Jeff Booth Deflation

Tales from the Crypt: A Bitcoin Podcast | Jeff Booth with Marty Bent

Check out the TFTC Podcast Page

Key Takeaways

  • Deflation in technology is great and has driven automation, lower prices, and created abundance
    • Yet, we think we have to rely on inflation for creating abundance in the broader economy
  • Two opposing forces are in play:
    • Technology-like deflation: More abundance for everybody (Prices declining, less working hours, more for less)
    • Central banks using inflationary monetary policy to stop that at all costs
  • “To stop the exponential deflationary force of technology, you have to exponentially increase monetary easing to stay even” – Jeff Booth
    • Additionally, inflation drives inequality and eventually breaks society
    • Thus, “Fix the money, fix the world” – Marty Bent
  • People sacrifice their time in a circuit of perpetuity, working multiple jobs in exchange for a currency that is being inflated away, this is a broken system
  • Bitcoin is a fallback option and a point of optimism in this current chaotic world
  • It’s highly likely that we augment ourselves and tied to an AI superpower, instead of the binary view of AI against us

Intro

Technology Drives Deflation

  • We need to question the prevalent view that deflation is a bad thing
    • If you have money, why are goods and services becoming cheaper bad?
  • Contrary to the popular misconception: deflation doesn’t cause people to hold off on buying things, leading to deflationary spirals
    • This is evident in the lines waiting to purchase new iPhones every year despite knowing that future models will have more features for no additional cost
  • Deflation in technology is great and has driven automation, lower prices, and created abundance
    • Yet, we think we need inflation for economic growth

How Exponential Change Fools Us

  • A popular example: If you fold a paper 50 times, its thickness would reach the sun (You can only fold a paper 7 times)
  • Similarly, we are likely to be fooled by technology moving exponentially
    • For instance, Moore’s law will probably run out of steam, but then, something like quantum computing will feel exponential

Everything Becomes Information

  • Printers used to be giant machines with a disc in a shop, now everyone has them
    • Same thing will happen with 3D printing and additive manufacturing
  • The value of anything you buy is the information
    • Yet, the biggest costs are in running factories, shipping, handling, etc..
  • Consider this: with the exponential pace of change, what happens when hardware becomes information
    • A keyboard or microphone becomes information you Google and print anywhere
    • Massive cost reductions will enable you to have anything you want

Deflation Leads to Abundance

  • Currency manipulation and debt cause inflation in asset prices (E.g. stock markets, housing prices)
    • In turn, everything else rises in price
  • Two opposing forces are in play:
    • Technology-like deflation: More abundance for everybody (Prices declining, less working hours, more for less)
    • Central banks using inflationary monetary policy to stop that at all costs
  • If job destruction from exponential technology development is inevitable, society would benefit from reducing prices
    • Whereas artificially inflating prices drives wealth into some hands at the expense of others
  • “Deflation isn’t a bad thing if you are not pretending to stop it by living in an inflationary world” – Jeff Booth

Central Banks Intervention is Criminal

  • Governments are trying to outrun the debt problem by printing more debt, lowering interest rates and punishing saving cash
    • One outcome is companies are less prepared in times of hardship and have to rely on government bailouts
  • E.g.: People working from home leading to commercial real estate prices falling and wiping out debt on commercial real estate
    • Government steps in to transfer leveraged loans to its balance sheet, blocking capitalism from working
    • Prices and rents stay artificially held up, punishing some companies
    • The same government then has to intervene with the social safety to save the people it killed in the first place by artificially propping up prices
  • Central banks are blind; they are trapped in a spiral and none of their economic models could predict what we are about to see

Inflation Drives Inequality and Breaks Society

  • We have manipulated prices for so long and created so much debt, a massive drag on future growth
    • Additionally, people can’t pay for expenses because of artificially high prices
    • The result is enriching a bunch of people with assets and improvising others
  • Pick pocketing the wealth of society will divide it and drive it to break
    • History shows how eventually “the have nots come and take it back from the haves”
      • Revolutions start and guillotines come out
  • Government’s solution: create an internal enemy, then a bigger external enemy
    • Play the narrative: “it’s not your fault, its China’s fault or Russia’s fault or something else”

Debt is Exponential  

  • $185Tr debt have been created in the last 20 years to stop deflation
    • This increases every year just to maintain a 2% inflation rate, for a simple reason:
      • “To stop the exponential deflationary force of technology, you have to exponentially increase monetary easing to stay even” – Jeff Booth
  • We are far past the breaking point, there is no way this can be paid back, this is a Ponzi scheme
    • Looking backwards: $250Tr debt against $80Tr world economy
    • Looking ahead, $100Tr debt in trying to stop what’s happening with COVID-19
  • This is not yet obvious, people will tend to believe doing the right thing involves giving them monetary aid, even if a smidgen
    • That said, people are beginning to realize that “if you can print anything, then give me $10K instead of $1200”

Humans Have an Evolutionary Bias for Cooperation

  • However, everybody cooperating creates an incentive for somebody to cheat
    • In the short term, cheaters prosper and people cooperate less
    • Things loop back when everybody is not cooperating, the incentive accrue to cooperate again
  • “Great leaders who unite are more powerful longterm that ones that divide, but short-term ones that divide win”

“Fix the money, fix the world” – Marty

  • People sacrifice their time in a circuit of perpetuity, working multiple jobs in exchange for a currency that is inflated away
    • It’s hard to see that the system is broken when you are trapped by it
    • Saving time enables you to go into pursuits that are more valuable
  • In This Book Will Save You Time, Author Misir Mahmudov talks about how the money we use loses value and devalues our time through inflation. When we work, we exchange our limited time for money whose quantity increases every year.

Bitcoin

  • Bitcoin is a fallback option and a point of optimism in this current chaotic world. That said, Jeff hopes it’s not needed – here is why:
    • It would mean the existing system has collapsed, think about a world where some people own bitcoin and the rest are on the street
  • Instead, we should work to have a gradual transition into a world with Bitcoin as a new reserve currency
    • The more people talk about this in a constructive positive way, the more likely we are to have a soft landing
    • If people can’t see an on-ramp to a brighter future, they will stay in the past
  • “I suspect that some central bank at some point, or a collection of them, will peg to Bitcoin” – Jeff Booth
    • They will probably start buying in the background first
  • The network is designed for incentivized cooperation, working in your own self-interest serves the network overall

Bitcoin vs Gold

  • Both gold and bitcoin supporters share the same view: Currencies are unstable because of government easing
    • Sound money can’t arbitrarily be changed
  • The gold standard will never come back – why?
    • Because gold is centralized and the vaults are controlled by central authorities
    • Additionally, using gold as a bearer instrument for payments is a terrible experience
  • Gold has a market cap $8Tr vs Bitcoin at $150Bn, the reason is gold was tied to money
    • Bitcoin works on network effects; its market cap should continue increasing
    • And if gold won’t be the future of money, its market cap should start to shrink

AI

  • AI is moving at a staggering rate
    • That said, general AI may still be ways off
  • There is a high probability AI replaces humans as the smartest beings on the planet – let’s expand:
    • Human creativity arises from pattern identification or mental models that somebody else hasn’t seen
    • Think of it as a collection of knowledge and information that has been error corrected
    • If this information is digitized, AI and deep learning algorithms can see patterns that we are blind to

Can AI be Cross Disciplinary?

  • “Practice makes perfect”: when you narrow the range of neurons firing, you can do things with more ease
    • This frees up more energy and time to see a bigger picture and be creative
  • It’s all about being at the top of your narrow field, that’s what pays the most
    • In that sense, even narrow AI when applied to an industry has profound implications on jobs
  • Jeff Hypothesis: it’s about our energy and brains ability to hold enough thought on something, which requires forgetting other things
    • New AI algorithms attempt to mimic how brains can prioritize information to remember

Are We Creating Skynet?

  • “I don’t think it looks like that, and I hope AI at that level isn’t owned by a corporation” – Jeff Booth
  • It’s highly likely that we augment ourselves and tied to the superpower, instead of the binary view of AI against us
    • Think: Brain interfaces like Elon Musk Neuralink
    • (Elon talked about Neuralink in his recent appearance on Joe Rogan, check out the Podcast Notes)
  • Humans already have device interfaces today, called smartphones. The only difference is it is connected to your hand
    • If you had that power at will, not being aware that you have to hold it to your hands, you might take it
  • Technology isn’t good or bad, understand its path
    • Then ask what could happen and what are my choices?

Infrastructure Projects

  • To stabilize things, governments used to start infrastructure projects (e.g. building roads)
    • You get the initial job benefits plus GDP gain in the long term
    • The new digital superhighways are no different, and they create cross border jobs
  • Jeff’s hypothesis: new industries will be created, some we can’t even imagine today
    • The net sum of new jobs doesn’t have a chance of replacing destroyed jobs
  • AI getting more intelligent is a long road of stealing jobs
    • This is deflationary in nature, it’s doing more for less
    • The insane policy response is currency inflation
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Notes By Mostafa Khaled

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