This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.
To investors,
The general public is starting to realize the greatest magic trick of our generation is actually a magic trick. What do I mean? The average citizen is starting to recognize that US dollars, like all fiat currencies, are just funny money.
Most people in finance already know this and go along with it because that is how the game is played. The wealthy and powerful benefit from the game. They are financially incentivized to keep the game going. The same can’t be said for the average citizen. They are actually hurt by fiat currencies. The average Joe doesn’t own any stock. They don’t own real estate. They own no gold or bonds either. They simply live paycheck-to-paycheck and have no inflation adjustment in their wage contracts.
This has been going on for decades and the wealth inequality gap has only widened.
So why are people starting to pay attention now, rather than some other time? They are seeing blatant examples of how the Federal Reserve, Treasury, and US government create money out of thin air. There is more transparency than ever right now and people are paying attention because they are scared.
This single image explains a lot of what is going on in the Western world. The stock market is surging, while unemployment continues to reach all-time highs.
There are over 21 million Americans in the labor force who are unemployed right now. Over 16 million of those people have lost their jobs and applied for unemployment insurance in the last three weeks. And these are just the people who have successfully filed their claim. The reality on the ground is much worse.
So now you have millions of Americans sitting at home with very little to do other than pay attention to finance and the economy. There are no sports being played. There are no birthday parties or nights out on the town to look forward to attending. There is nothing but social media, Netflix, and the daily news updates on COVID-19 and the economy.
These people continue to see the Federal Reserve create trillions of dollars out of thin air, while simultaneously claiming that they have unlimited money. This is like kicking someone when they are down. The average citizen is wondering how they can weather this horrific financial storm and the Fed is boasting on national television that they will never run out of money.
The magic trick is being revealed. It is becoming so obvious that you see people like Dave Portnoy, the founder of Barstool Sports, publicly sharing content calling out the nonsense to his 1+ million followers on Twitter.
This is the exact type of content that informs the non-finance audience about how money actually works. Remember, we don’t teach this information in schools. Not because no one ever thought to teach financial education, but rather because the economy depends on majority of people not understanding how it works. Frankly, just a sad reality of the world we live in today.
As if the current situation of people getting a crash course in money wasn’t bad enough, politicians are now trying to bribe the general public with “gifts” that will make them more likable. First we saw the stimulus checks of up to $1,200 get announced and then we saw President Trump announce no student loan payments for at least 6 months. These developments have been presented as “we want to help you!,” but in reality these are merely bribes to keep the peace.
The truth is that the government has shut down the US economy. Those 16 million Americans that lost their job can point their finger directly at the current administration as the cause of their jobless status. That would piss a lot of people off, especially since it appears there will be millions more laid off in the coming weeks. So how does the government avoid social unrest? They tell everyone to stay home for their own safety, they use the police and military to enforce that order, and they start bribe the people with stimulus checks, rent abatements, and student loan deferrals.
The problem is that these short term solutions will help our society from spiraling into social unrest, but they reveal that money is only a belief system over the long run. The unintentional consequence of these actions is that millions of Americans are receiving the financial education about money that isn’t taught in schools. As the great Henry Ford once said, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
This is the risk that the current administration is taking. They have to keep the peace in the short term, but they also have to avoid teaching the masses that the Federal Reserve can simply print as much money as they want. Some of you will think that is a ridiculous statement, so why am I saying that? It is because I think we are about to see an intellectual revolution like the world has never seen before over the coming years.
Once the genie is out of the bottle, there will be no putting it back in. As people learn that the Federal Reserve can print as much money as they want, they will start to intellectually fight back against anything that hurts them financially and doesn’t make sense. Take taxes for example. If the US government can create money out of thin air, why do they need to worry about driving revenue? Why do they need to take 35-50% of our income if they can just create the money out of thin air?
This is a simple, yet profound, question. The wealthy and powerful know the answer — the taxes are used to control the population. It is a form of theft that masquerades as duty or responsibility. Once the masses realize that it is a game of control, they can easily leverage social media to accelerate the spread of that message to hundreds of millions around the world. This is a nightmare for governments, the Federal Reserve, and the Treasury.
Remember what Henry Ford said — you can’t give people the education or they will fight back. This is where I believe we are headed over the coming years as we weather this financial crisis and ultimately come out of it. The banks took the majority of the blame in the 2008 Global Financial Crisis, but I believe that the US government is going to end up receiving most of the blame for this financial crisis.
We are living in weird times. People are getting an education in money unintentionally. They are seeing the Federal Reserve print trillions of dollars, which is likely to lead to a loss of confidence in the US dollar over a long period of time. The magician has been exposed. I haven’t had enough time to think through all of the consequences of this development, but it feels important and it feels scary. The Federal Reserve has no choice though — they either show their hand to the citizens or they increase the odds for social unrest in the short term.
The game theory of the decision would suggest you solve for the current problem and deal with the bigger problem later. We will see if they are able to do that. Either way, keep an eye out for more public conversations around money, how it works, and the fact that fiat currency can be created out of thin air. What was once a fringe issue for libertarians and gold bugs is likely to become a national conversation the longer this crisis rages on.
You know how I’ll be protecting myself from any of this chaos, but there are broader ramifications than just the financial ones. Feel free to respond to this email if you agree, disagree, or have ideas that I should consider around this topic. Would love to hear from each of you.
Hope you have a great weekend.
-Pomp
This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.
THE RUNDOWN:
Nancy Pelosi Says It’s Unclear When US Economy Can Reopen: House Speaker Nancy Pelosi on Thursday told CNBC’s Jim Cramer it’s not clear when America could reopen for business, despite some optimism from the White House that it could happen next month. When asked if shops could open up in May, she decided against offering a hopeful timeline. “We could have a depression because so many people are out of work, and that’s why we have to get the system really energized and working,” Pelosi said. “Let’s get out those unemployment checks. Let’s get out those direct payments. Let’s get these loans freed up.” Read.
PayPal Co-Founder: This Is ‘Greatest Time to Start a Company:’ Paypal and Affirm co-founder Max Levchin said that the stage a start-up is in is a major factor in whether the company will survive the economic downturn. “It’s really stratified. I think this is the very best time to be either a late-stage, well-funded start-up, because the competition is thinner ... [or] even better perhaps, this is the time to hunker down, go 10,000 feet below ground and build something truly amazing,” Levchin said. Read more.
Bitcoin Garners New Users as Governments Flood World With Fiat: Governments around the world are careening toward a period of dramatic spending. The U.S. Federal Reserve announced another $2.3 trillion in lending programs on Thursday to stabilize America’s coronavirus-stricken economy. The Bank of England announced it would likely extend billions of pounds to directly finance the government’s crisis response. All this inspires inflation concerns around the globe, which appear to be driving demand for bitcoin in some corners. Read more.
New York Power Plant Sold Up to 30% of Its Bitcoin Mining Hash Rate to Institutional Buyers: Greenidge Generation, an upstate New York power plant that's using proprietary facilities to mine bitcoin, has sold up to 30 percent of its computing power to institutional buyers. The firm said in an announcement on Friday that the deal, brokered by BitOoda Digital, proceeded the sale of 106,000 terahashes per second of bitcoin mining power to undisclosed buyers consisting of hedge funds and family offices. Read more.
CEO Says BlockFi Is Lending to Crypto Miners as Other Providers Pull Back: The CEO of BlockFi said the crypto lending platform is extending credit to miners at a time when competition for their business has eased because of the coronavirus crisis. “We’re starting to establish relationships with miners for the first time now,” Zac Prince said. The reason: The market has lost some of its risk appetite, he said. Read more.
LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE
Ali Hamed is the co-founder of Coventure, an asset management firm focused on deploying capital across venture capital and unique credit strategies. He is one of the smartest investors I know and definitely didn’t disappoint in this conversation. Highly recommend listening!
In this conversation, Ali and I discuss:
The private credit market
How borrowers and lenders are treating each other
Where the areas of opportunities will be
How founders can respond to the pandemic
How source data in advertising and e-commerce has given Ali a better sense of the trends in those industries
I really enjoyed this conversation with Ali. Hopefully you enjoy it too.
LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE
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The Magician Has Been Exposed