Home Politics Why This Multi-Millionaire Thinks The Financial System Is Going To Fail

Why This Multi-Millionaire Thinks The Financial System Is Going To Fail

by icosuccess

Anthony Pompliano 0:00
This gets us into if that money printing occurs, how does it get injected? And

Raoul Pal 0:04
you’re just getting a long story of how we get to Bitcoin but Carrie Yeah,

Anthony Pompliano 0:07
I’m dropping breadcrumbs the whole way I can see. Um, so we just saw this in Hong Kong, right. For those that don’t know, Hong Kong just announced a 15 plus billion dollar stimulus plan. And in that they’re going to give 7 million citizens give or take about 10,000 Hong Kong dollars 1200 bucks us. And what was interesting is I’ve never seen this and again, you’re, you’re you’ve been around, but Okay, well, here’s, here’s a trick I learned.

You’re not older than me. You’re more experienced than me. But literally in the headlines, cash giveaway. The Hong Kong government is doing a cash giveaway. It sounds like a fucking lottery. But what they’re doing is they’re handing the money to the people rather than just injecting into the system because it’s pretty neat.

Raoul Pal 0:52
I mean, they’ve locked up a home and they’ve got agreed so fine, and everyone says helicopter money. Fine. Let me tell you a story. Japan back in 1999 98. Okay. The Japanese wants to stimulate their economy. So I think it was Paul Krugman and told them Well, one of the best things to do was like, I can’t remember the progress I’m gonna give it to him.

But he was advised by Western economists that the Japanese were advised by Western economists that what you need to do is a cash handout. Because difficut Japanese been monetizing long before QE long before we even named it QE, right.

It’s not worked, never drove the economy didn’t help just kept things at the margin ticking over and not imploding. So they decided to issue a voucher to I think it was people of a certain age remember the exact thing but they were given a voucher that had a time expiry on it. Okay, force them to use it. They saved it interesting.

Anthony Pompliano 1:49
We the people saved it or why

Raoul Pal 1:54
human behavior

Anthony Pompliano 1:56
even with the time exploration, they still didn’t like cash it in

Raoul Pal 1:59
Yeah, because They’d been driven by, you know, what had happened, the Asian crisis, whatever, whatever it was. So yes, I had some economic effect. Yes, obviously, some people spent it. But a much larger group of people saved it than they ever imagined. And that’s the other thing is people talk about fiscal stimulus, which I’ve followed this in depth in Japan. And the Japanese got this fiscal stimulus wave, two quarter GDP goes straight back down again, it doesn’t work.

The only way you’re going to get fiscal stimulus to work is completely rebuild an economy, which is why I take seriously the Green Deal, because that is a complete Rebuild of economy that could produce more productive assets over time. So in which case, you can do things like you know, the dams in America were built, you know, out of stuff that is intelligent use. A lot of fiscal surplus doesn’t go to intelligent use.

Anthony Pompliano 2:50
So we saw this in the United States back in, I think, was 2008. under george bush, there’s like a $450 credit to taxpayers. Yeah, as part of I think it was a tarp. are one of the bills. Yeah, we see it in Hong Kong today. Is that just a natural kind of milestone that we will get back to in the United States where as we get cut rates to zero, we print a bunch of money?

Raoul Pal 3:13
There will be no, we’ve always given kind of tax relief or tax credit. So I don’t think it’s a big deal.

Anthony Pompliano 3:17
You don’t think it’s a big deal? Okay.

Raoul Pal 3:19
No, what is a much bigger deal? is when you say, right, we’ve got a depression on our hands. The the emotional impact on our population has been enormous. How do we create future? So what are you going to do in that, you know, you’re going to rebuild systems, you’re going to rebuild things, and then you’re going to spend huge amounts of money and you’re going to printers to do it. That’s really the what happens.

Now, the issue is, is can the currency system survive? Everybody doing that? My guess is No. But if Maybe it can, maybe I’m wrong, right. But the point being is that is a huge wave when everybody’s doing that, at the same time. It’s much bigger than a lot of the kind of bullshit stuff that went into top.

Anthony Pompliano 4:11
So that brings us to there’s two groups of people who historically have always yelled and screamed about this. But yes, it’s kind of like, their dreams that not dream dreams is the wrong word. But their predictions are looking more and more probable every day in terms of Hey, you can’t print money forever. You know, it creates these bubbles. There’s these huge kind of negative cycles that occur.

And that’s the gold and Bitcoin crowd, right? Number two, to start put them in the same crowd of just they have a very interesting, mistrusting and they have very specific view of the world they actually agree on the problems for the most part, they have different answers as to what the solution is. You’ve told me that your portfolio, you’ve got cash, you’ve got bonds Gold and Bitcoin you’re in that group.

Raoul Pal 5:05
Walk me through kind of why i think so the echos good question because it’ll show you how I try and think about things. So knowing this is coming, because that allocation has been around for a while for me, knowing this is coming. My view was that interest rates have to fall, the dollar because of the dollar issue is going to rise.

It is going to create a global wreckingball. Thank global wreckingball is going to cause everybody to both stimulate massively. And so this is pre Corona right. There’s nothing to do with Coronavirus. It’s going to cause them to stimulate massively.

And they’ll have their pension systems across the world. And that the outcomes of that mean that usually in that environment, gold does relatively well because there’s more fit versus the value. Golden does work well, if you look at, I look at Golden basket versus basket 27 currencies excluding the US dollar, okay, there’s not the dollar that’s a driver.

And you can see then gold is a currency basically. And it does exactly what supposedly goes up trade cyber spirit goes up, and it goes up and it protects basically your purchasing value as a global currency. So it is a global currency and works well for that.

And so, the,the situation is, okay, so we’re now going to the point where the dollar is a wrecking ball. And there’s a lot of printing money and gold goes up. Okay, that’s a well, we’ve kind of lived in the last 20 years. But with the problem of the excesses of this particular cycle, and the aging of the baby boomers and leaving the workforce, and the Retirement System, I think we have a chance of breaking it. Having gone through 1998 breaking the system, correct.

The financial system is what I’m talking about here and Having gone through 2001 and, and 2008 and seeing what’s left of the imbalances, the corporate credit being one, and then how the system doesn’t actually function any longer than a number of levels. The outcome is going to have to be a move to something different.

You know, if there was anything that was genius about the Satoshi white paper, which is basically predicting this, whatever whenever that this comes, right, this is likely to be an event now. So I think of Bitcoin as a call option on the outcome as his goals a call option on an outcome, I think, um, has to be a change of the system.

Anthony Pompliano 7:46
We got that and that means the way I look at this is basically twofold. I think you are hitting right around this, which is we’re headed to a bad situation. If the bad situation hits kind of low to medium bad then Gold will do what it’s always done.

Bitcoin is likely to do similar to gold. Possibly it Yeah, but but just in terms of, at least the way that people are thinking about it today could change but but the way people are thinking today’s kind of digital gold narrative.

If for some reason we don’t hit the low to mid bad levels, and we actually hit really, really, really fucking bad, which is this kind of breaking of the financial system, gold will serve as kind of a base case protection. Bitcoin is likely to then be the thing that outperforms everything because it is a resetting of them.

Raoul Pal 8:33
Yeah, and this also assigned to that as an out of that you’ll be well aware of that most people aren’t really aware of because there’s too much talk about just about Bitcoin or cryptocurrencies. There is a brain drain of people coming out of finance and coming out of technology, and coming out of science that is beyond anything I’ve ever seen in my life.

And they’re basically creating a hive mind to rebuild financial custody ownership. Transfer of everything world in parallel at the same time. And I don’t care what tribe you belong to whether you’re a theorem or Bitcoin or, you know, block one or anybody, they’re all doing the same thing.

It is the largest change that I’ve ever seen. And what it’s incredible is, it’s a hive mind doing it has not been directed by one person or one thing. Everybody’s working on different bits that define guys, they’re the transfer of money there that this, you know, Christ.

Anthony Pompliano 9:28
Tokenization is basically all stars is taking the technology that we have available to us today, and trying to literally rebuild a financial system for an internet first type world with, in my opinion, two key differences. The first is this idea of separation of state and money. And the second is the decentralization in a global manner. Right. And so the reason why I put those two things there is I always think of it as like the base unit of account.

Then the infrastructure that is around the financial services around it. Historically, when we’ve seen technology in finance, it hasn’t been anything to do with the base unit of account, right? It’s always been around infrastructure around services, etc.

That’s happening now. And there’s this whole wave of that occurring, which kind of FinTech so not even crypto really just FinTech and then also the crypto stuff. But this idea that the actual base unit of account could change and is actually having in ways not only

Raoul Pal 10:29
Yeah, I mean, the base unit of account is having true innovation, right? So and I’ve talked at length about this, but the Facebook Libra thing was a really big moment.

And we don’t know how it’s going to come out in what form and this it won’t come in full force it merely but basically, it was a private company setting up an SDR based on all the currencies in the world, including the US dollar.

So that basket if you think of my gold basket 27 currencies distinction move up and down by global money supply. Right. So that’s the most stable currency on Earth. Already and issued by private corporation.

Anthony Pompliano 11:08
Now what we also know is every single central bank is building a digital currency right so they’re building some admitted some don’t but they’re all doing it yet.

Raoul Pal 11:11
It’s on ramps and off ramps, they get it so, so they’re building the on ramps and off ramps, the ability for you to pay taxes, the ability for them to control your use of currency within capital within the state function, but they also understand there is no way of stopping the other rise of other alternative currencies and Facebook have said, Well, we can create anybody can create currency now.

So you, you’re going into a different world, and currencies aren’t what we know as currencies, because currencies can have contracts embedded in them. So that is a programmable money. Yeah. So that is a whole different world of everything. But again, I love the visual ality of like, there’s the old system and it’s driving itself into its buffers at top speed. We don’t know when that will be We got to hit that wall, but we’re gonna hit that wall.

Anthony Pompliano 12:07
Meanwhile, it’s like there’s a whole world being built, kept parallel in parallel.

Raoul Pal 12:08
And one day, if there’s a long enough time, you can basically just turn the lights off on one and go to the other.

Anthony Pompliano 12:15
You’ve all people appreciate this. Recently, I described a Bitcoin as a parachute. That’s masked as an adrenaline rush.

And it’s kind of like when you jump out of a plane, right? And so it’s exactly what you’re talking about is that parallel world that’s being built? Now? The part to me that really drives kind of my belief in Bitcoin, is that this is not a technology problem. Right? Because just like you said, Every central bank in the world is going to have a digital currency.

Every corporation that wants to is going to issue these digital currencies, we see JP Morgan, the banks, everybody’s talking about doing it. So it’s almost like you get the technology horizontal comparison. will be very, very similar if not almost exactly the same to every currency in the world where the difference lies or the true competition is in the monetary policy.

All of the central bank digital currencies have the same monetary policy as their, their Fiat counterparts. Right? If you are Facebook, if you are JPMorgan, whoever and you create your own digital currency, you’re still pegging it to a commodity or to a currency. So in essence, you have a very big separation.

There’s basically Bitcoin which has this disinflationary monetary schedule, a deflationary kind of structure. It’s decentralized, it’s programmatic, monetary policy, kind of all the things that we know that Bitcoin brings to the table. It’s true separation of state money, and the of everything else. Everything else is a technology clinical innovation, but it’s the same monetary policy that we already have.

And so the competition isn’t going to end up being on a technology standpoint, it’s gonna end up being at that monetary policy level and My bet is slowly and then a lot Once we are going to see people choosing the new monetary policy over the old, because they’re going to see that old monetary policy for a lot of cases you described failed them.

And when they see it fail them, they’re going to say, Well, what else can I do? And so far, we only see one serious contender on the monetary policy competition, and happens to be one that, you know, looks like Bitcoin is this kind of speculative asset today, but structurally is very, very different than what we’ve seen in the past.

Raoul Pal 14:29
Yeah, I think that’s right. I think it is slowly in all at once, and we’re seeing it like how many of our friends have got involved? How many people do we know? And that circle gets wider? And you’re not a pariah? Now by saying I’ve got some Bitcoin there’s, it’s common, and it’s not now a sign of frothy bubble, because even when the price has been doing and not a lot, there are more people coming into the web, people start to get it. Also, I just realized is you saw that China was burning currency because of the virus.

Anthony Pompliano 14:57
So I have a I have digital Yes. I’ve not tweeted this because I don’t want to kind of poke the beehive. But there is an element of the virus is showing that there is an advantage to a cashless society. And I’m not going to go as far as to say it’s going to accelerate the move there, etc.

Not. But China is burning literally pieces of paper, right? To try to kill the virus to spread the virus. Yeah. And like, six months ago, if we would have said that people are like, You’re fucking crazy. And

Raoul Pal 15:29
again, you know, we talked about macro before and how people look at today. So people like, Look, it’s painful, open account is still painful. Most of the applications are still not good enough that everybody knows that. And everyone’s working on it.

And there was a hive of hundreds of thousands of people a very, very smart people all working on it. So the bet you have to take is will they solve all of those things that make it such an inconvenience to you today? Because if, if they will, then the bet is it will go up of course.

Anthony Pompliano 15:59
It’s like I wrote this thing, but most people don’t see that they got one bitcoins not usable.

Raoul Pal 16:02
That’s not how you invest.

Anthony Pompliano 16:07
Yeah, I wrote this thing, maybe a year ago now, where I basically went back and I took screenshots of all the early web companies. So Amazon, Google, AOL, you know, all these things. And they said, what you remember right? I mean, just atrocious user experiences. Yeah, atrocious user interfaces, etc.

Literally the AOL dial tone like I put the recording of the dial tone as you connected to AOL and little man ran across like I was crazy stuff, couldn’t use your phone at home, if someone was on the internet, right? All this stuff that at the time was just that’s how it is. But the internet was still powerful enough to get people to do this. Now what we’re seeing is the exact same thing play out here with Bitcoin and digital currencies and kind of the whole the whole digitization.

Raoul Pal 16:46
I mean, this, you know, one guy came to my office the other day in the Cayman Islands, and he’s building a decentralized data, which basically replaces AWS by using AWS Have the data abilities for Internet of Things, people’s mobile phones and creating supercomputers out of distributed computing networks. All right, you know, and he’s really good at working.

And it’s working. It’s low cost, and it’s super efficient. And it means that all the universities can crunch massive data and have competing power they could never afford. It’s amazing. And all of this going on at the same time, right? That’s what people don’t understand. This digital revolution is not just about cryptocurrency. It’s about the whole fucking thing.

Anthony Pompliano 17:31
Yeah. And part of the way that I think through this is what’s going on is people are rebuilding existing systems, but they’re building it now for a global digital world. And what I mean by that is, historically, companies have, let’s say, you started the United States, you basically grew as much as you could in the United States and everyone in the boardroom one year and said, next year is going to be our big international expansion.

And you kind of went from, you know, the domestic market to now we’re going to go international and you spend much time and resources hired people and open offices and it all stuff. That’s not the world we live in today. What today happens is when you start a company, you’re global on day one. And you’re actually servicing users from all over the world. And so it’s a very different way of building a company.

But what it also does, it drastically affects the growth rate of these businesses. So if you compare, you know, we’ve invested in businesses that look very similar to an existing financial services firm, but one of it, the old school way is domestic first, and then international expansion. These guys are global from day one, they actually are going after a much larger market, right in terms of the total available users that they could have.

And so on a percentage basis, if you convert the same number of people, the aggregate number of new users that you sign up is sometimes 578 10 times higher. And so you get these growth rates where companies are going from non existent to 10s of millions of dollars in revenue in two years, three years.

I think that’s part of what people don’t understand is it’s not just the technology, it’s not that there’s a lot of smart people, it’s that the opportunity to go from non existent to something that is mass. I mean, binance is a great example, right? literally hundreds of millions of dollars in revenue within the first two years.

Raoul Pal 19:22
How do you do that in the old world, you can’t write in this role you can and now all of a sudden, you’ve got a well capitalized player that’s global, because also, when you start something entirely from scratch, there are a bunch of supernormal profits.

Right? Because if there’s a huge demand, so we saw the internet created supernormal profits and then social media credit supernormal profits, and this will create supernormal profits for some you so me, the opportunity is enormous. I mean, it’s literally every single person in India, India went fully digitized, you know, three years ago. Unbelievable.

Anthony Pompliano 19:50
So here’s my, my favorite story about India. I was there when they did the D monetization, they took the 500 bill out etc. Right after that 18 Months later, India’s RBI the central bank, they’re banned.

They fight the legacy financial organizations and banks from having any relationship with cryptocurrency, exchanges, services, etc. So they basically said, Look, your point of failure in the crypto world is you’re still relying on a Fiat traditional bank account, etc. If we cut that off, we’re gonna really hamper your ability to build.

The Supreme Court literally this morning in India just struck down that ban and said you cannot discriminate the customer base of these financial services firms based on what industry they’re in. And so now what just happened is basically the entire India population can start using those digital currency services, exchanges, etc. And also bring money from their Fiat bank account into that system.

Raoul Pal 20:51
I mean, you’ve seen that India rebuilt its entire digital banking system, right. So I can now buy milk with a fingerprint. So pretty crazy, it’s right. The they built without using blockchain technology, their own technology for the UTA UTM.

I think payment system which processes are 50 times faster than Bitcoin could back then when it came out with no failure rates and no intermediary I mean, I mean, they’ve got this thing called India stack and the whole world going this way.

You know, there’s quite a few smart Indians I’m half half Indian some half smart, but there is India stack in your stack means that you can add a digital layer now it’s a government layer and not distributed.

Okay, I get that some people hate that. Whatever. That’s not the point. The point is, are your KYC isn’t it? So there’s support so that everything you can now I mean, you try opening a bank account in India or a mobile phone account, you know, India’s bureaucratic gone, you can do it in minutes.

You know, try and do it here came on so it when the bank counts, sometimes it’s taken people three months. So onerous, they can get three minutes. So India stack has all of your documentation. If you die, your medical records are there, they know who you are just by your fingerprint.

Anthony Pompliano 22:10
A friend of mine from India just came here and when we checked in downstairs at security, he pulled up this app and he had his passport, his driver’s license all this stuff in there.

And he showed it to me and I was blown away by literally in the US would be the equivalent having your birth certificate, your social security number, your passport, your driver’s license, every you know, your insurance card, all this stuff in a single mobile verify that’s verified by the government that literally you just tap two buttons and you can show it to anybody.

They can scan it, they could do everything. Yeah, it’s crazy.

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