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Episode 5 - An Interview with Roberto Rios (aka The Peruvian Bull), Economist and Entrepreneur
29 Plays18 days ago
Peruvian Bull (Roberto Rios) is a Peruvian-American scholar, researcher, and educator hailing from the Pacific Northwest. Born and raised in Seattle, he attended a local university where he graduated Magna Cum Laude with degrees in Finance, Economics, and Entrepreneurship. He has studied also in South America and plans to complete a Master's degree in Economics. He currently works full-time creating macro content on Twitter and Youtube.
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Transcript
00:00:18
Robert Fine
ah Well, Roberto, um thanks very much for for making time today. ah I'm very much looking forward to our conversation. um I've been a fan actually of you for a number of years now on on Twitter, maybe going three, maybe going on four years.
00:00:35
Robert Fine
This the first time we've ever had a a conversation ah beyond our texting prepping for this. But I did buy your book, um a printed version when it came out on the dollar milkshake theory.
00:00:49
Robert Fine
and And I think and and and reason I wanted to talk with you is I mean, I've I've been personally interested in in economics, you know, just as a, as a side topic for many years.
00:01:02
Robert Fine
um But I found your writings and explanations online to be very straightforward and coherent and, um and understandable and much more than, than other writings I've, I've, you know, around economics in general.
00:01:21
Roberto Rios
Yeah, thank you for that. um you know one of the One of the quotes I like to live by is, Einsteinian quote that, you know if you can't explain it to a five-year-old, you don't understand it. And the problem with a lot of modern economics is they overcomplicate things. They use nomen nomenclature and jargon to you know obfuscate the truth and the simple realities of of economics that underlie our our modern you know market system.
00:01:46
Roberto Rios
are kind of kind of ah you know obfuscated because of that. They're kind of ah hidden. And so it makes the entire field much, much more difficult just because of how many untruths and half-truths that exist.
00:01:59
Roberto Rios
And so my goal with a lot of my writing is to kind of burst through that and and to show the reality of of what's happening.
00:02:06
Robert Fine
I think that's fantastic. um And well, you know, in financial literacy in this in this country is ah is a real problem. um You know, what you don't know can be very dangerous. And, you know, just even understanding, you know, how interest rates rates work, you know, the impact it can have on you personally.
00:02:24
Robert Fine
i mean, it's taken me many years, you know, and and mistakes ah to finally put my own financial ah life into proper order. and And I'm still not quite there yet, as many people aren't. but um So listen, tell me, well, you go by online, or you have until very recently, though still continuing.
00:02:45
Robert Fine
ah You're known as the Peruvian bull. um i'm good and I'm going to make a wild guess that maybe it's because you're from Peru, but I don't know that 100% sure.
00:02:56
Robert Fine
And so give me a little bit of background about yourself and ah your your upbringing. and and actually And how old are you today, if I can ask?
00:03:04
Roberto Rios
I'm 27.
00:03:06
Robert Fine
OK.
00:03:07
Roberto Rios
Yeah. I'm quite young to do this, obviously. um Macro is an old man's game, right? Or it's a middle-aged man's game. And I'm a young man playing in this arena. I'm not the only one, but definitely um there's definitely very few of us.
00:03:21
Roberto Rios
um So I was born and raised in in Washington. um I was raised just north of Seattle. And I went to ah high school near a Shoreline, Washington. And then I i graduated I decided to go to Gonzaga University.
00:03:39
Roberto Rios
um I thought about going to, you know, a a more, I guess you call it like elite university because I definitely had the ACT scores and I was a very good test taker as a kid. But I i didn't, and this kind of know relates into my overall arc in finances.
00:03:56
Roberto Rios
I didn't like the haughtiness and the, ah I guess you could call it like ego and egocentrism of a lot of academia. And so I didn't want to be anywhere that was um that had that sense to me. And so those higher level schools like Stanford just were automatically off the list. So I went to Gonzaga and I studied finance and entrepreneurship. And actually I started off with a, with a biology ah major, but I switched about halfway through because I was, ah I was initially interested in in, cell research and in epidemiology and virology.
00:04:31
Roberto Rios
and especially in in technologies like CRISPR. And so I had an internship at the Center for Infectious Disease Research, and we were doing basically like gene, genome expression tests on, ah on tuberculosis, on, and, and and a couple other, a couple other bacteria.
00:04:48
Roberto Rios
And I found that it was really interesting work, but it, there was something lacking in it. And it made me realize that, you know, that that model of viewing the world, the academic and even like you know even scientific way of viewing the world, um failed to account for human action, right? because you don't you can have a ah theoretical solution to something but if people don't apply it in the right way it won't work and so that's when i started getting interested in finance and economics and um when i get interested in something i usually go very very deep into it and so when i transitioned to to finance as a degree i started doing you know a vast amount of i first read all the books uh you know the basic finance books um
00:05:31
Roberto Rios
And then I quickly found myself going down the gold bug rabbit hole, um Austrian economics. I read Rothbard and Mises. um And then eventually you found my way to basically what I would call modern macro, which is you know Luke Groman, Lynn Alden, um you know these Brent Johnson, even like these people who have written or or produced content ah that's quite ah applicable, especially to the way our modern economic system works. And so I was studying that for you know, I'd say six years or so pretty ah intensively. so um
00:06:03
Roberto Rios
And after studying for six years, I'd had a very, you I had a very good grasp, especially for my age. And ah in 2021, I started writing on Reddit first, and then I moved to Twitter.
00:06:15
Roberto Rios
And my writing started to go viral. And ah that was kind of a feedback ah loop that told me that I should continue this path. And so I was working at a fintech at the time, um after college, and I was i liked my job. It's a very good company. They have ah a good mission. um And it was, was luckily working with startups mostly and but mostly software startups and tech founders. And so very, very smart people who ah were just trying to you know make their app or their product launch correctly and trying to raise capital for it.
00:06:47
Roberto Rios
ah But it was just not what I was meant to do. And I didn't want to work in nine to five. And so I kept, I kept writing and kept publishing content. And eventually I was able to to quit my job and do this full time. And that was August of 2023.
00:07:00
Robert Fine
So, so today you, um, you're independent and write online full time or, um, and, uh, how do you make your living today? If I can ask.
00:07:12
Roberto Rios
Yeah, sure. So today I make a living through, i've a paid subsack. So you can go and look at my my links on my Twitter bio. um I've quite a few paid subs.
00:07:24
Roberto Rios
And then I also have ah the YouTube obviously, which brings some ad revenue. And then I have one, I only have a single sponsor right now for the YouTube, which is Blockstream. And they are ah hardware wallet provider. They also have other technical products, but I mainly just talk about their hardware wallets on YouTube.
00:07:42
Robert Fine
Well, I mean, congratulations. I mean, making, ah I've done content marketing for for many years, started early in social media space back in 2009. And it's very hard.
00:07:56
Robert Fine
It's hard to make a living online. But I think you know the fact that you're doing it you know demonstrates that you you know you found a way to communicate well with an audience and that audience you know respects your your writing and your opinion.
00:08:12
Roberto Rios
yeah Yeah, no, I think i think that ah I've definitely been able to um to convince and sway a lot of people over to my side, mainly because I do have a propensity for arguing. um And the reason why is because my dad as a kid raised me to be very, very...
00:08:31
Roberto Rios
I guess you call it like self-critical of my own views. So always constantly questioning because my my father was an atmospheric science PhD and he worked he worked at Boeing and he worked at NOAA for a brief stint.
00:08:38
Robert Fine
Oh, well.
00:08:43
Roberto Rios
um And so by the time I'm like 10, 11, he decided to basically like start arguing with me at the dinner table over every single topic. And so he'd give me a book to read and then I'd have to argue with him about you know, what my views are were on it.
00:08:58
Roberto Rios
And so because he was essentially, yeah yeah, intellectually, sure.
00:09:00
Robert Fine
That's a tough upbringing.
00:09:04
Roberto Rios
But I mean, it was good for me, right? Because I i really learned how to how to dissect my own points of view. And so when people would, you know, have reservations, they'd say, oh, well, hey, you're saying all this issue with the debt, we can just delete the debt.
00:09:17
Roberto Rios
And I'd say, well, that's a good that's a good question. But <unk>ve I've already thought of that. And you can't do that because the fundamental accounting equation is a equals L plus E. And that means in our financial system, every single asset is either liability or equity in some way to somebody else.
00:09:32
Roberto Rios
And so your treasury bond that, or like, let's say the treasury bonds that the, that the U S government owes, that's a liability to them, but it's an asset to a baby boomer who's in Ohio, who owns them in his, in his Roth IRA.
00:09:46
Roberto Rios
Yeah. And so if you delete them or if you just say we're going to you know, default, then you destroy the asset that somebody else owns. And so it's not it's not an easy way out. And so, you know, things like that I had to consider and kind of, I guess you'd call it like self-criticize my own arguments before I even put them out there.
00:10:04
Robert Fine
And um did you have siblings?
00:10:09
Roberto Rios
Yeah, I have three brothers. um They're all older than me substantially. um I'm the youngest 17 years.
00:10:14
Robert Fine
and And did your father put them through the same same rigor?
00:10:17
Roberto Rios
No, not, not, not to the same extent because I was the last one born and I was the, the lot.
00:10:23
Robert Fine
um I'm the youngest of four as well.
00:10:25
Roberto Rios
Okay. Oh, wow. That's so amazing.
00:10:27
Robert Fine
But by good amount, actually, might know by about seven years.
00:10:28
Roberto Rios
Yeah. No.
00:10:30
Robert Fine
so
00:10:31
Roberto Rios
Okay. Mine is 17 years. So it's, yeah, it's a lot.
00:10:33
Robert Fine
Holy cow. One minute, one marriage.
00:10:36
Roberto Rios
Yeah. ah My oldest, oldest brother is from another, my mom was married briefly to another, another guy, but all my other brothers are are biological brothers. Yes.
00:10:46
Robert Fine
Okay. Well, that's, that's, ah that's a long, uh, wow.
00:10:48
Roberto Rios
Yeah.
00:10:49
Robert Fine
17 years between kids. That's, that's a long time.
00:10:52
Roberto Rios
Yeah. It's like 17, 17, 19 and years difference between me and my brothers.
00:11:00
Robert Fine
um So you're 27. So, you're twenty seven so um you know, for it's it's so hard to believe that the 2008 crash is getting close to 20 years.
00:11:12
Robert Fine
Because for me, it almost feels like yesterday. And that was that was actually I suffered my first layoff in April of 2009 ever. um during this period. But i'm i I guess you were, know, you're about 10, maybe.
00:11:25
Robert Fine
um so I don't know if you had much experience on I mean, this was Occupy Wall Street, you know days and all that. So I don't know if that was on your radar or not at at that age.
00:11:37
Roberto Rios
It was. And may i would say the only reason it really was, was because my brother, ah my older brother, ah ran a real estate brokerage up here in Seattle.
00:11:47
Roberto Rios
And he had been very successful, actually. And in the wake of 2008, his little, you know, real estate agency collapsed. And he, it's a long story, but essentially his partner had defrauded funds and the IRS came after both of them, even though my brother hadn't done anything, but my brother was signatory on all the accounts.
00:12:09
Robert Fine
Right.
00:12:09
Roberto Rios
And so they assumed that they were both liable when it was my brother had all this stuff hidden from him, from his business partner. And so um my brother going through all this and then constantly coming to the house and um even moving in back home, you know, and he was, ah you know, at the time i was what, yeah, 11 or 12 and he's you know, 28, 29, for him to move back at, back home after he'd been successful for four or five years in real estate was, you know, pretty big hit to his ego.
00:12:40
Roberto Rios
And so he was constantly talking about the real estate market.
00:12:41
Robert Fine
Right.
00:12:43
Roberto Rios
So I started, I started learning about economics back then, but I would say it was like a cursory interest. Whereas in like 2015, 2016, as I grew older, it became much more of a ah focus.
00:12:55
Robert Fine
And I'm just curious, your father, is he, he still worked with Noah or, or doing that kind of research?
00:13:01
Roberto Rios
No, he's retired. So both of my parents are ah yeah now in their 70s. um
00:13:07
Robert Fine
Okay.
00:13:07
Roberto Rios
Again, my parents were very old when they had me. they I was not expected to be born, right? So um it was it was kind of like...
00:13:13
Robert Fine
i was i was I was a replacement choice for the family dog that my mother decided she didn't want.
00:13:20
Roberto Rios
Yeah, I'm kind of the same way, right? So my all my um my other brothers are born in the early 80s and late 70s, and I was born 97. ninety seven So very, very far in the game.
00:13:30
Robert Fine
Yeah, well, and both both my ah my two older brothers are 10 years older than me, ah but so but had ah had a large influence on on my growing up and and what I wanted to go into and study, but but yeah.
00:13:44
Robert Fine
um and and ah And where did the where where did the um nickname Peruvian bull come from? Your family heritage, something else?
00:13:56
Roberto Rios
Yeah. So my, my, like i said, my father is, a he's American and he is born in Utah. um I think in a city, yeah, it's a city called Bountiful, which is right near Salt Lake.
00:14:08
Roberto Rios
And, ah you know, he's Scandinavian and he was Mormon. And then when he was young, he kind of rebelled from his strict Mormon family and He traveled Latin America and then he came back and actually he met my mom at the University of Utah in this in the mid-70s.
00:14:24
Roberto Rios
And um my mom was ah Peruvian by birth um and her ancestry is actually mostly Spanish-Italian because her parents were recent immigrants from Spain and Italy um or her and her grandparents, excuse me.
00:14:38
Roberto Rios
but um But she was born in Peru and she obviously had Peruvian citizenship. And so they got married and they had obviously three kids and then or two kit two of my brothers and then me.
00:14:49
Roberto Rios
And when I was thinking of a name on on Reddit back in 2019, when I first started, I guess you call it like browsing or know maybe even shit posting, um I wanted some i want something else that was unique and that was also specific to me. And so I thought, well, there's not many people that are like Peruvian or half Peruvian like I am.
00:15:12
Roberto Rios
And so I'll put in Peruvian and then bowl for finance. And that's where the name spouted from.
00:15:16
Robert Fine
Yeah, no, it's great. Actually, it's very, I think it's it's a good name. It's easy to remember. um have you Have you had a chance to travel to Peru?
00:15:25
Roberto Rios
Yeah, I have. It's been a while though. um I haven't been to Peru since about 2014. Last year I was living in Colombia for about nine months, ah but ah in Medellin and in Santa Marta.
00:15:34
Robert Fine
Okay, well, where?
00:15:38
Robert Fine
Okay.
00:15:39
Roberto Rios
Yeah.
00:15:41
Robert Fine
ah Well, wonderful. and What were you doing down there?
00:15:44
Roberto Rios
ah Well, so that that's kind of like part of the, I guess you'd call it the story, right? When I quit my job in August of 2023, you know I'd quit high paying tech job and I could have gotten ah work at BlackRock or you know State Street or any of the asset managers.
00:16:02
Roberto Rios
I mean, I i had good grades and my coworkers liked me.
00:16:05
Robert Fine
you're you're You're missing out on some some good salary money, you know.
00:16:05
Roberto Rios
I could have gotten referrals.
00:16:08
Roberto Rios
Yeah, no, absolutely. No, I totally was. I had friends who left there and were making...
00:16:11
Robert Fine
ah you still You still are.
00:16:13
Roberto Rios
i Yeah, yeah. But I... I believe in the mission more than I believe in ah temporary gains. And I know in the long run, if I'm able to scale this business, it it'll it'll make up for it. So um I prefer it this way.
00:16:28
Roberto Rios
But yeah, I know when I quit my job in August of 2023, ah I wanted to you know kind of get out of my comfort zone, get out of where i where I'd been living and in and Seattle near Green Lake. And I was talking to one of my close friends who's a Bitcoiner and ah and a blogger, Ben Wehrman.
00:16:46
Roberto Rios
And ben Ben had been to the Bitcoin conference and I'd actually been with him a couple of months before. And we we had made made some friends and all the friends had said, you you should go to Colombia because we we were thinking about traveling abroad to El Salvador for the Bitcoin you know ecosystem and just the story that's happening there.
00:17:03
Roberto Rios
But everyone told us, no, Colombia way more fun things to do.
00:17:03
Robert Fine
Right.
00:17:06
Roberto Rios
El Salvador is a pretty small country. you're going to get bored. And so we traveled there in September of 2023 and um we returned in like July of 2024. So we were there for, yeah, about nine months.
00:17:18
Robert Fine
Nice. Well, actually, that's that's a great segue. So, and because the first topic I wanted to talk to you and a little bit just because of what's happened in the last couple days is, you know, it looks like, you know, Bitcoin is finally, you know, broken out of what everyone's been waiting on since January.
00:17:37
Robert Fine
You know, who knows? It's up about 7% this week. We'll see where it closes today and we're well, actually, they'll never close technically, but um But talk to me about your view of of what's been happening with Bitcoin, Bitcoin as an asset class.
00:17:55
Robert Fine
And I'm also interested to hear your views of
00:18:01
Robert Fine
investing in Bitcoin or or putting value in Bitcoin versus gold. And also, you know, what you think of Ethereum at this point as an investment, because I'm i'm really confused on on Ethereum.
00:18:16
Robert Fine
i mean, i I understand its value and use and in and software development and blockchain, but i'm I'm having a hard time seeing it as the same investment class as as Bitcoin.
00:18:30
Robert Fine
ah yeah especially when it's kind of limitless in terms of you know how much of it can be created. But but maybe there's something I'm misunderstanding.
00:18:39
Roberto Rios
You mean and you mean in terms of Ethereum the amount that can be created?
00:18:41
Robert Fine
Yeah, yeah.
00:18:42
Roberto Rios
Okay. Well, so...
00:18:44
Robert Fine
And I know there's a lot there, so
00:18:47
Roberto Rios
Yeah, no, absolutely. So I would say, I mean, the Bitcoin story is a very, very interesting one, right? Because Bitcoin kind of i emerged on the scene in the wake of the 2008 financial crisis.
00:18:58
Roberto Rios
And it was essentially the brainchild of these, you know, or this one cypherpunk who had been reading and keeping track with tons of earlier variations of of digital cash, right? They had e-cash,
00:19:13
Roberto Rios
There was um a couple other iterations that kind of worked, kind of didn't. And then um his innovation was the proof of work system and the difficulty adjustment, which allowed Bitcoin to basically secure its own network and to use game theory along with just, you know, ah you call it brute force encryption and extremely strong encryption to secure the network.
00:19:37
Roberto Rios
um and And that was really the genius part, right? Was was making it so any attacker would not only have to spend ah an inordinate amount of money and time and energy, but also that the network itself would have incentives to fight back against that, right? The network would have a way of forking itself. And it's almost like a ah Hydra, right? Like an anti-fragile system where the more you attack it and the harder you stamp down on it, the the more decentralized and the more robust it can become.
00:20:07
Roberto Rios
And so um and for that reason, it's a very, very, very unique asset, right? I would truly say it's it's like no ah no other ah financial asset or monetary asset I've ever looked at. And so when I started doing research on it in 2020 and 2021, I very quickly grasped the the value play and I started buying in and heavily.
00:20:28
Roberto Rios
And I actually used to be a gold bug before that. So it was a very, very strong gold bug. i actually lost my life savings in gold call options. And I've admitted this on other podcasts too um in 2020. And that was a rude awakening for me because I thought that the gold miners would rip within one to two years because of the coming inflation.
00:20:47
Roberto Rios
And I got the inflation call right and I got the you know the overall gold picture right, but the gold picture didn't materialize until two or three years after my options positions.
00:20:59
Roberto Rios
And so all my options had expired by the time that you know we saw February 2024 gold price really start to move.
00:21:05
Robert Fine
you were You were right just early.
00:21:07
Roberto Rios
Yeah, I was too early. And I put in 90% of that ah life savings into call options and because i wanted the the you know I wanted high risk, high reward, derivative exposure.
00:21:20
Roberto Rios
And so it all it all got ground to zero basically.
00:21:20
Robert Fine
Yeah.
00:21:22
Roberto Rios
I sold it for like pennies on the dollar. So I lost my shirt on that trade.
00:21:25
Robert Fine
Well, I'm very sorry to hear that.
00:21:29
Roberto Rios
No, it was a good experience though, because here's the other thing is it's funny. I've actually thought about like what would happen if if it actually played out. You know, I was young and to be honest, I was a bit arrogant. I thought I understood much more about the world than I really did at the time. And this is only five years ago, right? But I Even at that age, I was like, I've been more researched than anybody. I've been listening to podcasts obsessively. I've been you know talking to economists. I've been reading books. I know more. i I'm right about this. I'm going to make $1 million dollars off of 20 grand was was my you know rough calculation.
00:22:03
Roberto Rios
And it completely went the other way. And that was kind of a humbling experience and made me realize, wow, maybe things don't, they're not as simple or i don't understand it as much as I should. And maybe my ego got in the way of this trade.
00:22:15
Roberto Rios
And so I had to kind of say take a step back and and reevaluate myself.
00:22:18
Robert Fine
I think this isn't, I mean, i personally, i mean, I've never been, you know, I wouldn't say richer or anything like that. I've not been, you know, I've i've been, know,
00:22:31
Robert Fine
had had less income than I would like at times and and not necessarily teetering on the brink or anything like that. But you know i've I've been in tech and and ah for you know most of my career, 30, 35 years, ah mostly, i mean, pretty much all in the Northeast. I spent a little bit of time you know working ah part-time contracts work in Silicon Valley.
00:22:54
Robert Fine
And and all of my you know most of my view of Silicon Valley has been from the outside looking in. But it does seem, i do feel that you know anyone you know on the young side, probably under 30, that experiences a huge ah windfall ah early in their life, um i think it I don't think it it helps them get you know have a good grasp of reality after that, unless they experience a ah really bad downfall. but
00:23:26
Robert Fine
But those that have ah you know the super rich and and and many that are... I mean, my God, it's a little bit... It's just hard to get my head around right now the fact that Meta is...
00:23:38
Robert Fine
giving out sports like salaries for ai researchers. it's just it's It's hard to really like, oh my God, somebody's getting paid 100 million for a regular job, not to play football.
00:23:52
Roberto Rios
Yeah, no, it's incredible, right? And you when you meet those kinds of people, you kind of – like there's there's a categorical difference between – the people who had to grind and earn and just like get to become a millionaire or multimillionaire through sweat equity and the people who kind of like, I guess you'd call it like lucked their way there, right? That they they just hit a couple lucky trades and they all assume that this is like they don't do to their own brilliance and ah they kind of have an ego and just almost also like an insecurity about them where they kind of realize that they didn't really earn it in the same way.
00:24:26
Roberto Rios
And so those people are not as fun to talk to.
00:24:27
Robert Fine
i mean I mean, some of them, I think, earned it. Some of some of them, you know, had had a brilliant idea, brilliant application, and flooded yeah flooded with investment very early. So I'm not, i'm not i you know, ah begrudging them, you know, their success.
00:24:38
Roberto Rios
you
00:24:43
Robert Fine
But I think, it you know, whether whether whether you earned it or not, it's just, but experiencing that kind of financial windfall early in your and you' in your career and your upbringing. um mean, look, I'm 54, and I would definitely say that a lot of my views and outlook, I mean, lot of my outlook has not changed all that much, but my understanding the world has changed a great deal the last 20, 25 years.
00:25:15
Roberto Rios
Yeah, absolutely. And so, and I think that's the, that's the key part in macro and, you know, in life in general is to keep an open mind and to keep adjusting your worldview for the facts that are present presented to you.
00:25:27
Roberto Rios
Right. So, you know, if you had told me in, you know, 2019, 2018, when I was, I guess, you know, a couple years already into researching macro that the Fed could hike rates to 5% and then keep them there without easing, I would tell you that that's impossible.
00:25:45
Roberto Rios
There's no way. And now with ah my deeper understanding of monetary plumbing and their usage of a reverse repo and the TGA and the SLR ratios and capital ratios and all these other ways that they can add liquidity to the system without like on balance sheet showing ah an expansion, um I wouldn't have believed you. But now it's clearly that's that's what they've done. And and so they're one of the one of the problems that we face right when we're trying to analyze what's going to happen is a lot of times people underestimate the powers that be.
00:26:18
Roberto Rios
It's this perpetual battle between are the people in power, are they idiots or are they geniuses? right Because they can't be both. you know that There are some people...
00:26:25
Robert Fine
but I'm not so sure. I think they can be both at times. But um let let me before we go get off topic a little bit on what mean on going out down different, you know, economic discussion, let's let's finish with Bitcoin a little bit.
00:26:39
Robert Fine
and And I'm sure I'm sure yeah we could probably spend four hours talking about Bitcoin. But if you can, and I know you're I know you're not a financial advisor. um But let me ask you if you can and if you have an opinion, if you don't have an opinion, that's fine as well.
00:26:55
Robert Fine
But if if you had $100 to invest and and you're advising a friend, you know um you know but the in in a you know you know in a checking account or savings account or it into Bitcoin or put it into ethereum or put it into gold.
00:27:14
Robert Fine
um you know what What would you say today with that? How would you advise advise that friend, if at all?
00:27:21
Roberto Rios
So, i mean, it would depend on what the risk tolerance and the age and their income and expenses and everything. But I would...
00:27:28
Robert Fine
Let's say they're not they're not worried about losing the $100 all. And so why?
00:27:31
Roberto Rios
Sure, then I would say Bitcoin unequivocally.
00:27:34
Robert Fine
and so why
00:27:34
Roberto Rios
Yeah. So the reason why is because, you know, for one, like I said, Bitcoin has these has these incredible intrinsic properties that make it ah essentially like a digital ah digital form of gold that is...
00:27:48
Robert Fine
Thank you.
00:27:50
Roberto Rios
almost unhackable and unbreakable right it's it's anti-fragile the harder a nation state tries to crack down on it the stronger it becomes more importantly bitcoin solves the ah what i would call like the transactability dilemma that gold would fail to solve so gold is a great store value right it only inflates at two percent a year uh you can't really produce it artificially they've tried there's a you know There's a ah neutron collider that's made a couple atoms of gold, but it's at the expense of millions and millions of dollars. And so that's just unsustainable, obviously. And and until we get to zero point energy or fusion energy or some sort of like infinite ah electricity source, we don't have a way of producing that easily.
00:28:35
Roberto Rios
And so that means that gold is, ah because of its other properties, obviously, like the inability to rust, inability to decay, um you know, its it's a softness and general usability as a, you know, as a metal for not only dental and technical appliances like in in silicon chips, but also and in obviously cornage.
00:28:58
Roberto Rios
um It makes gold a great product.
00:29:02
Roberto Rios
monetary or you could say store value, right? Especially you for a pre-digital age. The problem with gold arises when you're actually trying to transact it because gold is it's it's dying from its own success. It's too valuable.
00:29:17
Roberto Rios
And so because it's too valuable and too scarce, you have to use tiny flakes of it to pay for small transactions. And it turns out that 99% of your transactions happen under
00:29:30
Roberto Rios
And 90% are under $1,000. And so in an economy where microtransactions are the bulk of trends, are basically all the transactions that happen, yeah it's it's unfeasible to walk around paying flakes of gold for your coffee and then for some snacks and then for a Beanie Baby or whatever you want to buy.
00:29:50
Roberto Rios
And that's where Bitcoin can solve that dilemma because Bitcoin can be broken down into 100 millionths of single coin for transactability. And it also can be done digitally anywhere in the world, right? If I have ah if i have a current account balance with you,
00:30:06
Roberto Rios
and we're living in the 1800s, I have to physically settle that balance by shipping you gold, right? If i have a trade deficit or trade surplus, I have to receive the balance of that in gold in payment for the items that that are owed, right? Or if I try to redeem, let's say I'm um'm France and I'm ah you know trying to redeem my US dollars for gold in 1965, I have to physically send warships to the New York Harbor to pick up real gold, right?
00:30:33
Roberto Rios
Because everything is physical, right? And in a modern digitized age, that just seems unfeasible, especially with the speed of transactions. So Bitcoin solves that problem because I can send you Bitcoin anywhere in the world and it can be secured by three blocks in 30 minutes. And essentially it's an uncensorable, unhackable, unbreakable transaction that nobody can really stop.
00:30:55
Roberto Rios
So that's that's bi Bitcoin's genius.
00:30:57
Robert Fine
So there was a yeah there's a couple directions I want to go and um I'm making bunch of notes and with arrows and question marks. um
00:31:08
Robert Fine
I want to talk about the US debt. I don't know how far I want to go down this rabbit hole right now, but because you're talking about gold, I have a question for you, which is a fundamental question. is our financial Is the US's financial mess and out of control debt a direct result of Nixon taking us off the gold standard.
00:31:35
Roberto Rios
Yes, it's part of it, but I would say it's more complex, right? Because everyone ah yeah no everyone everyone
00:31:40
Robert Fine
I'm sure it is.
00:31:44
Roberto Rios
points the finger at at at um at Nixon and everyone blames him as being such a horrible president for doing it. But really his hand was forced. There was no real solution.
00:31:55
Roberto Rios
And the entire collapse of Bretton Woods was actually predicted about 11 years earlier by Belgian-American economist named Robert Triffin. In February of 1960, he went in front of Congress and he basically laid out the case that the Bretton Woods system was terminal.
00:32:13
Roberto Rios
And he his his argument essentially became known as Triffin's Dilemma. And the dilemma is essentially this. The US s is the world reserve currency holder.
00:32:24
Roberto Rios
They issue the world reserve currency, which is the US dollar. And other nations need to use the US dollar in form of trade as forex reserves for cross-border loans, et cetera.
00:32:35
Roberto Rios
And in the post-war economy, especially you know into the and you know later into the nineteen sixty s and seventy s the rest of the world started to globalize rapidly, right? Because initially it was just in 1945, the US made up 15% of the world population and 60% of world GDP.
00:32:52
Roberto Rios
And we had over 50% of the above ground gold reserves in the entire world because we'd storehoused all the European gold during the war. And so it made sense for us to be the world's reserve reserve currency.
00:33:04
Roberto Rios
And not many other people needed it outside of us and Europe. And so we didn't really have a supply and demand imbalance. But as the rest of the world began to globalize, especially you know Southeast Asia, the rest of Europe in the 1960s, then that created demand pressure for more and more US s dollars.
00:33:25
Roberto Rios
And the way you supply demand pressure under a fixed, you know, peg system, right, which is ah the Bretton Woods system was a fixed peg, then you have to issue more more dollars. And so the U.S. had been doing that. They'd been issuing dollars for decades.
00:33:43
Roberto Rios
And by the late 60s, the ah you know the french The French finance minister, Gerard d'Estaing, and I'm sure I'm butchering that, had had done the calculus along with Charles de Gaulle and realized that the US had issued about two and a half to three times as many dollars as was justified by the reserve ratio of $35 ounce.
00:34:01
Roberto Rios
and so what do they do is they call in the gold and that forces Nixon that that within like five years from 1965 to about, you know, mid 71, five to six years, half of the ah US gold reserves were drained.
00:34:17
Roberto Rios
And so if you continue down that path, obviously the the US would run out of gold and then we'd completely lose Bretton Woods. And so his solution was more like a temporary stop gap, which is let's just break the gold window. Let's keep the rest the gold here.
00:34:30
Roberto Rios
And then let's just make it a free floating fiat currency. And let's find other ways like the petrodollar system to ensure that there's dollar purchasers. But what...
00:34:39
Robert Fine
let let me mean Let me back up for a second and just try to, and again, I'm i'm i'm a novice you know neophyte when it comes to this.
00:34:41
Roberto Rios
Sure. Sure.
00:34:48
Robert Fine
So i'm I'm asking basic questions for my own understanding, but I'm going to guess that if I don't understand it, then hopefully there's probably a lot people listening who don't understand either. um
00:35:01
Robert Fine
with with the In the 50s, 60s, as, as yeah know let's say, Southeast Asia's growing economies and the demand for dollars, what was the what was the need?
00:35:15
Robert Fine
yeah why Why did the US Fed need to keep printing dollars to meet that requirement? What's the... what would have what's the the what happens if they don't increase ah that printing? Because doesn doesn't that then reduce the value of the dollars that are out there printing more, putting them out there more?
00:35:38
Roberto Rios
Yeah. So this was this was essentially right the the dilemma that Triffin offered to the global – or well, to to Congress in 1960 is he said, look, here's the problem.
00:35:48
Roberto Rios
There's out external demand for the US dollar, right? And only the Fed can print it. And we have two options. Either we print to meet that demand or we don't. And if we don't, which is the first option that you just laid out, then there's not enough global liquidity to fund you know the the demand, which means the global monetary system begins to seize up.
00:36:10
Roberto Rios
And so the way that would play out would be essentially like deflation, right? you'd see All these dollar-based loans in Europe, they can't earn, you know, these corporations now suddenly can't earn dollars.
00:36:21
Roberto Rios
And so they start defaulting. And the local currencies have to start maybe printing their own currency in order to buy dollars on a foreign exchange market to get their hands on dollars so that their local, you know, industrial manufacturer or that their local bank can have enough dollar liquidity to finance itself. And if it doesn't, obviously, then it just defaults on those loans and those loans go to zero.
00:36:41
Roberto Rios
And like I laid out in the very beginning, a equals L plus E. If you let any liability default, you let an asset default, which means the entire, the the system as a whole shrinks and that's called deflation.
00:36:45
Robert Fine
well
00:36:53
Robert Fine
Now, let me ask you a fundamental, guess I mean, this is kind of fundamental economic question. if What is wrong with that? what What is wrong with allowing for those defaults to happen, allowing for deflation to occur?
00:37:11
Robert Fine
ae And now, is it ah is it downward word spiral or is there a point of equilibrium?
00:37:19
Roberto Rios
Well, there's there's obviously a point of equilibrium that eventually lower prices stop by getting lower prices and and liquidity will flood back into the system. The question is how much pain is required to get there.
00:37:32
Roberto Rios
And the fundamental issue with right our modern fiat system, especially post-1913, that it's – nineteen thirteen is that it's you know are ah and All money is blown into existence.
00:37:44
Roberto Rios
And so money is debt. And so if you allow debt destruction, you're essentially allowing monetary destruction, which is what we saw in the 1930s. And so if you allow a let's say, 20% drop in the value of the assets of the bank, and the bank is fractionally reserved,
00:37:59
Roberto Rios
And there's a bank run. Well, only you know a fraction of the people are actually going to get their cash out. And then the the rest of them will be left with nothing but pro empty promises and maybe bank equity if they're lucky.
00:38:11
Roberto Rios
And if that happens over and over and over again, the money supply contracts, which adds to the deflationary problem. And so you would see basically rapid deflation until everything is down basically to the value of cash in the system, which is usually around 10% to 20% for most, let's say, early 1900 banking systems.
00:38:29
Roberto Rios
ah banking systems
00:38:30
Robert Fine
So, but, but isn't this the, um isn't it, are we in the problem? We are because we have, you know, based on a, you know, our economy and and a functioning democracy and the way we run the world. I mean, the problem, the problem with our system and not, not that I'm, I mean, it is the best system that we have, but it's all predicated on continued growth.
00:38:53
Robert Fine
And, know, there, there's, there's ah it's very, very hard to have you know, continued growth all the time and wanted and to minimize, you know, the pain of some.
00:39:04
Robert Fine
i mean, i you know, this is, I mean, this goes back to the decisions back in 2008, which I think that the bailouts were the completely incorrect thing to do. And they should have let the banks fail, the ones that were, you know, over their heads and, you know, and racketing up much more debt than they could manage.
00:39:27
Roberto Rios
Yeah, absolutely. um And this system, again, it's it's emerged because of the, I guess we can even loop it back to the gold transactability probably we talked about in the beginning, right?
00:39:39
Roberto Rios
Since gold is really hard to use because it's so valuable, it's really hard to use in microtransactions. It made sense for people to say, hey, I'll store it as a centralized counterparty. You give me an IOU and I'll go trade that IOU. And then if somebody wants to come in and settle the gold for the IOU, they can do that.
00:39:55
Roberto Rios
But if they just want to hold on to the IOU, they can. And so that you know that process gave birth to the modern fiat banking, fractional banking standard. And we were just kind of stuck on that.
00:40:06
Roberto Rios
And we're still stuck on that, which means that our entire system, it's requiring ever, you could call it like ever-present inflation and ever-present growth in order to continue to to perpetuate itself. Because the interest on that debt that's loaned into existence needs to be paid off continually.
00:40:22
Roberto Rios
And so if it's not going to come from fundamental growth, it's going to come from inflation.
00:40:24
Robert Fine
I mean, it's it'ss just the whole whole reason for Trump wanting to get rid of Powell at this point. um
00:40:30
Roberto Rios
Yeah, absolutely.
00:40:32
Robert Fine
So, yeah you know, something I wrote down that I actually hadn't thought until until you and I started talking. and I'm wondering there's some state goal if if there's some
00:40:48
Robert Fine
in you know deep state goal um But based on all this, would we be better off than moving to a Bitcoin standard?
00:41:02
Roberto Rios
I think so, but I think it would take... There's a lot of steps that need to happen before we get there, right? um And a lot of the Bitcoiners... um
00:41:11
Robert Fine
and and how And how does that avoid the same problem of printing more dollars than we ah maybe have Bitcoin reserves? or Or with the Bitcoin reserves, is it just all so more transparent that it doesn't take a ah finance minister in France to do some detective work to figure out that the U.S. is printing more than they they have gold reserves?
00:41:34
Roberto Rios
So i would say that the Bitcoin, you know, a Bitcoin standard can come in in several different forms, right? You could do there could be a form of a Bitcoin standard where you put your Bitcoin in a bank and they issue you some sort of IOU.
00:41:48
Roberto Rios
And the IOU could either be on a blockchain, on ah on a decentralized blockchain, or it could be on a completely centralized ledger. And fortunately, if if ah people trust that and enough people adopt it, it could become a form of money, right?
00:42:01
Roberto Rios
And that would kind of, you're right, it would, ah it would, eliminate some of the benefits of using a but a full ah full Bitcoin standard. The benefit with Bitcoin though is because because it's digital, you could, you know in theory, demand withdrawal whenever you wanted. And you could also obviously put it in there whenever you wanted. And if they give you the address of your you know the The base layer address of your Bitcoin, you can check it at any time and ah anytime anywhere in the world to make sure that the Bitcoin is still there.
00:42:31
Roberto Rios
And so people could audit the the bank themselves, which is a completely novel function, right? Under a gold standard, you give the bank your gold and it just disappears into the vault and you just have to trust that they have it.
00:42:44
Roberto Rios
And they can audit themselves. They can hire an auditing firm. But in the end of the day, the system is based on trust. And Bitcoin is the first one that's not fully based on trust. Now, the second option, I would say, which is better, obviously, is a fully backed Bitcoin standard where you don't even really, you don't have an IOU except in the form of a layer two instrument like, um you know, lightning or or or liquid. And then you just settle that every couple days on the base chain.
00:43:12
Robert Fine
would we Would we have to peg the dollar to Bitcoin for this to work?
00:43:20
Roberto Rios
Well, if you wanted the dollar to be redeemable in Bitcoin, you would. um But the dollar in that case would survive in a much different environment, right? Because it would it would that would reinstate Triffin's dilemma again.
00:43:33
Roberto Rios
So, you know, we we talked about the one side Triffin's dilemma, right? Where there's external demand for the currency, there's a centralized issuer, and you don't issue enough. So that the global monetary system begins to seize up as if it's like, ah it's a global Great Depression is essentially what I would call it.
00:43:49
Roberto Rios
And actually, ironically, that's what Triffin thought would happen. He thought, if you read his papers, he thought that we would have a deflationary outcome. He's like, there's no way this doesn't end in deflation. What he didn't expect is that the US would actually go along with the other side of the deal, which is to print enough dollars to fund the demand, even if the demand is greater than what's justified by the reserve ratio.
00:44:09
Robert Fine
So he didn't expect he did expect the US government to do something that was probably not ethical or correct.
00:44:09
Roberto Rios
And so-
00:44:15
Roberto Rios
No, he didn't. No, which is, again, this is the, I guess, called the idealism of economists, right? He He thought that it would end in an inflationary outcome that the US would stay true to their gold standard, that we'd essentially follow the UK's 1920s playbook of sticking to the gold peg even when it was extremely harmful because the UK had done the same thing.
00:44:37
Roberto Rios
They went off the gold standard in 1914. They fought the war. And then in 1920 and 21, they started to reinstate the gold standard and they tried to do it at the same peg of, I think it was, you know,
00:44:50
Roberto Rios
one troy ounce for four pounds or something that they had before the war. But of course, they didn't play the money supply by 100%, 200%. hundred percent two hundred percent And so the real exchange rate was somewhere north of eight or nine, and they tried to peg it back at four.
00:45:03
Roberto Rios
And so that caused a recession in the UK and a deflation and contraction the money supply much, much sooner than it happened in the US.
00:45:11
Robert Fine
Now, but I guess going back to way our are economy works, it we we have to i mean it it almost seems like the UK went through what it had to go through. It went through that deep that that depression during the 20s. It went through its recession. Because you have to go through those recessions to get back to a growth point, a real growth point that's not artificial.
00:45:40
Roberto Rios
You do. You do. And that's that's why business cycles have existed for thousands of years. I mean there's even accounts and in Leviticus of debt jubilees and ah debt cycles, you know even dating back to, like I said, the the ancient Israelites and the Canaanites and the Philistines.
00:46:01
Roberto Rios
um you know this is ah This is almost like a ah human – ah a human action, right? What Mises would call a human action cycle that has just perpetuated itself because there's always a boom. There's always excessive exuberance. There's always excessive borrowing and lending.
00:46:17
Roberto Rios
And then it always comes home to roost. Some of those projects aren't profitable. They start to default. The economy rolls over. And then that all that bad capital gets flushed out with the bad companies and the ground is set for the new ah the new companies. The problem is the the central banks as they exist today,
00:46:35
Roberto Rios
do not want to see that kind of economic pain. And increasingly, the system is more and more sensitive to any form of economic pain whatsoever, right? I mean, we had ah we had a huge regional banking crisis after just a few months of the taper in March of 2023.
00:46:52
Roberto Rios
And we had major currencies like the British pound and the yen blowing up in September 2022 after just five months of tapering and reducing US s dollar liquidity. So the system is like...
00:47:04
Roberto Rios
It's so dependent that the time now between a taper and ah crisis is getting shorter and shorter and shorter just because the leverage is getting ratcheted up higher and higher and higher on every single entity in the system.
00:47:18
Robert Fine
And so I guess maybe maybe this then brings us to to the state of of the US debt, because it in my mind, it's it's ah it's an amount and a situation that's that's not solvable, um that's unsolvable. And unfortunately, it's it's the it's the state of the last 30, 35 years of lack of you know financial leadership.
00:47:45
Robert Fine
um that that's put us in this place. And unfortunately, we don't, you know, I think we'd be in different financial situations if if our government was held accountable for the financial decisions they made.
00:47:56
Robert Fine
um But it always ends up being somebody else's problem and I'll be long dead before, you know, except though they don't seem to care very much about their grandchildren. Yeah. So where do you think, where are we today?
00:48:11
Robert Fine
um you know, I mean, and then with this big, beautiful bill, which, you know, completely seems to go against, you know, what but Trump, you know, ran on in terms of keeping the debt, at least in check.
00:48:23
Robert Fine
That does look like to it adds, it will I don't think it'll add to it as fast as maybe being predicted. I think it's going to take a few years for Trump. you know, the costs of or the impacts of of changes in health care and stuff to play out. I don't I don't think whatever they're estimating is is probably going to be anywhere near close. Could be a lot higher. could be a lot lower.
00:48:42
Robert Fine
But. yeah where You where, know, if you were in charge, is what should we be doing? what What would be the the appropriate thing to to be doing? And is there anything and are there choices that are, you know,
00:49:01
Robert Fine
Are there choices that are better or or less, you know that put us in a better position without causing the the pain that is necessary to to read to level the playing field and start again?
00:49:15
Robert Fine
it just ah It just seems like that's you know it's how the system works. We don't wanna deal with it. It is the worst thing that we can you wanna think about. But you what I've worried about for many years I'm starting to think maybe maybe because the U.S. has the reserve, it won't happen. But like to me, a Greece situation can happen here.
00:49:41
Robert Fine
um And Greece is better off for it now. I mean, Greece is now in ah back in a growth stage, but they had to go through that pain.
00:49:50
Roberto Rios
Yeah. And, you know, Iceland had the same thing with ah the 2008 financial crisis where they didn't really do bailouts. They allowed many of their banks to fail. And what happened is that they had a sharper downturn, obviously, but then they had a sharper recovery and they were able to actually get the positive GDP growth by like fourth quarter of 2011, which was, you know, much faster than a lot of the other countries, especially when you're just for inflation.
00:50:15
Roberto Rios
So the, you know, allowing a recession, allowing, ah some economic pain to play out is actually a good thing. It's the same, with same thing with going to the gym and thinking that you can build muscle without going through some physical effort and some strain and a little bit of pain.
00:50:30
Roberto Rios
It's just impossible. You can't. And so it, it the excesses of the boom cycle need to be wiped out by the, I guess to call it the downturn or the and the depression of the of the the crash. And so that's that's just the cycle of human history.
00:50:46
Roberto Rios
As to where what you know or what I would do um with our current debt situation, it's pretty I would say it's pretty grim. It's pretty difficult because you know we're at $36, $37 trillion of total federal debt.
00:50:59
Roberto Rios
We're already at $2 trillion dollars of annual stimuluses. ah which is already 6% to 7% of GDP ah without a war or without a major crisis that we're, I guess, bailing ourselves out of.
00:51:13
Roberto Rios
um you know There's ah falling tax receipts for the last few years, especially in terms of percent of GDP. And and along with these provisions in the bill, that's just going to become more more and more extreme.
00:51:25
Roberto Rios
And the bill also obviously includes another, what, $2 trillion dollars of spending over 10 years. So that's $200 billion dollars a year additional. And then add on to all that, the $1.1 trillion dollars of interest expense, which interest expense just passed back in mid-May of this year, passed defense spending as um this, then and now it's the second most expensive line item i'm on the Treasury's expenditure list.
00:51:51
Roberto Rios
and so
00:51:52
Robert Fine
So so let's let's, for argument's sake, let's say Powell resigns tomorrow and you Trump appoints somebody new and and he and they drop the interest rate three points as he's asking for, so like one and a half, 2%.
00:52:08
Robert Fine
um So that that would reduce the the interest payments on the debt um significantly, i mean like 75, 80%. seventy five eighty percent but um But it does seem with that kind of low interest rate, then we're going to be stoking a you know more rational exuberance.
00:52:31
Roberto Rios
We would, but the the system requires more and more liquidity and more and more speculation and more and more asset price appreciation for it to continue. right So this is this is like my my contention with people who think that there's this easy way out of this debt problem.
00:52:47
Roberto Rios
Well, for one, like we said, we can't delete or just default on the debt because every every liability is someone else's asset. And let's say you just try to reduce the situation on the fiscal side. So you just say, okay, well, we're not going to actually default on the debt, but what we can do is we're going to cut government spending so much that we're going to go from deficits to surpluses and going to use a surplus to pay off the debt.
00:53:11
Roberto Rios
Okay, let's say you do that. Well, you're going to get rid of the deficit, which is 7% GDP, and then you're going to have to cut deeper, probably ah almost about the same amount. And so that means 14% of GDP spending or GDP in total is now gone.
00:53:27
Roberto Rios
And The reason why is because GDP ah includes government spending as a net additive portion of of of the equation. So if you reduce government spending de facto, you reduce GDP. That's just how the equation works.
00:53:42
Roberto Rios
And so reducing the fiscal side means that you'll have a contraction, you'll have a recession immediately because now suddenly government workers are laid off, government contracts with Boeing and Lockheed are all canceled.
00:53:55
Roberto Rios
healthcare programs are canceled. Medicare, Medicaid programs will be canceled. You'll probably obviously have to go after social security as well. So a bunch of stimulative spending that was being sent to seniors direct as direct payments is now gone.
00:54:07
Roberto Rios
um it would cause a recession in very short order, right? and so And that recession could easily blossom to even like a ah depression or like a mini depression, we can call it. So there's no really easy way out.
00:54:19
Roberto Rios
And um you know printing the money is essentially the, I guess you could call it like the least... immediately painful way to handle the problem, but it's also obviously detrimental long-term because it erodes the dollar's value on the foreign exchange markets.
00:54:33
Roberto Rios
It erodes it here at home and erodes faith in the and the currency and just speeds up our our ah our end game of this world reserve currency status.
00:54:41
Robert Fine
so so So maybe you can help illustrate the issue in relation to Japan's situation, which is, and again, having the best full understanding myself, but knowing that their debt about 200% And there's a...
00:55:02
Robert Fine
and i there' a figure I saw you know a couple months ago or something that said, as long as US keeps the debt ah within like, I don't know if it was either 80% of GDP or 120% GDP or something like that, that they could it could maintain you know a a working ratio.
00:55:30
Robert Fine
And and I don't know, and and I'm not quite sure, and I don't completely understand the impact that a 200% debt to GDP ratio that Japan has has had, how that's impacted its own economy for good or for bad over say the last two decades versus the US. And are we on are we just following that same playbook and and going toward down that path?
00:56:00
Roberto Rios
Well, that so Japan is another option, right? I guess you could call it for the for the monetary endgame because Japan has faced essentially the same or similar problems that the US is facing now with demographics and debt, but they're just like 20 or 30 years ahead of the curve.
00:56:16
Roberto Rios
So you know in the wake of the asset price bubble that collapsed in the late 1980s and early 1990s, the Japanese central bank finally was able to wrestle control away from the Ministry of Finance and gain what I would call basically monetary autonomy.
00:56:32
Roberto Rios
And so they started off with bringing interest rates to the zero bound in 1999. ninety ninety nine And then they product brought about the first version of QE in 2001 in March.
00:56:45
Roberto Rios
And then in 2010, they continued with more QE right after the financial crisis. And then in 2013, they started QQE, which was essentially the – um It was like QE on steroids, even buying real estate ETFs and and equity ETFs and corporate bonds.
00:57:01
Roberto Rios
And of course, they started with yield curve control in 2016 in September after Bernanke had flown there in July to help them formulate a new monetary policy because they were trying to escape this liquidity trap and this debt ah overhang that they themselves had created.
00:57:17
Roberto Rios
had had created. And the issue with the Japan is that instead of allowing the system to fully deflate and to let the excesses wash themselves out, they essentially zombified the entire system so that all the debt would perpetuate.
00:57:32
Roberto Rios
Because at 0% interest rates, right rolling it over is free and the money is free. So you can just borrow money again to to pay off the maturing loan. And a lot of companies that should not be in existence are able to maintain existence. And the Japanese federal government, which at 260% debt to GDP, which is ah where it's at currently, and the private sector, which is at 180% debt GDP,
00:57:57
Roberto Rios
um are able to perpetuate themselves in in that environment. But the problem is you you pin your entire monetary policy to the zero bound and it's very, very hard to move away from that. And that's why The yen started blowing out because the interest rates were pinned so low and the Fed started hiking. And so the carry trade opened up and just pulled the ah currency away from 100 yen to the dollar up but up to 150.
00:58:22
Roberto Rios
But it it limits your options because once you're that indebted, there's really no easy way to hike your way out of anything.
00:58:30
Robert Fine
so So maybe can you go into more on what Japan's current situation is today with its debt and interest rate? And is it moving in a positive direction or is it still just a perpetuated zombified state?
00:58:49
Roberto Rios
Sure. So I actually produced a mini documentary about this on my YouTube channel. You can, if you look up a Peruvian bowl on YouTube, you'll find my most recent video was about this. um But absolutely.
00:59:00
Robert Fine
We'll add that add that link to the notes.
00:59:03
Roberto Rios
Absolutely. So, and and that video actually traveled to Japan and met with Weston Nakamura, who's a, a former Goldman trader and ah ah now he's a macro writer and analyst on Substack.
00:59:14
Roberto Rios
um But Japan was essentially caught in this trap of 0% interest rates, 0% inflation, and essentially infinity QE and infinity yield curve control. And as they continue down this path,
00:59:26
Roberto Rios
in the 2010s and into the early to mid-2020s, they were seeing increasing ah you know an increasing zombification of the stock and bond markets. And so, for for example, the Bank Japan now today owns over 55% of all JGB, Japanese government bonds.
00:59:47
Roberto Rios
It owns 90% or more of most of the long end, and it owns over 100% of certain issuances of the 10-year JGB. And the way that's possible is you oh you buy up all the you know all the bonds on auction from the treasury as a central bank, and then you loan them out in the repo markets. And so on paper, you own 108% of, let's say, like the May 2024. Sure.
01:00:09
Roberto Rios
of let's say like the may may twenty twenty four
01:00:11
Robert Fine
So client can I stop you there? So is that similar to the Fed owning like seven to eight trillion of of the current debt today?
01:00:23
Roberto Rios
it's It's similar in kind. It's not similar in scale. So the Fed owns you know approximately 20% of the total treasury market and the BOJ owns 55%.
01:00:36
Roberto Rios
So the BOJ is just much, much more extreme version of what you know the Fed has has has accomplished.
01:00:42
Robert Fine
Now, so so maybe help me understand something, maybe for listeners as well. What is the,
01:00:51
Robert Fine
is it technically, is the US government then technically own that debt? or And if it does, why can't they just ah erase it or not worry about collecting it?
01:01:08
Roberto Rios
you mean You mean like could could they order the BOJ simply like delete the death that that's on their balance sheet and then the BOJ can just print?
01:01:18
Robert Fine
Well, or the U.S. I mean, what's if if the U.S. owns seven to eight, how can the U.S. government both own, you know, be the holder of the debt and owe the debt at the same time? That's that's what I'm trying to wrap my head around in terms of, say, the seven to eight trillion, 20%.
01:01:36
Roberto Rios
Well, remember, a central bank technically isn't isn't part of the government, right? um It's an independent entity. And actually, you know, it's it's board of governors and especially for the Fed, right? the ah The actual ah chairman has to be appointed.
01:01:49
Robert Fine
what what do we What do we call it if it's not part it's neither the government, nor the nor the private sector, nor the public sector?
01:01:52
Roberto Rios
yeah it's called it's called It's called a public-private partnership.
01:01:56
Robert Fine
I
01:01:58
Roberto Rios
um But you're right. It is – in many ways, it is an extension of the government and it's so it's it's a – I guess you'd call it an unholy union of the government and the banking system.
01:02:10
Roberto Rios
And so it's not really accountable to either.
01:02:11
Robert Fine
think we should put that one on a T-shirt.
01:02:13
Roberto Rios
Yeah, yeah.
01:02:14
Robert Fine
An unholy union.
01:02:16
Roberto Rios
Well, that's what I would call it, right? It's pretty insidious. And the issue with allowing the central bank to swallow up so much of the bond market with allowing the BOJ to eat 80, 50% of the total bond market and 80 or 90% of the 10-year and and then over 100% of certain issuances, like –
01:02:32
Roberto Rios
and twenty year and then over a hundred percent of certain issuances like i said is Even if you – like let's say you go go forward with your strategy and let's say you delete the the debt that the government already owes or or owes to that – to the central bank. Well, at 0%, they weren't paying interest on that debt anyways. They were just borrowing new debt two to pay off the ah principal principal payments from that original debt.
01:02:57
Roberto Rios
But now you're sending a signal to the market that the central bank is just going to eat as much of the debt as possible, right? And it's going to eat unlimited amounts of the debt. And so there's no real reason for you to own the bonds other than for you to own them until the central bank comes in and buys them from you.
01:03:12
Roberto Rios
And so the link between the central bank and the treasury becomes stronger and stronger as they tie themselves together in what I call, in one of my sub-stock pieces, a suicide pact. And so this suicide pact means the the the two orbiting
01:03:26
Robert Fine
Thelma and Louise, you know, driving off the cliff.
01:03:30
Roberto Rios
Exactly, exactly. or Or you could call it like, ah you know, in in physics, when when two black holes near each other, they start to spin around each other and they create gravitational waves, right? That's essentially what's happening.
01:03:43
Roberto Rios
You're having these two entities, one that can borrow money and one that can print money and lend, and you have them approaching each other and and ever- ever tighter feedback loop and ah proximity, which makes it so that all the other players of the market starts to get start to get ah washed out.
01:04:01
Roberto Rios
So again, you look at the 10-year JGB where they were doing yield curve control. In September, October, November of 2023,
01:04:11
Roberto Rios
there were there were weeks where the 10-year did not trade at all because no market participant needed to trade it or wanted to trade it because at 0% rates and with the with the central bank buying infinity amount, why would you even buy it if you can't make a spread on it? And why would you buy it if you know that it's not going to be worth it it's not going to worth any more money in 10 years than it is today?
01:04:31
Roberto Rios
So there's no reason to to to to buy that and and in terms of yield.
01:04:36
Robert Fine
So if we, if, if, if we, if, if Powell resigns and Trump gets his way and he gets the interest rate reduced, are we not then, are, are, are we just not, are, are we not headed in the same direction as Japan at this point?
01:04:36
Roberto Rios
So...
01:04:53
Roberto Rios
In some ways, yes, but the difference is that Japan is not a world reserve currency holder. And Japan has a current account surplus and we have a current account deficit. So we have a lot more to lose, especially if we lose reserve currency status than Japan does, because not many foreign people own JGBs, right? Not many foreigners own Japanese equities.
01:05:15
Roberto Rios
with you know one of the feedback loops that we talked about in the beginning with Drift's Dilemma is that because of because the fact that the world demands dollars for global liquidity and for global trade, they earn dollars through you know all those mechanisms we discussed before, through trade, through finance, through cross-border loans.
01:05:33
Roberto Rios
And whatever dollars they don't use to settle trade balances or to settle invoices or debt, they store as cash. And what's the best thing to do with the excess cash? Well, with you especially U.S. dollar cash, you want to invest it in U.S. markets.
01:05:48
Roberto Rios
And so all this money that these foreigners earn flow back into U.S. equities, U.S. bonds, U.S. treasuries. And that means that a large chunk of our treasuries and our stocks and our bonds are owned by foreigners It's actually now more than 100% of GDP.
01:06:04
Roberto Rios
So over 100% of our GDP, we have a net negative international but investment position, meaning foreigners own more assets of ours as a percent of GDP than we own of theirs. And it's by 100%.
01:06:17
Roberto Rios
So we own you know a couple trillion dollars worth of foreign assets, and foreigners own something like $29 trillion dollars of of American assets. So...
01:06:26
Robert Fine
which which which creates its own security questions and problems. um
01:06:30
Roberto Rios
Well, yeah. So this is dollar endgame. don't know if you finished the book, but this is the kind of nightmare scenario I lay out in dollar endgame, which is if the US s loses reserve currency status, which again, it's a big if, fair.
01:06:42
Roberto Rios
Like it's very hard to find another reserve currency. Fine. Okay. But let's just say we do. If we do and these foreigners no longer have needs for US dollar liquidity, then they no no longer really have needs to park their liquidity into a US dollar-based asset.
01:06:58
Roberto Rios
And then that means a lot of the guaranteed buyers that have been coming in for the last 40, 50 years for US s equities and US bonds and US treasuries are now going to disappear. And when those buyers disappear, obviously ah the supply and the the market dynamics will reflect that. And so we could see a massive ah deflation or you call it like a stock market correction in the US. And then the Fed would again be forced to to decide, do you want to allow the S&P fall 30% within a year or do you want to print?
01:07:28
Roberto Rios
And their response every single time has been to print.
01:07:32
Robert Fine
And, well, can you maybe help me understand the relationship between the the for amount of printing and the interest rate and and and the interest rates effect on on the bond market? and what what i can I mean, I guess what I can, I could make an argument that okay, the US equities market is attractive because of the technology that's coming out of Silicon Valley, because of the growth of Nvidia and Google and companies like that. and
01:08:04
Robert Fine
And that's more attractive than than other equity markets around the world. So so I could see that as ah as an argument. is Does reducing the interest rate reduce the amount that foreigners can earn on the bonds, on US bonds?
01:08:22
Roberto Rios
Yeah, it does. But it again, it's it's not – it usually comes with a lag obviously and it also comes with – it depends on the tenor of the bond that they're investing in.
01:08:33
Roberto Rios
Because with the fed if the Fed just moves the Fed funds rate, which is the overnight you know call loan rate between unsecured between banks and the Fed, um then that lowers the extreme short end of the curve. And usually the rest of the curve will follow suit.
01:08:48
Roberto Rios
But that's why they usually have to do QE is because in order to make the yield curve and the short end the you know Fed funds rate align with each other, then you have to run QE and purchase those bonds to drive the yields down and to kind of normalize what you call it like bond market policy with ah banking policy, which is the Fed funds rate.
01:09:09
Roberto Rios
So you have to do both at once. And the issue is if you do if you do QE again, you're going to cause another inflationary wave. And if you don't do QE again, then you're going to cause more interest expense and more debt yeah debt and debt growth, you could say.
01:09:26
Roberto Rios
And that will eventually cause QE to be restarted again because there's just not enough demand in the system to handle the exponential supply of U.S. Treasury bonds that will have to be issued if we're going to go forward with our current debt path.
01:09:40
Robert Fine
from from an From an economist's point of view, so just thinking about it from a, yeah forget about the the good or the bad side of all this, is this is this just a a grand 50-year experiment that's never been done before and we really just don't know enough on on what how it all yeah what the results are or where where the options are or what the end game is, as you say?
01:10:05
Roberto Rios
Yeah, well, I would say in some ways this is new, right? Because they're inventing new ways of ah monetary easing and in they're inventing new ways to use the
01:10:16
Robert Fine
I mean, it's amazing for for as long as we've had civilization that we're still coming up with new ways, do do new new manners of of economics.
01:10:25
Roberto Rios
Yeah, absolutely. and it's But I would say it's it's a new kind of economics in the sort of like niche down, like I guess you'd call it like a specific way you view it. If you look at it in the generalized form, printing money to fund government deficits is nothing new. right This happened in in ancient Rome um you know under Tiberius and others who debased the currency.
01:10:48
Roberto Rios
And it happened in Greece, and it happened in Mesopotamia, and it happened in you know Great Britain and it happened in Portugal and Spain. like This has happened time and time and time and time and time again.
01:10:59
Roberto Rios
And it's just in the past, it was much simpler. It was, oh, I'm the tre i'm the government agency. I'm the treasury. I'm going to call in couple of – whatever we get in tax receipts in the form of coins, I'm going to melt them down, out of a bit of copper and then send them back out, remint them and call it money.
01:11:16
Roberto Rios
And then I'll do that over and over and over again until the denarii loses 90% of its silver value in 300 years. And so that's that's what played out in ancient Rome and that's essentially like a very simplified version of what's playing out today.
01:11:30
Robert Fine
So is this is this what is um ah drives a lot of the interest and investment into Bitcoin is those that are concerned about you know their money, ah whether it's in yen or US dollars and not knowing what the government's going to do or how it's going to act and how it's going to affect your personal finances? Is that is that a protection against that?
01:11:57
Roberto Rios
Is Bitcoin in protection against the inflation? Absolutely. um You know, Bitcoin...
01:12:01
Robert Fine
inflation, deflation, whatever it ends up being.
01:12:05
Roberto Rios
Well, it's yes, it is. Because, again, the system as it exists cannot survive a real deflation, right? it it I mean, the system almost died in 2008 under just what I would call like a financial market deflation.
01:12:19
Robert Fine
Did it? I mean, now that's what we were scared into.
01:12:21
Roberto Rios
It almost died. Well...
01:12:23
Robert Fine
That was, you know, and I think, you know, again, they, you know, you're,
01:12:30
Robert Fine
They bailed out banks that shouldn' have been shouldn't be in business, that that are doing poor things and put us in the situation that we were in. It's perverse.
01:12:39
Roberto Rios
Well, yeah, true. It is perverse and it is wrong, right? But this is what I tell libertarians. Like and i'm I'm mostly libertarian, right? I would agree with a lot of the sentiments they have.
01:12:50
Robert Fine
Well, my friend will love listening to this.
01:12:52
Roberto Rios
Oh, Absolutely. I agree, but you have to see the world for how it is, not how you want it to be. And so all of these banks shouldn't have been able to do the things that they did.
01:13:03
Roberto Rios
And although the Fed shouldn't have bailed them out and the Treasury shouldn't have started the top program, they did. Because again, for to perpetuate the people in power to perpetuate the system as it exists. You have to do those things to ensure it survives.
01:13:15
Roberto Rios
And we were very close. We were at the red you know at the red line of the system. the the The warning lights were blinking red and a neutron bomb was going to hit the death star of our financial system.
01:13:26
Roberto Rios
Timothy Geithner, the president of the New York Fed,
01:13:29
Robert Fine
Yeah.
01:13:29
Roberto Rios
reported that on September 15th, right after Lehman failed, that several large of ah several large ah ACH companies and ah and banks started telling him that if they weren't if they wouldn't allow a know some form of bailout in the financial system within a week, that the ATMs would stop working because the banks were seeing such high withdrawals of cash that they were running out of of liquidity, of cash liquidity, physical cash.
01:13:55
Roberto Rios
And so ah you could see this domino, right, of So AIG failing, Lehman failing, banks failing. And again, under this fractional reserve system where the banks only hold 10% of the actual deposit liabilities in actual assets that are cash or cash-like, then that means that overnight, 90% of people who think they have money in the bank find out they actually don't have any money.
01:14:20
Roberto Rios
And what happens when 90% of people basically lose everything is you see massive deflation. All the demand collapses.
01:14:25
Robert Fine
but You see suicide.
01:14:25
Roberto Rios
The entire system goes down. Yeah. Yeah.
01:14:28
Robert Fine
and You see people jumping out the window.
01:14:28
Roberto Rios
It's systemic. that That's what I'm saying. It's, it's, it's systemic suicide.
01:14:31
Robert Fine
um So that's that's a great argument for Bitcoin then.
01:14:33
Roberto Rios
but
01:14:34
Robert Fine
if if If you put your money in Bitcoin, then then that helps prevent the government from not having to call a bank holiday.
01:14:44
Roberto Rios
Well, the the way – the genius of Bitcoin is that you're opting out completely, right?
01:14:45
Robert Fine
That's
01:14:50
Roberto Rios
I'm taking my monetary energy, my dollars, and I'm putting them into a system that is not tied ah to the current fiat system, not controlled by the current fiat system. And so that means that if there is a deflation, if there is an economic collapse, I could go out and pay somebody with Bitcoin for my coffee. I could go out and pay somebody with Bitcoin for my car, for a new car.
01:15:11
Roberto Rios
And I wouldn't even have to use the traditional financial rails to to borrow, to worry about it. The problem with the Bitcoin is that they all think of this is going to happen overnight. And I say, no, you know, the the current system has a lot of things going for it. It has a network effect.
01:15:26
Roberto Rios
It has debt, which you need, like said earlier, when you have a debt in dollars, you need a dollar income stream to pay off that liability. And so there's that means that there's dollar demand. And so in order for us to move from a fiat system to, let's say, a Bitcoin system or even a Bitcoin-backed system,
01:15:42
Roberto Rios
you would need to have not only the carrot of Bitcoin price go up, it's better money, it's less inflation, there's ah you know not as much bailouts and they can't print the money so they can't infinite bail out their friends and their cronies.
01:15:57
Roberto Rios
um You also have to have the stick of the current system is failing. Holy crap, inflation is at 50%. What do I do? How do I pay for my groceries this week? Well, I should try something else.
01:16:07
Robert Fine
but also i mean That almost feels like that is the solution. Or or and or we hadn' and we have to wait until another 2008 to appear or another you know yeah high inflationary situation, which maybe would happen if they started dropping the interest rates again.
01:16:27
Roberto Rios
Well, there's never been a change in reserve currencies, right, without a major, major crisis. And for the British pound, it was World War II and them essentially losing all of their colonies and, you know, whatever whatever it was, a quarter of their military-age males.
01:16:44
Roberto Rios
Yeah. For the US, it's it's going to be something different. And you're right. It it it it probably would be like an echo of 2008. But the end game, like I've always told everybody, is more inflation and more liquidity. They're not going to allow the system to deflate because who owns the most assets in the system?
01:17:00
Roberto Rios
who ah Who has the most to lose? It's the people who are the the wealthiest, the people who control the the system as it as it is stands today. And so why would they allow deflation and allow them to, you know, my portfolio of 10 grand it goes down by nine grand. Oh, that sucks.
01:17:16
Roberto Rios
Their portfolio 100 million goes down by 90 million.
01:17:16
Robert Fine
so so So we need Mondame to be president.
01:17:22
Roberto Rios
I'm not saying we, this is just, I don't want to make any prognosis.
01:17:24
Robert Fine
that was that was i was a That was a joke. That was a joke.
01:17:27
Roberto Rios
Yeah. Yeah.
01:17:27
Robert Fine
I'm not serious.
01:17:28
Roberto Rios
Yeah. But and but but and unfortunately, that's where the system is going to trend. like That's just the reality of it, right? It's towards the Mondamis of the world, towards the you know Pelosi's, towards the Bernie Sanders, towards even the Trumpian, right? like You want to spend and more money, create more liquidity in whatever way you can. And so whether you brand it as a conservative pro-military stance or as a liberal pro-healthcare stance, it's going to be spent either way. It's going to be printed either way.
01:17:59
Robert Fine
I think, um man, well, we covered a lot. um there There are a lot of other areas still to go to, but I think this is good good area to end on. i ah really appreciate your time and and help explaining. and's It's been a fascinating discussion.
01:18:17
Roberto Rios
Thank you. Yeah, I appreciate it. it's ah Again, these are the economic realities that I've come to discover last, you know I guess it's been eight years now that they I've been studying macro intensively, actually more like nine years.
01:18:30
Roberto Rios
And so it's not the world that I would like to see or not the world I want to see, but it is the world that exists. And i just my view is I just have to accept whatever reality that is put in front of me.
01:18:42
Roberto Rios
And this is how this what you know this what is existing right now.
01:18:44
Robert Fine
Well, it's also about but educating as well. I mean, you know educating yourself, you know educating me on on you know how do we prepare ourselves you know for a another 2008 or something else unforeseen? or you know or do we Or do we just assume and trust that you know they'll do whatever is necessary to to you know continue you know, growing the debt and and keeping things running.
01:19:11
Robert Fine
But again, it's just, you know, you can't in a good, in a good natural working economy, you have to have boom and booms and busts. There's no such thing as ah as continuous unlimited growth.
01:19:24
Roberto Rios
ah Exactly, exactly. And even under ah hard money or you could call it a sound money system, right? Those had booms and busts. Go back and look at you know the panic of 1873 the panic of 1837. There were times when they under a sound money system where just people's behavior are still enabled excessive exuberance, excessive lending, excessive borrowing, and then those That excessiveness has to be repriced some way, and that comes in the form of a recession or monetary contraction or asset prices falling.
01:19:57
Robert Fine
I don't know why people can't understand. I mean, look, I understand that we we want to limit the pain. And but you know, again, we now now we've we've created such a bad situation, though, is that now it now will be pain that will be so bad.
01:20:13
Robert Fine
i mean, it's hard. Honestly, yeah you know, when I when I think about the Great Depression, you know, in compared to what other countries have gone through over the last few decades, you know, I think, I think there was a 10% unemployment or was it, was it more closer to 25% during the great depression?
01:20:30
Robert Fine
Um, but you know, I think other countries have gone through much worse. I think Greece has probably gone through much worse. Um, Argentina, uh, you know,
01:20:44
Robert Fine
and and And we went through it and then the US economy was was all the the stronger you know moving forward after that. I mean, World War II helped, of course.
01:20:55
Roberto Rios
Yeah, absolutely. No, it it's it's one of those things where you know people think that an economic downturn or something would be the end of the world. But in reality, humans are very resilient and humans adapt and humans survive.
01:21:09
Roberto Rios
And even if your asset prices fall and your stocks fall and your income goes down in real terms or nominal terms, um you know Where there's a will, there's a way. And as ah as a species, we've gotten through harder times than this.
01:21:24
Roberto Rios
And so the real solution here is to take the pain, take the medicine, bitter medicine now, because the longer you rate and the lower you bring rates, the more debt's created and the more pain that you're going to inflict.
01:21:38
Roberto Rios
And so it's just best to get it over with now.
01:21:41
Robert Fine
Well, that's what I'd like to try to help educate people on and and think more about. um robert ah Roberto, sorry. um Thank you very much.
01:21:52
Robert Fine
ah Wonderful talking. um Have a wonderful weekend. And and i look forward to chatting again.
01:21:58
Roberto Rios
Thank you. I appreciate this. And yeah, i I'm always happy to do these kinds of conversations. It's great to talk with people who are similarly informed. And you know if people want to find my work, I have Twitter.
01:22:10
Roberto Rios
It's under at Peruvian underscore bull. I have a YouTube channel. Like I said, look up Peruvian bull and have a sub stack, which is dollar end game. So if you just look up dollar end game sub stack, you'll find me.