The Carrot & the Stick

Every passage, on the record.

1. 00:00Claim · condensed

   The further you go down the Bitcoin rabbit hole, you hit a seeming dead end: surely someone will stop this, and it's going to be the government, the man in the black pajamas. But if you dig deep enough into how they'd actually do that, what the possibilities are, you realize they actually can't do any of those things.

2. 00:32Claim

   Before the majority of the population knows government can't kill Bitcoin, the best way to make it look like they can is to give it the hardest time possible, either through the carrot or through the stick. The options available to them are non-zero, but all of them lead to the same exact endpoint, which is Bitcoin winning.

3. 00:32Quote

   The options that they have available to them are non-zero, but all of them lead to the same exact endpoint, which is Bitcoin winning.

4. 03:04Reference

   Start right there with this notion of the spending, because you allude to it in your fiscal update. The language seems to me to be important, smart, targeted. These are words that suggest you want to make very careful kind of incisive spending on the government's part to get the economy going. What might that look like?

5. 03:23Reference

   None of us have a crystal ball, but economists have been pointing out that some Canadian households, and it tends to be the better off households, do have quite a lot of money that they've saved because there hasn't been that much to do in the pandemic; certainly it would be great if that money could go towards driving our recovery.

6. 04:00Reference

   I want to make an offer now to all of your listeners: if people have ideas on how the government can act to help unlock that preloaded stimulus, I am very, very interested, particularly in unleashing it in the parts of the Canadian economy that really need support, tourism, hospitality, domestic services.

7. 05:06Quote

   You can easily understand what people are actually up to in government by simply inverting the language that they use.

8. 05:39Claim

   Smart is really just another way to say stupid, and smart and government don't go together: if they were smart, they wouldn't have held zero percent interest rates for 12 years, creating the largest asset bubble in the history of man, or forced banks to buy government bonds and then hiked the federal funds rate 500 basis points in less than 12 months.

9. 05:39Reference

   It's one of my favorite Jeff Snider sayings, the man behind Eurodollar University, talking about quantitative easing and how it's neither quantitative nor does it ease.

10. 06:15Analogy · condensed

    Quantitative easing evokes imagery of economists sitting around like physical scientists in a lab, white coats, blackboards full of complex equations, correctly identifying the exact number of dollars necessary to inject into the system to perform at ideal levels. It couldn't be further from the truth: it's a spray and pray tactic.

11. 06:53Claim · condensed

    Everything the state has is gained through theft and coercion; it cannot stimulate the economy, only misallocate stolen resources to favor a particular portion of the population in a game of reallocating stolen goods. Careful is the farthest thing from the truth to describe behavior that is as blunt as a spoon.

12. 06:53Quote

    Everything that the state has is gained through theft and coercion.

13. 07:24Reference

    Before we even get into the response, it's this kabuki theater we've agreed to play: I use smart-sounding words like smart and targeted and responsible spending, and the finance minister mirrors that imagery, and we can all speak slowly and everyone's happy.

14. 08:02Claim · condensed

    It certainly has its targets, but as defined, it's not smart at all. Then she says none of us have a crystal ball, meaning we are clueless, but if she talks slow enough, listeners at home should be able to keep up, at least enough to hear the optimism in her voice.

15. 08:35Idea

    It's essentially how do I get the unwashed masses to simply hand over control of their energy to me without upsetting them too much, because I don't want to draw attention to the fact that I need significantly more energy than I have right now, and those energy requirements are only going to grow.

16. 08:35Analogy

    I have to make it look like you came up with the idea that you should just give me your stuff, and in fact you don't even have to give me your stuff directly: all I need is for you to agree that I should be able to get other people's stuff, people who have more than you, and if they have more than you, surely they can share.

17. 09:06Analogy · condensed

    What if I gave people the idea that rich people had energy just sitting there going to waste, and it was the selfishness of that energy hoarding that made things worse for everyone else? If we could eliminate that activity, everyone would be prosperous, especially the government, which gets to steal more and reallocate it.

18. 09:42Analogy · condensed

    To pull this off I need to appear confused, play the village idiot: I don't know how we could possibly gain access to these funds that are just sitting there, even though I pretty much did the exact same thing already; maybe if I go on TV and politely bring it to the people's attention, someone out there can help me.

19. 10:13Quote

    If you don't have a security plan in place, the man in the black pajamas is coming.

20. 10:50Analogy · condensed

    You make a call for helpful ideas so you can say you were just following the will of the people, spreading the blame so no one focuses on you: they need to come up with it themselves. You can imagine these meetings going around the table asking if anybody has a better plan than just going on TV and saying you're looking for ideas on how to steal people's stuff.

21. 11:24Claim · condensed

    You have to imagine the quality of the economists who show up in this segment, fiat ones to the max, Keynesians to the max, because who else is going to get funded by the government if not people who say it would be wise for the government to access the savings of all the individuals in the country.

22. 12:01Claim

    You must agree or you don't get any cash; that is how these systems get corrupted in the first place. If it wasn't so evil, you'd have to marvel at how efficient the system is at being inefficient, growing larger while misallocating more and more resources.

23. 12:01Quote

    If it wasn't so evil, you would have to marvel at how efficient the system is at being inefficient.

24. 12:36Claim · condensed

    Resources are misallocated twice: once because government misallocates them in the first place, and again because the fruits of a proper allocation are withheld from the people; had they been properly allocated, the total reserves available to the extended order would have grown.

25. 12:36Claim · condensed

    Unlike the free market, which punishes incompetent actors, when government fails, no matter what issue it's playing kabuki theater pretending to resolve, the answer is always that it needs more resources so as not to repeat the same mistakes.

26. 13:10Claim · condensed

    If you have a failing government enterprise, the answer is never let's stop and reassess and do something different; it's let's throw more energy at that problem because the department is underfunded, growing the misallocation even further, always blamed on not having enough information to anticipate market movements.

27. 13:42Reference

    No one entity can have all of the information at once, or you would possess all of the energy at once.

28. 13:42Claim · condensed

    These economists have identified that the haves have energy that isn't being used by the government; officially they can't get their hands on it legally, but really it just hasn't gotten to the point where people are desperate enough, or exposed to the idea enough, for that to seem normal.

29. 14:13Claim · condensed

    The energy she is going after is simply being protected by abstract power, faintly protected by logic and decree rather than anything more solid, and if she wants it, she can take it, but first she needs to get rid of the taboo of a bail-in.

30. 14:13Event · condensed

    A minister of finance for a G7 country goes on television talking about normalizing bail-ins, crowdsourcing ideas on how to make the public more comfortable with the concept.

31. 14:44Reference

    There is a video of an FDIC broker meeting going around, talking about how much information is enough information to allow to be shown to the public about what the system actually looks like.

32. 15:25Quote

    But, but, you know, imagine how bad it would have been had we not gotten involved.

33. 15:25Claim

    In this more recent FDIC broker meeting recording, the participants argue back and forth about how much information the public can handle about how fragile the system is; the language used reveals how invested these groups are in the current system. They know bail-ins are coming.

34. 15:57Quote

    You want to give them just enough information where you can deny afterwards that this information wasn't available to them. They just had to dig really deep.

35. 16:48Reference

    I almost think you'd scare the public if you put this out. My insurance company doesn't tell me what they're doing with my assets, they just assume they're going to pay my claim. You've got to think of the unintended consequences of taking a public that has more full faith and confidence in the banking system than maybe people in this room do.

36. 17:20Reference · condensed

    They know the FDIC insurance is there, they know it works, they put their money in, they're going to get their money out. There's a select crowd on the institutional side who, if they want to understand this, will find a way, with law firms to explain it to them. I'd be careful about the unintended consequences of blasting too much of this out to the general public.

37. 17:51Reference

    I wondered whether there are some market tests of whether you're being heard. I think about TLAC, which should respond to good and bad news about the institutions; it's important that people understand they can be bailed in, but you don't want a huge run on the institution.

38. 18:29Reference

    There may be some other prices in the market that tell you whether people understand who's going to be protected and who isn't. It would be an interesting study to look at the evolution of market prices in a situation like March of 2020 and see whether people understood what might happen.

39. 18:56Claim

    These entities know these issues are unavoidable and that they'll have to answer for their shortcomings, so they need to get ahead of the curve and spin the narrative so it looks like they're using the carrot rather than the stick. The stick is the bail-in.

40. 18:56Prediction · condensed

    More and more regional banks will get swallowed up, and deposit flows to money markets will increase as depositors chase yield.

41. 19:29Claim

    Banks have to sell deeply underwater bonds to deliver that capital flight, which is the trap the Fed has set for regional banks and what is currently taking place; this same practice reaches banks across the spectrum, and as energy consolidates the problem persists, just more concentrated, with fewer control points, which is a positive thing for individuals looking to control the system.

42. 20:03Claim

    Fewer and fewer points of control means less surface area to attack, which makes the attack more effective; it's much easier to put capital controls in place over four banks than over four thousand.

43. 20:03Prediction · condensed

    If, at the same time people are told they can't withdraw funds, the government announces a new and improved system, issued directly by the government, that eliminates this from happening again, they can use that carrot to gain adoption.

44. 20:44Claim · condensed

    This isn't a novel idea, and where it's been tried, it has failed: places like Nigeria have seen central bank digital currency adoption numbers completely plummet, in large part because there has been an escape hatch, an escape valve in the system.

45. 20:44Reference

    Places like Nigeria have seen adoption numbers of central bank digital currencies completely plummet, because there has been an escape hatch.

46. 21:14Analogy · condensed

    Imagine the entrance of something like FedCoin: a one-time bonus, an extra $25 if you set it up, plus a set of kitchen knives for everybody. Every account that gets set up gets the $25 and the knives, so there's an initial rush of adoption, and then, for your safety, banking access gets limited because of suspicious activity.

47. 21:14Reference · condensed

    You might imagine the entrance of something like FedCoin, throwing in an extra $25 if you set it up and a set of kitchen knives for everybody.

48. 21:50Analogy · condensed

    For your own benefit, access is limited because the system might be under attack, but if you're after the truth, you can come directly to us and get your account balance in FedCoin. You corral all the minnows into an inescapable surveillance system, then ramp up the social campaigns: your grandma is safe if you use FedCoin, and every time you transact outside it a small child is mutilated in some way.

49. 22:25Quote

    This is bread and circus on demand.

50. 23:30Analogy · condensed

    In a Bitcoin world, FedCoin is really just a temporary grab, a one-time opportunity to grab as much energy from the populace as possible, almost like one of those carny games where you stand in a clear phone booth for 60 seconds and grab as many dollar bills as you can while a fan blows them around you.

51. 24:01Claim · condensed

    Once the government has played that game, the energy is no longer available to grab: either they get it or it gets out of the system, and if it gets out, it isn't coming back in. But even here, in a Bitcoin world, the bad money will still chase out the good money.

52. 24:01Reference

    In a Bitcoin world, the bad money will still chase out the good money.

53. 24:42Claim · condensed

    Bitcoiners will win, and people who see them winning will also want to win, and they'll put two and two together: it's Bitcoin. Even if the government confiscates all the energy it possibly can and does the best thing with it, putting it into Bitcoin, they're still in serious trouble, because they need more energy every year to keep the lights on and they don't transform energy efficiently.

54. 25:16Claim · condensed

    The energy grab will last a cycle or two, but eventually that Bitcoin gets distributed to the actual producers, and government is not a producer, so it will need new sources of energy once mass confiscation from banks and deposits is exhausted.

55. 25:16Prediction · condensed

    If the prospect of mass confiscation is eliminated because there are no more banks and no more low-hanging fruit in the form of deposits, governments will be forced to seek out other avenues.

56. 25:48Prediction · condensed

    The intolerant minority will not accept anything else for their energy other than Bitcoin, converting immediately if they receive anything else, which means government will have to debase at an ever-increasing rate just to stay afloat; the pace necessary to maintain its levels will increase exponentially. This is the suddenly part.

57. 26:31Claim · condensed

    The carrot and the stick will prevail for a while because there's no alternative for this dying system, but it will be outcompeted; it will do everything it can to stay relevant in the meantime, and it doesn't have to be anti-Bitcoin in nature, mostly it will be about FedCoin usage and perks.

58. 26:31Analogy

    Even if the government gets control of the vast majority of Bitcoin, it still can't stop everyone else from using it. Lots of Bitcoin can act like an hourglass on the life of governments around the world.

59. 27:08Analogy

    You get one flip of the hourglass, you don't get to keep flipping it over and over, recycling that energy. By definition no energy comes out as reserves from any governmental activity, so if the hourglass can only be turned once because it can't be recycled, the Bitcoin governments manage to acquire during this regime change will only act as a countdown to the end of themselves.

60. 27:08Claim · condensed

    Realizing their stockpile will only last so long, governments need to be proactive, incentivizing prosperity in the hopes of siphoning some of it off from their now happy customers.

61. 27:39Claim · condensed

    The most proactive group gets the best results because of a huge first-mover advantage; the way for governments to be proactive is by pledging to remove themselves from the energy transformation process as much as possible. The monopoly on violence is a marketable good.

62. 27:39Quote

    The monopoly on violence is a marketable good.

63. 28:10Reference

    Bitcoin is great, but it still can't protect you from a $5 wrench attack.

64. 28:10Claim · condensed

    Having Bitcoin means you control significant reserves of energy that you can move and direct at will, and that can't be stopped in this post-fiat dominant world; wealthy people do not want to live somewhere they're at physical risk.

65. 28:42Quote

    If you're paying for the second best security, you're really just waiting to get rugged by the best security.

66. 28:42Claim · condensed

    You probably want to live somewhere calm and peaceful with property rights, freedom, and prosperity, since prosperity isn't a singular development; low taxes alone aren't enough, since plenty of dumps have low taxes, so the easiest way to attract high-net-worth energy holders is to promise to stay out of the way.

67. 29:16Claim · condensed

    Removing friction requires significantly less resources and ends up with higher output, but it results in less energy, and therefore less power, influence, importance, and standing, for politicians. We are trending toward the true value of what politicians actually bring to the extended order, and it isn't an attractive position once you remove the energy component, as it should be.

68. 29:49Claim · condensed

    There should be little utility in being the one responsible for allocating stolen resources; that shouldn't be prized. If you're ahead of the curve as a jurisdiction, you carrot Bitcoiners and stick fiat bag holders: those who have something to bring to the table get the carrot, those who don't get the stick.

69. 29:49Reference

    This can come from easy things like decreasing taxes on capital gains on Bitcoin by declaring it a currency, which we've seen in El Salvador.

70. 30:25Claim · condensed

    AML and KYC requirements exist to slow velocity; they siphon off energy at every infringement, every complication, and the more difficult things are to exchange, the less energy we have at our disposal.

71. 30:25Claim · condensed

    Probably the biggest avoidable misallocation is developing your own national shitcoin with the hopes of pulling a fast one on the most vulnerable people in your society.

72. 30:56Claim · condensed

    If a country avoids developing its own shitcoin, it saves all the energy that would have gone into a system it knows will fail at the outset, and other countries watching will respond accordingly.

73. 30:56Prediction · condensed

    Not every country has to go through the failed-CBDC cycle to learn that Bitcoin can't be stopped, and if Bitcoin can't be killed, it's going to win.

74. 31:35Quote

    That is how you win. It's not complicated. It's just difficult to do.

75. 32:08Event

    The SEC has been slow to enforce regulation of security laws on crypto projects like Ethereum and others, and this looks more and more like an attack every day.

76. 32:46Claim · condensed

    The less decisive the SEC is in its enforcement and language, the more confusion sets in, and the better that is for the party not interested in adoption, because less energy gets allocated into sectors clouded by uncertainty; the more clarity there is, the more opportunity for entities to spot the marketplace and increase adoption, which is not the desired outcome.

77. 33:18Claim · condensed

    The longer the waters stay clouded, the more suspect things become, slowing advancement and confusing less sophisticated money managers; there is no incentive for the SEC to cut through the murkiness, because doing nothing leads to the best outcome for the party not interested in having more energy escape into a domain it cannot control or access.

78. 33:52Claim

    All of this is by design, and it's just the tip of the iceberg: there's only going to be more carrots to remain inside the controlled system, and more sticks for entities that go beyond the acceptable horizon of where and how you can store your energy reserves. It would be a more interesting conversation if the other side had plausible responses leading to an end state where Bitcoin doesn't win, but that doesn't seem to be the case.

79. 34:26Quote

    It does not look good for the legacy system. It looks as though it is going to be out-competed by a system that is more efficient.