Uncommon Knowledge
Bitcoin, monetary policy and the mainstream
Evil is the force that believes its knowledge is complete. Jordan B. Peterson.
I have been an FT regular for over 40 years. So essential was it for a trainee investment analyst in the early 1980s that one could claim back its premium cover price on expenses. But it offered more than just required work-related data. It always had decent concert reviews.
But, for me, it was John Kay's weekly column that provided a much welcome release from the focused and often blinkered world of following financial markets. I learnt that when Kay's name was on the front page, it allowed for 10 minutes of a frequently mindless commute on some much-needed mind exploration.
Kay dug down to the fundamental issues driving our world. Rather than the usual FT fare of surface-level financial data required to execute the next transaction based on superficial cause-and-effect linkages, Kay always went deeper. He stood out.
I was reminded of this while listening to Kay's latest book, The Corporation in the 21st Century. He certainly hasn't lost his joined-up approach to the world we live in, and particularly his nuanced understanding of how markets and capitalism have created our (far from perfect yet widely disparaged) current age of abundance.
But I have tried to kick the FT habit several times in recent years. Like the Economist, its editorial slant became too prescriptive. There are other ways to get financial information without being lectured on the imperatives of net zero, hearing a constant harking back to the nearly decade-old "Brexit lies", and the recurring arrogant certainty that Bitcoin is a tokenised Ponzi scheme.
However, my FT subscription hasn’t followed my Economist subscription into the bin in no small part due to the recent excellent writing of Gillian Tett.
In a series of articles in the Financial Times between 2006 and 2007, Tett wrote about the dangers posed by securitisation, derivatives, and the unreliability of credit rating agencies in the banking industry. She was early and correct about the consequential financial crisis, and deservedly recognised for her work; now she is getting back to her best.
Her current focus has been on the fundamental driving forces behind the Trump agenda and their implications. Not for her the globalist Orangeman Bad worldview that it is all an aberration, after which regular service will resume. As with her pre-GFC reporting, Tett focuses on practitioner views rather than those of academics. Then it was Kyle Bass and Michael Burry highlighting out-of-control bank debt hiding in plain sight; today it is Geoffrey Gundlach and Ray Dalio highlighting out-of-control sovereign debt hiding in, err, plain sight.
Tett’s latest weekend essay, The New Age of Geoeconomics, goes full Russell Napier, on the rise of national capitalism, frequently quoting Dalio's latest book, How Countries Go Broke.
Dalio, for his part, thinks that the problems besetting America today are part of a multiyear debt, geopolitical and political cycle, of the sort that has undermined other imperial powers before. Thus, while he has recently outlined some eminently sensible ideas about how to break that cycle (say, with a multiyear three-part debt reduction plan), Congress cannot seem to act, he laments. "It's like being on a boat heading for the rocks and everyone keeps fighting about whether to turn left or right."
The issues facing the West today are becoming too numerous to document; however, as Joe Bryan notes in What's the Problem?, the corruption of our money is the primary upstream issue. (As featured in HNT from May).
Follow Mrs Wantanabe to the Escape Valve
Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government's debt and interest burden higher. The US' fiscal performance is likely to deteriorate relative to its own past and compared to othe…
Podcaster Robert Breedlove has recorded 650 interviews in four years, asking the simple but profound question, What is Money? He has done this without reporting on the price of Bitcoin or ever discussing the investment merits of it as an asset. Breedlove's focus is on the philosophical underpinnings of freedom-money and the moral imperative of separating money and state. (In this epic 3-hour interview, he explains, among other things, the term transjective).
In Robert’s opinion, money is the language of human action. A definition that pays homage to Ludwig von Mises, a hard money apostle, whose most significant work was Human Action: A Treatise on Economics. Mises was a student of Karl Menger and Friedrich A. Hayek’s professor at the University of Vienna. (HNT from November last year asked this question).
What is Money?
These two young fish are swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually, one of them looks over at the other and goes, “What the hell is water?”
As the second Trump administration hits its stride after passing a landmark legislative bill, we are starting to see an emboldened approach to tariffs and an emerging belief that they might generate meaningful revenue without being inflationary. Trump increasingly sees his tariffs as a new magic money tree.
In an earlier article, trying to rationalise, if not embrace, the market's positive reaction to the Trump chaos, Tett explained:
There is an alternative explanation that might be dubbed the "double genius" idea: investors believe that Trump will execute his plans, and they will be so brilliant that they deliver higher growth, lower prices and falling debt — all at once. [Bessent] is rolling out tricks to ease the scheduled $9tn Treasury auctions in the next 12 months, such as reforms to encourage banks to buy more bonds and weighting issuance towards short-term, not long-term, bonds. And some investors accept this spin — or so it seems. No wonder: the Atlanta Fed's real-time estimate of current GDP growth is 2.6 per cent, and there is little evidence that tariffs have caused major price increases — yet.
Tett cautions that there remains scope for the market to be proven wrong. As John Kay always reminds us, open processes, such as the scientific method or market Darwinism, are the worst way to determine the truth, apart from all the others. In his book, Kay illustrates how Schumpeterian destruction uncovered truths about railways, the internal combustion engine, human flight, and electricity, but also the myriad of domain-specific breakthroughs such as tastier, longer-lasting apples and better football teams.
Meanwhile, in today's chaotic world, Trump's team's confidence is rising, and the betting on PolyMarket is about by whom and when Jay Powell will be replaced as Fed Chair. Trump's new world order needs cheaper money, and he wants someone to deliver it for him. Hoover Institute veteran, former Friedman student and FOMC member, Kevin Warsh, features highly on the list of leading contenders since Trump's re-election.
In one of the most fascinating podcasts I've heard for a while, Warsh delivered a masterclass in economic and financial history to the Hoover Institute's Uncommon Knowledge host Peter Robinson. Towards the end, there was an exchange that comprehensively underlines the journey that Bitcoin has made into the heart of the global monetary system from someone who could be running the world’s most important financial institution in just a few months:
Robinson: And now you have market professionals such as James Grant and Ray Dalio casting doubt on the whole monetary system, and young entrepreneurs buying Bitcoin because they no longer trust the dollar. Kevin, something fundamental is over, and it's irreparable. What do you make of that vision? Bitcoin, does it make you nervous?
Warsh: Bitcoin does not make me nervous. I can recall a dinner I had here in 2011 with someone who is another guest on your show; I won't say his name. Okay, I just did, Mark Andreessen, who showed me the white paper. That was the original white paper. I wish I had understood as clearly as he did how transformative Bitcoin and this new technology would be. Bitcoin doesn't trouble me. I think of it as an important asset that can help inform policymakers when they're doing things right and wrong. It is not a substitute for the dollar. I think it can often be a very good policeman for policy. And if I were to speak more broadly, what did Charlie Munger and others have in mind? There is a proliferation of securities that go under all sorts of names. Many, if not most of them, are not worth what they might be being traded for. So, what did Charlie and his pal Warren say? There are the innovators, the imitators, and the incompetent. They're real innovators who are happening in and around that new technology. And what I would try to impart to businesses and bankers is that the underlying technology Mark showed me in that white paper is essentially just software. It's the newest, coolest software that will give us the ability to do things we could never have done before. Can the software be used for good and evil? Yes, both like all software. So I don't cast aspersions like that. If there's a final point, it's that these technologies are being built here. I don't just mean on Stanford campus. I believe in the United States, which is home to the world's most talented engineers from China, Europe, and everywhere else. They come here to build this stuff, even now. My view is that building it here allows us to be more productive and create something very special over the next decade.
Thanks for the FT article share, good read on how markets don’t float above politics