The Case to Transition Away from Fiatism

Though the below includes commentary about the US monetary system and Federal debt, the US is but one example of the general trend of Fiatism.

Note that the debt is not the core issue, since debt is simply a measurement of the creation of new fiat. The core issue is the uncontrolled incentive to continue to create new fiat to dilute all other economic actors.

The incentives are simple: if it is valuable to push a button to print more money, then the incentive is to keep pushing it for more money and deal with the consequences later (or have another generation deal with it).

The above incentives are more nuanced since it is nested within ideological competition: if you do not trust other fiat printers to have more worldwide influence, then the incentive is print and invest in war, technological, or economic capabilities now, to ensure the balance of power and influence does not shift in the future.

Crack Addict or Worldwide Stakes?

So the incentives at any given time is like that of a crack addict or strategist playing chess with worldwide stakes.

A counterargument to the unmitigated incentive to continue printing fiat may be that fiat printers are providing a service to economic actors (and therefore are "paid" in addition to taxation by printing and diluting others) in the form of providing order, rule of law, and governance for economic activity with minimized disputes and war.

New Ways to Store, Secure, Transact Value for New Digital Economies

However, this counterargument holds less weight when there are new means to secure value (such as encryption and videos to counteract theft rather than military monopolization) and run economies (digitally on chain).

A second such counterargument is that there are not viable alternatives to fiat. The criticisms of crypto as a basis for the storage and transfer of value have often been: (1) volatility (speculative rather than utility based), (2) accessibility, (3) cost, and (4) negative associations or reputation. Many of these are addressable as described in the Bitplanet paper.

Reserve Commodity with AI Economies & Stability Mechanisms

Bitplanet is designed with a $BPL governance coin to manage a Core reserve commodity with stability mechanisms - not a stablecoin, but a commodity underpinned by AI network economies, similar to fiat with traditional economies.

The issue with stablecoin designs like DAI or TrueUSD (which Bitplanet core contributors created), is that these collateralized stablecoins are always limited by collateral and collateral efficiency.

The issue with algorithmic stablecoin designs like LUNA is their fragility and unsustainability. Hybrid collateral-algorithmic designs like FRAX dabble between algorithmic collateral efficiency and potentially increased fragility.

The benefit of stability mechanisms engineered from entrepreneurial convexity (much like USD and the US economy), is dynamic, adaptable power law upside potential and outcomes harnessed into bounding price volatility of a medium of exchange like Core reserve commodities with fast money velocity, tied together with a store of value BPL with slow money velocity.

If the price of Core falls too much from inflation (by not managing positive-sum issuances well), the BPL stakers can vote for the Bitplanet treasury to burn Core, creating deflationary pressure as a stability mechanism. However, **Cores are not intended to be price stable.

Price stability is important for currencies since currencies are used to buy things for surival including food, water, and shelter. Bitplanet assumes that currencies continue to serve the need of buying goods for survival.

Cores are thus termed reserve commodities and assumes that Cores do not need to be stable and can be optimized for tracking contributions and helping to allocate emissions of $BPL (the real store of value).

The earners within an economy would earn the chain's native BPL that secures the chain, receiving more voting-power based on contributions to the economy, with skin in the game in the economy to govern the economy well.

Creating a middle way between governments and corporations. In which, citizens (contributors) were compensated in governance coins proportionally to their contribution earnings, thus creating an incentive alignment between all citizens (contributors) in the digital economic state.\

The rise of distributed governance as one and the same as the economic actors, removes an unnecessary false distinction of governors and economic participants caused by outdated technologies and institutions.

Big Gov and Institutions are a function of bureacratic bloat and managerial capitalism that stand in the way of freedom and sovereignty.

There have been previous social commentary and memes about the rise of Big Governments, Big Banks, Rising Fiatism and the potential implications- some of which are summarized by Vitalik in his blog post, "The end of my childhood"

Global Financial Crisis, Bail Outs, & Bitcoin Genesis Memorialization

"I have talked before about the changing role of economics, the need to think differently about motivation (and coordination: we are social creatures, so the two are in fact intimately linked), and the idea that the world is becoming a "dense jungle": Big Government, Big Business, Big Mob, and Big X for pretty much any X will all continue to grow, and they will have more and more frequent and complicated interactions with each other. What I have not yet talked as much about is how many of these changes affect the crypto space itself.

The crypto space was born in late 2008, in the aftermath of the Global Financial Crisis. The genesis block of the Bitcoin blockchain contained a reference to this famous article from the UK's The Times: The early memes of Bitcoin were heavily influenced by these themes. Bitcoin is there to abolish the banks, which is a good thing to do because the banks are unsustainable megaliths that keep creating financial crises. Bitcoin is there to abolish fiat currency, because the banking system can't exist without the underlying central banks and the fiat currencies that they issue - and furthermore, fiat currency enables money printing which can fund wars. But in the fifteen years since then, the broader public discourse as a whole seems to have to a large extent moved beyond caring about money and banks. ... No mention of money and banks or government control of currency. Trade and inequality are listed as concerns globally, but from what I can tell, the problems and solutions being discussed are more in the physical world than the digital world. Is the original "story" of crypto falling further and further behind the times? There are two sensible responses to this conundrum, and I believe that our ecosystem would benefit from embracing both of them: 1. Remind people that money and finance still do matter, and do a good job of serving the world's underserved in that niche 2. Extend beyond finance, and use our technology to build a more holistic vision of an alternative, more free and open and democratic tech stack, and how that could build toward either a broadly better society, or at least tools to help those who are excluded from mainstream digital infrastructure today.

The first answer is important, and I would argue that the crypto space is uniquely positioned to provide value there. Crypto is one of the few tech industries that is genuinely highly decentralized, with developers spread out all over the globe."

More recently, Javier Milei delivered a speech at the World Economic Forum on January 2024, describing the dangers of Fiatism:

Today I am here to tell you that the West is in danger; it is in danger because those who are supposed to defend the values of the West find themselves co-opted by a vision of the world that -- inexorably -- leads to socialism, and consequently to poverty.

Unfortunately, in recent decades, motivated by some bien-pensant desires to help others, and others by the desire to belong to a privileged caste, the main leaders of the Western world have abandoned the model of freedom for different versions of what we call collectivism.

We are here to tell you that collectivist experiments are never the solution to the problems afflicting the citizens of the world, but rather -- on the contrary -- are their cause. Believe me, there is no one better than we Argentines to testify to these two issues. When we adopted the model of freedom -- back in 1860 -- in 35 years we became the world's leading power, while when we embraced collectivism, over the last 100 years, we saw how our citizens began to systematically impoverish themselves, until they fell to 140th in the world.

But before we can have this discussion, it will be important, first, to look at the data that supports why not only is free enterprise capitalism not only a possible system to end world poverty, but the only system -- morally desirable -- to do so.

If we consider the history of economic progress we can see how, approximately, from the year zero to the year 1800, the world's GDP per capita, practically, remained constant throughout the entire reference period. If one looks at a graph of the evolution of economic growth throughout the history of humanity, one would be looking at a graph in the shape of a field hockey stick, an exponential function, which remained constant for 90 percent of the time, and then shoots up exponentially from the 19th century onwards. The only exception to this history of stagnation occurred at the end of the 15th century, with the discovery of America. But apart from this exception, throughout the entire period, between the year zero and the year 1800, GDP per capita, at the global level, remained stagnant.

Now, not only did capitalism generate an explosion of wealth from the moment it was adopted as an economic system, but if one analyzes the data one can see that growth has been accelerating throughout the entire period. During the whole period -- between the year zero and 1800 -- the growth rate of GDP per capita remained stable at around 0.02 percent per year. That is to say, practically no growth. From the 19th century, with the Industrial Revolution onwards, the growth rate rises to 0.66 percent. At that rate, in order to double the GDP per capita, it would take 107 years of growth.

Now, if we look at the period between 1900 and 1950, the growth rate accelerates to 1.66 percent per year. We no longer need 107 years to double GDP per capita, but 66. And if we take the period between 1950 and the year 2000, we see that the growth rate was 2.1 percent per year, which would mean that we could double the world's GDP per capita in only 33 years. This trend, far from stopping, is still alive today. If we take the period between 2000 and 2023, the growth rate again accelerated to 3 percent per year, which implies that we could double our [world] GDP per capita in the world in only 23 years.

Now, when we study GDP per capita from the year 1800 to the present day, what we observe is that, after the Industrial Revolution, the world's GDP per capita multiplied by more than 15 times, generating an explosion of wealth that lifted 90 percent of the world's population out of poverty. We must never forget that -- by the year 1800 -- about 95 percent of the world's population lived in abject poverty, while that number dropped to 5 percent by the year 2020, prior to the pandemic.

The conclusion is obvious: Far from being the cause of our problems, free enterprise capitalism as an economic system is the only tool we have to end hunger, poverty, and destitution across the planet. The empirical evidence is unquestionable.

That is why, since there is no doubt that free market capitalism is superior -- in productive terms -- the leftist doxa has attacked capitalism for its morality issues, for being -- according to them -- say its detractors, that it is unjust. They say that capitalism is bad because it is individualistic and that collectivism is good because it is altruistic, with others. Consequently, they strive for social justice. But this concept, which -- from the First World -- has become fashionable in recent times, has been a constant in my country's political discourse for more than 80 years.

Violence & Coercion

The problem is that social justice is not just. It does not contribute to the general welfare. On the contrary, it is an intrinsically unjust idea because it is violent; it is unjust because the State is financed through taxes and taxes are collected in a coercive manner. Can any of us say that we pay taxes voluntarily? This means that the State is financed through coercion, and the greater the tax burden, the greater the coercion, the lesser the freedom.

Those who promote social justice start from the idea that the whole economy is a cake that can be distributed in a different way, but that cake is not given; it is wealth that is generated, in what -- for example -- Israel Kirzner calls a process of market discovery. If the good or service offered by a company is not desired, that company goes bankrupt unless it adapts to what the market is demanding. If it generates a good quality product at a good, attractive price, it will do well and produce more. So the market is a process of discovery, in which the capitalist finds the right course as he goes along. But if the State punishes the capitalist for succeeding and blocks him in this process of discovery it destroys his incentives and the consequences of this is that he will produce less and the cake will be smaller, generating harm for society as a whole.

Collectivism -- by inhibiting these processes of discovery and hindering the appropriation of what has been discovered -- ties the entrepreneur's hands and makes it impossible for him to produce better goods and offer better services at a better price. How can it be, then, that academia, international organizations, politics and economic theory demonize an economic system that has not only lifted 90 percent of the world's population out of the most extreme poverty, and is doing so at an ever increasing rate, but that is also fair and morally superior.

Thanks to free enterprise capitalism, today, the world is at its best. There has never been, in all of human history, a time of greater prosperity than the one we live in today. The world today is freer, richer, more peaceful and more prosperous than at any other time in our history. This is true for everyone, but in particular for those countries that are free, where they respect economic freedom and the property rights of individuals. For those countries that are free are 12 times richer than the repressed ones. The lowest decile of the distribution of free countries lives better than 90 percent of the population of repressed countries, has 25 times less poor people in the standard format,1 and 50 times less in the extreme format. And if that were not enough, citizens of the free countries live 25 percent longer than the citizens of repressed countries.

Now, in order to understand what we are defending, it is important to define what we are talking about when we speak of libertarianism. To define it, I take up the words of the greatest hero of the ideas of freedom in Argentina, Professor Alberto Benegas Lynch, Jr., who says:

[Classical] Libertarianism is the unrestricted respect for the life project of others, based on the principle of non-aggression, in defense of the right to life, freedom and property, whose fundamental institutions are private property, markets free from state intervention, free competition, division of labor and social cooperation, in which it is only possible to be successful by serving one’s neighbors with goods of better quality or a better price.

In other words, the capitalist is a social benefactor who, far from appropriating the wealth of others, contributes to the general welfare. In short, a successful entrepreneur is a hero. This is the model we are proposing for the Argentina of the future, a model based on the fundamental principles of libertarianism: the defense of life, liberty and property.

Now, if free enterprise capitalism and economic freedom have been extraordinary tools to end poverty in the world; and we are today at the best moment in the history of humanity, why do I say then that the West is in danger?

I say that the West is in danger precisely because in those countries where we should defend the values of the free market, private property, and the other institutions of libertarianism, sectors of the political and economic establishment, some [due to] errors in their theoretical framework and others for ambition of power, are undermining the foundations of libertarianism, opening the doors to socialism and potentially condemning us to poverty, misery, and stagnation.

Because it must never be forgotten that socialism is always and everywhere an impoverishing phenomenon that [has] failed in all the countries where it was tried. It was an economic failure. It was a social failure. It was a cultural failure. And it also murdered more than 100 million human beings.

The essential problem of the West today is that we must not only confront those who, even after the fall of the [Berlin] Wall and the overwhelming empirical evidence, continue to strive for impoverishing socialism, but also our own leaders, thinkers and academics who, under a mistaken theoretical framework, undermine the foundations of the system that has given us the greatest expansion of wealth and prosperity in our history.

The theoretical framework I am referring to is that of neoclassical economic theory, which designs a [set of instruments] that, unwittingly, ends up being functional to state meddling, socialism, and the degradation of society. The problem of the neoclassicals is that since the model they fell in love with does not map against reality, so they attribute the error to alleged market failures instead of revising the premises of their model.

Under the pretext of an alleged market failure, regulations are introduced that only generate distortions in the price system, which impede economic calculation, and consequently savings, investment, and growth. This problem essentially lies in the fact that even supposedly libertarian economists do not understand what the market is, for if it were understood it would quickly become clear that it is impossible for there to be such a thing as market failure.

The market is not a supply and demand curve on a graph. The market is a mechanism of social cooperation where there is voluntary exchange [of rights of ownership]. Therefore, given that definition, market failure is an oxymoron. There is no market failure.

If transactions are voluntary, the only context in which there can be market failure is if there is coercion. And the only one with the capacity to coerce in a generalized manner is the State, which has a monopoly on violence. Consequently, if someone considers that there is a market failure, I would recommend them to check whether there is State intervention in the middle. And if they find that there is no State intervention in the middle, I suggest they do the analysis again because it is definitely wrong. Market failures do not exist.

An example of the supposed market failures described by the neoclassicals is the concentrated structures of the economy. However, without functions that exhibit increasing returns to scale, the counterpart of which are the concentrated structures of the economy, we could not explain economic growth from 1800 until today. Look, how interesting [it is that] from 1800 onwards, with the population multiplying more than 8 or 9 times, the per capita product [GDP] grew more than 15 times. There are increasing returns, that brought extreme poverty from 95% to 5%.

However, the presence of increasing returns implies concentrated structures -- what we would call a monopoly. How can it be that something that has generated so much welfare for neoclassical theorists is a market failure? Neoclassical economists [think outside] of the box. When the model fails, you don't have to get angry with reality. You have to get angry with the model and change it.

The dilemma facing the neo-classical model is that they claim to want to perfect the functioning of the market by attacking what they consider to be failures, but in doing so they not only open the doors to socialism but also threaten economic growth.

For example, regulating monopolies, destroying profits, and destroying increasing returns would automatically destroy economic growth. In other words, every time you want to correct a supposed market failure, inexorably, because you do not know what the market is or because you have fallen in love with a failed model, you are opening the doors to socialism and condemning people to poverty.

However, in the face of the theoretical demonstration that State intervention is harmful, and the empirical evidence that it failed -- because it could not be otherwise -- the solution that collectivists will propose is not more freedom but more regulation, generating a downward spiral of regulations until we are all poorer, and the lives of all of us depend on a bureaucrat sitting in a fancy office.

Given the resounding failure of collectivist models and the undeniable advances of the free world, socialists were forced to change their agenda. They left behind the class struggle based on the economic system to replace it with other supposed social conflicts equally harmful to community life and economic growth.

The first of these new battles was the ridiculous and unnatural fight between men and women. Libertarianism already established equality between the sexes. The foundation stone of our creed states that "all menare created equal,"2 that we all have the same inalienable rights granted by the Creator, among which are life, liberty and property [ownership].

The only thing that this agenda of radical feminism has resulted in is greater state intervention to hinder the economic process, giving jobs to bureaucrats who contribute nothing to society, whether in the form of women's ministries or international organizations dedicated to promoting this agenda.

Another of the conflicts that socialists raise is that of man versus nature. They argue that human beings damage the planet and that it must be protected at all costs, even going so far as to advocate population control mechanisms or the bloody agenda of abortion.

Unfortunately, these harmful ideas have strongly permeated our society. Neo-Marxists have managed to co-opt the common sense of the West. They achieved this thanks to the appropriation of the media, of culture, of universities, and yes, also of international organizations. *The latter is perhaps the most serious case because these are institutions that have enormous influence on the political and economic decisions of the countries that make up these bilateral organizations.*3

Fortunately, there are more and more of us who dare to raise our voices. Because we see that, if we do not fight these ideas head on, the only possible destiny is that we will have more and more State, more regulation, more socialism, more poverty, less freedom, and, consequently, a worse standard of living.

The West, unfortunately, has already started down this road. I know it may sound ridiculous to many to say that the West has turned to socialism. But it is only ridiculous to the extent that one restricts oneself to the traditional economic definition of socialism, which states that it is an economic system where the state is the owner of the means of production.

This definition should in my view be updated to present circumstances. Today states do not need to directly control the means of production to control every aspect of the lives of individuals. With tools such as printing money, indebtedness, subsidies, interest rate control, price controls and regulations to correct supposed "market failures," they can control the destinies of millions of human beings.

This is how we arrive at the point where, under different names or forms, a good part of the political offers generally accepted in most Western countries are collectivist variants. Whether they declare themselves openly communist, or socialist, social democrat, Christian democrat, neo-Keynesian, progressive, populist, nationalist or globalist. In substance there are no real differences. They all hold that the State should direct all aspects of the lives of individuals. They all defend a model contrary to the one that led humanity to the most spectacular progress in its history.

We come here today to invite the other countries of the West to return to the path of prosperity. Economic freedom, limited government, and unrestricted respect for private property are essential elements for economic growth. This phenomenon of impoverishment produced by collectivism is not a fantasy. Nor is it fatalism. It is a reality that we Argentines know very well. We have already lived it. We have already gone through it. Because as I said before, since we decided to abandon the model of freedom that had made us rich, we are [and have been] trapped in a downward spiral where we are poorer and poorer every day.

We have already lived it. And we are here to warn you about what may happen if the countries of the West, which became rich with the model of freedom, continue on this path of servitude. The Argentine case is the empirical demonstration that no matter how rich you are, no matter how many natural resources you have, no matter how skilled the population is, no matter how educated it is, no matter how many gold bars there are in the central bank's coffers. If you adopt measures that hinder the free functioning of markets, free competition, free price systems; if you hinder trade, if you attack private property, the only possible destiny is poverty.

Finally, I would like to leave a message to all the businessmen present here and to those who are watching us from all corners of the planet. Do not let yourselves be intimidated by the political caste or by the parasites that live off the State. Do not surrender to a political class that only wants to perpetuate itself in power and maintain its privileges.

You are social benefactors.

You are heroes.

You are the creators of the most extraordinary period of prosperity we have ever experienced.

Let no one tell you that your ambition is immoral. If you make money, it is because you offer a better product at a better price, thus contributing to the general welfare.

Do not give in to the advance of the State.

The State is not the solution.

The State is the problem itself.

You are the true protagonists of this story. And know that from today, you have an unwavering ally in the Argentine Republic.

Thank you very much and Viva la libertad carajo. [Long live freedom, dammit.]

Though Milei uses many terms (collectivist, socialist, state, etc.) to describe the over-reaching coercive influence of those who prefer to steal rather than produce, there is no greater tool than being able to print and dilute all other economic actors at will.

2023.05.01 - Druckenmiller Keynote speech for the 37th USC Marshall Center for Investment Studies Annual Meeting

• Good afternoon everyone, I came to USC just over a decade ago to talk about the fiscal troubles that lay ahead for our country. I specifically wanted to spark the interest of the younger generations... because it was people like YOU that were the most affected by the enormous generational inequality going on at the time. I was naïve back then to think I could move the needle and probably am again today, but unfortunately, the fiscal outlook today looks much worse than I had imagined 10 years ago.

• I know some of you might think, "I’m just starting my career, why should I care about this generational issue?" Let me tell you... you may not yet be thinking about retirement or your healthcare bill when you grow old, but if nothing changes... pensions tomorrow will be a fraction of what they are today and the gov’t won’t be able to pay for more than half of your healthcare bills. Think about it. In 20 or 30 years there will be fewer young workers, many more seniors that need support... and the starting point is the highest national debt in our history. So if you believe you will have as comfortable a retirement as the current seniors, think again. If you believe that we will have to resources to fight climate change, think again. The arithmetic just doesn’t work out.

• Let me give you some facts. The share of fiscal spending going to seniors has been growing dramatically since the 1960’s when Medicaid and Medicare joined social security as federal entitlements. Today we spend 6x more per senior than per child in the US. Think social security vs education. Almost 40% of all our taxes are spent on seniors, and this trend is only starting. As the chart shows {Slide #2 below}, we are just getting under way in terms of the fiscal consequences of the grey boom. In 25 years, spending on seniors will grow to take 70% of all taxes. Effectively, with entitlements compounding away, everything else gets squeezed.

• In this context, the fiscal recklessness of the last decade has been like watching a horror movie unfold. Look at this chart {Slide #3 below}. During the last decade, our debt grew from $15T to $31T today... a level of indebtment only comparable to that after WWII. But what is worse is that this debt does not account for what the government has promised it will pay you in terms of social security and Medicare. It actually assumes these payments will be ZERO. In the 1950s this “off‐the‐book” debt was small as baby boomers were just being born so actual debt was a reasonable measure of the country’s indebtedness. Not anymore. There are credible estimates that if you assume the government will pay the same to seniors in the future as it is paying today, the present value of that debt approaches $200T. That’s trillion with a “T”.

• What makes the last 10 years particularly horrific is that we had some golden opportunities to reduce the fiscal gap ahead of the demographic storm that is under way. After WWI and II, the US quickly repaid its debt by raising taxes and restricting spending. Contrast that with today. After the GFC but pre covid {Slide #4 below}, when the economy boomed in 2018 and the unemployment rate hit a 50‐year low, and even under a Republican administration, the deficit could not go lower than 5% of GDP! And then post covid, we had a booming economy where tax revenues were augmented by high inflation, nominal growth of over 10%, a windfall of taxes from capital gains due to the tech boom, all with 3.5% unemployment. So, you may reasonably ask, how much bigger was the surplus relative to that during the tech boom in thelate 90’? Incredibly, as the chart shows, we ran a DEFICIT of over $1T. Never in history has a booming economy produced a worse fiscal result. Never. Expect this trend to continue absent radical policy changes.

• The arithmetic for your “entitlements” just doesn’t work. Imagine asking yourself how much taxes need to be raised today to maintain the current magnitude of safety nets into the future. Economists call this a “fiscal gap” measure. Today that measure is 7.7% of GDP, up from 7.2% when I presented here 10 years ago {Slide #5 below}. This is equivalent to a 40% increase in all Federal taxes collected, or, an immediate and permanent cut of 35% in federal spending. These are dreadful alternatives and still they are probably being underestimated. Faced by this magnitude of tax increases, investment would inevitably falter and growth would suffer considerably, making it almost impossible to maintain the size of our current safety nets.

• How ironic that France, with a fiscal gap of 2.3%, is already raising their retirement age to make it fairer to future generations. Meanwhile, here in the US, the only thing that Hillary Clinton, Biden and Trump can agree on is that entitlements should not be touched. And waiting only makes the problem worse as interest payments keep building. To give you a sense of how bad it could get {Slide #6 below}, with interest rates at 5%, interest payments every year would be as big as the entire covid relief of 2020. As the charts shows, interest payments go from 8% of outlays to 27% by 2050. This is a nightmare for future economic growth, investment and productivity, and, of course you, the future taxpayer.

• It is time that we let go of the false pretense that cutting entitlements is a choice. It is not. Either we cut them today or we will have to cut them much more tomorrow.

• As if the irresponsible fiscal behavior wasn’t enough, around 15 years ago the Fed simultaneously decided to start courting with asset bubbles. Around the time I was here, Ben Bernanke embarked on QE2, another round of rapid expansion of the Fed’s balance sheet. The Chairman feared a period like the 1930’s and wanted to buy insurance to avoid deflation by not only keeping policy rates at zero but also by reducing long‐term interest rates. At that time, he assured everyone this would be a temporary measure. I quote: “Monetization would require a permanent increase in the money supply to pay the government’s bills through money creation. What we’re doing here is a temporary measure that will be reversed so that at the end of this process, the money supply will be normalized, the Fed’s balance sheet will be normalized, and there will be no permanent increase, either in money outstanding or in the Fed’s balance sheet.”

• Since then, and despite these confident words and several periods of strong growth with very high inflation, the Fed never felt the need to meaningfully reduce its balance sheet. The balance sheet of the Fed today stands at just below $9T, or 10 times as large as before the financial crisis. I repeat... 10 times. This Fed policy has enabled risky behavior from investors, banks and the government... it has driven unprecedented bubbles in both breadth and magnitude. {Slide #7 below} The tech frenzy, the crypto craze, SPACs, the search for yield by investors and also by regional banks (!). While it has truly been an "everything bubble", nothing symbolized it more than Doge Coin, which started as a joke and reached a market cap of 80bn. As I have repeatedly said, central banks should be in the business of balancing rather than fueling asset prices or risky behavior.

• Some of the costs of the Fed’s loose policies are now apparent to all. Inflation has become part of our dinner conversations. So have bank runs. Unfortunately, by still owning a large amount of government debt, the Fed continues to create the false illusion that it can help with our fiscal problems. Take the spring of 2021. It was obvious then that we were not only avoiding a deep hole, but the economy was already booming and we were developing an inflation problem. Bizarrely, the Fed kept their foot on the gas and Congress kept spending. Congress spent another $3T bringing their covid total to $5T, with the Fed financing over 60% of all issuance. Powell’s Fed acted as a great enabler for these fiscal excesses. Had it not been for one Senator, Joe Manchin, they would have spent another $3T.

• Trying to correct the biggest mistake in Fed history, in the last year they have now raised rates 500bps. Better late than never, I guess. Still at the first signs of trouble, the Fed last month and in just 4 days, undid most of the small progress they had done in reducing their balance sheet. This asymmetric Fed response is what feeds the lack of serious structural action in DC from both sides of the isle. It allows the Biden administration and Congress to avoid having to address our long‐term dilemmas. It helps the Republican House talk a tight budget while leaving entitlements off the table even though we all know that there is simply not enough left to meaningful reduce spending. It allows the Biden administration to suggest the need to increase the rate of spending and label the Republicans already timid proposal as “wacko.” It is hard to overstate the myopic absurdity of the current policy and the predicament we find ourselves in.

• To conclude, I greatly admire your generation’s focus on the long‐term implications of climate change and your willingness to take action. I urge you to also take action against the bipartisan myopic abuse of our “seed corn” at the expense of future investment and growth. American exceptionalism and innovation have been on display my entire career. We led the PC revolution, we led the development of the internet, the move to mobile and cloud, and blockchain and are leading in Generative AI. Indeed, the cover story of the Economist two weeks ago, Riding High, documented the astonishing success of American capitalism over the last 30 years. Further delay in addressing the fiscal gap threatens a future of us not “riding high” but rather sinking into malaise, decay, and the end of the American Dream. It will embolden autocracies in places like China and Russia. And tragically risks a lack of wealth to make sufficient investments to address existential crises like climate change; and a lack of growth to afford programs for the least well‐off among us.

2024.02.05 - Jerome Powell 60 Minute Interview

• Interviewer: "Another economic hangover after the pandemic is a sharp increase in the nation debt. 30 years from now it is projected to be $144 trillion dollars or $1 million dollar per household."

• Interviewer: "How do you assess the national debt?"

• Powell: "We mostly try very hard not to comment on fiscal policy and instruct Congress on how to do their job, when actually they have oversight over us."

• Interviewer: "But is the national debt a danger to the economy, in your view."

• Powell: "In the long run, the US is on an unsustainble fiscal path. The US Federal government's on an unsustainable fiscal path and that just means that the debt is growing faster than the economy."

• Interviewer: "I have the sense this worries you very much"

Borrowing from Future Generations

• Powell: "Over the long run, of course it does. You know we're effectively borrowing from future generations. It's time for us to get back to putting a priority on fiscal sustainability. And sooner is better than later."

• Interviewer: "What would you say is the single most important factor for the future of American prosperity."

• Powell: "With your permission I'll name two things. One is I think we need to just remember that we have this dynamic, innovative, flexible, adaptable economy; moreso than other countries. And this is the big reason why our economy has come through so well."

• Powell: "The other thing I'll point to for the United States is. Really since World War II, the United States has been the indispensible nation. Supporting and defending Democracy. Security arrangements. Economic arrangements. We've been the leading voice on that and is clear that the world wants that and I would want the United States to know, the people in the United States, that this has benefited our country enormously, it benefits our economy so much to have this role and I hope that continues."

2024.02.05 - Kobeissi Letter Tweet

• "Under current fiscal policies, the Debt to GDP ratio in the US is projected to hit 200% within 20 years."

• "Prior to 2020, Debt to GDP in the US was ~100% and prior to 2008 it was ~60%."

• "Current estimates show the US hitting $50 trillion in total debt by 2033."

• "This means that the US will add $218 million in debt EVERY HOUR until 2033."

• "Just imagine what would happen if the Fed doesn't in fact achieve a soft landing."

• "This is unsustainable."

• "We are currently adding roughly $5.2 billion of Federal debt per day."

• "In 2024, the US deficit is going to hit nearly $1.5 trillion."

• "We are borrowing money from future generations to fund our issues today."

• 2023.10.20 - Cato: How Large Is the Federal Debt?

  • The Fedral government’s debt is massive and growing rapidly. How massive? Federal debt held by the public of $26 trillion is about eight times larger than the combined debt of all state and local governments of $3.3 trillion.

  • Not only is state and local debt much smaller, but the states have more justification for accumulating debt than the federal government. That is because a larger share of state‐​local spending is for capital investment, which is partly financed by debt. State‐​local debt is matched by large holdings of return‐​producing assets such as highways.

• 2023.07.02 - All in Podcast: Federal Debt

• 2023.05.26 - All in Podcast: Federal Debt

• 2023.05.12 - All in Podcast: Federal Debt, on Druckenmiller Keynote Speech Debt

• 2023.04.07 - All in Podcast: De Dollarization, Debt

• 2023.03.24 - All in Podcast: Hyperinflation

• 2022.07.12 - Cato: The Government Debt Iceberg

• 2021.10.20 - Vox: Why the US is already hitting a "debt ceiling"

Printing Money

Bail Out Moral Hazard