That was my initial take as well but Noah thoughtfully dismantled his argument. There is, however, a wider discussion to be had about Balaji and the Silicon Valley Libertarian Cohort’s dangerous and destructive ideas.
Sure, I’m not surprised that Noah took the argument apart once he brought it up. It’s a terrible argument, but countless people make terrible arguments every day, and most of them are not worth anyone’s notice. What I’m surprised about is why Noah would want to engage with someone who presents himself as a public intellectual but seems completely unwilling or unable to think critically about his own ideas.
I’ve only read a few things by him but he has always struck me as a person working furiously to avoid stress-testing his hypotheses. I’m always confused when Noah cites him as someone worth listening to, since Noah clearly places such a high value on interrogating assumptions and engaging with criticism in good faith. Balaji seems allergic to such concepts.
I'm not sure of the details, but he's just another Silicon Valley Bro who rode the IPO Train like Musk, Thiel et. al. Balaji's stalking horse was Coinbase. He was CTO and got out early, and now Coinbase is in the sewer.
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.
I still add and subtract on my fingers. I dropped out of my high school chemistry class -- decades ago -- because I couldn't wrap my brain around atomic theory. I speak only English. I've never traded a derivative, or shorted a stock. I haven't the vaguest idea what "blockchain" is or why I should care. That's what I'm talking about.
A quick google reveals “Balaji S. Srinivasan (born May 24, 1980)[1] is an American entrepreneur and investor. He was the co-founder of Counsyl, the former Chief Technology Officer (CTO) of Coinbase, and former general partner at the venture capital firm Andreessen Horowitz.[2]”
And also not good at understanding basic economics. He’s effectively a “public intellectual”. This is very bad news.
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 take a certain grim satisfaction in the spectacle of crypto-bros whining about being frozen out of the banking system -- the one that runs on dollars -- that they want to destroy.
Right but it wasn't about bank runs causing flights to gold but about the US dollar being on the gold standard, that's my impression. Since the govt wanted to keep increasing money supply during severe depression, it needed to gather all the gold to itself in order to lend more because at that time legislation required partial gold backing of all Fed loans.
Maybe it would or would not, should or should not. But in practice it does not face that choice. Bank failures are negative demand and possibly negative supply shocks but the demand shock probably predominates, so the net effect is deflationary. Assuming the Fed has an inflation target, it will alter the settings of its instruments to offset the demand shock. But that additional monetary stimulus need not lead to hyperinflation and would not unless the Fed wildly over estimated the amount of monetary stimulation needed to keep inflation on target.
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.
Thanks for that information. That said it seems odd that people will keep pushing up an asset class that isn’t convertible into real money. can we imagine people pumping real dollars into an asset that isn’t easily converted back into dollars.
Not just pushing it, but pushing it for mass adoption. And when you confront them with how unwieldy BTC is for regular use, they start explaining how you can use these intermediary coins that are more frictionless. That's when you realize that the construction scaffolding is actually load bearing and the property owner is hoping you won't notice before you buy in.
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.
Not worth the post. Balaji is simply a crank.
That was my initial take as well but Noah thoughtfully dismantled his argument. There is, however, a wider discussion to be had about Balaji and the Silicon Valley Libertarian Cohort’s dangerous and destructive ideas.
Sure, I’m not surprised that Noah took the argument apart once he brought it up. It’s a terrible argument, but countless people make terrible arguments every day, and most of them are not worth anyone’s notice. What I’m surprised about is why Noah would want to engage with someone who presents himself as a public intellectual but seems completely unwilling or unable to think critically about his own ideas.
I tend to agree but I admire Noah for publicly criticizing his friend’s ideas, even if his friend is a crackpot.
Scott Alexander makes the case for occasionally engaging crackpots
https://astralcodexten.substack.com/p/trying-again-on-fideism
Consumers love Silicon Valley's products and services. I don't think their ideas are dangerous or destructive. More like disruptive.
Facebook, Instagram, Twitter, Tik-Tok: I believe the societal costs exceed the benefits.
I'll take Noah's word that he's a smart guy but that "explanation" sounded like a monologue by someone you'd move away from on the subway.
That's how 100% of his "explanations" sound
I’ve only read a few things by him but he has always struck me as a person working furiously to avoid stress-testing his hypotheses. I’m always confused when Noah cites him as someone worth listening to, since Noah clearly places such a high value on interrogating assumptions and engaging with criticism in good faith. Balaji seems allergic to such concepts.
Honestly puzzled why Noah bothers with him at all. He's somewhere between a grifter and a lunatic; there's no there there.
A crank with a spare million dollars lying around. Sometimes I despair for modern civilization.
I'm not sure of the details, but he's just another Silicon Valley Bro who rode the IPO Train like Musk, Thiel et. al. Balaji's stalking horse was Coinbase. He was CTO and got out early, and now Coinbase is in the sewer.
The buried lede here is that Medlock is already loaded? No hating, just appreciating.
Oh wait, Medlock is Jeff Bezos. Nevermind.
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.
I don't think they're that smart. Anyway faster processing time can't help you get out of dead ends, that requires humility.
I still add and subtract on my fingers. I dropped out of my high school chemistry class -- decades ago -- because I couldn't wrap my brain around atomic theory. I speak only English. I've never traded a derivative, or shorted a stock. I haven't the vaguest idea what "blockchain" is or why I should care. That's what I'm talking about.
But -- yeah: The world teems with high IQ idiots.
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?
I think he's a true dyed-in-the-wool believer.
A quick google reveals “Balaji S. Srinivasan (born May 24, 1980)[1] is an American entrepreneur and investor. He was the co-founder of Counsyl, the former Chief Technology Officer (CTO) of Coinbase, and former general partner at the venture capital firm Andreessen Horowitz.[2]”
And also not good at understanding basic economics. He’s effectively a “public intellectual”. This is very bad news.
Of course, it might all be about pumping bitcoin.
Crypto is really a fascinating phenomenon; a massive asset class fueled entirely by speculation and crude libertarianism.
Missed opportunity to pump your favorite rabbit rescue.
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 take a certain grim satisfaction in the spectacle of crypto-bros whining about being frozen out of the banking system -- the one that runs on dollars -- that they want to destroy.
https://www.politico.com/news/2023/03/15/crypto-industry-market-banks-collapse-00086798
I hope each and every one of them is wiped out completely when, as seems inevitable, the whole crypto-shitshow collapses in a worthless heap of NFTs.
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?
I think that was more related to the gold peg than bank runs? But yeah its true
I thought he both outlawed private ownership _and_ froze its convertibility to prevent flights to it.
Right but it wasn't about bank runs causing flights to gold but about the US dollar being on the gold standard, that's my impression. Since the govt wanted to keep increasing money supply during severe depression, it needed to gather all the gold to itself in order to lend more because at that time legislation required partial gold backing of all Fed loans.
They seized the gold to reset the price from $20/oz to $35/oz, to debase it by 75%.
Yes because they wanted to increase money supply
The point is that the framing is dishonest.
And just mechanically, how could a bitcoin spike actually lead to hyperinflation without the Fed going along?
He says the fed would rather purposefully cause hyperinflation than allow a lot of banks to fail and a serious recession.
Maybe it would or would not, should or should not. But in practice it does not face that choice. Bank failures are negative demand and possibly negative supply shocks but the demand shock probably predominates, so the net effect is deflationary. Assuming the Fed has an inflation target, it will alter the settings of its instruments to offset the demand shock. But that additional monetary stimulus need not lead to hyperinflation and would not unless the Fed wildly over estimated the amount of monetary stimulation needed to keep inflation on target.
I totally agree - the Fed is not stupid. But (maybe I'm missing something) that was balajis explanation of how it would happen.
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.
Thanks for that information. That said it seems odd that people will keep pushing up an asset class that isn’t convertible into real money. can we imagine people pumping real dollars into an asset that isn’t easily converted back into dollars.
Not just pushing it, but pushing it for mass adoption. And when you confront them with how unwieldy BTC is for regular use, they start explaining how you can use these intermediary coins that are more frictionless. That's when you realize that the construction scaffolding is actually load bearing and the property owner is hoping you won't notice before you buy in.
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.