SaaS Interviews with CEOs, Startups, Founders
Preston Pysh on Bitcoin $200,000, QE at the top, UBI at bottom, $10t+ Fed Balance Sheet?
22 Apr 2020
Chapter 1: What is the main topic discussed in this episode?
this out here on Wednesday, the 22nd of April. We recorded this back on the 17th last week. We talked with Preston Pish and we talked about the last 10 years of monetary policy and how the U.S. government has printed money via quantitative easing, which helps equities and makes the rich get richer.
It's like socialism at the top, but capitalism at the bottom because you're seeing all these small businesses go totally bankrupt.
Chapter 2: What monetary policies have shaped the last decade?
The You're finally seeing a portion of the CARE Act, the $2 trillion bailout, and there'll be many more, by the way, go towards UBI, universal basic income, for us at the bottom. But QE and UBI work together at the top and the bottom. But historically, we talk about why it's been socialism at the top and capitalism at the bottom. Next, we talk about populism. What did Bretton Woods...
and the populism in Germany after World War I based off the Treaty of Versailles and the rise ultimately that led to Hitler. What does that have to do with today and the clash of the have and the have-nots and nationalism and isolationism? We talk a lot about that. And lastly, we talk about the downfall of fiat.
When money is getting printed all over the world, the money you and I hold becomes less valuable.
Chapter 3: How does quantitative easing affect wealth distribution?
So I said, what will happen? And he gave me three answers. A new global reserve, an SDR via the monetary fund. We talked about that. Or number three, Bitcoin or another tech decentralized, you know, enabled decentralized system for monetary funds. But there are certainly no more Adam Smith invisible hand. We've got the U.S. government picking which equities to boost.
Chapter 4: What is the relationship between UBI and quantitative easing?
A lot of stuff happening. PPE funds are out. 16 million unemployed. We talk about all of it, including oil. What happens to oil? Enjoy the episode, guys. Hello, everyone. My guest today is Preston Pish. Now, Preston and I go back a little bit.
There's a little dull moment in between, but I will never forget when they had me on their hugely, way more successful now, by the way, podcast called We Study Billionaires, him and his partner Stig. do a great job on the show. And I said, you know what? I want to meet these guys.
They have a unique way of breaking down extremely intense economic information into stuff that me, the average guy can consume. So I went and actually met them in Omaha a couple of years ago at Buffett's annual event. And we had a ton of fun watching Munger and Buffett, you know, chug their Coke and drink their C's candy. So Preston, we want to have a lot to talk about.
Chapter 5: How does populism relate to historical events like Bretton Woods?
I appreciate you coming on.
Yeah, we did the run of shame in the morning getting into the stadium together. Nathan and I were... The umbrellas.
That's right. Yeah, that was it. Well, look, we have so much to talk about. And so I was just telling you, the risk in this interview is that because you are so smart with everything economics, is that we end up getting over people's heads.
So I really want to basically take everything happening right now in the economy, the Fed's balance sheet doubling, potentially even going higher than doubling, You know, the government buying corporate bonds, which it's never done before. You know, oil inventory almost being out. What does that mean for us?
But specifically, the cap I want us both to wear during this interview is for the person listening right now that has maybe worked really hard over the last bull market and saved maybe 10,000 bucks, like what should they do right now? And if you're listening and only saved 100 bucks, well then divide by, you know, 100 or 10. Or if you have 10 million to spend, multiply by 10.
But Preston, you think we can do that? Can we look through everything with that lens?
Absolutely, let's do it.
All right, let's do it. So to kick things off, let's go to the stimulus plan, okay? So February 24th, balance sheet of the Fed, 4 trillion. March 27th, 2 trillion CARES Act passed. $250 billion for small business loans. That's now exhausted. $500 billion for discretionary treasury spending. And then kind of who knows what happens with the rest.
The balance sheet today of the Fed is now $6.4 trillion. For the person that has worked really hard to save liquid cash, it's money under their mattress right now over the past 10 years. What does this increase in the Fed's balance sheet mean for their cash holdings?
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Chapter 6: What are the implications of the expanding Fed's balance sheet?
The dollar is not pegged and neither is any other fiat currency. They're not pegged. And that's what drives this behavior of this runaway inflationary monetary policy.
You can create unlimited amounts of it. There's no shortage of supply.
And they're incentivized to do it. So let me give you an example, two examples of why they're incentivized to do it. Let's just look at it from a political domestic country standpoint.
If you're an elected representative from a big district, and let's say you have some large defense company that's in your district, well, when you go in there and you're trying to work the budget for the coming year, You want that $5 billion contract in your district, right?
So you're going to do whatever it takes in order to make sure that that is supplanted into that budget and the appropriation of that. So these elected representatives who do not have term limits are incentivized to not really care about the country as a whole and the budget constraints as a whole.
Their self-interest is to that district in order to get the funding in there, regardless if it goes over the top of the tax revenues. So there's incentive one that's broke that creates this incentive when you don't have a pegged currency. Because when you don't have a pegged currency, there's no ramifications of buying power globally if everyone else is competing to devalue their currency.
And guess what? They are. They're incentivized. Every other country is incentivized to devalue their currency because when they do that, guess what happens? If I'm China and I devalue my currency because there's no peg... Goods get cheaper, right? That's right. They get cheaper. And now all this money gets sucked into that country.
All the other fiat money gets sucked into that country like a vacuum. in order to buy their goods and services to be exported. So now what you have is this competitive dynamic between all these other nations in order to devalue their currency because there's no peg. No one's playing by a peg economy. And so all this goes back to 71. You come off the gold standard.
And what a lot of people don't understand about the peg and coming off the gold standard in 71 was It all originated back to Bretton Woods, which was a 1944 agreement that all these major economies come to the table. They sit down at Bretton Woods and they say, all right, the dollar is going to be pegged to gold. And then we're all going to peg our currencies to the dollar.
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Chapter 7: What potential futures exist for fiat currencies?
And so then that goes into the interesting discussion that I'm sure we're going to get there eventually.
We'll leave that as an open hook for a second. Yes, yes. So the big question we'll come back to is, what is the fiat alternative that has to exist before fiat truly crashes? We'll come back to that in a second.
I mean, your traditionalists will say it's gold, right? They'll say, well, because gold has... Effectively a fixed supply because when you look at the amount of stock that exists in the entire world, and then you look at the flow that's put onto the market from gold miners, it's really minuscule in relation to the stock that exists.
So that's why gold functions as a fixed supply currency that if you have it, it can't be debased at any type of speed that's bad for the holder.
and so the idea would be that people run the gold and you're already seeing the price of gold shoot way up through all of this quick prediction what do you think it will go past 2000 in the next three weeks oh i i can't do a three-week time frame i in the coming years this guy's so good at this long term i love it preston you're saying no i just don't have any skill in that area like i can't there's no way i can say what in the world's going to happen in the next three weeks so
So gold is one option as an alternative.
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Chapter 8: What are the consequences of government intervention in markets?
And all my Bitcoin lovers listening are going, wait a second. We can't print unlimited Bitcoin. In fact, we have a halving coming up very soon where there's going to be even less available. So we'll circle back to all that in a second. I want to go back real quickly to kind of the have versus have nots conversation.
So American Airlines CEO Doug Parker the other day was out saying, fine, we'll accept $4.1 billion as a grant from the government. We'll do $1.7 billion as a loan. who knows how low that interest rate is going to be. It's probably basically a grant anyway, right? Nothing, yeah. Nothing, right? And then we're also going to apply for another $4.75 billion in extra loans.
So let's call it $10 billion potentially going to American Airlines. There was potentially $17-ish billion kind of earmarked for Boeing, these guys. This is money that's not going to get paid back, right? So if American Airlines doesn't have to pay that back, it's the have-nots tax revenue paying for that, correct? Correct.
Yeah. Any printing that happens is a universal tax on everybody, whether you have a high net worth or not. That's all it is.
So for someone listening right now sitting on $10,000, I think we already established you agree with Ray Dalio who was on Bloomberg yesterday saying it's useless to hold bonds right now because they're going to be worth nothing. So get rid of your bonds as fast as possible. The second question is people are listening going, Preston, Nathan, should I use 10% of my 10,000 I have saved?
Should I put a thousand bucks and try and predict which equities the government's going to bail out and ride those things up? Now, I'm choosing not to do this because I have no idea how to evaluate this and I have no insider information on what the government's going to do. What is your advice here? Do you buy cheap stocks?
So I've got a very controversial opinion on this. And I think a lot of people in my community are rolling their eyes at me for not having stocks going through this because so much of it is dependent on government decision-making, whether they're going to add more billions and trillions into the market and who's going to be the recipient of that because that's the one you want to own.
I mean, it's just that simple. So I'm with you and I'm with Dalio as well. And Dalio's opinion, just so people understand, and he wrote about this in his book, Big Debt Crises. In that book, he talks about when you get into these, and I'm just going to say the word, hyperinflation type situations,
Investing in stocks is a mixed bag because it really comes down to which types of businesses do well in a depression-like scenario, in a scenario that all heck is breaking loose in the economy. But you have companies like, I'm just going to say it, Zoom, the one we're using, that's going to do very well through this. You got to think of businesses like that that are going to do well.
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