Saifedean Ammous (03:12):

So he went and made the case for altcoins, made the strongest case he could make for altcoins. That’s a good way of approaching my next book. Study The Fiat Standard as if you were writing The Bitcoin Standard, basically give it the same Bitcoin Standard treatment. So if you like The Bitcoin Standard, let’s take the same toolkit that we applied in that book, take the same capital equipment that we had to try and understand bitcoin from scratch and apply it to understanding fiat from scratch.

Saifedean Ammous (03:41):

And I thought this would be the best preparation for answering the question of what happens in the clash of bitcoin and fiat? Let’s give fiat its own bitcoin standard treatment, think about it as an economic system, as a software system almost because ultimately, it is a software. The vast majority of fiat is digital fiat, only a small percentage is in paper form. So it is a digital currency in a sense. And let’s try and describe the way that this interacts with the real world with the meat space, like what I did with The Bitcoin Standard.

Preston Pysh (04:15):

This is what I really liked about the book. So the terminology was bitcoin like terminology, but it was easy for me to really wrap my head around how this very complex system works by thinking of it in those terms. So at the beginning of the book, you talk about there being four functions of a fiat node and you call it a node. So could you get into some of those various four functions that the fiat node has and describe what you mean by fiat node?

Saifedean Ammous (04:48):

Drawing analogy between the bitcoin network and fiat is a very productive way of coming at it because bitcoin contains all of the minimal viable products for a monetary system because it’s clearly worked for moving money around and maintaining a monetary policy for more than a decade now. So if you need to run those things, bitcoin has the software infrastructure that you need for it. It has the structure to carry out these processes. So you can make an analogy to it in other systems and that can help you separate the essential functional aspect of the fiat monetary system from the paraphernalia and propaganda.

Saifedean Ammous (05:27):

So it’s a very precise way of attacking the question of just, if this was bitcoin, what would be a node, who would be a minor, how does mining work? These are really the main questions. And if you just try and answer these in relation to the fiat network, you can then understand I think, and decode a lot of the insanity you see around you in fiat world.

Preston Pysh (05:49):

I agree with you and I like the way that you describe the minor in the book. So tell people who the minor is in this situation for the fiat system.

Saifedean Ammous (06:00):

Most people imagine that fiat money is printed and it’s still in the terminology, most people still use the term, but in reality, the majority of fiat money is digital and the printing is not really the creation of new money. Printing is a process where after the money’s created digitally, a small fraction of it is printed in physical form. It’s immaterial to look at the printing.

Saifedean Ammous (06:21):

Where the mining of fiat really happens is in the creation of debt, because fiat money is basically debt. Fiat money is debt that is guaranteed by government. These are tokens of the fiat network. So anybody can mine the new token for the fiat network by a lending license from the central bank government, that’s the entity that is the fiat. The central bank is granted a monopoly by the government to be the only one that issues money and in exchange, the central bank buys government bonds. That’s the elaborate song and that’s how this node works.

Saifedean Ammous (06:55):

So you end up with really one full node in the system or country, but arguably, there’s only really one full node in the entire world which is the federal reserve. And all the other kind of central banks are in a sense subordinate node to the full node in bitcoin. You could say that there’s only one full node because it’s the only entity that can decide on how many tokens there are in the system and it’s the new entity that can annul and control any particular transaction.

Saifedean Ammous (07:25):

So your entire country could be wiped off taking off the fiat network if your entire country pisses off the U.S. federal reserve and it has happened. So somebody in your government says something and then suddenly, you and your 90 million co-citizens are kicked off the fiat network. It’s very different from bitcoin. You can just run your own bitcoin node that nobody can kick you out.

Saifedean Ammous (07:50):

With fiat, it’s really one full node and it decides on monetary policy, it decides on what the transactions work. Then we have if you look at the different subordinate nodes, there’s the central banks but then there’s the private banks, which are really the mining node, the private banks and the central and guaranteed financial institutions, all the financial institutions that basically function in the white economy, everything that’s legalized by the local central bank is essentially guaranteed by the local central bank.

Saifedean Ammous (08:18):

And so it can issue credit and that’s how they mine money. So when you think about it this way, when you think about the proof of work as being generally finding somebody who’s willing to take your money basically, in bitcoin, you need to solve the proof of work problem, you need to apply all of that machine power in order to try and figure out the correct answer to the proof of work problem.

Saifedean Ammous (08:41):

In mining fiat, you need to find somebody to take your money and promise to pay you back. And if you do that, you don’t give them your money, you just make new money. That’s the amazing thing about it, this is how it works. Once a bank finds a borrower for a million dollars for a house, they make a million dollars. They get the block reward which in this case is a million dollars, it’s whatever the lender will take. Basically you create that money out of thin air.

Saifedean Ammous (09:08):

Now, you have other assets in return and backing it, you have collateral, but that’s extreme getting thinner and thinner as a part of the business operation that essentially all these entities are doing is just lending out money. So that’s really how the money is being created, and now you can see why there’s a very strong incentive for people to borrow. I think that’s really what explains the debt, really the best way to understand the insane amount of debt that happens in the monetary system in the fiat world is to understand that mining fiat happens through borrowing. Everyone is always coming up with reasons to borrow and lend.

Preston Pysh (09:46):

I love this point. And when you were making in the book, I was like, oh my God, this is so good because you’re getting at the essence of the incentive structure. When you’re talking about that incentive for them to mine via issuing more debt, you start to think, okay, so as a group collectively, as everybody gets in debt up to their eyeballs, what’s their next play? Well, their next play is they have to start dropping rates or rates have to go down in order for them to continue to issue even more or mine more to put it into the system.

Preston Pysh (10:16):

And so I’m thinking about this and I’m like, holy hell, everything’s just going further out on the risk curve. Like it’s just incentivizing the entire system to go further and further in debt, further and further out onto the risk curve to employ newly issued currency into the system. You lay it out so clear in the book, it was just amazing. I was so impressed with it.

Preston Pysh (10:38):

One of the things that you did probably about halfway through the book, you had mentioned something that really surprised you through writing this, that you found fiat actually did serve a purpose for one specific thing that had a lot to do with how it rose to existence over the last 100 years. So tell us what that is and then tell us if there was anything else that you uncovered or surprised you through writing the book.

Saifedean Ammous (11:04):

I have to say I tried to give fiat as fair a hearing as possible. I tried to imagine it that it was an altcoin and I’m trying to be charitable for this altcoin. In a sense, I was trying to think of if I was writing the fiat white paper and trying to get to sell on this piece of malware, what would be the selling points? And I think to be fair, the main selling point is saleability across space. And this is the thing that compliments the analysis of the bitcoin standard and the bitcoin standard are focused on saleability across time. So how gold or fiat hold their value across time.

Saifedean Ammous (11:42):

And I came at that book from the perspective of a gold buggy who just would only see the massive injustice and fraud that is involved in fiat currency, which I think is very true, but I think misses the point that the reason that this was even possible is because moving gold around was extremely expensive. Now in the pre-bitcoin era, this was something that us pre-bitcoiners took for granted. I speak as somebody who was a gold bug, pretty related to life. It’s something that is very difficult to think about that being the other way. You’re going to have to be moving money around anyway.

Saifedean Ammous (12:20):

And so you might as well move gold which is the most dense and the most valuable. And it is impeccable logic, it makes a lot of sense. But because it is so expensive, governments were able to just basically shut this down and make it prohibitively expensive on any kind of scale that allows for the development of a monetary network. Like you can’t just run a bitcoin bank, a gold bank and move money across the world. It doesn’t really happen that way for various reasons.

Saifedean Ammous (12:46):

And I didn’t get much into the history. I tried to focus on it in terms of just how it works, and the reality is people can’t get around that, it’s very expensive to move your gold around, it’s really expensive. There’s a limit on how much you can carry with you on an airplane, if you want to send it with [inaudible 00:13:00] it’s also very expensive, there’s no banking clearance mechanism that can function around gold.

Saifedean Ammous (13:05):

And so moving gold around was expensive and it was pretty expensive during the end of the gold standard. So you look at the beginning of the book is a little bit historical looking at the episode of the World War I when the UK went off the gold standard, you see there that they were moving gold to the U.S. in order to finance the war and they were moving mountains and mountains of gold, and it was pretty darn expensive. Moving that gold is not an easy thing to pull off.

Saifedean Ammous (13:33):

And on the other hand, once they upgraded the entire system to be based on the credit of the sovereign, that gold could move around much quicker. So in terms of being able to move value around in the fiat system across space, it is faster than gold. And that’s I think the kind of grudging thing that the gold bugs need to admit that their money lose… gold is good at not losing value across time, but fiat is good at not losing value across space. Try and send your gold bars across the Atlantic, you lose quite a bit of their face value which is a serious problem that governments have shown that they can make that happen. It’s been the case for over century, it’s entirely possible for them.

Saifedean Ammous (14:19):

So that really I think makes us understand the benefit of fiat. And then that sets up the framing of the question about how fiat and bitcoin will interact because it shapes the way that we view the path that both of them take because ultimately, whether bitcoin is going to resist the forces of fiat depends on how gold-like it is in its centralization and its ability to keep things moving around the world.

Saifedean Ammous (14:49):

And so we can look at the bar that gold sets and we can say that that’s not workable, which is you have to spend somewhere around half a percentage point of the face value of your gold to send it across the Atlantic. So bitcoin really has to beat that.

Saifedean Ammous (15:09):

It has a lot of headway and room for growth without coming near that price point because we can just move enormous amounts of value on bitcoin already and it’s very future ready in terms of being able to move more and more value, particularly with all the scaling solutions that you see developing all over and all the financial infrastructure that’s surrounded. So thinking about it from this perspective is what’s important toward thinking about bitcoin security against the fiat system.

Preston Pysh (15:39):

One of the things that you wrote in the book that I thought was, I’m so glad that you put it in there, was this idea of inflation as a vector, and this is something that I know Michael Saylor and that’s who you attribute it in the book to the idea, and you can’t find this anywhere in academia.

Saifedean Ammous (15:58):

Vectors are too complicated for them. They’re doing high level physics, math, but they don’t like to think about CPI as a vector, it has to be a number.

Preston Pysh (16:07):

Talk to us about this idea so people understand what that means and why it’s important to economic calculation.

Saifedean Ammous (16:15):

Jacque Mazuko may have sparked the fire for writing this book, he gave me the idea of how to motivate it but the one that applied the finishing touches to it or the one really that provided the glue that held all together, that put all of the puzzle pieces together on the board was hearing Michael Saylor talk about inflation as a vector, because that’s something that you can see all of this money printing all the time. And yet you have to get into arguments with fiat people about the definition of the CPI, how dare you not trust the experts?

Saifedean Ammous (16:47):

They’re going to call you a conspiracy theorist for not believing in government statistics on price inflation. And I think so many ways in which you understand that the CPI is wrong and I list them in the book and I discuss just how ridiculous the whole concept is. But I think the way of expressing it that Michael provided, which is the idea to think about it in terms of as being as a vector and then think about the different kinds of goods and the differences between the goods and how they react in that way.

Saifedean Ammous (17:13):

And so you see with digital goods, price inflation, if you want to buy a test such, if you want to say price inflation, the changes in prices with digital goods is maybe negative 10, 20, maybe 50% per year, things just keep getting cheaper. Your Google storage goes up, the speed of your connection goes up and all of this stuff, just getting it cheaper for the same amount of dollars that you’re paying, you’re getting better quality and all of that stuff.

Saifedean Ammous (17:39):

And of course, that stuff is included heavily in the CPI calculations. If your laptop got faster, the central bank needs to print more money to make up for the [inaudible 00:17:49] damage that your laptop is doing. So when you’re putting it all into one number, you’re throwing in first, you have your processing power, and then we also have the industrial chip trinkets that are produced at the very mass scale, cheap plastic thing for which really the vast majority of the cost is just divided over many large number of goods.

Saifedean Ammous (18:12):

So the price there is immaterial, it’s very small and there’s very little inflation on it because these things can just be cranked up. When there’s inflation, people want to spend more because people don’t want to hold onto cash, so they start buying more stupid plastic trinkets and these things demand increases for them but the stupid plastic trinkets printer just goes bur, it’s very easy to get it to go to bur basically and to fight the inflation that happens on it.

Saifedean Ammous (18:39):

They do have the equivalent of the central banker’s monetary policy, and that the people who run these plastic factories just ramp them up on weekends and they can meet your increased monetary availability with more plastic trinkets you don’t need. Then you look at food and you see with food and you see the same kind of idea with the cheap industrial food. It’s easy to crank it up at volumes, and so you witness slower inflation there.

Saifedean Ammous (19:08):

But with nutritious food, it becomes more and more complicated. And if you want to get good quality nutritious food, if you wanted the good quality eggs that most Americans could expect in the ’60s and ’70s as part for the course, if you want them today, you have to pay a lot extra. The price of these things has gone up much more than just inflation.

Saifedean Ammous (19:30):

And then you see, there is the… Because these things are much harder to industrialize. There’s still the element of the cow that needs to spend a lot of time out there grazing and eating and getting sunshine, you can’t make easy shortcuts around it like you can with processed food. Then you get to the highly desirable goods, like Miami Beach real estate. Now look at inflation rate on that.

Saifedean Ammous (19:52):

And when you think about it this way, you see that the CPI is low if you choose to focus your consumption on digital goods and on cheap plastic trinkets and industrial food. And not coincidentally, you also see of government science that recommends that you head in that direction, you don’t need to consume as a recession and of course you need to have your junk food in balanced moderation, and you need to just always be spending to keep the economy going.

Preston Pysh (20:27):

So this is the part of the book that I was just like oh, so this is how it works, when you got into the academia part. So I’ve just looked at the whole journaling piece and the funding and never really pieced it together on how the academic institutions are really incentivized. My God, you made it crystal clear in this book. Explain to people, just give people a little idea of how that rub Goldberg machine of funding flows into these academic institutions and how they’re incentivized to produce these journal articles. Get through this process with people.

Saifedean Ammous (21:08):

I speak from better experience. I was a victim of the academic fiat [inaudible 00:21:14] for pretty much most of my life until bitcoin set me free, The Bitcoin Standard really set me free. The way that it works I think is again, once you understand it from the perspective of fiat, it all lights up because fiat is the underlying technology behind fiat academia. It’s what shapes the entire method of interaction that happens. And the key thing here is what happens if we apply an infinite money printer at the top of science and just open these bigots of money printing?

Saifedean Ammous (21:45):

And we see it happening as I was saying earlier, if you think about it in terms of inflation as a vector, picking up where we left off of the previous question, there is an enormous amount of motivation and incentive for governments to try to emphasize the consumption of the goods that are easy to make away from the goods that are quite price sensitive, and you can see how this is reflected across to the board in all kinds of industries.

Saifedean Ammous (22:10):

You can see it in the food industry and we just have so many vivid examples of, the department of agriculture is out there trying to make food cheap in the 1970s. Wonder why, what might have happened in 1970 to make all the 1970s about making food cheaper? And then you look how they did that, and the methods they did it, it was all about industrialization because that was about bringing the cost down. So they sacrificed the nutrient quality because of this.

Saifedean Ammous (22:36):

And then of course you have an enormous incentive for academia to go along with this. And so academia’s just churning out one piece of horrible diet advice after the other, for the past almost 50 years now. Everything from the cholesterol scale and the idea that you need to eat six to 10 rations of grain per day, and that industrial produced industrial waste is good for you in moderation and that everything is fine in moderation. Animal meat is really not essential and you should look to getting plant meats. So there’s an enormous incentive for this and that’s where all the funding comes from. There’s no free market in academia and science.

Saifedean Ammous (23:19):

And so ideas don’t live and die by their success on the free market, ideas live and die by their ability to secure and generate funding. I use the example of food, which I think has become, people have been laughing at it for three years but almost everybody has laughed at it now to the point where it’s become familiar and I think people are beginning to admit defeat on that one that yeah, clearly there is something wrong in the idea that we should tell people to eat this poison and that they should worry about cholesterol, and so not eat fatty meats and instead eat extra waste.

Saifedean Ammous (23:50):

Yes, clearly there’s something wrong here, clearly there’s a lot of benefit from it to be made in the fiat world, both from companies that provide this, but also from the governments that want to understate inflation. Then apply the same framework for the rest of the academia. And then the rest of academia starts to make sense.

Saifedean Ammous (24:06):

The way it would work in a free market, you would imagine is that anybody can publish whatever they want, and then people who are able to publish things and write things and teach things that are well rewarded in the market will get more customers and will be able to grow and scale and they’ll basically command the market. This is how it works in free markets, but that’s not how academia works. And if you look at academia, there’s very little innovation happening about it.

Saifedean Ammous (24:34):

I think one interesting aspect to think about is that it has gotten, and Michael Saylor says this, and he is absolutely correct on it. As it has gotten cheaper to make education, you see like all these major universities, they’re not prioritizing scaling and teaching more people, they’re prioritizing remaining exclusive, that’s been the case. And therefore it’s much more about the credentials than it is about the education, but it goes far beyond that because the majority of the money that they get, that these universities get either are basically from the fiat printers and it either arrives in the form of government research grants or in the form of credit for tuition for students studying in your university.

Saifedean Ammous (25:19):

So basically on both ends, the customer really is the government. So on both ends, the government is politicizing the way the fiat academia works because it is paying the Piper. So it is calling the tune. You then think about this and if you look at modern academia, I know you study a lot of investors and you’re very well informed about the literature on investing not just in the bitcoin world, but also in the [inaudible 00:25:48] world. How often do you and people like you, how often do you look into academic journals?

Preston Pysh (25:56):

Never, absolutely never. In fact when I see them, I almost roll my eyes, that’s probably the last place I want to look for like sound information. Just like the CAPM model is a perfect example in the finance space at least for doing economic calculation, I’m looking at this model and I’m saying, there’s no way I would ever invest my money with this model, this model is so broke. But that’s almost like the gold standard for anything that’s going to get published out of academia on how you’d conduct a calculation is the volatility of these other things compared to this thing and over this set duration that you just plucked out of thin air, right? It just doesn’t make any sense.

Saifedean Ammous (26:39):

And I think if you’re reading nutrition science, you’re probably wasting your time. A lot of that is just such an enormous time waste and I think the same is true in economics and finance and in all kinds of different fields. Because the key thing, the key point I think is that in fiat academia, there is no cost to getting things wrong. There is a cost to not publishing.

Preston Pysh (27:00):

My God, you couldn’t say that any better.

Saifedean Ammous (27:03):

That’s what it comes down to. You have to get published and you don’t have to be right, it doesn’t matter what you’re right. You just have to get it past the editors. So again, there’s no market feedback, there’s nobody actually reading this stuff and making real decisions on it and then saying those guys helped me and those guys didn’t help me. And then market learning process emerging from this is just about really getting it out of the door, it’s like selling vegetables. You need to get these many pounds through the door every week. It’s like you’re a pizza place and you just have to hand out these pizzas and you have to put these papers in these journals.

Saifedean Ammous (27:38):

And so if you look at these journals, this is how the thing works. So the fiat’s bigot comes from the top to the universities and the fiat journals have basically captured the system. They’re like the real parasites in the system. What they’ve done is they’ve managed to suck on the host, the hosts are the universities. And by having their people which are the administrators in the universities taking it over while the professors and nerds are just basically busy trying to focus on their own on topic, what the corporate fiat cancer has done and the parasites have done in this system is that they’ve channeled the majority of the money to these journals that produce garbage that absolutely nobody in an entire world reads, except people looking into getting into that-

Preston Pysh (28:22):

Into writing more articles for more journals.

Saifedean Ammous (28:25):

Exactly, and it’s either the people who want to become the parasites in the system or the people who are volunteering to be the prey in the system. They’re volunteering to be the host. Like where do I sign off so that I could spend my life writing papers so that these journals would make money on my behalf? They make obscene amounts of money and it is all in copyright and in publishing for this, it’s all on the copyright, so it’s not even accessible. So they get the funding, the money, they get it from universities that they get the funding from governments, but still they don’t share their work because… And I think they do that as a favor for the professors because if more people could get behind those journals and read the kind of nonsense that’s in them, they’ll be a massive problem for the reputation of the academic mafia.

Saifedean Ammous (29:07):

So they do it, they hide these and they charge exorbitant amounts of money to sell them, but they don’t care about the retail market of you and me signing up one day to buy a $30 article. The point there is to deter people and then force the universities to pay enormous amounts of money for these journals. So it’s so perverse, they get the university professors to do this work for free. So all the university professors, in order to get ahead in your job, I’m extremely grateful that I was extremely slacking in my job because I did very little of that while I was learning about bitcoin.

Saifedean Ammous (29:39):

But they get you to write journals, the articles, you don’t get paid for publishing in them and they need you to referee the journals and review the readings and edit the journals. So they have an enormous number of academics who are just their slaves who are working there and then the academics produce the journal and then those publishers will sell the universities, the same universities where the same academics worked, they will sell them the journal subscription for obscene amounts of money. And that’s basically how the academic mafia works.

Saifedean Ammous (30:11):

And that’s why you can’t take academic publications serious, they’re not produced because their content matters. They’re produced to be grammatically correct, politically correct and then to just get volumes of paper down the line. And now it’s almost all digital. But still, when I was considering applying for promotion as an academic, they give you a list of journals and there’s an enormous number of journals out there. It’s beyond your imagination. It’s incredible how many journals there are in every single field. And there’s a training out articles that are being read by the academics for the academics.

Preston Pysh (30:45):

They just go into a repository that are then searched for the next journal that’s being written. And since those are the only creditable sources that can be used by any academic writing, it goes into this repository that just turns into this giant self looking ice cream cone that yes, licks itself, right?

Saifedean Ammous (31:05):

They’re providing absolutely no value to the outside world. They’re churning out this relevant nonsense and they’re miseducating people by just teaching them basic propaganda in most topics, but also the incentive in order to publish, I think it gets even more perverse, is the idea that it is all nonsense, but I think there’s also very strong incentive for it to be always driven towards panic and scare and hysteria because that’s how you get published.

Saifedean Ammous (31:32):

You can’t get published and you can’t get paper buckets through the door of these journals subscribing universities without creating important issues that require more money for research. So if you come along and you say well, I’ve looked into this thing and seems fine to me, that’s the end of your academic career more or less. Whereas if you look into anything and you realize, oh my God, this is an existential threat that’s going to ruin the world as we know it, you are more likely to get more research funding, there’s no market test. You’re not punished and wrong. I do focus on the climate hysteria which I think is a multi decade in the making in my lifetime from an innocuous little hippie that you wanted to sympathize to at this point, the death wish of modern civilization.

Preston Pysh (32:19):

Hey, Saife. So in your book, you get into shadow banking. This is a term that I hear all the time being thrown around. Help us understand what the term means and then tell us where it fits into the overall process, the whole fiat process.

Saifedean Ammous (32:35):

I think the key thing here is that traditionally, the way that banks created money was through lending and it’d happen, you’d go to your deposit bank, you’d take a personal loan from your deposit bank and then they create money. And today, that still happens but that’s responsible for very little money compared to what’s going on in non FDIC insured banking sector. So I think the distinction here is that the FDIC ensured the institutions are regular banking system, and then everything that’s doing banking outside of the FDIC is the shadow bank.

Saifedean Ammous (33:08):

And it’s an interesting negative term even though the industry is enormous and it’s a very large number of people who are doing this business today, but a shadow for banking system because it’s doing banking without an FDIC license.

Saifedean Ammous (33:21):

This is where the money creation is happening. This is where all the fun finance stuff is happening. Like your local regional bank is out of the fun fiat games. They barely create any money compared to the amount of money that’s being produced by large financial institutions in the shadow banking system. So I think the first problem with fiat within implementation of the fiat standard was the fact that banks failed. And so then mixed that with FDIC insurance, but then they took fractional reserve banking outside of the FDIC insured institutions gradually and slowly. And so now, that’s where all of the real banking is happening in the shadow banking system.

Preston Pysh (33:59):

One of the other terms that I think people hear all the time, they know the organization is there, but they might not necessarily fully understand how it functions along with this fiat system, is the IMF. How people understand why the IMF exists, what it does and what its role is in the overall global economy.

Saifedean Ammous (34:19):

This was, I think at some point, I hesitated to include this chapter but it was the earliest chapter that I wrote for this book. It almost felt like it needed its own book but I felt it must be included because this was central to the just entire analysis of applying this kind of fiat mining perspective to global banking and global central banking, and then thinking about the implications of that.

Saifedean Ammous (34:41):

The big thing here is that the IMF is the world’s central bank. So the IMF is basically the U.S. government’s. Incidentally, very few people know this but the IMF is essentially a U.S. government agency. It is funded by the United Nations with a grant from Congress. So it is a United Nations agency. It has credit line to the federal reserve in order to stabilize global market.

Saifedean Ammous (35:05):

But what that has effectively made it is the world’s central bank. So it lends to central banks where central banks are in trouble. Central bank nodes are always creating debt and just like bank froze creating debt and they’re always inflating the money supply and they always run into problems. And then that’s the very strong centralizing check that continues to ensure that the side nodes have to kiss the knee of central node is that they always face a bailout threat, and so they always have to kiss the ring. And so that’s how the system works.

Saifedean Ammous (35:38):

So as a result really, the IMF and the World Bank have ended up becoming something like a global bureaucracy that runs the world. And I think to think about it from the perspective of economics from just the implications of this, you have very strong tendency for central planning in very primitive economies that have not accumulated significant amount of capital. So you’re taking away a very large amount of the resources, it’s already a small country with a small economy with very small resources, and you’re putting that in the hands of basically graduates from halfway around the world who don’t know anything about the country but they’re there to build a road network.

Saifedean Ammous (36:13):

Guess what, this doesn’t work. So what fixes this is more debt and a new expert who’s going to tell you how to spend this new money now. Obviously there’s enough blame to go around with the local governments and with the international experts and with the international organizations and I must admit, with the continuous revisions of this draft, I tended to move away from the kind of boil and anger against those people.

Saifedean Ammous (36:37):

It’s trying to just think constructively because ultimately thinking about it just in terms of incentives, you’ve been unleashing a force of central planning for the past 60 years that is constantly destroying capital, constantly destroying the currency, constantly destroying ability of people to save and putting all savings in the hands of unelected bureaucrats from halfway around the world, subjecting the entire country to the basic complete command of the U.S.

Saifedean Ammous (37:04):

And fireworks resulted everywhere, this has been tried. Everywhere has been having inflation and everywhere has been having financial crisis and economic crisis all the time, and yet it just continues and people just take it as a normal thing and it’s an unquestioning thing. And I think this is one of the most pernicious things about The Fiat Standard, just how much it has subverted politics all over the world to this game of power for control of the local fiat printer under the auspices of the central fiat node.

Preston Pysh (37:35):

When you take a step back and you’re just looking at all participants in the world and what proportion of them are in debt up to their eyeballs and literally own nothing, but have tons of debt, it’s slave labor. When I look back in history and I see things like the pyramids, and you’re thinking, how in the world, how many slaves would they have to have in order to build and construct something like that?

Preston Pysh (37:59):

And then I compare it to today. People just don’t realize that they’re the slave. They don’t realize that they’re so in debt, there’s no way they’re ever going to pay it off in their entire lifetime. They’re just going to have to continue to borrow more and it’s a function of the system that you’re describing. And wow, what a crazy point we are in history when you look at that composition of participants in the system and you would say, hey, what is it? 90% of them are never going to escape the debt trap that they’re in. I don’t know what that number is but I suspect it’s just unbound.

Saifedean Ammous (38:35):

Writing this book made me realize that in a sense, it’s almost not that bad. Like you almost have to be in debt. In fact, it’s the successful winning move in The Fiat Standard. The way to understand this game is that you win in this game by accumulating the biggest negative balance that you can get. Like you just need to keep borrowing larger amounts of money, that’s how you win. You borrow larger amounts of money, and then you use them to acquire larger amounts-

Preston Pysh (38:58):

Equity.

Saifedean Ammous (38:58):

… of hard assets. Exactly, equity, real estate, all of the things that are witnessing very high amounts of price inflation in the inflation vector, all of the things that essentially are… You’re told that you shouldn’t acquire.

Preston Pysh (39:14):

That promises a higher yield than the fixed interest rate that you’re paying on the borrowing.

Saifedean Ammous (39:20):

Exactly. And the thing is the more you borrow, the more credit worthy you become, the better interest rate you get. So it’s just a game where you need to get into more debt. Like Michael Saylor was really very important for me understanding because the Saylor strategy was the logical conclusion of what I was getting at and The Fiat Standard, which I was unable to really articulate.

Saifedean Ammous (39:38):

And then Michael Saylor comes along and it’s just exactly, “This is how you end The Fiat Standard, this is how you win in this game. You keep stacking more assets and borrowing against, and then you get to borrow more at a lower price because you got better credit and then you stack more assets.” As he says it to himself, he said it on my podcast, “You get better at the debt game, just the goal of life is to die in debt. You want to die, you just keep accumulating more and more debt. It continues to get devalued, you accumulate harder assets, that’s what rich people do.”

Saifedean Ammous (40:08):

And if you think about it, yeah, that’s it. It’s about figuring out how to manage debt. And I think that’s very important financial information for most people that everything decent in life tells you should not be true. Every logical thing, your grandma, everything, everyone tells you, you shouldn’t get into debt, you should accumulate savings, you should have savings for a rainy day and you should not spend money that you don’t have. And it makes sense. It’s not natural for people to do this, it’s not the natural order of life, we want to be producing and accumulating excesses.

Saifedean Ammous (40:40):

As humans, we accumulate capital. This is civilization, civilization has always been the process of accumulating more capital and accumulating higher and larger savings and passing them on. This is really in your face subtitle of the book, it’s the alternative to human civilization. It’s really a system where we’re all debt slaves and we stop accumulating capital and we consume away global civilization and descend back to our ancestors’ standards of living because consume all of our capital. We consume all of our corn seed effectively and we start going hungry and we go back to our ancestors’ living standards. We get rid of all this modern technology that we’re doing, we’re seeing it happen in industrial technology with oil and all of that, with fiat essentially trying to mandate the essential oils that we need for survival away.

Saifedean Ammous (41:32):

It’s a decline in the living standard if we keep doing it. You can win this game if you manage to borrow at a lower interest rate and accumulate more capital and always make payments, but you’re highly uncertain at all times. That’s the thing, that’s first that even successful people will have to pay in this game which is that you’re always two paychecks away from everything blowing up in your face. Six paychecks, whatever, but the safer the bigger margin of safety you have, the more you lose track in this game. You win by gambling recklessly.

Saifedean Ammous (42:03):

You have to basically leave yourself insecure or you’re not taking enough risk losing in the game. It’s a horrific thing I think overall. So when I do a cost benefit analysis, all right, yes, we do get savings in terms of it’s cheaper to move things around with fiat than it is with gold, but here’s the upside, here’s the complete upside estimate, widely optimistic estimate of how much that costs us, moving all this gold around is not going to cost more than half a percent of global wealth.

Saifedean Ammous (42:29):

Well, let’s look at what fiat costs us by putting all of the power to print money in the hands of governments that promise they’re going to be nice about it. Well, let’s look at the report card. We’ve got 100 years now and let’s look at the last 60. We’ve got strong data from the World Bank over the last 60 years for the increase of M2 every year across the world.

Saifedean Ammous (42:45):

So we see the average, the numerical average for all the world’s currencies is 32%, but the weight average for all currencies by market value so that you don’t give equal weighting to the U.S. dollar in the Venezuelan Boulevard so that the Venezuelan Boulevard’s inflation is only way to the size of the Venezuelan economies, the Venezuelan shitcoins market value and the dollar is weighed much more.

Saifedean Ammous (43:10):

In that kind of scenario, you see that the average inflation [inaudible 00:43:12] 60 years was about 14%. So about 14% is the average fiat user experience. Pick an average fiat user, put them in average fiat country in the period 1960 to 2015, and as even before 1970. So we’re putting in the good years of the ’60s, which were still pretty inflationary even though they were supposedly on the gold standard. You get 14%, which means basically, your money loses half of its value in five years. That’s the effect.

Saifedean Ammous (43:37):

Governments can say all kinds of different noises about this stuff, but that’s the reality of it. This is what they’ve done, this is the track record, this is-

Preston Pysh (43:43):

That’s before taxes.

Saifedean Ammous (43:45):

Yeah. We were just talking about the currency.

Preston Pysh (43:47):

Yeah.

Saifedean Ammous (43:48):

We’re just talking about the currency. Fiat devs and their social media influencers and all of their outgoing propaganda, we can give of it all of attention that it needs. At some point, we have to just stop listening to those trick winners and just look at the project, what it does. Like if everybody has enormous estimates about their transaction per second and about their security, until their network hits a critical bug, then you start into the bitcoin maximalist who told you in the first place, “Let’s really look at it. In terms of fiat, what does it actually do?”

Saifedean Ammous (44:19):

Yes, it does save us on the move with money around, but it gives us 14% increase in supply on average. So even if you look at the best cases of fiat, the best implementations were tried in countries like the U.S., Switzerland, Sweden and Denmark, those are the four best lowest average value of inflation, they get something like 7% per year which is still like 10 years to lose 50% of your money. That’s still very fast the valuation of the value of your money.

Saifedean Ammous (44:45):

Just an increase in the supply which is going to be reflected differently in different goods, but still that’s pretty bad. Gold could do 2%, so the enormous role, I think that money plays which I mentioned in this book and I mentioned in The Fiat Standard a little bit and I discussed in more detail in my next book and the Principles of Economics, is that the hardness of money is like a control knob of time preference. That’s I think the conclusion from my two books and the Principles of Economics.

Saifedean Ammous (45:12):

Really the harder the money is, the more we can save for the future. The better the money is for holding to its value for the future, the more we are likely to plan for the future, the more we are likely to give attention to the future, the less we discount the future. In other words, the lower our time preference.

Saifedean Ammous (45:30):

The more civilized the as human beings we become, the more savings we have, the more capital we can accumulate, the more capital we can buy, the more capital goods we can have. And that’s really the process of civilization, is going from trying to catch fish with your hands to catching fish with a giant trawler that catches much higher number of fish per work and it feeds many thousands, more people per hour of work produced.

Saifedean Ammous (45:51):

We have a constant increase in the process of production under capitalism because we’re constantly lowering our time preference. And I think that is essentially linked to the ability of the person who produces to be able to save their value in a money that hold onto its value. Well, if they lose that, they don’t have a lot of time for work in production and they can’t save and they can’t accumulate real capital.

Saifedean Ammous (46:10):

And you witness capital destruction, you witness the reversal of the process of civilization. That’s what I think fiat is doing, that’s the kind of big takeaway from the book that fiat is essentially a reversal of the human civilization process. We’re destroying the value of the money, destroying people’s ability to provide for their future. This is the thing that [inaudible 00:46:28] and idiots don’t get. They tell you what, you just invest and you beat inflation, but investment is a job on its own. Whatever it is that you need to beat inflation is a job on its own that you didn’t have to do as a gold user.

Saifedean Ammous (46:39):

In the gold protocol, you got paid in a gold coin and you kept that gold coin and it had value in it. That value stayed there, it stayed in that coin for many, many years later. Many decades later, you could always go back to that coin, it would have that value.

Saifedean Ammous (46:53):

So, that allowed you to earn extra money let’s say this year and put it aside for 10 years from now, for 20 years from now, for your house which you were planning on building in 10 years. You could always save and you could always expect gold would hold onto its value and gold has held onto its value throughout centuries and continues to do even though I think it’s getting demonetized, but that’s besides the point. But the point is when you have gold as money, people were able to get that. Now with fiat, you can’t get that.

Saifedean Ammous (47:16):

In order to be able to beat inflation, you have to go head to head with Goldman Sachs and JPMorgan and Preston Pysh and all these people who spend a lot of time spending a lot of effort and energy into this. That it’s basically almost like a full-time job. Fiat needs to be earned twice. With gold, you’d earn your money and stay it earned. With fiat, you have to take it to the casino of fiat markets and you have to understand an enormous amount of economics and finance and you need to know what real estates market is like in your area. You should look into real estate and other areas, you need to look at the commodities, you need to look at other countries’ central banks.

Preston Pysh (47:55):

You got to be a master of risk management, then economic calculation which is your second point.

Saifedean Ammous (48:00):

That’s a job.

Preston Pysh (48:01):

Full-time job.

Saifedean Ammous (48:02):

People can’t invest capital anymore because they don’t have savings, and so investment is daunting and investment of course involves a lot of pitfalls. People will say well, you can just do index investing. Still there’s a lot of fees, inflation is very high and still figuring out that you can just do inflation index investing, there’s a million other people out there telling you that real estate is the right answer, bitcoin is the right answer, this or that is the right answer.

Saifedean Ammous (48:25):

There’s no easy way around it. And doing it means that it’s an fact on the thought of capital that you lose. But you also lose labor time because you have to figure out what the Bank of Japan is going to do next week in order to figure out where to put your savings and what to do with your stocks and your bonds and your commodities and all of this incredible complex portfolio that you have.

Saifedean Ammous (48:44):

That’s time taken away from your excellence as a doctor or as an athlete or as any kind of job. Unless you do this as a business, I think you would benefit enormously from just having a form of money where you could expect two, 3% appreciation per year. I think with current productivity, it would be much higher than it was under the gold standard, maybe three, maybe four, maybe five even percent per year increase if you wanted to think about an average price although that’s a problematic concept, but it would constantly go up.

Saifedean Ammous (49:10):

You could still invest of course, but you’d have a lot more time and a lot more ease to come at the investment that you understand. And the time you understand with the amount of money that you can risk and not constantly have a gun behind you, forcing you to invest your money or lose it.

Preston Pysh (49:24):

So in your book, you have a whole section here about the fiat cost benefit analysis which you were getting into there. I’m going to read the four things so people know what they are and I loved how you went through. This is a little bit different than, when I read the title of the chapter, I was thinking, oh, this is going to get interesting because I suspected you were going to get into the cost of energy, the mine and bitcoin and compare it to fiat.

Preston Pysh (49:46):

And you didn’t, you went in a different way that I thought was extremely thoughtful. And so these were the four main points. The first one which is the one you were talking about was the destruction of holders’ wealth through inflation. You talked about the M2 weighted is 14% which is mind blowing to me, doesn’t surprise me but hearing that number and knowing that you went and calculated that was really quite interesting to me.

Preston Pysh (50:10):

The second cost benefit analysis was the destruction of economic calculation which we were getting into a little bit there where you were talking about just how hard it is for a person to go out there and try to do all these risk calculations to just protect their savings of the work that they’ve already performed.

Preston Pysh (50:28):

The third one was control to government to shape the economy and society, and then the fourth one was increased likelihood and cost of conflict, which is one that I’m intimately familiar with and I’m sure many other people are intimately familiar with. I loved it, Saife. Was there anything else that you had on the cost benefit analysis or something else that you want to highlight with respect to that?

Saifedean Ammous (50:50):

I think this is it in terms of the fiat because with the fiat cost benefit analysis, I do an analysis of fiat versus gold. So fiat saves us a lot of money on moving gold around, but it gives us a government [inaudible 00:51:03] basically and can take 14% per year on average, is able to reshape the market and economy and it destroys your ability to save. It destroys business’s ability to function normally because the currency is so destructive. Look at places like Lebanon and imagine the kind of problems businesses there have.

Saifedean Ammous (51:20):

And then you’ve got the cost of conflict, I think is an important… this is the thing like being in power just means you are able to print money. You have the control node, you decide what’s real money, you decide who gets to print money, you get an enormous amount of power. And that just has made the 20th century extremely bloody. I think it’s something that’s probably worth writing a lot about, thinking about how much of world’s wars and U.S. foreign policy is motivated and financed by this horrible software implementation that is the fiat network where the central bank… Remember you asked me before about the four functions earlier, so let me mention these.

Preston Pysh (51:54):

Yeah.

Saifedean Ammous (51:56):

The government gives the central bank a monopoly on printing money. Central bank prints the national currency, provides the currency supply, regulates the banking system and controls what banks are able to do and buys government bonds, and so therefore finances government. And also get this amazing feature in our new fiat implementation, it allows the central bank a monopoly on the clearance of international rate because what worst possible engineering decision could you put then, could you ever make? Let’s put the government and all of the country’s savings and international trade in the hands of one central bank and give it a monopoly on doing all these jobs.

Saifedean Ammous (52:36):

So only it can do this because effectively what it’s doing is that it is subsidizing government’s spending through using entire country’s international trade and local savings as collateral. That’s essentially it, that’s what you see happening extremely transparently in a place like Lebanon, where the government goes bankrupt and then suddenly the bank money is disappeared and people are still asking their bank where their money is.

Saifedean Ammous (53:04):

And it’s amazing watching a lot of these people still think that the issue is that the banks took the money, and I’m sure some bankers of course took the money and ran away, but it’s as if they had all this money and bankers just took it and ran away with it, when the reality is that money was never really there, it was just part of a Ponzi use to finance government. That’s where your government is spending all the insane amounts of money spending over the last decades. That’s where your savings went and that’s what fiat does and that has financed war everywhere around the world.

Saifedean Ammous (53:36):

I think the world would be a lot more diplomatic and a lot more peaceful if governments had to take responsibility for this rather than just crank up their printers all the time.

Preston Pysh (53:48):

All right, this is my last question for you. What do you see debt looking like if we would move into a bitcoin standard?

Saifedean Ammous (53:57):

I think it would be heavily more equity world. I discuss this in the penultimate chapter of the book. I think bitcoin basically eats the incentive for fiat mine. It’s like somebody figures out a way to make SHA-256 hashing worthless. And so now, your computer can figure out a new solution but it won’t get paid for it. That’s what bitcoin does for fiat. It makes mining no longer profitable, makes lending no longer like mining.

Saifedean Ammous (54:25):

It’s not that it makes mining no longer profitable, it separates lending from mining. It makes lending a static process that does not create money. So in order for me to lend you money, I have to take money from my hand, I can’t just create money even if I’m the government’s friend. I don’t get to just print money because I have a license. I have to be the one who pays the opportunity cost. I’m the one who doesn’t have that money available for me to enjoy that kind of world.

Saifedean Ammous (54:52):

I think investments would become equity focused. I think back in a world in which I don’t see investors wanting to take on investments that carry equity risk without getting equity return. I think this is the key point that the fiat system distorts in that it offers you the illusion that you can be guaranteed a 3% or a 5% or a 7% or whatever it is, that it’s at the bank and the bank is guaranteed by the government and you get the specific amount of money which there’s no risk. We put your money to work but not a lot of work, and therefore we guarantee you there is no risk of losing all your money and you’re going to get a 5% no risk.

Saifedean Ammous (55:32):

Loan bonds or saving deposits or whatever it is, this I think is just going to go out of business. We’re just going to have a system of deposits where you pay in order to have your money safely kept in deposit available for you on demand whenever you want. And we’d have a system of equity because without the government, without the illusion of banking safety provided by government central bank monopoly, nobody can guarantee that a business will provide return of capital. Any business can go to zero. It can go to zero whether through liability, whether through natural disaster, whether whatever it is, any business can go to zero.

Saifedean Ammous (56:10):

Your investment can be wiped out and there’s no running away from that risk for an investor. And the idea that investors should be doing this I think is just a function of failure of the fiat system to provide a saving function because people can’t save, they have to go and invest in a casino and then a casino wants to pretend, no, no, no, no, it’s safe, don’t worry. You’ll make 3% whatever happens and you won’t lose your money. No, your money’s at risk. So I think we’d go to a world of equity.

Preston Pysh (56:35):

I don’t think we’re going to be dealing with interest rates of one to 3% or discount rates in the low single digits for economic calculation when we move to something, it’s fascinating. Hey, so this book, here it is again, The Fiat Standard by Saife. This thing, folks, go out there, read this book, the research, the amount of resources that you have in the back that just… Dude, you crushed this.

Preston Pysh (57:00):

For people who are maybe listening and people, I’m sure people are listening to this and are saying, wow, I totally disagree with whatever take. Seriously go read this, get the full in depth laid out talking point and background and research that he has for some of these points, and maybe it’ll just challenge whatever belief structure you might have and just provide a counterpoint to it. Saifedean, is there anything else that you want to highlight or hand people off to? I know you can find the book on Amazon and some other places, but anything else you want to highlight?

Saifedean Ammous (57:33):

My website, saifedean.com, you can also become a member, take my online courses in Australian economics and bitcoin economics. And you can also get a preview of my next book, Principles of Economics, my economics textbook which is on its way to being done, very close to getting done. You can also buy The Fiat Standard from my website, and I’m also pretty active on Twitter and also my podcast, The Bitcoin Standard podcast, the podcast crowd.

Saifedean Ammous (57:56):

So if you’re into podcasts, subscribe to The Bitcoin Standard podcasts, we have these seminars that are for students in my website, people sign up for my courses, you can join the seminar twice a week. And then there’s also the guests like Preston for instance, and we’ve just had Michael Saylor, we’re going to be releasing it I think just today. I’ll look forward to hearing from you.

Preston Pysh (58:17):

We’ll have links in the show notes for everybody to check all that out and Saifedean, thank you so much for coming on the show. Always a pleasure.

Saifedean Ammous (58:25):

Thank you so much for having me, Preston. Take care.

Preston Pysh (58:27):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires, the bitcoin specific shows come out every Wednesday and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that and it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

Outro (59:00):

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