There are few things I find more fascinating, baffling, and appalling than people much smarter than I am imprisoned in hermetically sealed belief systems that are patently delusional. The world teems with geniuses who are, e.g., crypto-bros, Catholics, creationists, Ayn Randians, Scientologists, gold bugs, Libertarians, and string theorists. I just don't get it.
You can’t really completely “flee” a currency like the dollar. Everyone’s debt, many assets, contracts, etc. are denominated in it. Look to countries that have suffered hyperinflation, they can’t borrow from foreigners in their own currency. That’s when you know you have a problem. (They borrow in dollars). No one is denominating long term contracts in crypto. Crypto would be a terrible currency (if it even were a currency--which it’s not) since it’s horribly deflationary historically. And you’re always going to have to have dollars to pay your taxes (which are denominated in dollars).
I appreciated the post, and maybe I'm interpreting the tone here, but you're giving Balaji a pass. I'm sure he did great things in the past, but now he's doing one of two things: a) crypto-grifting or b) actively rooting for the financial collapse of the United States, a crisis in which it is not hyperbolic to say that people will die. I see the point of critically analyzing his logic and pointing out his flaws, but go further and say that his views and actions are essentially anti-American. Post collapse, do you think Balaji wants to build something back? I don't; I think he wants to be a plutocrat in his "Network State," never obligated to pay taxes or contribute to, you know, a functional society. He, Thiel, and Yarvin should just seastead because it seems like they're actively working against the interests of all Americans, if not the entire world. It's a techno-optimism turned techno-nihilism.
Hi Noah, I am late to post here, but is the term hyperinflation the correct term to use for this situation? I would think dollar devaluation versus Bitcoin would be more appropriate. I don’t think the bet is that the US economy will experience hyperinflation (the price of cars in USD will go up dramatically) but rather that Bitcoin will be cost much more relative to the dollar (so hyperinflation of ONLY things like Bitcoin). It seems this probably happened with gold a few times in history (see chapter 4 of Ray Dalio’s Changing World Order book for some charts on this). Now, you have to believe that Bitcoin wins the confidence game and takes over gold position here, that’s another story… But I don’t think your article addressed what happens if the US economy can’t service its debts in real terms as it is unwilling to undergo the austerity it will take to bring down inflation given the amount of outstanding debt relative to GDP. That could plausibly lead to a large devaluation of dollars relative to assets outside the system like gold (or Bitcoin??). That is a plausible (unlikely?) scenario and does not involve hyperinflation. It’s just the 1930s or 1970s happening again.
To be fair there probably was flight to gold in the 1930 - otherwise why https://en.m.wikipedia.org/wiki/Executive_Order_6102. Also back the usd was on the gold standard so it was quite a bit different situation.
The risk for Medlock is that Bitcoin isn't really priced in dollars. I'm not even talking about stablecoins like Tether or USDC. After the failure of the two main crypto banks Silvergate and Signature, the dollars on crypto exchanges that you can trade Bitcoin for are no longer readily convertible to dollars anywhere else. Fungibility between crypto dollars (i.e. dollar denominated demand liabilities of crypto exchanges) and non-crypto dollars (i.e. dollar denominated demand liabilities at banks) is mostly broken (again) and will get more broken as the OCC, FDIC, SEC, CFTC, etc continue to turn the screws on any bank that even glances at crypto.
If Bitcoin's price goes to "one million dollars", that doesn't mean that Bitcoin has gotten more valuable, but that crypto dollars have become worthless. But Medlock may not be aware of this break in dollar fungibility. That's really a shame, because the whole thing about banking crises is broken dollar fungibility, when demand liabilities at different banks are no longer equally valued.
Good morning, Noah (and all). Forgive me for changing subjects, but, would you consider writing a a piece on trajectory of Russian economy and long term efficacy of current sanctions? Not sure what your primary or secondary sources would be. In any event, thanks for your always interesting columns.
Balaji is the idiot (intelligent idiot, but still an idiot!) who told Tim Ferris a couple years ago the optimal long-term investment strategy would 50% in Bitcoin, 50% in Ethereum. . . At least he puts his money where his mouth is. But the more he speaks, the more money he will lose.
In which Balaji gives away at least a million dollars
Not worth the post. Balaji is simply a crank.
The buried lede here is that Medlock is already loaded? No hating, just appreciating.
There are few things I find more fascinating, baffling, and appalling than people much smarter than I am imprisoned in hermetically sealed belief systems that are patently delusional. The world teems with geniuses who are, e.g., crypto-bros, Catholics, creationists, Ayn Randians, Scientologists, gold bugs, Libertarians, and string theorists. I just don't get it.
Missed opportunity to pump your favorite rabbit rescue.
Do you think Balaji takes these extreme positions tactically (e.g. to drum up the crypto maximalist crowd), or is he a true dyed-in-the-wool believer?
You can’t really completely “flee” a currency like the dollar. Everyone’s debt, many assets, contracts, etc. are denominated in it. Look to countries that have suffered hyperinflation, they can’t borrow from foreigners in their own currency. That’s when you know you have a problem. (They borrow in dollars). No one is denominating long term contracts in crypto. Crypto would be a terrible currency (if it even were a currency--which it’s not) since it’s horribly deflationary historically. And you’re always going to have to have dollars to pay your taxes (which are denominated in dollars).
Glad to hear he’s a good guy in real life, but I’m not a fan of his internet persona at all. Anyway, thanks for the explainer.
> they had gold, and yet there was no flight from dollars to gold
I agree with almost everything in this post, but didn’t FDR literally outlaw private ownership of gold to avoid this in the Depression?
And just mechanically, how could a bitcoin spike actually lead to hyperinflation without the Fed going along?
I appreciated the post, and maybe I'm interpreting the tone here, but you're giving Balaji a pass. I'm sure he did great things in the past, but now he's doing one of two things: a) crypto-grifting or b) actively rooting for the financial collapse of the United States, a crisis in which it is not hyperbolic to say that people will die. I see the point of critically analyzing his logic and pointing out his flaws, but go further and say that his views and actions are essentially anti-American. Post collapse, do you think Balaji wants to build something back? I don't; I think he wants to be a plutocrat in his "Network State," never obligated to pay taxes or contribute to, you know, a functional society. He, Thiel, and Yarvin should just seastead because it seems like they're actively working against the interests of all Americans, if not the entire world. It's a techno-optimism turned techno-nihilism.
Hi Noah, I am late to post here, but is the term hyperinflation the correct term to use for this situation? I would think dollar devaluation versus Bitcoin would be more appropriate. I don’t think the bet is that the US economy will experience hyperinflation (the price of cars in USD will go up dramatically) but rather that Bitcoin will be cost much more relative to the dollar (so hyperinflation of ONLY things like Bitcoin). It seems this probably happened with gold a few times in history (see chapter 4 of Ray Dalio’s Changing World Order book for some charts on this). Now, you have to believe that Bitcoin wins the confidence game and takes over gold position here, that’s another story… But I don’t think your article addressed what happens if the US economy can’t service its debts in real terms as it is unwilling to undergo the austerity it will take to bring down inflation given the amount of outstanding debt relative to GDP. That could plausibly lead to a large devaluation of dollars relative to assets outside the system like gold (or Bitcoin??). That is a plausible (unlikely?) scenario and does not involve hyperinflation. It’s just the 1930s or 1970s happening again.
To be fair there probably was flight to gold in the 1930 - otherwise why https://en.m.wikipedia.org/wiki/Executive_Order_6102. Also back the usd was on the gold standard so it was quite a bit different situation.
Do you think he'll take that bet with me?
The risk for Medlock is that Bitcoin isn't really priced in dollars. I'm not even talking about stablecoins like Tether or USDC. After the failure of the two main crypto banks Silvergate and Signature, the dollars on crypto exchanges that you can trade Bitcoin for are no longer readily convertible to dollars anywhere else. Fungibility between crypto dollars (i.e. dollar denominated demand liabilities of crypto exchanges) and non-crypto dollars (i.e. dollar denominated demand liabilities at banks) is mostly broken (again) and will get more broken as the OCC, FDIC, SEC, CFTC, etc continue to turn the screws on any bank that even glances at crypto.
If Bitcoin's price goes to "one million dollars", that doesn't mean that Bitcoin has gotten more valuable, but that crypto dollars have become worthless. But Medlock may not be aware of this break in dollar fungibility. That's really a shame, because the whole thing about banking crises is broken dollar fungibility, when demand liabilities at different banks are no longer equally valued.
Good morning, Noah (and all). Forgive me for changing subjects, but, would you consider writing a a piece on trajectory of Russian economy and long term efficacy of current sanctions? Not sure what your primary or secondary sources would be. In any event, thanks for your always interesting columns.
Balaji is the idiot (intelligent idiot, but still an idiot!) who told Tim Ferris a couple years ago the optimal long-term investment strategy would 50% in Bitcoin, 50% in Ethereum. . . At least he puts his money where his mouth is. But the more he speaks, the more money he will lose.