The Global Financial System Is Structurally Broken | David Dredge

31:20So in a bank perspective, if I'm around a bunch of bankers or regulated financial fiduciaries, everybody always says, Dave, what do you think the risk is? Do you think it's geopolitics in North Asia? Or do you think it's recession in Europe? Or do you think, you know, all these random exogenous things out there? And I say, no, the risk is your balance sheet. Why are you looking out there? All the risk is right in front of you. And if you're sitting in a room full of bankers and you say, well, your risks are almost certainly driven by the lack of capital to the things that you've been told you can account for as riskless.

31:59So you've applied a ton of leverage to them. And the interesting thing is, so is he and so is the guy sitting next to you and so is the guy sitting next to him and so is the guy sitting next to him. Because you're all following the same rules and paying on the same incentive structure. And so, you know, if you're inside a bank and you understand what a bank does, it's pretty easy to see where the risk is built up because you're doing the same thing that everybody else is doing. And you know where there's no capital and U.S. mortgage structures that had been gamed to ad infinitum. But not just that, all of the lack of capital around complex structured derivative type activities was massively undercapitalized.

32:43And you could see that kind of stuff coming. And I'm sure you've seen the movie, The Big Short. There was all kinds of guys inside saying, hey, this is a problem. Or, you know, margin call or all of those saying, hey, this is a problem. And getting told, you know, what was the famous Chuck Princh quote? You know, yeah, we know it's a problem. But, you know, as long as the music's playing, we'll keep dancing because that's how they get paid. They're not getting paid to grow the wealth of the bank over the multi-lap race. They're getting paid based upon each lap. So they're just trying to sort of match the average lap speed because they believe they start over each lap.

33:22They're not trying to compound growth and compound wealth. They're just trying to get through the year and collect money. And so they're happy to, you know, in the old analogy, you know, pick pennies up in front of the steamroller. What Bitcoin Did is brought to you by the massive legends, IRON, the largest NASDAQ listed Bitcoin miner using 100 % renewable energy. IREN are not just powering the Bitcoin network, they're also providing cutting-edge computing resources for AI, all backed by renewable energy. We've been working with their founders Dan and Will for quite some time now and have been really impressed with their values, especially their commitment to local communities and sustainable computing power.

33:57So whether you're interested in mining Bitcoin or harnessing AI compute power, IREN is setting the standard. Visit iren.com to learn more, which is I-R-E-N dot com. What if you could lower your tax bill and stack Bitcoin at the same time? Well, by mining Bitcoin with Blockware you can. New tax guidelines from the Big Beautiful Bill allow American miners to write off 100 % of the cost of their mining hardware in a single tax year. That's right, 100 % write-off. So if you have$100 ,000 in capital gains or income you can purchase$100 ,000 of miners and offset it entirely. Blockware's mining as a service enables you to start mining Bitcoin right now without lifting a finger.

34:35Blockware handles everything from securing the miners to sourcing low-cost power to configuring the pool, they do it all. You get to stack Bitcoin at a discount every single day while also saving big come tax season. Get started today by going to mining.blockwaresolutions.com forward slash WBD. Of course, none of this is tax advice. Speak to your accountant or tax advisor to understand how these rules apply to you and then head over to mining.blockwaresolutions.com forward slash WBD and you'll get one week of free hosting and electricity with each hosted miner purchased. If you already self-custody your Bitcoin you know the deal with hardware wallets.

35:11Complex setups, clumsy interfaces and a seed phrase that can be lost, stolen or forgotten. Well BitKey fixes that. BitKey is a multi-sig hardware wallet built by the team behind Square and Cash App. It packs a cryptographic recovery system and built-in inheritance feature into an intuitive easy to use wallet with no seed phrase to sweat over. It's simple, secure self-custody without the stress. And Time named BitKey one of the best inventions of 2024. Get 20 % off at bitkey.world when you use the code WBD. That's B-I-T-K-E-Y dot world and use the code WBD. See, the thing that I find frustrating about this kind of thing is that it, and this is talked about in Bitcoin a lot, in the sense that when money is broken, everyone has to be an investor plus a risk manager.

35:58And if you're just like, I don't know, a doctor or a lawyer or a teacher or something, you shouldn't have to think about all this. Does the sort of fiat currency world frustrate you? Oh, it's so much. It's my enemy. And again, Sharp World is my enemy. It's funny, you know, and people joke about this because, you know, your followers and listeners can go and track me down and hear me talk at things at podcasts and interviews and conferences and stuff. And I am a very vocal and have been for 30 years outsmoking critic of Sharpe World, of the regulatory construct of banks and a very outspoken critic of the practices of central banks and how they manage monetary policy and the sort of inflation, the commitment to generating inflation, particularly asset inflation and the wealth segregation that goes along with it.

36:51Now, on the other hand, the practice of Sharp World is what provides the opportunity that my business lives off of. So the cheap convexity, that very highly efficient asymmetry that allows our investors who, you know, tend maybe not to be just individuals, but there are some wealthy individuals that are institutional, to allow them to sort of delegate that breaking, that risk management to us and then go out. And just figure out how to drive faster and do what I would crudely call the easy part and just go and own stuff that goes up when things are good, goes up when fiat's being debased, that goes up when asset inflation, which I'll argue has sort of been the sort of singular growth policy since that 87 crash, since the first time Alan Greenspan cut interest rates because stock markets were falling.

37:49which started the first time in the October 87 crash and then basically evolved into the Greenspan put that was implemented all over the world and became inflation targeting central banks, beginning with the New Zealand Central Bank and then standardized around the world, where they every time asset prices fell, they cut interest rates and keep propping the asset prices up. And they drove growth through the wealth effect of asset inflation, concentrating the wealth in more and more hands and concentrating, I don't know if you can go and see the numbers, the consumption that drives the growth in places like the U.S.

38:30in particular in more and more, you know, fewer and fewer hands and the bigger and bigger and wealthy people. It's funny, the same people who make fun of trickle-down economics from the Reagan era of that he was going to cut taxes and then the wealth would trickle down because they'd get more jobs. They seem very happy to implement trickle-down asset wealth because that's literally been the policy. And that, of course, then leads to, again, back to the endogenous problems and the sort of fragility of systems. You know, it leads to this sort of geopolitical fragility and leads to economies that are really, you know, downstream from the markets.

39:07So I say all the time, economics is downstream from markets. But you don't have, markets don't fall because there's a recession. There's a recession because markets fall. So, I mean, you sound like a Bitcoiner, David. That's for sure. I'm not a disbeliever, that's for sure. Do you think there's a near future, give it 10, 20, 30 years, whatever number you want to pick, where this kind of fiat sharp world doesn't exist anymore and we move to a hard money standard again?

39:44I'm not good at time. In fact, in a sense, my job is solving the problem of time. I don't know when the lightning strike is going to come I just know how much risk there is in the forest and so I would say inevitably yes that this is unsustainable so solutions are going to have to be found exactly whether the fire is going to start because of lightning or because kids are playing with matches or which direction the wind is going to blow I don't know but there is a lot of fragility in the system the the i'll go back to this sort of basic core the thing that i believe is at the very core of the challenges and that's the population demographic problem and that problem as i would define it isn't declining population although that has obvious complications itself but by far the greater problem is declining working age population and so this gets really to the heart of Bitcoin because the declining working age population, let's reclassify them, declining taxpayer and saver population.

40:57And so I say this all the time that I find it is the single biggest weakness in those who purport to make policy, economic policy, is how can they not factor into everything they do, this simple sentence that I say, so tell your listeners, every time somebody says something to you, every time Rachel Reeves in the UK, you're in the UK, right, Danny? Now? I am at the moment. I actually live in Australia, but I'm here right now. Yeah. Every time Rachel Reeves talks or Governor Bailey talks or Governor Bullock talks or, you know, Scott Besson talks or Awaita-san talks in Japan. at this sentence at the end of whatever they said, and for every year going forward, there will be fewer taxpayers.

41:50And that will, in a significant way, clarify the nonsense that's coming out of their mouths. Because how can you continue to borrow from the future to try to facilitate, maintain, sustain growth today, knowing that in the future, there will be both fewer taxpayers and fewer savers. So there's fewer bond buyers in the future. There are fewer sources of revenue for the governments in the future. And now over on, I'll argue, and I noted this as my notes, I would argue that we've been under financial repression, that a big part of the subsequent implementation of BIS regulatory capital guidelines, which is known as BASIL 1, BASIL 2, and now BASIL 3, is in essence financial repression, right?

42:40It's using the banking system to own a shit ton of government bonds. And the government keeps issuing those bonds and then regulating banks and pension funds and insurance companies to own them. And so this financial repression has had the intent of keeping interest rates below growth. And when they did that back in post-World War II era, that allowed the debt that had accumulated during World War II to subside.

43:14Difference back then was the governments were shrinking after the war, and the private sector had wiped out all of their debt in the Depression and the austerity years during the war. And you had the, what I call the pig in the Python, the largest population cohort, the baby boomers, were just barely in the jaws of the Python. And now, 80 years later, 70 years, 80 years later, you have all-time peak government debt, all-time peak private sector debt, and the pig is coming out the other end of the Python. And they're no longer the largest taxpaying, largest saving bond buying cohort. And the cohorts behind them and every subsequent cohort is going to be smaller.

44:05And this is what drives this problem and creates this sort of inflation feedback loop. because as you debase the savings of the now retirement cohort who saved in your bonds because they were quasi-forced to through the regulatory construction around the fiduciary system, they go into retirement with not enough wealth to offset the rising cost of living that you've imposed on them. And so that requires ever more subsidy from the government to cover their longevity, their unemployment, their social security, their retirement benefits, their medical benefits, et cetera, which requires more taxes from a smaller taxpaying cohort who are also burdened by the higher cost of living.

44:59And so once you tax them more and they consume at a higher cost of living, guess what? They have less money left over to save. And so eventually you have to financially repress more. And central banks have to become the buyers of the bonds and things that sometimes they call quantitative easing, although last week they called it not quantitative easing when they announced they were going to do it. Right. And you create this loop where it just keeps going. So until you stop debasing the savings of your populace as they move from savers and taxpayers to retirees and, you know, where necessary, subsidized in their retirement because their savings won't cover the higher cost because you've debased the value of their savings by forcing them to own bonds.

45:47and they weren't smart enough to get on board Bitcoin to finance their retirement, it's a very difficult loop to get out of. And so to your point, the long answer to the question, it's a complicated world. You're going to have to figure out how to solve this problem and you need to end that loop or you blow it up. It's scary. I was actually talking to someone on the show just recently who was talking about Social Security potentially going bankrupt by, I think 2032 was the year that they gave. And so if we do have an aging demographic, more reliant on social security, retirement schemes around the world, and becoming more heavily reliant on Medicare and the NHS here in the UK, it gets messy really quick.

46:33And is the only way out of that essentially to print more money? And so when I ask, does the fiat system die, is that because of this, they end up having to do a huge print, which then ends up in some kind of like hyperinflation event. They don't have to, but that is what they have chosen to do, right? So again, I'll argue this really goes back to 2000, but, you know, accelerated post-GFC, accelerated again post-COVID has, you know, really gone global. You could argue it started with my good friends in Japan who, you know, added more fuel to that fire today with their own policy nonsense. and they've chosen this.

47:14And so if you stay in this loop, we build a model with, I had some interns here for the summer and we build a model, what they call an agent-based model on population demographic issues. And it shows once you're in that loop and your fertility rate's declining and you start to get the imbalance between retired turtles, we call them in the model, retired turtles and working turtles. And if the government is subsidizing the decline in overall productive resources relative to unproductive resources, and they end up having to do that to print money because the smaller productive resources can't cover the tax burden of doing that.

47:57And then they themselves have less savings when they go into retirement. It becomes an impossible loop to solve. And the only solution for it, you know, I'm getting a little bit economic geeky with your crowd, but the only solution for it, the true solution for it is productivity gains, right? You have to make the fewer workers more productive so that there's more productivity. They have to have higher real wages, not persistently lower real wages. You can't constantly debase their earnings, a la Janet Yellen joking about it in 1996 when the Fed was talking about going to inflation targeting. And Alan Greenspan thought the inflation target should be zero.

48:39and Janet Yellen thought it should be 2 % because workers wouldn't know they were having their real earnings debased and the benefit to the corporate, to the employer would encourage him to hire more workers because he's kind of getting the 2 % that they're losing. And that's literally, that's in transcripts from the Fed. I wrote about it one month. Janet Yellen was my econ professor in grad school. It's so insidious though because before I got into Bitcoin, I didn't even necessarily think inflation was a bad thing. I thought if we were at 2 % inflation, that was a sign of like a healthy economy.

49:16And like these are the lessons you're taught. And then as soon as you kind of see behind the curtain, you realize everything was a bit of a lie. So the productivity is an interesting one though, because the obvious place where that could come from is through like AI and robotics, which is seemingly going to be a really big part of the economy in the future. Do you think that could actually save the central banks around the world in the short term? I guess maybe. You know, I don't know. I don't have a lot of, you know, I like AI as it functions as a simple tool, but I don't have a lot of respect for it.

49:55AI or LLMs, the sort of current version of AI that's actually available for use is an LLM. And an LLM is exactly like Sharp World, right? I coined, so again, if your readers want to go, I wrote one of my notes that I titled The Polanyi Paradox. Have you ever heard of Michael Polanyi? No. He was a philosopher scientist in the mid 1900s. And he coined, actually another guy, David Alter, a current economist coined, referring to him, the Polanyi paradox. So what Polanyi is known for is what's known as tacit knowledge. And the Polanyi paradox is known as we humans can know more than we can tell because we have tacit knowledge.

50:46So we can know how to ride a bike, but we can't necessarily write down the mathematical formulas of physics to explain it to somebody. Right. But we know we know that jumping off, you know, using a Nassim Taleb fragility analogy, that jumping off a one meter high fence 10 times won't hurt us. But jumping off a 10 meter high fence one time probably will. All right, that's tacit knowledge. It's skin in the game, right? Well, I coined the reverse Polanyi paradox in this note about LLMs. And the reverse Polanyi paradox about LLMs goes, AI can tell more than it can know. Right. AI will answer every question.

51:38It actually knows nothing, right? And all it's doing is taking its entire corpus of the data set and saying, on average, what's the next word? It's just another normal probability distribution saying that in the course of human data that I have access to, what's the middle of the distribution? And I'll put that word next. And it's really remarkable how it does that and how quickly it does it and how fast it can read stuff and order it that way. But again, taking science again, going to Claude Shannon. Claude Shannon's the father of the modern day digital age. And he wrote when he was a PhD student back in 1950-something, the mathematical theory of communication and what's known as Shannon's entropy, which is the math behind how information moves.

52:38It's bits and bytes. He coined the word bits. And what Shannon would tell you is there's no information in the expected. All learning and growth comes outside the expected outcome. And it's what we don't know that matters. It's not what we do know that matters. So I have very little hope in the current formation of AI. And I have a lot of doubt that the promises of generative AI will produce what they claim it will produce because I struggle to understand how AI learns. because the current AI doesn't learn at all. It just expands its data set and gets a better probability of what the next word is, but it still hasn't actually learned anything.

53:30And it only knows the average of what everybody already knows. And one of the things I criticize central bankers with all the time because they also seem to be incapable of learning and that, you know, it's a Nassim Talebism. Without accountability, there can be no learning. If you're never punished for your mistakes, there's a big difference between reading that sticking your head in the fire will burn and sticking your head in the fire. So it sounds like you're kind of fading the eye part of AI. You don't think it's actually intelligent. So there's probably, is there anything else out there that could increase the productivity to a degree that could save the current financial system if it's not going to be AI?

54:16Or is that it's like single shot? No, I think there's a whole bunch of things out there. And almost all of those things are things that we haven't thought of. And that's kind of the whole point. And so finding things, you know, Elon Musk. Breakthroughs and energy or. Yeah. You know, Elon Musk building, you know, energy and mining capability on Mars. Nobody had on their bingo card 10 years ago. And now this crazy guy said, what if we did this? You know, and so it's always the, you know, and again, this is another investment thing. And this goes sort of in line with, I was having dinner with my dear old friend, Pippa Momgren.

54:57Ever heard of Pippa Momgren? Reasonably famous geopolitical economist, strategy person, also an ex-banker's trust alum. And, you know, we were, we think, we were all brainwashed the same, Nassim Taleb and And me and BIPA all brainwashed the same way in our bankers trust days when we were actually in the risk business. And it's something I say, you know, the key to risk management or the key to life is to try to, you know, to do everything you can to eliminate the unrecoverable so that you can pursue the unimaginable. And that's how I advocate people manage their risk portfolios. That's the brakes on the car.

55:39So you can go out and explore, you know, the capacity to go faster. And so cut off those wings. Stop focusing on the average. Stop doing the simple. Cut off the risk of the negative tail that you'll never recover from bankruptcy and insolvency and wealth management or death in life and go and find the thing that nobody else has ever thought of. And the human race has an unbelievable track record in solving problems. It wasn't that long ago that people would have told you that we're going to run out of food because population is growing too much. Now we've got to solve the problem that, you know, something that history books don't really have a record of is how to deal with population shrinking.

56:25and that shrinking, you know, sort of being hard-coded over the next two or three generations because the birth rate decline, the fertility rate decline is already hard-coded in those that were born behind the next few generations. And so we need to figure out how to cope with that and coping with it by, you know, again, I wrote about this this summer. I think the note was called Preservation and, you know, linked to a paper that was done, commissioned by the G20 and done under the oversight of the BIS in 1998 that said all this stuff. Said, you know, we should not borrow from the future. We should focus on investment and productivity.

57:04We should, you know, instead of going with what BIS, think about what the initial Basel I did. It provided the, you know, sort of maximum subsidies, banking subsidies, the minimum capital required to own these assets and pay yourself bonuses on the annual accounting revenue to government debt and mortgages. Well, how much productivity comes out of government debt and mortgages? Shouldn't banks like they once used to do lend to businesses, to startups, to small businesses, to community businesses, to guys that are out creating the actual productivity that allows growth. But we went the opposite way.

57:48And now we're going to suffer through trying to solve that. So I think there are all kinds of solutions that nobody's thought of. And maybe AI is that solution or certainly is part of that solution because it is a fantastic tool. And what it can do, nobody really knows. What it currently does do isn't anywhere close to what people are telling you it will do. But maybe they get it there. Yeah, I don't know if this is recency biased, David, but it feels like we're living in the most interesting times for good or for bad. Like everything you've talked about then, and then in the macro world, I mean, things are a mess.

58:25But I'm very conscious of your time, but before we close out, I wouldn't mind just getting a little bit into the macro side of things because QT in the US has now come to an end and they're doing their not QE QE. Rates are getting cut while inflation is still pretty high. fiscal dominance is a story that like I'd never even heard the term fiscal dominance until a few years ago and now it's kind of the thing that everyone's talking about how much of a mess are we in like you're always looking for risks in the market like what are the big risks that you're looking at right now well again I see risk is as leverage as imbalances so I don't think about future events, I can see where there's a lot of fragility, build-up brush, fingers of fragility to use pair box, sand pile, self-organized criticality language.

59:17You don't have to be too much of a rocket scientist to understand that still, going back where you got a real sniff of it in 2022, there's a lot of uncapitalized risk leverage in government bonds. So government bonds, you know, were piled onto regulated balance sheets. You know, nobody with their own retirement money was buying 30-year bonds that yielded zero. And yet, you know, all of the major governments in the world hit their peak all-time bond issuance when they yielded zero. So somebody was buying them. In fact, somebody was buying more of them than ever in history. Well, who was that? Regulated financial institutions.

1:00:05And so you get this dynamic like Silicon Valley Bank, a bank that a regulated, a heavily regulated bank goes out of business, goes insolvent, following the rules because it owned U .S. Treasury bonds. So, again, my famous quote, which I quoted way before Silicon Valley Bank went out of business, banks don't go out of business taking risk. banks go out of business levering that which they can account for as riskless, right? And so banks were told these bonds, U.S. Treasuries, French government bonds, gilts, boons, JGBs, Austria were riskless. And inside even non-developed countries, their domestic bonds are riskless.

1:00:54Greek government bonds are riskless to everybody in the world because they're inside the eurozone. So Indonesian government bonds are riskless to Indonesian banks. And banks aren't that, you know, banks are pretty creative. They'll figure out a way to use derivatives to leverage that up even more and still get it treated as a zero risk weighted asset, even though it's another round of leverage on top of their 30x leverage already. So, you know, it's not hard to see. And then, you know, you get the stupidity like the liability driven investment strategies in the UK where pension funds are levering long dated duration guilts 5x and accounting that is risk reducing for their otherwise, you know, equity portfolio.

1:01:38only to find out that they need to get bailed out because all of their risk is the leverage and the guilts. And so that still remains arguably one of the biggest risks in the system. And you can see how the back end of everybody's bond curve has behaved this year as all of the central banks have cut rates. None of the long end rates have come down. In fact, today, thanks to our friends at the Bank of Japan, they're all going up aggressively. And so that's still a major problem, maybe the major problem in the big global system, because that's where the systemic risk is. The systemic risk without fail will be in the banking system, because that's where the bulk of the protected leverage is, and that's where the sensitivity when things go wrong are.

1:02:27Having said that, you know, one of the things that has been proliferic in its growth in the last couple of years has been the leverage going into the high-flying stocks. The MAG7, the crypto, you know, MicroStrategy, a great example of a high-flying stock that inherent in its own construct is leveraged. And then all around it in the financial engineering of TradFi attracts more leverage. So, you know, let's take a levered micro strategy and embed it in a three times levered ETF, as though that makes sense to somebody, or do auto callable these highly levered vol selling strategies on micro strategy.

1:03:16And so the proliferation of that over the last several years has been a big part, in my opinion, of the noise that we saw in iBit and fed through into Bitcoin in October, November, and that we've seen in some of these names like MicroStrategy, who's getting it from both sides. And eventually we might see in other high-flying meme stocks. So those are things I think, you know, we saw quite a bit of volatility around them. Some have recovered, some have not recovered, MicroStrategy being a great example. AI related things, you know, that sort of cycle of internal trading. I'll lend you money to buy my product and we'll both say that we've done this big deal and our stock prices will go up and then those will get embedded in three times levered auto callable structure, you know.

1:04:13And so that stuff seems to me to have gotten pretty juiced and attracted quite a lot of leverage. Japan itself, it just structurally is a very interesting place. And I've long said, obviously, I hope I've made it clear, I don't know when or where lightning is going to strike. I don't even know if lightning is going to be the thing that starts the fire. It's usually the thing that you weren't anticipating that surprises you. But I've long said, and I don't necessarily agree with them, but people are more familiar with what they call the Lehman crisis, the thinking of Lehman as the trigger of the GFC.

1:04:51When we get more time, I'll tell you what was the actual trigger. We can't do that today. You know, I've long said that the next trigger is going to be Japan, that Japan is the likely spark because of the fragility in the Japanese market system economy after, you know, the longest period, 35 years of manipulating interest rates, manipulating the price that should balance between borrowers and lenders, savers, investors, speculators, hedgers, importers, exporters. They've decided instead of you, you know, hundreds of millions of participants coming and finding an equilibrium balance where you're happy to participate, we're going to set it here and we're going to set it there and keep it there for 30 years.

1:05:41And now the market's decided they've had enough of that, and the transition away from that is proving challenging, and I think still has a reasonable possibility of being the kind of thing that triggers some of these problems. Because if Japanese investors, who are the largest net international creditors in the world, so Japan, Inc., is the biggest foreign bond owner in every government bond market in the world. And if they decide they need to bring money back to buy their own bonds that are circa 250 % of GDP, and the Bank of Japan is in theory running down their bond holdings, they're running down their bond holdings at a pace that will get them to some target in 100 years.

1:06:29So they're not exactly selling off the bonds they bought. They're just not buying them as fast. That kind of thing. And, you know, and we had it today, I guess, I don't know if you saw the European announcement about the$90 billion commitment to Ukraine. So the EU, they're going to issue bonds for, you know, out of nowhere. So there's been, you know, to my knowledge, nobody voted for this. It's not been in any approved budget, but they're going to issue bonds, get 90 billion euro, give it to Ukraine over the next two years, collateralize it with the money they've frozen from Russia, and then force Russia to pay Ukraine that money in reparations.

1:07:21And then Ukraine will pay off the loan with the money that they get from reparations. So they haven't strictly confiscated Russia's assets, but they've used them as collateral for this loan to the Ukraine that they're going to fund issuing bonds. And so this gets to get back to the government bond issue, something that I've written a lot about that I refer to as the Hunger Games. So this Hunger Games competition of who will be the last guy that can issue bonds to the last taxpayer and saver. And so this competition that now Germany has waived their constitutional debt ceiling and started what they call the Made in Germany to bring capital back to buy German bonds so they can build a military, which I saw the guy announcing he's going to start drafting people involuntarily into the military if they don't start signing up voluntarily.

1:08:10And now the EU, who, you know, doesn't have it, hasn't had an approved budget in history, has just announced that they're going to spend another 90 billion that nobody's voted for by issuing bonds. And the Japanese, you know, every JGB on the curve has made a new, you know, 40-year high in yields today or whatever as that bond market gets nuked because Bank of Japan refuses to raise rates fast enough to stop the inflation. And so if the Japanese ever decide they're going to bring money back to buy JGBs, and the Germans decide they're going to bring money back, Germans are the second largest foreign bond holder in most markets, and the EU is now competing, where does that leave?

1:08:56France. So France, who relies heavily on Germany and Japan to fund their markets, not to compete with them on bond selling. And so these sorts of things are always percolating out there. But meanwhile, you know, the core strategy of the guys who own the printing presses is to inflate assets. And so what you can't do is sit out. You can't say, oh, this thing is so messed up, I'm just going to sit on cash because the inflation will eat you alive. And now Bitcoin has been an unbelievable good protector to date of that inflation, of the asset inflation, of the printing of money problem. Hopefully it can continue to be.

1:09:40Now, what we would advocate to all of our investors is you've got to own things that participate if it keeps going the way it has been going. And owning that stuff has been very rewarding for the last 50 years. Since QE started, since March of 2009, owning participating assets has been good. And then you also need to own something that provides highly asymmetric negatively correlating risk so that when you get GFCs or European credit crises or COVID or 2022 rate hikes to try to restore some stability, You have something that's mitigating that drawdown and allowing you to stay in the market, not getting forced out of your Bitcoin or out of your gold or out of your Nasdaq or out of your Nikkei or whatever that may be.

1:10:32And that combination of something that is, back to the race car analogy, that is accelerating on the good parts and aggressively decelerating on the bad parts, that's responding, reactive, is the way to deal with the uncertainty, the unknowability of the future path, is to have a car that's very resilient. I love the race car analogy. That's great. I mean, the whole macro world seems a complete mess at the moment, but I guess the good news for you is that you're going to be in a job for a while. Yeah. Well, you know, we always say, and I say it every day, you know, we and our investors hope we never make money, right?

1:11:12You never want your insurance to make money, right? But then your job is, once you've got the insurance, is to go out and take advantage of it, to go out and drive the car fast. You know, find the opportunity that knowing you've got, you know, good safety net allows you to go take. What you need to avoid is the opposite of that, which is what Sharp World's trying to force you into of saying, well, you know, let's do these covered calls. Let's do a covered call strategy where you have all of the downside volatility risk and a capped upside. Well, if you're going to take the downside volatility risk, the reward should be the uncapped upside.

1:11:50Why don't we turn that around and cut off the downside and go get the upside? So let's cut off the unrecoverable and pursue the unimaginable. It's a very good motto, I think. Yeah, I love that. David, I'm very conscious that it's late there on the Friday before Christmas. I massively appreciate the time. I've really enjoyed this and I'd love to do it again at some point. Maybe we should do a history lesson on layman and get into why Japan could be the the start of this next fire. But thank you so much. Tell everyone where they can go to find your work and everything that you do. Yeah, so I'm not active, but I at least note on LinkedIn and on X, on X I'm at Convexity Dredge and on LinkedIn I'm just David Dredge.

1:12:35We note up there whenever our monthly updates go up on the website and the website is convex-strategies.com and there's, I don't know, at least 100 monthly updates talking about all this stuff. talking about the science, the math, the flaws, the way things work and the way I think they should work, the mistakes that central banks make month after month after month, and then a whole bunch of podcasts and interviews or presentations that somebody got to record over the last decade or so up there as well. So there's a lot of information there. And I always say this, And when somebody thinks to check the info mailbox at the website and share with me things that somebody's asked a question, they'll be surprised how often I respond.

1:13:20I like talking about this stuff. I love that. Thank you so much for the time, David. I hope you have a good Christmas and I will. We've got to do it again. I really enjoyed this. We'll do it again soon. Awesome. Thanks, Danny. Really appreciate it.

1:13:46Thank you.