Interest Rates, Inflation, and Central Bank Manipulation with Keith Weiner

Published Dec 15, 2023, 8:32 PM

In this episode I speak with Keith Weiner about a variety of topics extremely important to today's macroeconomic environment. Why are interest rates such an important key to economic growth? Why does top-down control over interest rates cause so much damage? How can individuals navigate this profitably? Much much more. To learn more about Keith's company Monetary Metals, visit https://monetary-metals.com/heresy-financial/

All right, Well, thank you so much Keith for joining us today. Really excited for this conversation. I'd like to start off with talking about interest rates, because interest rates and debt, low interest rates, higher interest rates. Today in our Fiat world, everything is controlled or at least heavily influenced by the Federal Reserve, and so we have this association that that that is part like inherently part of the Fiat monetary system, and that you know, debt and and interest rates going up and down are kind of inherently negative features of the system. So I want to hear from you because you've you've talked before about how uh, that is an integral part of the of a free monetary system and and a component for for growth long term. So let's let's start off with as brief of an overview as you can about how interest rates work on a free economy, free money, and then we'll kind of dive in from there.

Yeah, let me just start really really broad, and then I'll try to narrow it down to that particular question. You know, frame market is a forum or venue in which productive people can coordinate their activities. This is the this is the thing that the central planners don't believe as possible. In some cases, the free marketers, you know, are just you know, almost amused in wonderment, how in the world do millions of people, let alone billions of people, coordinate their activities. And so Leonard Reid wrote something very brilliant called the Eye Pencil that basically says, there's no one person that knows everything that one would need to know to make a pencil. You know, the graphite is produced over here, and the little ferules are produced over there, That rubber comes from these trees in Malaysia, you know, and so on, and then there's one one guy that knows how to assemble it, but it doesn't know how to produce or even procure their raw materials. And you know, there are various people that coordinate around the borrowing and lending of money. So everybody during their working years is saving, presumably, assuming you have a free market and you don't have some government guaranteed Ponzi retirement scheme. Everybody saving for retirement, and the best way to save is to actually put your savings to work and get interest, not to just hoard gold and silver, And obviously that's some monetary metals value propositions, put it to work and get interest on it, and you get the compounding. So by the time you turn sixty five, most of what you have is the compounding effect and not the actual raw you set aside from your salary. And so all those people are, you know, looking to lend essentially usually through a bank or in the financial intermediary. And then similarly, once you get through retirement, you want to live on the interest and not on the principle. Live on the interest only you never have to worry about outliving your money eating the principle. Then there's a you could plot what date it is when you run out, and then you know, you become the beggar on the steps to the to the church, you know, hoping that enough people will give you something that you can eat for a day. It's a terrible position that nobody wants to be in. And so on. The other on the other side of the equation is an entrepreneur who needs to borrow money in order to expand, and so there's a there's a win win deal. That is, you know, one side has wealth but not income. You know, something they've saved and they want to get income on it and the other side as somebody who can produce income but doesn't have the wealth or the capital to make the investment. Now, if that, if that trade can't happen. And historically we know there were times when this was not possible either after the Fall of Rome, if you revealed that you had gold, I mean, they'd kill you for it. So the goal tend to be very deeply hidden and not come out, you know, for trade or lending. At other times, you know, lending was illegal, it was called usury, and penalty was death. So you know, if you kill people for the crime of lending, obviously you're not going to get a lot of lending, and so you don't get that coordination. And so those two parties are kept, you know, kept apart. They're trying to come together, but they're being kept apart by either lack of law and order in the case of the Dark Ages, or a bad law in the case of the High Medieval period. But what they're trying to do is ultimately exchange wealth and income. So one side as wealth, it says, okay, here, use this, and then in the exchange, give me, give me an income stream off of that wealth, and that income stream is coming from the additional finance that difficult production that you financed, and so everybody wins. Socidy gets more goods and services, the entrepreneur gets to get rich hopefully, and the savers get interests on their savings. And this not only can occur without a central planner dictating to everybody what the interest rate shall be, but of course did historically occur without there being a central planner dictating how this was going to occur and what the rates and what the rate and other terms were going to be. And you know today it's so difficult to envision. I coined to term the otherwise free marketers. So these are economists. I can tell you what's wrong with minimum wage and hot dogs, stand regulation and zoning and you know, import tariffs and all these things. On those issues, they get the free market argument. But when it comes to money, well, man, you know, we need to have an irredeemable fiat currency and a central bank essentially planet and then you know, dictated interest rates and all the rest of that. And on top of that, maybe they'refore you know, regulated banks or something like that, but almost nobody can really imagine, well, how would it work in the free market? And you know, but yet it did. And you know, historically you can reserve out how it happened.

But so I have a question about that, that relationship between the saver and the entrepreneur. What about the what about the role of equity. Let's say debt and interest rates didn't exist, it was outlawed, people didn't want it, whatever, whatever the case, would would equity plus distribution of profits not not be sufficient to replace that in the relationship between the saver and the.

And I look at a question like that, I suppose, you know, suppose you outlaw meat. You know, would fruits and vegetables and maybe insects not be sufficient replacement for me? Well, yeah, sort of. I mean, you can get your basic calorie intake, and you can get the immuno assets you need to survive biologically. I think life would be a lot less fun without meat. Anyways. You know, yes, businesses, you know, finance themselves with equity. But equity and debt are two different tools that are appropriated in two different circumstances. Maybe another analogy that I would use would be imagine you couldn't have screws or screwdrivers. It was only nails and hammers, could you not, you know, assemble a house, put drywall up, and all these things with just nails and hammers. Well you could. It turns out that nails don't hold drywall as well as screws do, so maybe you need more of them, and then the drywall tends to get loose, you know, it works the nails out eventually and gets loose. Uh. You know, the screws that was, you don't have that problem. You know, it's a different tool. And of course there are certain folks that are hammering away at equity and trying to undermine that as well. And there's definitely a movement in some cases by the libertarians of all folks as well as the left to say that, you know, corporation should not have a limitation on liability. And some of the folks who are advocating this may not realize, and others almost certainly do realize. What that limitation is is a limitation that the owners, the shareholders, are not liable for anything more than whatever they invested. So if you put one thousand dollars into Apple shares, you know, whatever bad things that happen to Apple, the most you can lose is one thousand dollars, but they can't go after you personally wipe out your family estate, you know, three generations of legacy, you know, college kid, you know, college fund for your kids, take your cars and your house and all the rest of that and leave you with the shirt on your back. They can't do that because there's a limitation on liability. But there's some folks that want to eliminate that, say that's an artificial construct of the crony state. So if there's if liability is unlimited, if putting one dollar in meant that my entire net worth is now at risk, then nobody would buy the equity. And then of course, if you outlawed debt or use some monetary system that you know, borrowing and lending don't work, then you take away debt as well, and then you collapse all of society down to the you know, twelfth century village where it's you know, it's a couple of small farming families with a you know, a family owner, a single person owned blacksmithy, a cobbler, and a cooper. That's what the little subsistence village would have had, you know, a thousand years ago, twelve hundred years ago, and you know, I do think that borrowing is the right tool for certain businesses or equity, you know, equity is too expensive. And then if they were if they had a choice between equity or not expanding, so a lot of businesses would choose down to expand, which is exactly the opposite outcome that you'd want. You should want more goods and services, make things even more plentiful, makes society, you know, wealthier.

Yeah, yeah, that's a good point. So there's a quote that you, you and I talked about. This is I don't know, a couple of months ago now, and I believe you said it was JP Morgan said somebody was somebody was asking him how to solve the banking panic. I believe it was like the bank pan of nineteen eight, I think. And he said, raise the interest straight to four percent and the gold will come out of the you know, of every of every nook and crany or something like that. So you can correct me on what the actual quote is, and then could you explain, you know what what what he was hinting at with the.

Way I heard the story and I had I had googled it once, and I every time I think about this I kicked myself because I didn't keep the link, and every time I've tried to google it since, I've never found it anymore. But the way I heard the story was somebody mostly went up to him and said, mister Morgan, there's a crisis. There's a shortage of gold to Nee York. What are we going to do? And he said, raise the interest rate four percent. He said, we'll pull it off the draw it off the continent. Right so in those days that would have been expensive and risky, you know, journey by steamship. Five percent. He said, we'll pull it down off the moon, which was you know, pure high perpleg He could not have imagined that sixty years later they would actually send somebody of the moon and recover them alive. That was just pure fantasy at that time. But what he's getting at is a really simple concept, which is if there's no interest, then all the gold disappears into private hoards. I used to use the analogy of like an English muffin, you know, just disappears into all the little nooks and grannies which are effectively unlimited and doesn't come out. And even in cases where you know it totalitarian governments have sent guys with machine guns door the door to try to confiscate all the gold. They don't I mean get some You catch people either they don't have a place to hide it, or you catch them by surprise and you get some gold that way. Of course, we don't get that much of it. What happens is people just bury it deeper. Then it used to be buried a meter down, and now they take it up and they bury it two meters down, and you know, gold just goes into hiding. And the only force that will pull gold into the market is interest. And that was that was ours thesis at monetary medals, that if you pay interest, it will draw gold into the market. And so, you know, I propose the thought experiment. It goes like this, suppose you had an actual circulating gold coin standard. But yes, there's bills and there's bank accounts, but there's also like actual gold coins or in circulation. I suppose something happened without getting into what this might be, that you know, interest rate went to zero and it was no longer possible to turn any interest. Then obviously nobody's going to deposit their coins in a bank. Nobody lends for zero if you have a choice anyways, Now an irridiable currency, you don't have a choice, you're a disenfranchised But in gold, you're absolutely a choice. You can take that gold coin home. And that's exactly what happened. And then to because everybody who's working for wages has to save the workers will actually be pulling the coins out of circulation and putting them under the mattress. And so whatever coins that were in circulation would quickly be pulled out of circulation and the whole thing would seize up. And then gold is not going to be immutable exchange anymore. It's too valuable. It goes into private hords, and any economy is going to crash, you know, if that happened. And then today we're in the exact opposite situation. We have payper money that ceaselessly churns, and you know, gold there's no interest rate, so gold goes into hiding. But if you pay an interest rate, you pull it back into the market. So that's interestingly, is the only reason why anybody would, you know, bring their goal to market.

Does that same Does that same effect happen with fiacht currency like the dollar, like I mean, like right, now the Fed is obviously they've raised interest rates, they're keeping them higher than they've been in a very long time. Is that something then that should we see the same result of that or is there like you said, it's it's an unredeemable currency. It's not like we have a choice and not everybody can go pull you know, payper dollars out of the bank for the entire money to money supply. So is the same thing going on.

Say, even if you pull the paper banknotes out of the bank and put them under the mattress, you still actually extending credit to the system. If you pull the gold coin out of the bank, you have pulled credit, which is why FDR broke the gold standard, made it legal to gold confiscated it all is you know, you are actually pulling capital out of the banks, causing a credit contraction. But today if you pull paper banknotes out, now you're just a creditor to the fat wade. A dollar bill bill is an archaic word for a credit. Of course, a dollar bill doesn't say the word bill on it. It says federal reserve note. Notice, another word for credit. So your creditor to the FAD that is lending to the government and the banking system. So all you've all you've done is you've hopped from one frying pan to another. You haven't actually changed your economic position any but it is different in paper. Paper does not have the same properties as gold. One of which which I think is extremely important and extremely underappreciated, is that the marginal utility of gold is not declined. We've been mining and producing gold so far as we know, for at least sixty five hundred years. They found some warrior king buried in Bulgaria. I read the article a few months ago. I don't know when this find a card. It could be a stale article, it could have bit new, and it's buried with like seven kilos of gold. It was forty five hundred BC. So you know, mankind has been valuing gold for a very long time. They've been hunting for it at least sixty five hundred years, and yet we continue to produce more without any sign of a glot. The market happily absorbs whatever the mind can produce, and so that's evidence that the marginal utility is not diminishing, because if it were, marginal utility would have hit zero. And you know, gold production would have stopped a long dam time ago, like as it would in any other commodity. Paper doesn't quite have that the dollar has a pretty slow decline on its marginal utility. But clearly it does, and so the more of it's a issue. You know, the dollar does sort of lose value, not in the way that the quantity seria of money would predict what it does. However, I do note so if you go to maybe you can put in the show notes a picture of this graph. But if you go to fred which is the Saint Louis fed has a website with all kinds of great data and charts. They have a chart of money velocity for for M two, for instance, and nothing has been in a long term decline since at least a year two thousand. I mean I looked at it recently, and sure enough it picked up actually now that interest rates are up. Now, I don't really think that velocity is a real thing. I've written a lot about this so called equation that the monitors love M vehicles p Q and VIA's velocity and it's a fud tractor. I say that. You know, economists have physics envy. You know, it looks like, uh, you know, the ideal gas equation when is an end vehicles? Uh what No, I'm forgetting the h Anyways, the p vehicles NRT the ideal gas equation in physics. They sort of have physics envy and they want to write this equation. Velocity is kind of a fud tractor. It's like, well, the math doesn't work, so now you plug in whatever number for velocity. But conceptually you can sort of see that money is either circulating or not, and the lower the interest rate falls, the less circulation you get at least as a percentage of the total amount of it that's out there. And that that is actually has actually been happening for decades in the dollar as well, not as clearly and not as strongly, you know, not as powerful obvious as it would be in gold, but yeah, it is actually a thing.

So it's it seems to me obviously, correct me if I'm wrong in the way that I'm that I'm kind of thinking through this. The reason why the increase in the gold supply hasn't resulted in diminished utility is because the free market has determined that when when it's when it costs less to get an ounce of gold out of the ground. People get announced out of an announce of gold out of the ground. But if it costs more than an ounce of gold to get an ounce of gold out of the ground, then people are going to stop doing that. And so the demand for money influences the increased supply for money, And if we could if we had a similar sort of influence on the supply of dollars, then it would have the same result. And this is obviously hypothetical, but let's say no federal reserve banks are allowed to operate in complete freedom, so they have if they fail, they fail, no bailout. If a bank you know, operates conservatively enough, then they'll continue to go. They can do fractional reserve banking if they want, which would increase the supply of dollars, but then there would obviously be a contraction at some point which would reel that back in. And so you could see how there might be a similar sort of dynamic that could occur with fiat or dollar bills paper bills, where the supply and demand for money based on you know, spending the savings pool and production would u have an effect where it increased and then decreased the supply of dollars, similar to how that has happened with gold.

Yeah, I think there's a great analogy there. The difference is, of course, it's not going to be the cost of the paper dollar itself, which would just assume is trivial effective as a zero. The cost to the bank is the interest rate they have to pay to get the deposit. So the banks have to pay interest to raise the credit. So dollars credit, gold is money. That's a highly controversial view that I have, by the way, but I'll die in that hell if necessary.

So I want to circle back to that. Can you restate that.

Dollar is money, the gold is money, and the dollars credit. So banks are intermediaries and credit. They're dealing credit, so they have to raise credit from their depositors and that has a certain cost, and then they are putting that credit to the barrow, where is typically businesses, maybe home buyers that want a mortgage for their house, and that has a price that they get to charge, and the banks will do it when there's a positive spread, you know, when net interest you know, margin is positive, then they'll do that trade all day long. And you know, the arbitrager is like everybody else. Everybody in the free market is buying something in one market or several markets, because usually they're buying labor is to buy some more materials. They buy some labor and they combine it in a way, and then they sell it in another market for a higher price. So let's say you're a farmer. You know, you're buying seeds and fertilizer. Let's assume you have the land free and clear or whatever. You're buying seeds and fertilizer and insecticide and labor and diesel fuel, and you turn that into wheat that you sell in the wheat market, and hopefully you're selling the weed for more than the sum total of all the costs that took to produce it. Well, a bank is a dealer in it, so they're buying credit, you know, from savers at a lower interest rate. You know, savings accounts have always had lower interest rates. Then let's say the bond market, and then you're putting that credit into the bond market at higher interest rate, and you know, making the spread between the two. And if that spread contracts, for instance, there's less demand for credit from businesses, then the banks will stop because there's no longer money to be made doing that trade. So in the free market it's always the spread, you know, compresses to zero, and that's the signal to everybody you might as well stop doing this because you're not going to make any money doing it anymore. Of course, when the government takes it over, then you know, there's no limit as to how far I can go. And until the regulators decide, you know, it gets to their attention we should stop this because this looks like this is bad. Maybe that you know, should have stoped it three years ago, but who knows.

So so there is a similar dynamic as far as the end result, but the causes and the mechanism by which it actually takes place is you know, is very different. It's not about the cost of producing a nuance of gold, which actually at any commodity, you know, if we if we were talking about seashells or silver or anything else, any other commodity and that has a restraint of atoms and molecules would be would be somewhat similar. But something that is that is purely credit just has has that different mechanism because there's no at the end of the day, there's no cost to write another zero.

The only cost is what you have to pay to get the you know, the bank has to get the credit from the stain verse and has to pay for that. And as that cost is going up, and it has to find businesses that want to borrow. And the more the more that they extend to businesses, the less hungry businesses are for credit. So the businesses you're willing to pay less, they say, are demanding more. And eventually that spread will, you know, compress too tight. You wouldn't even have to go negative, it'll just compress too tight. That's no longer worth anybody's while. But if I said, here's a great business opportunity, you know, you can drive across the border and buy you know, wheat for one hundred dollars a bushel, and then drive it all the way back and you can sell it for one hundred dollars and one cent. You were like, why am I going to waste my time little in all the fuel and everything else for a penny. It's every every business sort of has a walking away point, and we can call that the marginal in this case, the marginal bank or the marginal financial intermediary will walk away when that spread gets you know, too tight.

Okay, I've got I've got two questions and I had both of them are follow ups to this conversation. So we've got a fork in the road here. But I'm going to try and remember to come back to the to the second question. First question is Javier Malay is a little bit of a side tangent here. Javier Malay just won the uh he's the president of Argentina. Now maybe the first stubitarian.

My economics are so cool that he copied my haircut.

That's true. You guys do have very similar hair and very similar economics, it seems, unless he's a you know, as some people say, a wolf in cheap's clothing. But one of the things that he wants to do is get rid of the central bank and dollarize the economy, which is essentially from their perspective, it would be a lot more of a free market in money. And if you can dollarize, then you could as just as easily switch to any other form of money easier than you know, if you if you're still stuck in that rut of using your own money controlled by your own central bank in central government. So do you think that move is a step in the right direction. Do you think that's completely missing the mark? And what do you think the effects will be of Argentina dollarizing if they're able to do that?

Well, you know, obviously it should be obvious. I the US dollar is significantly less bad than the Argentinian Payso the Argentinian payso has you know, what's the official inflation rate two three four? You know, more than and the reality is probably more than that. Right, so you know, if you switched to the US dollar, it's less bad. So in a certain sense, okay, how can you argue with that? Right? At least he made an improvement the lives of the average on Argentinian You know, people got less bad. They're less badly off than they were, and of course most of them try to keep their savings and dollars anyway, you know, and of course there's very structural obstacles to doing so. And now, since I have a family who came from Argentina and I know a little bit more about the kind of history of it, if you even if cases we're people were smart enough to say I'm going to have dollars if you held it in the Argentinian banking system, there's been instances where the government, you know, you wake up one day and they say, we're converting your new dollars that you hold in your bank account to payos, and we're doing so. It's the official one to one exchange rate. So you thought you had one hundred thousand dollars, now you have one hundred thousand pays sots. And of course the official exchange rate is a complete ripoff. The reality is, you know, ten to one, who knows what so not only don't they trust the Argentinian currency, they don't trust the Argentinian banking system, and they try to hold it principally either in the US or Switzerland. So you know, I don't know if this move is going to you know, earn back the trust of the people over there. But assuming he needs it, and assuming that they don't you know, reverse it, then sure they're obviously better off saving and dollars than in paysos. But the broader question is it really a step in the right direction. I think there's a lot of political issues today that you would seem to get a big gain by, you know, by doing this making some move. My favorite one to talk about is school vouchers, but seemingly, you know, a good move, but actually not really move in the right direction. They're at best at lateral or worse, they're actually moving in the wrong direction because they allow the corrupt regime to continue to operate but alleviate some of the pain. You know. So it's like you continue injuring yourself, but now you're on painkillers. Is that really a step in the right direction? And so, of course, what I would love to see is an actual free market and money where they eliminate legal tender laws, they eliminate you know, they let people keep their books in whatever currency they choose, including gold, and then of course most people right now choose dollars, but at least they're free to choose. And if gold can make your case or why you want to use gold, then you know some of them would, and then you know, you can begin to have a gold standard, you know, emerge, which if you just declare it, we're going to dollarize, you've just swapped, you know, one frying pan for another. And okay, this frying pan happens to be cooler, it's at a place further from the hot, hot part of the fire. Okay, great, But I do see certain irony, and that all the people that are constantly criticizing and rightfully so criticizing the FED, criticizing the dollar and the incredible, breathtaking growth and the quantity of dollars, and all that cheering Argentina for jumping into that same frying pan. It's like the dollar isn't good, it's just less bad than than the paeso.

Now, you said something in there that I thought was interesting, because you said that a lot of people in Argentina already kind of choose to keep their savings in dollars when and if they can, and it reminded me of in the collapse of the Weimar Republican Germany.

When.

People as much as they could, we're trying to keep their savings and dollars, which at the time was just gold. And I've done a fair amount of reading about different hyperinflationary collapses of currencies, and it seems like anytime a government tries to come in and say, okay, our currency is collapsing, we're going to make a new fiat currency and here's the new declared value, it always fails. And the only time something actually sticks is when the government just chooses whatever the people have already chosen as their preferred method of saving, which historically that's always actually been gold or the predominantly go back to currency like the dollar. And so it's like the government. We read about these stories in hindsight, I know, you know, thirty years on three pages of you know, of a history book, and it looks like the government chose to go back to a gold standard. But really, when you look at the how how it played out, many times, it's the people were already using that better money and the government really had no choice. If they wanted to have any purchasing power, the government would have to then use the money that the people had already chosen. And so number one, can you correct me if if I'm wrong about that that impression that I have about history and collapses of currencies. And then number two, what if what if people choose something like bitcoin instead of instead of gold in the future.

So the first is pretty easy. I think that's a really really smart insight that you know, if the government orders people to do what they already wanted to do anyway, they can declare it to be an unmitted in its success victory. You know, we nailed it. Well, that's right, because you know, you're forcing people to do what they already wanted to do anyway, and you shouldn't need to force it. But okay, yeah you can declare, uh, you know, you one, you know you won in this case absolutely, and especially you know, and after a hyperinflation, they have no credibility. They can change the name of it, they can change from pace out of boulevard to this to that to the other thing. The government has no credibility and and it's it's credit is shot. If you don't have credit, nobody will extend you know, nobody will end you. And that's what occurrency is. It's lending ultimately, So switching top is a bitcoin. The problem with bitcoin, which you alluded to, I don't know if we were on camera or off camera when you said this, was that the quantity of bitcoin cannot respond to changes in supply and demand. And it's a quantity can't respond and the only thing that can respond price, So the price of bitcoin is inherently intrinsically volatile. I had a debate organized by the Soho Forum, which was sponsored by the Reason Foundation, and this particular debate was hosted by the Mesa's Institute in Auburn, Alabama. So we had a full auditorium and then they televise. It's on YouTube. Anybody can watch this, just Google soho forum gold versus at Bitcoin and there's my smiling face on the YouTube thumbnail. And my opponent, Pierre Rochard conceded that bitcoin will always be volatile. It can never be stable for this and other reasons. And so if it's not stable, then of course that presents real problems. Even in use of the medium of exchange. If I'm going to make a payment to you and we kind of agree on terms, you know, if I'm just buying a hamburger, there isn't necessarily that much volatile in the thirty seconds it takes to do the transaction. Although in bedcoin, I mean it can move a percent or two even in a few seconds, and it has so that that creates problems, which means the merchant has to charge more for the implied volatility. That where it really breaks down is borrowing and lending. Imagine I borrow, you know, ten bitcoins to buy house, and then bitcoin goes from forty two thousand dollars to a million dollars, which is what all the bitcoin is keep promising it's going to do. I don't think they know where the price is going any more than anyone. I don't know. I don't think anybody knows where the price is going to be. But let's say let's assume that everyone says it's going to go to a million. So that means that the price of bitcoin went up twenty five times, which means your mortgage just went up twenty five times. You don't owe four hundred thousand dollars anymore, you owe ten million dollars. Who in the right mind would borrow with the promise that your mortgage is going to go up twenty five times. It's fundamentally unbulrowable, which means you can't use that financing, you know, for anything. And that was a significant reduction in coordination and a free market. And bitcoin is supposed to enable free markets, but here it is undermining and destroying, you know, coordination between savers and entrepreneurs.

So isn't that isn't that part of the process of it becoming money and not something that would be a feature of it once it is universally used as money. And the second part to that question is the the only quantity of any money. That actually matters is the quantity of money that is actively entering and leaving circulation. If we have, you know, a trillion tons of gold, but it's in the center of the earth, it's inaccessible, Therefore it's not actually part of the supply. If you have ninety percent of the bitcoin held in cold storage.

There and this is a big difference between gold, you know, in the center of the earth, which is a few thousand miles underground, and that you know, temperatures and treasures that would not only destroy human being, that would destroy any kind of equipment you tried to get down there. So it's effectively it's not available to human beings versus cold storage is in somebody's hands, and that person doesn't choose to bring it to market at the moment, but could choose to bring it to market tomorrow under the right.

Right right. So that's but that's that's the point that I'm trying to get at is that if you have a potential supply that is kept out of the market, then when price is you know, the price or the value bitcoin would fluctuate. That in and of itself would have a stabilizing effect on the value bitcoin by bringing bitcoin from out of supply into supply and vice versa, the same way that gold does. I mean, yes, there's been a one percent increase of the supply of gold from mining over the course of human history, but that's not the majority of the increase or the decrease in the usage of gold. A lot of gold is held in vaults and it's you know, not actually in circulation.

So so two points. One of the beginning of the debate, I made the point that, you know, the marginal utility of gold doesn't decline, and I said this was something that Satoshi was terrified that he knew the answer that bitcoin did, which is why bitcoin is a cap. There is no cap in gold, which the bitcoiners of course think is a bug in gold, and that they fixed that with a feature which is a cap and bitcoin. But you don't need a cap in gold because the rod the utility doesn't decline more goal doesn't mean that the value collapses and a bitcoin you can't run that experiment because they're strictly captain. But I say, let's, you know, run at a thought experiment here for a minute. So the idea is that as bitcoin monetizes, whatever that means, eventually it's going to converge on a stable price or at least a stable value. Right, so we all recognize the dollars going down. So you know, bitcoin's price and dollars would be going up, but only at the rate that the dollar is being debased. You're not going to have this crazed rocket ship journey upwards, which is you know, the bitcoin aer say, oh yeah, I measure everything in bitcoin. I'm like, do you really think the world is not a hyper deflationary hyper collapse since two thousand and nine with things, you know, things collapse forty two thousand to one. I mean, come on, and clearly the value of bitcoin has gone up, it's not that the value of the world has gone down. So it's supposedly it was a right price. Let's call it the MRPM. So the yeah, MRP magic right price, and that's I don't know, ten million dollars, just make whatever arbitrary number you want. Of course, there are a lot of people in bigcoin today. I would argue the vast majority of them that are in it for the price speculation. They're not in it for the free love and the drugs and you know, hippie values and drum circles and all that and come by yah, they're in it because number go up. So suppose everyone knew that there was a magic right price of ten million dollars, and once it gets to ten million dollars, that's going to be stable and it shouldn't go up anymore after that because that's it. It's fully priced, it's been fully monetized whatever term you want to use fully hyper bitcoinized. Well, if you were in it for the speculation, then you should sell it at nine million, nine hundred and ninety one thousand, nine hundred and eighty nine because there's no longer I mean, you just look for whatever asset it's going to go up. This one is going to go up anymore's email as will dump it, and of course all the other people that are in it for the same reason will also be dumping it, which means the price once it hits nine nine nine, the price is actually going to go down, which means you should really dump it at nine nine nine eight, And then someone else is going to figure that out and you know, it's all game theory stuff and sell it at nine to ninety seven. And so ultimately you get to realizing that if the price of something is set purely by the marginal speculator and that there are no other forces that set price, And that's that's my contention for bitcoin, that price can never be stable because speculation can never set a stable price. The when when prices of things are stable, it's because they're being set by arbitrage. There's an actual human need, this thing is serving actual real world input costs of producing it, and the arbitrage is between the two. And of course arbitra was just between those inputs and all other markets that could use him as inputs. So if let's say you're producing gold, you need oil is probably your single biggest input. Well, also oil is is an input to everything else, so the price of everything else is tied together in so many ways because they all require oil and labor as inputs, and steel and you know a lot of other things. So you know, since speculation is the only thing that sets the price of bitcoin, it will never be stable, can never be stable. And this and this was conceded in the debate. He absolutely conceded the price is not going to be stable. This is the Bitcoin proponent. Now, it doesn't mean he's right. It could be that bitcoin is going to be stable, and this guy got it wrong. But I thought, I think it's interesting that he conceded that readily not not ever to be stable.

All right, So two questions about that Number One, isn't that isn't there a case to be made that the price is not only set by the speculator, that there are people who want to use it actually as money, and so I save it as money until I use it to spend to get other things. And if so, then the argument by going down through speculation is the same argument that if we had a long term consistent amount of deflation, likely like we would if gold was money again, then people would never spend any money because prices would always be cheaper tomorrow, when in fact we know that that's not the case because we have needs today, and so it seems like it is possible that there would be some amount of price volatility that would be mostly dealt with through savers and spenders. If indeed it was being used as money and people were using it to spend, then when the price of bitcoin goes down, that means things are you know, getting more expensive relative to bitcoin, and vice versa, which would either incentivize saving or then on the other side incentivize spending, which would then other than the supply not going up, absolutely, the supply that's in use would be going up and down through those through those value incentives.

So a lot of nuggets to unpack there. I'm not a fan of the idea that the prices are going down then people don't spend. And we have one massive elephant in the room, which is everything electronics or high tech prices have been falling for many decades, and you know, the more they follow, the more the people buy. So you know, people have a supercomputer in their pocket nowadays, which is a phone because they got cheap enough. But it didn't discourage people from buying something that was slightly bulkier and slightly less powerful, you know, five years ago, and that didn't discourage people from buying something that was less powerful, you know, the year before. So people buy when it meets their need, when the price, when the price and the and they need met, uh you know, correspond that people buy. But anyway, so the price of bitcoin is there are people that are just saving in bitcoin and spending their bitcoin. They're not really they're basically priced takers. Well, when they put their savings in they get whatever bitcoin they get at that price at that moment, and then when they spend it, they get whatever price for the bitcoin that they get at that moment. They're not when I say price being set by spec leaders, you know, it's it's people saying, Okay, I want to buy it because they're looking at a chart saying it's going to go up or it's approaching the having or whatever whatever the narrative is at that moment, versus people saying that if bitcoin gets to thirty nine, nine ninety nine, I'll buy it because it's an input into something that I can sell for forty one oh oh oh, So that's an arbitrage someone who says if copper gets below four dollars, I can buy more copper to make more you know, plumbing pipes and sell the plumbing pipes. So copper is connected to the plumbing market, it's connected to the electrical market, it's connected to so many other markets because it's an input to these things. And so there's there's various arbitrages there that you ultimately set the price of copper. So what you need are bidders, not people that buy and take the offer price but people who put into bid and they don't move off their big because it doesn't make sense to them economically. If it's a penny higher, they're not profitable and they're not making enough profit anymore to take their risk to do the trade. And the bitcoin you don't really have any of that, so, you know, even if people are using it for savings, and you know, we discussed that in the debate too, you can't really use something for savings that has this kind of volatility. Ironically, it's a time it was a debate and per was talking about savings then pointed loss about seventy five percent between so that debate occurred. I want to say it was August, you know, between November and June the lost seventy five percent. We started to come off the lows at that point. And of course, nobody who was an actual let's say, retiree with no further income potential in their careers can put their life savings into something that could have a seventy five percent draw down. Yeah. Sure, if you're thirty one and most of your working careers ahead of you, most of your working career will be at a higher salary than whatever you make, right, now, and you know you want to put one hundred percent of the really modest nest egg that you have at the age of thirty one, you know, i e. A few thousand dollars or whatever, you want to put that into bed cooin. Great, but they don't understand why. And in the debate I use the example of an oxygenarian widow who cannot make any more money in the remainder of her life. They don't understand her economic situation. She can't do that. You know, if you're thirty one and you have five thousand dollars to you name and you put it into bitcoin, sure have at it. The most you're going to lose is five grand, and you're all your earnings are ahead of you anyway, and you know you'll make that time as many times over, you know, if you're good at what you do. So you know, for those reasons, No, I don't. I don't agree that it ever stabilizes.

All right now, Something that we both agree is currently not stable and never will be stable is is. And I think both sides of this debate I should say agree is the dollar. Obviously, there are periods of time where it's where it's fairly stable, especially compared to other things. The Fed right now is raising interest rates, and this was the other fork in the road earlier that I mentioned that I wanted to ask, and so now I have to circle back back to that as we're kind of getting a little bit low on time here. There are currently raising rates with the stated intention of fighting inflation. And I've seen you stayed a few times on Twitter that this seems ill informed. So I want to hear your thoughts on the relationship between you know, general prices going up or down versus what the Federal Reserve is doing with interest rates.

So we got start out with an example that I hope most people can relate to. Suppose you're in the trucking and warehousing business, you're in the logistics business, which is the capital intensive business, and you're coming out of COVID lockdown and then the weblash where suddenly everybody's ordering, you know, tons of stuff on Amazon, and you know, but the ships are all wrong positions, and some of the shipping companies went by, some of those ships were scuttled, you know, during the long period of essentially lockdown. So there's essentially a shortage of capacity in the logistics business. So you're putting together your business case for buying you whether whether it's building more warehouse base or buying more trucks, commissioning more ships, depending on what segment of this industry you're in. You're putting together your business case to make a big capital investment and you know, buying more stuff to you increase capacity because there's because there's a shortage because COVID destroyed a great deal of it. Certainly it's a margin it did. And you know, you're putting together your business case and you're plugging in all the all the costs, including the interest rate, and suddenly the interest rate goes up. Well, what does that do to your carefully prepared business case, Like you're about to go it's okay, now we're going to go to the bank. We're going to borrow and at that time we would have been borrowing it let's say three percent, and now suddenly the Fed is hiking and now it's going to cost you four percent. Well, if that's one hundred million dollars worth of capital, right, that's a difference of a million dollars a year in interest. And depending on the margins you're making in this business. That million dollars of additional cost breaks your business case. So you say, well, I can't do it. So every producer who's thinking of adding capacity, their thoughts are put on hold as soon as the interestrate goes up. So but conversely, if the interestrate goes down, if you were on hold, you had a plan to say, I'm going to open another Hamburger restaurant. I have a chain of sixty seven Hamburger restaurants. I have a business plan for sixty eights at the next marginal town where growth at the edge of the city is. But it doesn't really quite work, you know, it doesn't. It doesn't produce enough of a profit to make the risk worth well. And then they cut the rate of interest. Well suddenly ding, you know, the bottom of your spreadsheet turns, you know, from redding to black, and you say, okay, let's borrow, let's go do this. And so if one here's how I kind of frame it, because I'm not I don't want anybody to interpret this as keiths Us saying the fatch lower interest rates. I don't think there is any good central plan, and I don't think there's any good central planner. And there is no right interest rate that can force down our throat by a gunpoint, which is what it is. But if one's concerned we're consumer prices, and one we're willing to overlook the many egregious harms of falling interest rates, and there are many, and just focus only on consumer prices, then one should want lower interest rates because it's a constant and every time it takes down, there's an increase in the incentive to borrow, to expand and production. It's not only the Hamburger restaurant that wants to borrow. It's a company that makes hamburg grilling equipment. It's a company company that makes the tile, that awful tile it was put on the floors in those places, and the plate glass windows and everything else, the lighted signs behind the counter. All those manufacturers have a case to expand you know, the production capacity when the interest rate goes down, and so the fat has a sign backwards like they think that they're fighting inflation by raising rates or you know, mon through medals. We put out a cartoon I guess when when Powell started this, or of the discussions about whether we should raise rates, and so it was a picture of a factory or something was on fire, those flames everywhere, and then Powell's there with gasoline trucks bringing gasoline all over it, and there's a reporter saying, do you think that's enough to put out the fire? Like, we've got something very fundamentally wrong. It's like a category error. Gasoline doesn't put fires out, It only makes them burn bigger and hotter. Yeah, so we're just in a very bizarre, uh you know world. I don't know if I answered your question or not, but I feel can ramblayer.

Yeah, so it seems like basically they're they're looking at, you know, one small part of the equation and not looking at the whole impact, which means that the the feedback, the you know, feedback mechanisms, they're still happening, but they're just not they're just not looking at them. And basically, prices are a function of supply and demand, and the interest rate is the cost or the price of money, and if that's left up to the free market, then the actual demand or or lack of it, will influence the price of money to the equally to repoint the place that it's supposed to be, and that may go up or down at times, but that reflects the actual demand for it.

Yeah, So to phrase that slightly more formally, if the interest rate goes down below marginal time preference, people will pull their gold coin and say, I'm not letting it's not worth it. You're only going to pay me that for this risk and this lockup for a year or five years. I'm not thinking it. So credit is pulled if the interest rate gets to that floor. The ceiling is set by the return on capital of the marginal enterprise. You can't borrow a ten percent to open up a Hamburger restaurant that produces eight percent return on capital, so the return on capital tends to be pulled towards the interest If the interest rate is falling, you keep pulling the return on capital downwards because anybody that gets a greater return on capital will borrow to expand production. If you expand production enough, you add enough supply, prices come down until return on capital is marginally about of the interest rate, and then you know. Conversely, if the interest rate is way above your return on capital, the smartest thing to do is to sell all of your capital assets off to get the cash to go put them in t Bells. I mean, why would you be working your you know what off and taking risk to get three percent if you can get five and a half in T Bells. So it's an arbitrage in both directions. And then I literally mean it as an arbitrage. If you can borrow less than your return on capital, you will borrow and increase your production. If they, on the other hand, if you can deposit and get more than your return on capital, you should sell your assets and just park it in T Bells because it's held a lot easier. So the fat is it's not just that they're only looking at one part of the equation. They've got the dynamic exactly backwards. If they want lower consumer prices, you should have lower interest rates. And this is not a recommendation for lower interest rates. There's a lot of other harms caused by this, but from a consumer price perspective, there's a reason why we had this benign what people call inflation environment from nineteen eighty one through twenty twenty one, and that's because we have a falling interest rate and that that was a you know, constant stimulus to ever greater amounts of production. And therefore, you know prices remained not necessarily falling, but let's just say soft. There were a lot of non monetary forces pushing prices up, like relentlessly increasing regulation, you know, making things more expensive, but then falling interest rates making things cheaper than That result was prices are pretty soft. You know. Producers did not have any pricing power, you know, the nineteen seventies and I'm just old enough to have been a you know, twelve years old in nineteen seventy nine, nineteen seventy nine. Producers had pricing power. If they just decided, well, I'm going to increase my price by this percent, they could just do that and everybody had to pay. And that's what it was. It's not the reality that we've grown up on for the last forty years. Yeah.

With gold, this is something that we used to be illegal when it was illegal for American citizens to own gold. FDR also outlawed the gold clause, which was in debt contract to be a headwind against money printing that I, if you owe me money, I can say you have to pay me back in gold instead of dollars. And that gold clause in debt contract was also outlawed. And then nineteen seventy one, we leave the gold standard. I believe it was a few years later they also got that clause out. It was seventy five, okay, repealed, But for the longest time still nobody was denominating debt inh in gold. And based on what we've talked about interest rates and the utility of gold being money and putting it to work. You you've started this, I always say it's a it's it's revolutionary because you know nobody's doing it, and it's it meets so many needs. You know, win win win for everybody involved. Where I can, I can lend out my gold, I can earn interest on my gold, it's paid in gold. That interest is denominated in gold, which is just crazy. So my ounces actually grow and the person on the other side that is borrowing that gold actually comes out the other side much better because they are in the gold business and so it it eliminates price risk for them. So number one, how did you come up with this idea? And then number two tell us tell us a little bit more about what I left out there on what monetary metals is doing.

You know, it's very daunting. I mean, I guess the entrepreneurship is always daunting. I always like to say in my lighter moments that everybody sees problems in the world, and most people what do they do is, you know, after work, they get together with their buddies at a bar and drink and kind of grasp about the problems a little bit, and then you know, go home and the next day they go back to work. Some people lobby the government, and they think the government's going to fix all the problems. The entrepreneurs the crazy guy that says, I see a way to make money solving this problem. And depending on the magnitude of the problem, it's always daunting. But the bigger the problem, the more daunting it is. And so I saw that there was a problem in the monetary system and that it isn't working anymore because the currency is irredeemable. There's two consequences. One, the interest rate is completely unhinged. It could shoot the moon as it did from into World War two to in nineteen eighty one, and it can fall into the black hole a zero as a dead post nineteen eighty one. The other is that because there's no extinguisher of debt, that the debt necessarily inevitably grows and grows exponentially. You have to keep producing more. It's a breeder reactor. It keeps producing more and more and it has to and if we try to stop it. That's the other problem with what Powell is doing. If we really want to try to stop credit growth, you're gonna blow everything up, starting not with the US gover. I want to look at the US government and they're gonna it's gonna be hard for them to pay their you know, t bells, window, No, no, no, it's all the other debtors that are gonna squeezed the default first. The US government will be the last debtor to be pushed into default. So I saw this problem, and I said at the same time I was I was working on this economics concept that interest is the force that pulls gold into the market. So well, historically we know there was enough gold to run everything. So a little bit trivia item, which is actually pretty important, how much gold do you think there was in London in eighteen ninety six, which was arguably the height of the gold standard international gold standard, when London ran the world's commerce and the world's monetary system. How much gold do you think they actually had behind it one hundred and sixty tons. The state of Nevada annually produces one hundred and sixty six tons. So there's plenty of gold, wow, we have out there, but it doesn't circulate. You know, whatever amount of gold comes to market, which today is something like three thousand tons, that gold disappears. It's a black hole, and you know the market will just absorb all of that just disappears. There's no amount of gold that would ever make it circulate anymore because the interesstrate zero. So I'm working on this idea that interest is what would draw gold into the market. And then I'm working on this idea that the monetary system is broken in a very fundamental way. It's not a matter of well, we need a new FED board, a new FED chairman who will just set better monetary policy. That's not it. I wrote an article called sound money is in what you Think? And I had a picture of the Norman Rockwell painting. It was on the Saturday Evening Post and it was called the Double Ride. So it's a woman buying some chicken or something like that, and it's on the scale, it's hanging on the chains from the ceiling, and she's got her thumb pushing up underneath it to try to lighten it, so she's going to pay less. And the butcher can't see that because the meat and the metal pan is blocking her. He can't see her thumb. But meanwhile he's got his finger trying to push it down, and there's a fold of butcher paper, so she can't see his finger putting it down. And I asked the rhetorical question. Suppose that the up force from her thumb and the downforest from his index finger exactly matched. What'd you call that an honest measurement? Would you call that a sound measure of the weight of the ticket? Of course not. They're both cheating, and even if the cheats happen to cancel out by pure luck. Right, So imagine if the central bank we're trying to debase the currency at precisely the same rate that industry is increasing its efficiency. Right, because every day, every producer of everything is constantly finding ways to do less with more or do more with less. So imagine those two rates canceled out, and then that result was prices weren't moving up or down. What do you call that sound money? Of course? Not. So you know what would sound money be would be when the people are free to choose what they want, and they're going to choose something that actually works. That thing we know is gold. It's not banan appeals, it's not seashells, it's not salt. It's gold. They're going to choose gold if you didn't impose, you know, legal restrictions in between them and the gold. So I'm wrestling with all these ideas and I'm you know, already my previous company he was pretty daunting. Anyways, I'm like, okay, I'm not going to be daunted by this. How oh you marry these two together and say we got to offer interest on gold and that will pull the gold into the market. And what are we going to do with it? Well, we're going to place it in businesses that could do something with it. And at first that's going to be the gold industry. So we lease gold to businesses that need gold as inventory or work in progress. So that could be refiners, mints, jewelers, recyclers, codings. Companies both high tech and low tech. You know, low tech would be electroplating. High tech would be sputtering. If you ever seen mirrored sunglasses. You've seen gold that's been sputtered onto a plastic substrate. We'll lease gold to these guys, and we'll lend gold to businesses that have a gold income, like gold mines, although there are other industries as well. So there's about a dozen verticals that we can serve in between these two products that can certainly mobilize and pay interest on a lot of gold. Beyond this, there's a lot of other things we can do. But it's a step by step process, and I kind of liken it too. Do you know what the first coin operated video game was? That's the second coin operated video game? And I'm sorry I set a chap for you with that question. So unless you're from the video game business, which I came from, you wouldn't necessarily know. So Atari developed this I think it was called something like Space War. So there were two players. They both had paddles, and they had a button to actually two buttons, one to thrust and one to fire, and there's a star at the center of the screen which had gravity, and so you try to slingshot around that to come from behind your opponent like there was a dog fight, and then you fire your bullet, which also followed the gravities that you could sneak the bullet around there. And it was complicated. So they produced this game. The test trialed it in a few bars and it didn't really do very well. And basically the feedback that came back was it's too complicated. Do something. Do the simplest thing you can do. The ears kind of stratched their head, hm hm, okay, what could be simpler. Then they both have a paddle and there's a ball that bounces back and forth, and that was problem. So they market that. They put it in a bar and they come back the next day and they said, had to do and the bartender said, well, it seemed to be really popular at first, and then your machine broke. Okay, so they go open it up. They put a one gallon milk jug in there for the quarters, and the milk jug had completely filled up, and then there was like a shoot that brought the quarters from the slot. It was jammed all the way up solid with quarters until they're practically sticking out the slot. And I said, okay, we can fix that, and they put in a five bucket. So you know, the idea is you have to make something simple enough for where the market, what the market's ready for at that moment in time. And then later, of course, video games became much more complicated, but the market was ready for them. So there's a ton of other things we can do. But right now it's leasing to you, as I said, a dozen verticals and lending to your gold mines and a few others. And then as it grows, you know, there'll be more products that we can roll out and ultimately bring back. So I argue to our investors or equity investors that a good working definition or a working gold standard is what anybody wants to can deposit their gold and the interest on their gold in gold. So you don't have to deposit your gold. You have the right to hold the gold at home, no taxes, no machine gun guards going door to door confiscating it is a right to hold it at home or you know, put it in a warehouse, or put it in a safety deposit box, or whatever does you want to do. Give it to your friend stick under his mattress. But if you want to, you have the right to deposit it and get interest on it. When that condition is true, that anybody wants to is depositing it and getting interested. That's a working gold standard, and you get all the other behaviors and activities you'd expect meetium, exchange, store of value, unit of account, et cetera, et cetera, et cetera, will all come as a consequence of it being used in finance. So therefore the gold standard is when we scale up. That is what we're trying to do. We're trying to bring the world to a better place in terms of monetary system. Something that actually works, something that re enfranchises the savior, reduces the arbitrary and capricious power of the government, not obviously not only just to take from you what you've earned, but then also to use it for political purposes, to increase the power in a myriad of other ways, none of which is really healthy. And so it's very daunting. But we prove the concept, we prove that the gold does come for interest. And now we're at the you know, ord in any ordinary business, once you've gotten traction, right now, you have to execute. Now you have to scale. So that's that's the stage we're at right now.

So daunting, but exciting, very exciting, and it's you know, I've I've said this many times, but it's one of the reasons why I'm an equity investor and a customer of monetary metals, and you guys have been you know, long term partners in my YouTube channel as well. What I wanted to ask you this. I know, we're thank you for being so generous with your time. We're running over here. So I one of the there's a lot of people have been burned by like the crypto ft X collapse, and there's this idea out there right now that which you know, for for good reason, like people people got burned by this that if something pays you interest, it's inherently a Ponzi scheme or a scam. And it even goes back to you know, the Federal Reserve and the you know, FIAT monetary system. And how do you you know, have you heard people you know say that, and how do you kind of discuss that with people that that have gotten Yeah.

I mean it's a natural question. Obviously, every time some crypto company blows up and turns out to be a fraud or a scam, then of course that question becomes very topical. I think in a couple of observations. One is that the whole ethos of cryptos get rich quick. That's why the investors. I mean, that's let's just call it for what it is. That's why the investors are there. And so that bread a whole industry of companies with the same ethos. And if you're a company with ethos that get rich quick, you may or may not be an outright Ponzi scheme, but at the very least you're going to be pretty lax. There's a lot of things you have to invest in to be a proper custodian in terms of internal controls and systems, and you know, if you're just there to get rich quick, you don't necessarily make those investments. But ultimately in crypto, since they're not borrowable by anybody produces anything real in the real world. I mean, there's nobody growing wheat. There's nobody mining steel or copper or aluminum. There's nobody manufacturing widgets. There's nobody who buys trucks or and warehouses to handle logistics. There's nobody who's a retailer or distributor. There's nobody with looms producing you know, fabric and turning that into gorments. Who borrows bitcoin, let alone any of the other you know cryptos. So how do you get a yield? Well, it all becomes self referential, it all becomes well, you know, you wrap it with enough complexity that maybe even half the people that are doing it don't really realize what it is. But it's borrowing in order to bet on the price action. It's just more leverage to bet on prices. And as long as prices are going up, everybody seems to be making lots of money, it seems to be working. Prices go down, it all blows up. So that is inherently ponzi. You know, by its nature, you cannot get a self referential yield. You can't build a software platform that intrinsically generates a yild internally, there's no economic purpose to it. And there's no economic purpose to it. People rightfully should say, well, what was going on here? What we're doing is fundamentally different than that. We're going to real businesses that are doing real things in the real world who need have a real finance problem. Suppose you're a jeweler and you have five hundred ounces of gold jewelry in your shop, lots of million dollars that I mean, if it was copper, you just buy it coppers a pound, who cares it's gold. That's two thousand dollars an ounce. That has to be financed. So if you borrow a million dollars to buy a million dollars worth of inventory and the price of gold drops, you now have a nine hundred thousand dollar asset, but you still owe a million dollar liability. You are insolvent. So then what you have to do, if you're you know, sophisticated about this, is you borrow a million and a quarter, you buy a million dollars worth of gold, You put a quarter million dollars in a brokerit account and trade gold futures. And then, you know, if you're a refiner and you have seventy five employees, most of them are basically blue collar, you know, either doing mixing assets and chemicals or melting and dealing, you know, basically working in a hot shop. And then you hire some twenty seven year old MBA and finance and give them the keys to appropriate your account with a quarter million dollars in capital in it and access to one hundred to one leverage, and say, please, don't do anything I wouldn't do, but just keep us hedged. You know, things can go wrong. Things can go So if you lease the gold, then it's not your asset. It's not on your balance sheet, which rest all protects the investor because the investor keeps the title to it. And then secondly, because it's not your asset, the price action isn't your problem. What you owe a return off at the end of the lease period is not a million dollars but five hundred ounces. So as long as your business is every time I sell Announce to a customer, I buy another ounce of more delily from the wholesaler, so I'm always keeping five hundred ounces of inventory in stock. As long as the business is run in a sustainable way, then you can always return five hundred ounces at the end. You never have that.

Again, it doesn't matter what the price does because.

It so it's very simple metal accounting, and so it simplifies not only as it gives them the finance they need, because they need finance, but it does it in a way that's simpler versus the conventional way of doing it. And they're of course happy to pay interest for the privilege of getting the finance and the built in hetch so that's how we generate interest by going into the real world and finding real businesses. Now, there is a risk, obviously, there's a risk if you at least the gold to the wrong guy and he just tucks it under his arm and he flies to a non extradition country, you know. And so we obviously do a lot of due diligence, We have insurance, there's a lot of things we do to mitigate, you know, those risks. But it's not it should be pretty clear and when people study or program, we don't really get pressed. How do I know it's not a ponsiting. I mean, you can see because you describe the transaction that we talk about the companies we're at leasting gold to. We do a press release on every deal. Can see that, Okay, there's some real activity here. And some of our customers are highly referenceable that they're you know, either publicly traded or well known names in the space. Asahi Refinery is symbol gold Refinery a Coba Minerals which is traded as public and Oslo. You know, you don't get to go do press releases with public companies if you didn't really do that deal. I mean, you'd get to see some desist letter, it'll blow up in your face really fast. So no, we don't. I mean people ask that question casually, but when they look at it, it's pretty clear that what we're doing is it's a pretty it's pretty straightforward, pretty simple business. Yes there's a risk, but it's pretty straight toward business. Well, I love it.

I could talk to you for hours, So thank you so much for being generous with your time here. Going a little bit over and we'll have to have you back on, but really appreciate it. Thank you, thanks for having me. All right, we'll talk to you later, all right,

Financial Heresy

Financial Heresy with Joe Brown helps you navigate financial markets during these turbulent times. I 
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