Welcome to the Jungle

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

―Henry Ford

Primer on Money & Markets

If you’ve ever felt lost or overwhelmed when it comes to money and markets, this section is for you. 🙂 This page will explain in simple terms how the system works, why the world is how it is today, and how you can take power back in your financial life.

Let me first say, it’s not anyone’s fault if they are confused here. Our current financial system is highly predatory, intentionally convoluted at every turn, and not taught in schools. So, it’s no wonder it’s confusing for people!

This isn’t an accident either. It’s a lot easier to take advantage of people when they don’t know they’re being cheated, or at least when they don’t know how.

The system is designed to make you feel confused, small, and powerless.

So you’d better trust the professionals…

How’s that working out so far?

Anyone who grew up or was alive during the 2008 Global Financial Crisis saw firsthand as the system became so convoluted, over leveraged, and bloated under its own weight that it collapsed, almost taking the whole world economy with it. The people who had trusted “the professionals” lost their homes, retirements, and savings. Suicides spiked from the victims of the crisis, while the perpetrators got bonuses — often literally paid for by our own government’s “bailout”. The corruption, inequality, and absurdity of the whole thing was on full display.

What happened as a result?

Justice? Accountability? Systemic reform? Nope. One single person in the US was sentenced to jail, and he was a low level player who said the wrong thing in an email. It was the same system before the 2008 crisis, and is largely the same system today. Some reforms were implemented, but they were weak at best, and were just preventing the most insane behavior around leverage and maintaining reserves, not fixing the underlying problems around inequality and a colossally manipulated system. The people who caused the crisis already had all the money.

What was the biggest actual effect of 2008?

The Federal Reserve’s role in the global economy changed (i.e. The US Central Bank). They stepped in to save the world economy after 2008 by bailing banks and institutions out in an unprecedented move. In their defense, they didn’t really have much choice at that point, since the alternative was oblivion.

As a side note on what follows: This section is not meant to demonize the Fed or related institutions, as there are many good people working there who may be trying their best to maintain economic stability with an old and broken system. However, we cannot ignore the impacts, whether past, present, or future, that a system built to centralize power in the hands of so few has on the world. This isn’t about blaming one Fed leader or another, it’s the system itself that is the problem.

So, what did the Fed actually do after 2008? They printed money. A lot of it. They also began a practice called “Quantitative Easing” or “QE” to print money on an ongoing basis. None of this money really helped the average citizen of course… However, this action did paper over the problem for institutions and banks, and seemed to magically save the global economy. In some ways it did, but there is always a cost somewhere, and the cost here was the value of the dollar itself. All that money found its way into asset prices, and all the people who already owned everything (stocks, real estate, etc), benefitted the most, while working people got nothing. Working people not only didn’t benefit from the new money being printed, but they actually got hurt by it, since virtually all assets, housing, rent, etc became even more expensive for them.

So what’s the takeaway here?

Regardless of their intention, the end result of the Fed “saving the economy” was to actually amplify financial inequality massively, and equally importantly, this act changed the rules of the game. While we have had fiat currency (i.e. paper money not backed by anything) since 1971, this act in 2008 took the more gradual devaluation of currency from that point much further. It also meant the Fed was highly likely to backstop markets aggressively and further devalue the money supply going forward. It showed where loyalties really were and skewed where “risk” was in the market (i.e. if the Fed won’t let prices go down… then we only really have one direction to go). Historically, once you open the door to that scale of money printing, it’s damn hard to close it. We’ve seen this behavior globally ever since, and it has amplified exponentially since COVID. Since COVID, the Federal Reserve has printed Trillions of dollars, in fact more than at any point in history, making the 2008 bailouts look like a blip.

I highly encourage you to look at the Fed’s own official tracker for this, available directly on FRED. Sit with that chart for a minute. You don’t need to be an economist to see that this will have massive implications over the coming decade.

The 2008 bailout is why we have Bitcoin, and this was Satoshi’s warning: they are stealing from you, and this trend will only continue. This was quite prophetic. The trend has only accelerated since 2008, and Central Banks across the globe are all doing this. This is why your savings don’t buy much anymore, this is why your grandparents are struggling to live off their fixed income, this is one of the biggest reasons housing is so damn expensive, why inequality has only amplified in the past decade, and the behavior this system encourages is one of the driving reasons we’re drowning in debt. There are many factors in anything economically, but all these issues have same basic source: the system of money connecting everything.

Metaphorically speaking, it’s not “this building shaking” or “that building shaking” in the economy…

The whole damn tectonic plate is moving.

Our world is barreling towards a global economic catastrophe: we cannot stop the printing presses, borrowing, expanding of debt, or debasing of money… or the world economy will crash overnight. Everyone who can see this realizes this is unsustainable. This is one of the many reasons why we so desperately need the decentralized new world of Web 3.0, why we need Digital Assets that can not be debased or confiscated, why we need an alternative financial system that is not drowning in debt, and why we need this space to grow quickly enough to fill in the gaps from the ever-crumbling old world, and to provide an alternative system for us to transition the old world into.

*For a deeper dive into the current state of the world economy, and the exponential trends of technology emerging from the dying old world, I would highly recommend watching Raoul Pal’s Introduction to the Exponential Age, listening to any of the macro discussions with Cathy Wood, or reading the research the ARK team has released around innovation platforms.

So, with that (rather long) primer out of the way, let’s break down some basics, starting with Money itself.

“Give me control of a nation's money supply, and I care not who makes its laws.”

- Mayer Amschel Rothschild, founder of the Rothschild banking dynasty

The Origin of Money

So if Money has so much power over us… what is it anyway?

Money is not a thing, Money is an idea.

If you get nothing else from this entire page, let it be this. If you can understand what Money is, and how a handful of people in control create it and wield it against you, you can see through the whole game. Money is just a placeholder for value. It is a social consensus, where we all agree on something to be “valuable” to facilitate us buying/selling from each other, preserving our buying power for the future, settling debts, and allocating resources in our society without violence.

In short, good money has to fill three roles: 1) medium of exchange, 2) store hold of value, 3) unit of account.

Money is a brilliant human invention, something that helped us evolve past the stage of just killing each other to get what we want, and it has arisen in virtually every recorded society. It follows a similar, logical pattern.

Phase 0: Barter (pre-money). Think back to early society. A group of people starts living with one another. At the start, disputes are settled by violence (i.e. if you have something I want, I’ll just take it). But, quickly people realize this isn’t really a sustainable solution. So, we start trading things for other things. Value for value.

Phase 1: Physical Money. Ok, so bartering is better than killing each other… but it’s still not great. What if I want the shirts you make, but you don’t need the grain I’m trying to barter with? What if we had a proxy for value, that everyone wanted, that we could use as an intermediary to facilitate these transactions? Just like that, the idea of Money is born. Throughout history, Money has been everything from gold, silver, copper, bronze, shells, beads, feathers, or in rare cases like the Island of Yap, even massive stones weighing thousands of pounds. Pretty cool. The most successful physical money was gold (which was a very good material for physical money), and that belief system was so successful it’s been exported around most of the globe.

Note: “Gold is valuable” is a belief system, one most of humanity has shared for thousands of years, it is not an objective fact. You can’t eat gold, it’s a terrible building material, and it has no true “objective” value other than what people give to it.

Phase 2: Value-Backed Paper Money. Physical money did a lot to improve society, but it had its drawbacks. Take gold for example. It is heavy, cumbersome, and difficult to store. You also risk someone seeing this giant pile of gold you’ve saved and just killing your for it. So, the invention of value-backed paper money (or hard money) that was easier to move, exchange, and store was born. In this case, physical gold was stored in a safe place, like a bank, and you got a piece of paper that was like a receipt for that gold. You could transact with this paper just the same as physical gold, since it represented the physical gold and could be redeemed for it. It’s a similar idea whether the “paper money” was coming in the form of a private bank note or was an official government currency. Governments quickly realized how powerful a force money was to control people, and almost always grabbed control and made their money the ONLY acceptable money fairly quickly.

Phase 3: Fiat Money. It doesn’t take long for the bank or government holding all this money and handing out the paper money to figure out that they can actually lend out more money than they actually have (called fractional reserve banking), or just print additional dollars that are “supposedly” backed by physical money/gold. After all… if you’re the government, who else are you really accountable to?

This typically continues until enough people notice, or something breaks. If it’s a private bank note, you’d have a bank run and the bank would collapse. If it was a government, they’d either default on their debt, or just switch off the “gold standard” (or equivalent) and just adopt a Fiat Currency system. A Fiat Currency system is where paper money is… well, just paper. Literally nothing is backing it. For the United States, that moment happened in 1971 under Richard Nixon, who had effectively bankrupted the country through massive spending on both wars and domestic programs (i.e. “guns & butter”). International governments were noticing the US was printing more money than it had, and were getting nervous, so Nixon changed the rules. This was in many ways a betrayal of our allies, but again… when you’re the most powerful government in the world, who is going to hold you accountable?

The transition from Phase 2 to Phase 3 is important, because it changes the rules of the game.

With a Phase 2 money system, savers are rewarded. After all, there is only so much “money” in a Phase 2 system, it’s all backed by a finite resource, and finite resources tend to go up in value over time if more and more people want them. But, with a Phase 3 system… there is nothing backing it at all. It is just paper. If you control the money printer, or are close to it, you benefit. If you’re further away, you get hurt by it. Phase 3 systems hurt savers, since you’re saving something that keeps getting printed out of thin air. Phase 3 systems mandate that everyone be invested in some kind of asset to preserve and grow their purchasing power.

This is the system we’re in today, and it’s wildly different than the world your grandparents grew up in. You no longer have a choice of “whether or not you want to play the game”. If you try to just save, not invest, and sit this round out because “it’s risky and the game is rigged”… you lose. Guaranteed, 100%, zero chance you don’t.

Saving and not investing is now the riskiest bet. Those are the rules of the Phase 3 game.

Phase 4: Collapsing back to some kind of Value-Backed Paper Money. Phase 3 doesn’t last forever, nothing does. Phase 4 will (hopefully) be a long ways off, but every single fiat currency in history has eventually come to an end, and the US Dollar will be no different. When things get bad enough to where the devaluation is so intense, and no one has confidence in the money anymore, the whole illusion falls apart. Then, to restore people’s trust and confidence, nations usually have to revert back to some form of asset-backed currency. (Replacing a failing fiat currency with another fiat currency doesn’t usually inspire much confidence.) A reverting back to Phase 2 may happen in the future, perhaps when the United States eventually loses its Reserve Currency status. That will be a colossal event in the future, and very VERY bad for the United States. That will once again change the rules, but for now, let’s leave that event in the (hopefully distant) future.

“Whoever controls the volume of money in our country is absolute master of all industry and commerce...when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

— James A. Garfield

Inflation & Currency Devaluation

There are many kinds of inflation, with many different drivers (some bad, some not so bad). But let’s keep things simple here. In short, Inflation is typically defined as an increase in the price of goods. It can also be thought of as prices adjusting upwards for there being too many dollars in circulation, or better yet, your dollar being worth less. Ask your parents how much their mortgage payment, rent, or a nice dinner cost 20 or 30 years ago for example.

Better yet, check out this awesome illustration by Visual Capitalist on the dollar’s value.

The government measures inflation through what is called the Consumer Price Index, or CPI. This is a measure of (supposedly) how much more expensive things are for the every day person. Now, without getting into a bunch of details, I’ll just quickly point out that this indicator has been changed multiple times over the years, so it’s kind of worthless as a historical comparison now, since you’re comparing apples to oranges when you compare what the CPI is today with what it was in past years. These changes keep conveniently making day to day inflation look lower than it is (see how things are continually made increasingly complicated and difficult to track?).

If inflation heats up, that’s very bad for governments, who would have to raise interest rates, which slows the economy’s growth. So, they try to keep things low and “stable”, around 2% per year.

To clarify… the stated goal of the central bank is for the money in your bank account to be worth at least 2% less every year, forever. Sit with that for a second. Compound that over the course of a decade or two (or a lifetime!). Why would you ever want to “save” an asset like that? This is why we invest.

However, what I really want to call out here is a different kind of inflation called Asset Price Inflation (i.e. the stock market, Real Estate, etc). All those printed dollars have to go somewhere… The money that has been printed since COVID in 2020, where did it go? Assets. What about money printed for the 2008 financial collapse? Assets. Just look at a chart of the S&P 500 after both of these major money printing events after 2008 and 2020 if you need any more proof. While we will certainly have up and down cycles with monetary policy — if you zoom out, this trend of money printing is not stopping or slowing down… it is actually accelerating with every economic crisis.

All this is to reiterate, you don’t have a choice of whether or not you should be in the game. Does investing have the risk of loss? Absolutely. However, not investing and just stockpiling your cash has the long term certainty of loss.

You have to play the game or the system will run you over. So, learn to play smart.

How Markets Work

Since this is a rather large topic to summarize, allow me to stand on the shoulders of a giant, and direct you to Ray Dalio’s video overview of How the Economic Machine Works. Ray’s video does an exceptionally good job of explaining credit cycles in simple terms. Please watch it before continuing!

In short, you have technology and innovation, that moves in pretty consistent direction. Good years? Technology improves. Bad years? Technology typically still improves. The rate of improvement may be accelerating, but in general it moves pretty solidly in one direction, and it doesn’t have the same kind of massive boom and bust periods that markets do. Why is that?

Because markets are driven by emotions. They are driven by fear and greed primarily, and that emotion further drives credit cycles (i.e. borrowing money), and that further drives human emotions. This works the same with everything humans are involved with. Individual investors, institutional money, corporations, and even governments. They all get caught up in these big swings and cycles like anyone else.

—————————

So, we’ve covered technology driving net new value in the background (i.e. real, actual wealth being created in the form of new innovations), and we have human emotion as an overlay driving most of the volatility and credit cycles. So what is the other big piece to think about here?

Well, if you’ll remember from the top of this page, it’s that markets include more than just these factors. Modern markets are massively skewed by the Central Banks around the world. I.E. The people who control the money we’re all trying to “measure” real world wealth in.

So, how on earth can you ever win, when you’re racing a money printer set to continue forever? Simple. You need to buy and hold valuable assets that are finite, that have real world value, and that will absorb the dollars that are printed. In short, you want to get on the side of the house that will actually benefit from the money that is being printed.

This does not have to be crypto! This could be Real Estate, Stocks, Businesses, Farmland, certain Commodities, or… Digital Assets with real economic value. Just not fiat currency or most bonds (bonds are just claims on fiat currency, and are typically bad bets in inflationary times).

One of the biggest benefits that Digital Assets (i.e. crypto) has going for it, is that it is one of the only industries and asset classes that is actually growing significantly faster than the Fed’s balance sheet. Not only that, but few people understand crypto, so it is still very early, and it is not already as inflated as virtually every other asset class already is.

Now, in closing: Please note that what I’m saying here about Central Bank actions and currency devaluation may be news to most of the general public, but this is not news to the institutions and wealthy individuals that already control the vast majority of the world’s assets. They are all highly aware of these factors (that’s why they have all the money), and this is a large part of the reason why asset prices are already so high across the board.