technology. And from that vantage point, have been able to see a front row seat of what is happening in technology to change our world. And so effectively, technology is being utilized to deliver more value to people.

6:31And as a result of that, you would think that more value would be driving lower prices all over the world. So that's what led me to write the book. You talk a lot about the macro forces that are at play in the economy and the forces of inflation versus deflation. And you just mentioned the force of technology should be a force that is forcing lower prices, but that's not really what we're seeing in many industries today. So could you give an overview of what's happening in our economy today and why it's important? It's probably the most important thing. Most of the other things people are talking about are second order consequences of two systems colliding against each other.

7:13And those two systems are one, exponential technology, moving faster and faster and faster, wanting to deliver us more value. And if anyone looks at their phone, they could see all of that value that is getting cheaper and cheaper and cheaper in apps coming to them. And what a lot of people falsely believe is that that is being driven specifically because of advertising. And that's why the apps are free. That's not what's happening. What is happening is when you enable something with technology, because of the competition, it moves to its marginal cost of production. And the marginal cost of production is essentially free.

7:51Nobody is going to create another new calculator app because you can't sell that calculator app and you can't make money. So the trend moves these things to free. And that's happening in a base layer of it's not just on your phone, it's everywhere. Energy is moving into that space. Our base layer of everything is moving into embedded technology. And on top of that, you're moving into AI and robotics that change the meaning of work forever as technology enables more and more industries. You would think would be happening against that force. You would think prices would be dropping everywhere. Our time would be going up.

8:29We wouldn't need to work as hard. That's what you would imagine would happen if the natural forces of that would be allowed to happen. And keep in mind, most of the deflation, most of that natural force of technology isn't behind us, it's in front of us. So most of it is in front of us, because technology is moving faster and faster. It's an exponential function. So now let's look at the other system, the one competing against that technology force and what it's doing. So you have one force trying to drive prices down, and the world we live in, based on a credit-based system, must drive prices up for up.

9:06And because if it allows deflation to happen, you can't pay but the credit back and the credit unwinds. And if the credit unwinds and every bank is based on that same credit and every system we use today is based on that credit, everything fails. So what you have to do is these two giant forces colliding against each other. One, a natural force driven by essentially entrepreneurs, people direct, actually ourselves as well, is we vote with our time to get more value in our lives. So we vote for technology giving us more value with our time and a different force, essentially a monetary policy that must create inflation against that force or you have a system collapse.

9:51And so why house prices are going up, why prices are going up, why we see inflation is that monetary force essentially stealing your time or stealing money from you through inflation, creating more monetary units is fighting against that type of technology. But most people believe because we measure the system from the system, most people believe that you require inflation for a productive economy. So let's look at inflation for a second. What is inflation? Nobody votes for inflation. So inflation is theft, really, that somebody can print money and destroy your money over time. And when you realize it is actually a theft and it has to grow greater and greater, most people don't question the rate of theft.

10:37They don't question the theft, they question the rate of theft. It's 2 % of inflate. 2 % theft is good. 5 % is bad or 10 % is bad. But when you have theft built into a monetary layer that has to expand to offset the natural force of technology, you can see every derivative around the world, all of the second order effects playing out naturally. Because when you have corruption and money itself is a byproduct, you must have corruption everywhere else in society. Could you briefly explain to the audience why if deflation were to take hold in our economy and the government and central bankers didn't act on that and force inflation, why would there be a system collapse?

11:19Robert Leonard So when people think they have money sitting in the bank, it's actually not money sitting in the bank, it's a credit facility. And somebody, there's a counterparty on the other side of that. And if you allow deflation to happen, you can't pay back the interest on the money. So it needs an interest rate to be able to pay back, you need to grow to be able to pay back your interest rate. Maybe a simpler example is this. If you have a huge mortgage, and you lose your job, and you can't pay back the mortgage, then this mortgage goes into default and they take your home. If you allow credit to fall, if you allow deflation to happen, all of those debts become unpayable because they explode in value because you don't have enough growth to be able to offset them.

12:03So they are already defaulting. That whole system is defaulting, but we're pretending it's current by changing the monetary units to be able to cause inflation. So what that does is if you can change the monetary units and nobody knows it, and if you can real rates are negative for a long time, so you drive inflation, then you're paying back the debt in cheaper terms. And so that's what governments are trying to do to try to offset this. And it has disastrous consequences around the world. So some industries have continued to get cheaper and cheaper and avoided this massive inflationary pressure, such as TVs, cell phones, and software, while other industries have continued to get more and more expensive, such as healthcare and education.

12:50Why do you believe there is such a huge disconnect between certain industries? Yeah. And that's a really important question that I think a lot of people have confused because they're measuring a system from a system. And so what is happening in these technology embedded industries is they are still going up based on the inflation, but they're automating so fast that they're offsetting it. When what's happening with housing and things that are more scarce, they're going straight up with it. Now, all of those industries, eventually housing will be probably last to happen, but all of those industries will be automated as well.

13:26What you're having is fewer and fewer areas to push on inflation and you're driving this. And so what are those areas that you're driving inflation in? The things we need most. So when you have inflation, if you just look at it two sides of the same coin, inflation is the same thing as wage deflation, or you're losing money in your savings. So when you drive inflation and you drive, and let's first look into the numbers to prove that thesis, and you know this from my book. So I wanted to know why prices weren't falling everywhere. And so I looked at it because you'd expect that there had to be an offsetting number on the other side of the ledger to stop that great force of technology delivering us more value in our lives.

14:08And so when I looked in the last 20 years, and this is preceding COVID, the 20 years preceding COVID, you had$185 trillion of stimulus to grow global economies by$46 trillion. So$4 of every debt for extra debt to drive GDP by$1. Imagine you're a homeowner trying to do that, and then you're trying to pay back your debt with more debt, more debt, more debt. Wouldn't seem to work. Could you get a loan like the Federal Reserve? Probably not. And so something has to collapse at some point. And again, these are just offsetting formulas. One system is trying to push down and in counterbalance to that, the other system has to print more money and they feed back against each other.

14:50So if prices are moving up because they're unnaturally caused to move up, and us as population needs lower prices because prices are moving up, then what would a business do in that environment? Would they automate faster? Because if they don't automate faster, they'll go broke. So what you have is both trends are accelerating against each other, causing for an exponential movement on the trend. So you could predict kind of the response if you saw the 185 trillion to 46 trillion growth for preceding 20 years. And otherwise, you would have had a massive deflationary spiral. So you're constantly injecting more and more and more, and you have to do it exponentially.

15:32So you could predict what was happening out of COVID. You could predict what's still to come to try to save the system. And then underneath that, because people were measuring a system from a system, And underneath that, people don't ask the question. They think their house is going up forever, but they fail to ask the question, would my house have gone up in the last 20 years without$185 trillion of stimulus? And the answer is simply no, it wouldn't have. Or would education go up at that rate without$185 trillion of stimulus? And the answer is simply no, it wouldn't. So if you think houses are going to go up at that rate, then you must believe there needs to be that much stimulus, exponentially more stimulus to keep them going up.

16:13Let's take a quick break and hear from today's sponsors.

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19:04And for a limited time, you can use code STOCKS15 for a 15 % discount at checkout. All right, back to the show. As well as these two trends colliding and fighting each other in an exponentially increasing manner, things really started to click for me when I realized that they're keeping interest rates artificially low, which allows these mega corporations like Apple and Amazon and Tesla to borrow billions of dollars at say 2 % interest, which allows them to invest just massive amounts of money into new technology, which feeds on the deflation that you're talking about. And it is creating those monopolies, making them bigger and bigger and bigger.

19:46And those monopolies are essentially today in control of artificial intelligence and the growth of artificial intelligence. And so when you think about that trend and that artificial intelligence, Eventually, if you look at Boston Robotics 10 years ago versus Boston Robotics today, and you see these robots doing incredible things, you would have never predicted that 10 years ago. If you run the trend of artificial general intelligence and the merging of those two trends, it won't look like the Boston Robotics dog. It could be miniaturized. It could be the trend, those things merge. And you have to ask yourself, what jobs are protected from that trend?

20:24If you cascade all wealth and power in very few organizations because of a system that's doing it, who controls artificial intelligence and robotics that controls all of us? And so you start to see these kind of mega trends on where the world's going and underneath the existing system, it turns into a very dystopian world. But also, a lot of people would go and blame people in the system, which is pretty natural. And you know, in the book, I talk about game theory and why that's natural. Because when people look at somebody else that has everything and they wonder why they don't, and more and more of the population is losing out, because you're transferring wealth to those companies, you're transferring wealth from the middle class and poor to those people, and the other people, their rents are going up, food prices are going up, They're working two jobs to try to stay solvent.

21:14They're getting more and more mad. You can see what ends up happening around the world through that lens. And essentially, they're going to either tear the green board down through revolution, war, that's what typically happens. Or you need a new system that can transfer value to a new system. If you just kind of say, let's use doors. Door number one on the existing monetary policy is it has to keep inflating. No one will get elected. And remember, nobody gets elected. Most of the government's revenue comes from inflation. It doesn't come from taxes. And nobody tells you that. Nobody says, most of the government's revenue comes from a theft from people.

21:55And there is no one that's going to stand up and say, I'm advocating for truth. So ask any politician to say, will you advocate for stopping inflation? And they can't because the whole system would collapse if they did. So they advocate for, I'm going to promise you more things and steal more from you by doing this. That's door number one. And that corruption spreads through society. And if you're closer to that corruption, you gain more of that. If you have more assets, you win more from it. But there's lots of losers from it who then typically go back to government and say, this new person can solve this.

22:31I'm going to take it back through a new person who's going to tell me something different, but still continue the same theft. So that's door number one. And it leads to, if you look through the long arc of history, it leads to revolution, war, global conflict. But again, wealth inequality is first. You can see it around the world today. Because of that wealth inequality, the haves get everything and the have-nots get nothing. And there's more have-nots. That leads to them electing different people to take that back. So even though the wealthy think they're safe from this system and they're getting wealthier from this system, they are not safe from this system at all.

23:09And if you want to see a recent and historical example of that, look at Germany in the 30s. What happened out of that does not stay like that for long. Door number two, governments allow deflation and everything resets and into that void, there would not be food on the shelves. Banks would close. It would look horrific. There is no escape from it. So you have a system that there is no escape from, unfortunately. And that's why I think about in Bitcoin specifically is a door number three. It provides a transition from one system that has to fail in one of two ways to a different system that allows the productivity or gains to be transferred broadly to society.

23:50And that transition is still going to be messy. People that are actually in Bitcoin and actually driving Bitcoin. It's an emergent phenomenon getting stronger and stronger all the time. Effectively, what they're doing, and whether they know it or not, is they're building a bridge to the other side. And as that bridge gets stronger and stronger and stronger, more people are walking across that bridge. And that's what's happening to a new system that's more congruent with where we're going with humanity. Incredible explanation. Could you give the audience one or two modern day examples of deflation actually happening today?

24:26Within the iPhone. So think about the cost structure of what it looked like for cameras, film, developing film, and how many photos you took 10 years ago, 20 years ago. So I drove to the store, I bought film. I drove back to the store to develop film, all of this processing. Then I looked at my 12 photos on my camera roll, and I didn't get any decent photo. And I missed that window. And we took a very small number of photos, and there was scarcity in photos. And the whole thing drove because of that scarcity. And there was a cost and entire infrastructure of people, supply chains, people around physical goods, and the photo was physical.

25:07And then it changed. By the way, the camera on the iPhone, now 3D enabled everything that used to be effectively a$600, you couldn't buy that with artificial intelligence that makes that sharper and sharper and sharper. Today, it's now a technology solution. And that is a$5 bill of materials on the new iPhone. So all of that power is dropped in cost by a staggering amount. And now photos, we take billions or trillions of photos. We don't even think about it. There's no cost to it. The marginal cost of production has come to zero. And a lot of the jobs it used to, Kodak was a monopoly for a long time.

25:46It no longer exists, but photos still exist. Editing software is free. We can do with those and we can take as many as we want for free. And so same thing is happening. Same thing has happened in music. Same thing has happened in a whole bunch of different industries. Yet, and this is a problem with most people that is really hard to predict where technology is going forward because it's on this exponential trend. So what we typically do is we predict our present forward. So a lot of people even in Bitcoin are predicting what Bitcoin looks like right now forward, instead of what it will look like.