Crash

Origin of Banks

A bank is supposed to function just like a coat check; they give you a receipt for your deposit which you can redeem later to get it back.

In reality, they function more like an airline who overbooks their flights; more notes are generated than assets that back them.

Fractional Reserve System

Ponzi Schemes

Charles Ponzi 1920

Bernie Madoff 2008

https://docs.google.com/presentation/d/1j_J_OI8UMl0sY0WAoW-BrGiEUuduAoPwFeXm92edjjM/edit#slide=id.p

A Ponzi or pyramid scheme is a scam where money from new investors is used to pay out money promised to old investors.

Charles Ponzi

Our Banks

Bank Owes Me (my deposit)

Comparison

Investors exchange money for IOU notes

Most people keep their money invested rather than withdrawing

More money is owed than has been collected

If everyone attempts to withdraw at the same time, the system collapses

Is illegal and considered a form of fraud

I Owe The Bank (my loan)

Has value because it is convertible to gold

What is Fiat Currency?

Most of the national currencies we use today are fiat currencies

Fiat money means currency that was declared to be money by a government, and has no intrinsic value

There have been 1000's of fiat currencies used, and not 1 of them has ever worked in history

Has value because of the law

Inflation of the USD Over Time

Money Created Since 1980s

The US Dollar Today

https://wtfhappenedin1971.com/

National Debt After 1971

Mike Maloney's 7 Stages of Empire

Why Does It Fail?

https://docs.google.com/presentation/d/1Z3yFxIfElIDhDxsiXR8iFkAqKPNDA3-PKS6FTk05Uro/edit?usp=sharing

7 Stages of Empire @ 9:14

Fiat Money

Commodity Money

Representative Money

USD Timeline

1971

1700's - early 1900's

1913

1933

Each note is redeemable for precious metals (coat check analogy)

President Nixon officially ends the gold standard

President Roosevelt declares ownership of gold illegal

A dollar was originally a unit of measurement like a gram, or an ounce, equal to 27g of silver

Federal Reserve created; USD now printed in excess of gold reserves

Money must be 3 things:

Medium of exchange (something both parties are willing to accept in any trade)

Unit of account (easy to measure the value of things)

Store of value (Does not lose value over time)

Money and Credit

Credit is the promise to provide the other party with something in the future in exchange for something else right now.

When borrowers promise to pay and lenders believe them, credit is created. The transaction is not actually settled until the debt is paid off.

Credit cannot function as money, because it is only accepted as a medium of exchange if the other party believes the promise will be kept.

There are 3 Major Players in the System:

The Federal Reserve System

Treasury now has money to spend on government projects, salaries, military, etc. which it owes interest on https://www.usdebtclock.org/

Credit Cycles

Credit is a wise investment when it efficiently allocates resources and allows you to generate more income to pay back the debt later.

It is not wise to use credit to finance over-consumption that can't be paid back.

The World's most dominant currency keeps its status on average for 94 years

The fiat USD will eventually lose its status as the world reserve currency, resulting in foreign held USD to be dumped in the US

World Reserve Currency

https://www.thestreet.com/video/crypto-currency-china-secret-weapon-usd-gold-backed-crypto-currency-max-keiser-15154154

Other nations are accumulating gold and selling their US treasury bills

Manufacturing Industry and Employment

https://www.dailyjobcuts.com/

Yield curve video (5 mins)

Investor Confidence

https://www.economist.com/leaders/2019/10/10/the-risks-from-indias-rotten-banks

https://www.zerohedge.com/markets/chinese-bank-verge-collapse-after-sudden-bank-run

Recent Bank Runs

What happens when the Chinese economy crashes?

$50,000 +

https://www.youtube.com/watch?v=ZaGPqfNgqz0 2:25

A successful gold standard requires at least 40% backing

Return to a Gold Standard

"The next crisis will feature a loss of confidence in government itself, central banks, and fiat currencies. How can the government guarantee itself when the government's own credit it called into question?"

James Rickards, Aftermath (2019)

https://www.thestreet.com/video/crypto-currency-china-secret-weapon-usd-gold-backed-crypto-currency-max-keiser-15154154

Storing Gold / Silver

Robots

DO NOT RELY ON YOUR JOB AS YOUR ONLY SOURCE OF INCOME

Rich Vs Poor Cashflow

An asset puts money into my pocket

A liability takes money out of my pocket

Cookie Clicker

https://orteil.dashnet.org/cookieclicker/

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Government Debt

Federal debt to GDP ratio above 100%

Historical Debt to GDP

https://www.usdebtclock.org/

if unfunded pension liabilities were included in the debt/GDP ratio, it would be over 1000%

Student loan debt has reached $1.5 trillion in the USA

Record high levels of margin debt - this caused the speculative bubble that popped in 1929

Consumer Debt

Total revolving credit outstanding at all time high

Corporate Debt

Federal funds rate today

The price of borrowing money (credit) became too cheap in the 1920's, inflating a bubble

The Great Depression

The Great Depression happened as a result of the "money" (credit) supply shrinking.

Stocks become overvalued prior to the market crashing - leading indicator

The Blockchain Network

Blockchain Network

Features of Blockchain

Open (anyone can use)

Borderless

Neutral (source and destination don't matter)

Censorship-resistant

Privacy

Immutable (transactions can't be erased)

Both

Solve all the problems of our current monetary system

Bitcoin or Gold?

Gold is better

The oldest and best form of money we've ever had

Will still work without the internet, electricity, etc.

Bitcoin is better

More easily divisible than gold

The transaction is simultaneously the settlement (superior verification process)

There are 2 Possibilities:

1) Bitcoin or another cryptocurrency replaces the debt-based fiat currencies we use today, as they are in places like Venezuela

2) Investors rush to buy Bitcoin in the coming chaos and uncertainty, inflating another speculative bubble

Both scenarios make Bitcoin a wise investment.

https://coinmarketcap.com/

Thinking Longer Term

Intrinsic Value

Features of Bitcoin

• Scarcity: only 21 million created
• Difficult to obtain (think Bitcoin mining)
• Easily divisible - can be divided down to as small as 8 decimal points (0.00000001)
• Decentralized - no 1 group can control
• Fast transaction speeds
• Low transfer fees

Quantitative Easing:

The introduction of new money into the money supply by a central bank.

("Money" created out of thin air that is supposed to stimulate the economy)

What Is QE?

We can’t grow the economy without growing the debt, and the debt is the very thing that brings down the economy, transferring most of the wealth to the elite

40% of the stock market is owned by the top 5% (UK statistic)

Does QE Really Work?

It’s a paradox; by going deeper into debt, more ‘money’ flows into the economy and there is a boom (easier to obtain credit), and people just go into more debt until there is a deleveraging

92% of the money created by QE just went back into the financial sector and did not benefit the public at all.

2008 Crash

As "money" is created, the stock market booms, interest rates fall, and more debt is taken on by consumers, corporations, and even governments.

USD have been printed out of thin air and spent in the financial sector. As a consequence, banks are able to lower the cost of borrowing "money".

Fed balance sheet expending at a level we haven't seen since QE3

Fed Balance sheet vs S&P

What is the Repo Market?

QE 4

Repo levels spiked in last few months as billions of dollars are printed

Money printed in 2019 exceeds all previous QEs

Recent interest rate cuts fastest since 2009

A 'bubble' is created when the price of something is greatly inflated due to speculation.

The first recorded bubble was the Tulip Bubble of the 1600's in the Netherlands.

Investors bought tulip bulbs not to plant, but in attempt to make a profit selling them later.

At the peak of the bubble, 1 tulip bulb could have been worth as much as a large house

What is a Bubble?

1920's Stock Market

Bitcoin 2018

Japanese Nikkei 1980's

Past Examples

Flappy Bird 2014

Beanie Babies

Housing Bubble 2008

Current Bubbles