The Fiat Standard by Saifedean Ammous Summary

The Fiat Standard compares the current monetary system to a Bitcoin monetary system.

Rating

9.5/10. This is one of my favorite books of all time. Chapter 5 is one of the best chapters I've ever read. The book would be a 10/10 but it gets a little dry in Part 2.  

One Sentence Summary

The Fiat Standard compares the current monetary system to a Bitcoin monetary system.

Key Takeaways

  • Since 1914, the Pound Sterling and US dollar have lost more than 95% of their value relative to gold.
  • In 1971, the dollar was de-pegged from gold, making dollars bad for saving. Inflation spiked. In response, people started investing in stocks and bonds to keep up with inflation.
  • From the 1970s until the 1990s, government bonds functioned as the world’s savings account, offering inflation-beating returns.
  • Ever since 2009, bond yields in Western economies could clearly no longer beat inflation. So broad stock market indexes (like the S&P 500) became the defacto inflation-beating 'savings' vehicle.
  • Under a hard money standard, such as gold or Bitcoin, the hard money itself would be held as saving, given its slight but steady appreciation.
  • Because we do not have a hard money standard, most people invest in stock indexes or real estate to beat inflation.
  • Similar to bonds in 2009, stock indexes and real estate may no longer beat inflation, especially because of recent money printing (in response to Covid-19) and subsequent inflation.
  • In short, cash is trash and stock indexes and real estate may no longer beat inflation.
  • The rich borrow money to buy assets. The correct and successful financial strategy under the fiat standard is to constantly take on as much debt as possible, be meticulous about making all payments on time, and use the debt to buy hard assets that generate future returns.
  • What should you invest in? Bitcoin and other top 0.01% tech stocks and cryptoassets, like Tesla, Ethereum, and Solana. Not financial advice.
  • The Bitcoin Standard quantified salability across time by using the stock-to-flow ratio.
  • For salability across space, the best metric I can think of is the cost associated with clearing and settling.
  • There is no way to know precisely how many US dollars there are but M2 is probably the best estimate.
  • Every currency but the U.S. dollar is merely a second-layer token, a derivative of the dollar.
  • Governments have an incentive to understate inflation because the panic of inflation can cause hyperinflation. So governments always lie about inflation stats when they are high to keep people from being alarmed.
  • Interest rate arbitrage is the ultimate business model. A big business can secure a loan at around 2% interest. They can then give loans to their customers for 20+% interest. The business can profit 18+% for nothing.
  • Before it went bankrupt, Macy’s was generating about as much revenue from the credit cards it issued its customers as the clothes it sold them.
  • Government spending inherently misallocates capital. It would require clairvoyance beyond the market itself to be able to allocate capital more effectively than the market.

Chapters 1 & 2

The Never-Ending Bank Holiday

Britain started the fiat standard in 1914. They confiscated gold and replaced it with the Sterling. They said the Sterling was as good as gold. But it wasn’t…

“The annual change in prices from 1915–1920 were 12.5%, 18.1%, 25.2%, 22%, and 10.1%, a cumulative five-year rise of 124%. Price increases made life difficult for the average Englishman, spurring the rise of organized labor and popular demands for price and wage controls. ”

  • Rationing, shortages, and mass unemployment followed.

“This was the fiat standard protocol installation, and the whole world copied it: run unsustainable deficits, default by confiscating and restricting the movement of gold, suspend redemption, increase the supply of paper notes, and if you can, try to get other countries to hold your currency as reserve. The U.S. did it best.”

“Since 1914, both currencies [pound Sterling and USD] have lost more than 95% of their value relative to gold.”

“The fiat standard installation process has been a long one, but it has had these hallmarks: gold confiscation, price increases, price controls, central planning, inflationary credit expansion, booms and busts, and the aspiration to export inflation by trying to dump fractionally backed currency on foreign regimes.”

Chapter 3

Fiat Technology

“The fiat network creates more tokens every time a government-licensed entity makes a loan in the local fiat token.”

“As the government backs the entire banking system, this makes all credit issued by the banking system effectively the government’s credit, and so part of the money supply. In other words, the U.S. Congress and Federal Reserve are not the only institutions capable of conjuring money from thin air; any lending organization also has the capacity to increase the money supply through lending.”

Blurring the line between money and credit makes measuring the money supply practically impossible.

“This makes it virtually impossible to obtain an objective, agreed-upon measure of the supply of money, or to audit the supply, as is the case with bitcoin.”

“When a client takes out a $1 million loan to buy a house, the lending bank does not take a preexisting mature $1 million present in its cash reserves, or from a depositor’s balance at the bank. It will simply issue the loan and create the dollars that are used to pay the seller of the house. These dollars did not exist before the loan was issued. Their existence is predicated on the borrower fulfilling their end of the bargain and making regular payments in the future.”

The fiat is made up. The buyer and the seller both walk away with an asset—money for the seller and the house for the buyer—even though only one of those existed before the purchase (the house).

“The new fiat tokens created to allow this transaction place the risk of the buyer defaulting on all holders of the currency.”

  • Money is "printed" when a bank lends money, like for a mortgage loan.

“It appears favorable to the buyer, who can buy a home without having to pay the full price up front. It appears favorable to the seller because it finances more potential buyers and bids up the price of their home. It also appears favorable to the bank, which can mine new fiat tokens at roughly zero marginal cost every time a new lender wants to buy a house. However, the transaction only works by externalizing the risk to society at large, protecting the buyer, seller, and bank from default by having the government’s currency holders effectively absorb the risk premium through the inflation of the money supply. The sacrifice of the present good that allows both to spend can only come at the expense of the currency being devalued.”

“The fiat network utilizes a highly efficient centralized ledger technology with only one full node required to validate and decide the full record of transactions and balances. That entity is the United States Federal Reserve, under the influence and supervision of the United States government. “The Fed” is the only entity that can invalidate any transaction and confiscate any balance from any other fiat node."

“The Fed rules unilaterally over the SWIFT payments network and can prevent entire nations from joining it and settling trades with other nations.”

“The fiat network’s base layer operates using a native token of debt denominated in U.S. dollars.”

“While fiat enthusiasts portray the network as having a variety of tokens, each belonging to a different country or region, the reality is that every currency but the U.S. dollar is merely a second-layer token, a derivative of the dollar.”

  • “The value of non-U.S. fiat money depends on its backing in the U.S. dollar and can best be approximated as the value of the dollar with a discount equivalent to the country risk.”

“Financial institutions mine the network’s native token—fiatcoin—through the arcane, centralized, manual, risky, and haphazard process of lending.”

  • The fiat miners are government-licensed lending institutions.

“Lending ultimately determines the money supply, and lending levels are in turn shaped by the interest rate and Federal Reserve policy.”

“The Federal Reserve’s full fiat node holds periodic meetings for its central planning committee to decide the optimal interest rate to charge other nodes. The rate these unelected bureaucrats set is known as the federal funds rate, and all other interest rates are derived from this and rise as they get further away from the central node.”

The Fed or any other government-licensed bank can change the fiat ledger at any time.

“All central banks back their currencies with international reserve currencies they cannot print. For most countries, this is the U.S. dollar, and for the U.S., it is gold.”

“At the end of the third fiscal quarter of 2020, the dollar constituted around 51% of global reserves, the euro 18.3%, gold 13.7%, the Japanese yen 5.2%, the British pound 4.1%, and the Chinese yuan 1.9%.”

“The dollar has the lion’s share of the foreign exchange market, taking part in 88.3% of all the foreign exchange market’s daily trades.”

“The dollar is the base-layer token of the global fiat network, and national currencies are derivatives of it. There are 180 national currencies in the world today. Other than the dollar and euro, national currencies are mainly used domestically in the secondary national fiat banking layers.”

“Under a fractional reserve banking system, the central bank also uses its reserves to provide liquidity to individual banks facing liquidity problems. This means that the inevitable credit contractions that follow the banking system’s credit-fueled booms are remedied by central banks using their reserves to support illiquid financial institutions, in effect increasing the money supply.”

  • Interest rate manipulation causes banks to give out loans to unqualified people, increasing default risk. Then the banks have to be bailed out, increasing the money supply and causing a recession.

“When a central bank buys larger quantities of its government’s bonds, the value of its currency declines, since it funds these purchases by inflating the money supply. As monetary continence has continued to erode, central banks no longer just buy government bonds; they also engage in monetizing all kinds of assets from stocks to bonds to defaulted debt to housing, and much more."

The intermingling of these four functions in the hands of one monopoly entity protected from market competition is ultimately the root cause of most economic crises globally. It is easy to see how these four functions can conflict with one another, and how a monopolist will have the perverse incentive to protect their own interests at the expense of the long-term value of their currency and, thus, the wealth of their citizens.”

Chapter 4

Fiat Mining

Using the crypto terminology, fiat lending is "mining." When banks lend out money, they are printing money (mining).

“Getting others into debt is the fiat standard’s version of gold prospecting.”

“Rai stones were used as currency in Micronesia until Captain O’Keefe imported superior foreign technology to flood the market with new supplies. The monetary role of seashells was destroyed when modern industrial boating inflated their supply. Copper, silver, and gold miners constantly try to increase their supply, but gold’s indestructibility and scarcity combine to restrain its supply from growing too quickly. Bitcoin miners try to mine as much bitcoin as possible, but they are successfully constrained by the difficulty adjustment and a network of thousands of nodes worldwide enforcing Nakamoto’s consensus parameters.”

“The most effective restraint against credit growth spiraling out of control in the fiat system has been the inevitable deflationary recessions it precipitates, and the concomitant collapses in the money supply.”

The expansion of credit cannot be a substitute for production. – Ludwig von Mises

“These recessions, and the foresight of central bankers, are a major reason why hyperinflation is not such a common occurrence in fiat monetary systems.”

Modern economists think that any deflation is bad because if prices will be lower tomorrow, people won’t buy today. This is false. Time preference is always positive, and people always prefer having something in the present to having it in the future. Humans need to eat to survive, and most expect decent shelter, clothing, and other consumer goods, and so they consume. Deflation will likely cause them to reduce frivolous consumption, but they will consume nonetheless, and whatever they do not consume will be saved or invested, providing demand or goods in the future."

People are more likely to hold on to their money if they expect its value to rise, but they will still need to spend it in order to survive. Harder money will result in less present spending but more future spending.

  • “The best example to illustrate this point is the computer industry, which even under inflationary fiat money makes products that become cheaper very quickly. In 1980, a one-megabyte (MB) external hard drive was worth $3,500, but in 2020 that amount of data storage was worth a fraction of a cent. And yet, people have continued to buy and benefit from hard drives for decades, even though their prices continue to decline.”

“Every person who buys a phone or laptop today does so even though they would definitely get a lower price if they waited just one year.”

“Hard money is itself a driver of lowered time preference.”

  • This is one of Saifedean's main arguments in The Bitcoin Standard.

Michael Saylor on understanding inflation: Inflation cannot be measured as a metric; it can be better understood as a vector. There is no universal inflation rate that measures increases in the prices of all goods and services, as inflation affects different goods in different ways. If inflation is considered as a vector wherein each good has its own price inflation rate, it becomes far easier to identify the impacts of inflation on individuals and their provision for the future.

  • “Goods that are abundant, not highly sought after, and require a low variable cost of production witness the least price inflation.”
  • Digital good are likely to experience negative price inflation, as they always have.
  • “Perishable and consumable goods will likely have lower price inflation than durable goods.”

“Saylor’s most brilliant insight on this issue is to pinpoint that inflation shows up in the cost of purchasing financial assets that yield income for the future. Returns on bonds have declined along with interest rates, reducing the ability of individuals to afford retirement. The market is effectively heavily discounting today’s money in terms of tomorrow’s real purchasing power as yields disappear.”

Chapter 5

Fiat Balances: Universal Debt Slavery

There is no way to know exactly how much fiat is out there because future fiat is conflated with present fiat. But M2 is probably the best estimate.

“But the balances of the top tier of users, who constitute the vast majority of global monetary wealth, are usually negative. Under the fiat standard, being rich does not usually mean having many fiat tokens.”

  • The wealthiest people are the ones who have negative fiat. They have low-interest (non-mark to market) debt that they use to buy assets. In short, the rich borrow money to buy assets.

“When inflation made maintaining the U.S. dollar’s gold peg untenable in 1971, fiat savings became unworkable. Those who wanted to save wealth into the future would have to speculate through the shadow banking system and set up an investment portfolio. The stock and bond markets emerged as the pseudo-savings technologies of choice to beat inflation.”

“From the 1970s until the 1990s, government bonds functioned as the world’s savings account, offering inflation-beating returns.”

“As demand for bonds as a store of value increases, their prices rise and their yields drop, which means their returns eventually stop beating inflation. Bond issuers can borrow on increasingly favorable terms, which encourages them to become less fiscally responsible.”

“By the late 2000s, bond yields in Western economies could clearly no longer beat inflation, and their role as a savings mechanism became less appealing. The stock index emerged as the new savings account in the post-2009 world.”

“Under a hard money standard, such as gold, the hard money itself would be held as saving, given its slight but steady appreciation.”

“In a modern, easy-money economy, cash is trash, as every money manager knows.”

“Instead of holding cash, people hold the equivalent of their savings in government bonds or low-risk investment stock."

“Savers need to study financial assets in order to maintain the value they earned and protect it from inflation. This makes it harder to have a stable cash balance and limits the ability of savers to plan for the future.”

“The problem with fiat is that simply maintaining the wealth you already own requires significant active management and expert decision-making.”

  • “You need to develop expertise in portfolio allocation, risk management, stock and bond valuation, real estate markets, credit markets, global macro trends, national and international monetary policy, commodity markets, geopolitics, and many other arcane and highly specialized fields in order to make informed investment decisions that allow you to maintain the wealth you already earned.”
  • “You effectively need to earn your money twice with fiat, once when you work for it, and once when you invest it to beat inflation. The simple gold coin saved you from all of this before fiat.”

While many have long believed that index investing or real estate provide reliable ways of beating inflation, this is becoming harder to maintain, particularly over the last year. As interest rates drop to negative territory, it is very difficult to find investments that can beat inflation.

The correct and successful financial strategy under the fiat standard is to constantly take on as much debt as possible, be meticulous about making all payments on time, and use the debt to buy hard assets that generate future returns.

  • Doing this successively improves your credit score and allows you to borrow at lower rates, while you store your wealth in goods that cannot be inflated as easily as fiat.
  • The fiat system thus taxes savers and subsidizes borrowers.
  • “The path to success ends up necessitating irresponsible decisions along the way.”
  • "Actually, not taking on debt is reckless financial irresponsibility."

“Under the fiat standard, every business model degenerates into interest rate arbitrage. The purpose behind setting up business is increasingly less about making money from serving customers but establishing a creditor relationship with them. Managing to secure debt at a lower interest rate becomes the most significant market advantage. Businesses live and die by their ability to turn over debt at a healthy arbitrage."

  • “This phenomenon is apparent in many modern companies. Most businesses that provide credit will give their customers very good deals on their products if they use the company’s credit card. The incentive for doing so is clear: large corporations can borrow at very low rates, but they can charge their customers interest rates in excess of 20% on their credit cards. Before it went bankrupt, the U.S. department store Macy’s was generating about as much revenue from the credit cards it issued its customers as the clothes it sold them.”

“Fiat central banking is built on the fictional idea that devaluing currency will cause people to invest more, thus inducing more economic production. But like all coercive government interventions into markets, there is no free lunch, and the costs are paid in ways that may not appear very clear initially. The Fed’s policy to encourage more investment leads to people engaging in riskier investment than their risk profiles would otherwise indicate, leading to financial bubbles and crises.”

Chapter 6

What is Fiat Good For?


The asset with the highest stock-to-flow has the highest salability across time. That means that it holds its value the most over time. 'Stock' is the amount of a currency. 'Flow' is the amount of currency being printed, produced, or mined per year.

“Historical examples of primitive monies and national currencies demonstrate how monetary goods with higher stock-to-flow ratios displace monetary goods with lower stock-to-flow ratios.”

  • Bitcoin and gold have high stock-to-flow ratios. The US dollar (and fiat in general) has a low stock-to-flow ratio.
  • So why did the low stock to flow fiat become the contemporary standard? Because fiat was better at moving across space. It was easier than gold to transport and transact with.  
  • Also, the government and banks have a lot to gain by controlling the money and when you have a monopoly on violence (military, police, jail) you can make your citizens use any currency you want them to.

“The more a good is suitable for performing the function of a medium of exchange, the more salable it is.”

“In capital markets, the most salable instruments are U.S. Treasury bonds, which at the time of writing are collectively worth around $28 trillion.”

“Central to Menger’s analysis of salability is the measure of the spread between the bid and ask prices for assets, where the bid is the maximum price that a buyer is willing to pay, and the ask is the minimum price that a seller is willing to take.”

We can think of salability as existing across three axes: time, space, and scale.

  • Salability across time measures the ability of a good to maintain its market value into the future
  • “Salability across space can be measured as the reduction in the market price incurred by the seller due to the distance between them and the buyer. An immobile house is not salable across space at all, as moving a building would destroy it”
  • How easy is it to transfer the money between two people over different distances?

“As discussed in The Bitcoin Standard, the emergence of gold as the world’s money was no coincidence but was instead the result of gold having the highest stock-to-flow ratio of all metals. That means gold’s supply is the least elastic in response to demand and price shocks.”

“Making a payment with gold would thus require transporting a far lighter load than silver, copper, or iron, meaning it would incur a lower cost.”

  • Gold has higher salability than other metals.

"What makes gold have such a high stock to flow is the large stockpile of gold mines throughout history. No matter how high demand for gold gets, miners simply cannot mine enough to impact the huge stockpile (stock) of gold."

“Although gold is highly salable across time, its salability across space is very low compared to fiat. This is as significant a flaw as having a low stock-to-flow ratio.”

“Whereas a low stock-to-flow ratio leads to a loss in value when trading the good across time, a high cost of transportation results in a significant loss of value when transacting the good across space.”

“Hard money advocates can deride fiat money for losing its value across time, but they dismiss the reality that an ounce of gold sent across the world will arrive having lost a significant portion of its value to pay for its movement.”

“The dollar has by far the highest spatial salability of all national currencies, as it is the prime currency for international settlement, and there is a market in U.S. dollars and U.S. government bonds almost everywhere in the world.”

The Bitcoin Standard quantified salability across time by using the stock-to-flow ratio.”

"For salability across space, the best metric I can think of is the cost associated with clearing and settling."

The small fraction of fiat money that is physically printed moves around, but this is an increasingly insignificant part of the total money supply. In most cases, settling fiat money involves debiting and crediting ledger entries in different places.”

“Spatial salability is the key to understanding the fiat monetary system’s evolution and survival and the most important criterion by which to assess bitcoin’s competitive threat to government central banks. Bitcoin’s ability to settle hundreds of thousands of transactions worldwide regardless of the distances involved gives it a far superior spatial salability to gold, and its ability to cross borders and perform final settlement in a matter of hours is not contingent on the fiat of political authority.”

  • Gold is extremely difficult and expensive to transport. Fiat takes weeks or months to finally transport and settle.
  • Bitcoin is special because it is hyper-salable across space.

“The fiat standard’s second “killer app” is enabling fractional reserve banking, the dubious practice of holding deposits on demand without having their corresponding value available in cash on hand.”

"Any argument that reasons for increasing the money supply through lending in order to increase economic production is like saying that printing more tickets to a football game will make there be more stadium seats. Just like an increase in production, making more seats would actually require engineers, workers, and heavy machinery."

“Whatever supply of money an economy is using is always sufficient to supply all the needs of the economy, provided the money itself is divisible enough.”

  • Money supply doesn’t matter in that it always equals economic production BUT increasing or decreasing money supply can redistribute wealth depending on who you give money to.

The FDIC ensures that banks who cannot pay back their customers are insured. This incentivizes banks to take on more risk because the risk is not theirs.

“The shadow banking system comprises financial firms created to take financial risks with fewer regulations and restrictions, and without a formal lender of last resort like the FDIC.”

“They include investment banks, mortgage companies, money market funds, repurchase agreement markets, asset-backed commercial paper, securitization vehicles, and more arcane financial tools. Nonetheless, time has shown that when push comes to shove, the Federal Reserve will act as a lender of last resort to the shadow financial system, in many different ways.”

Chapter 7

Fiat Life

“Salt, cattle, glass beads, limestone, seashells, iron, copper, and silver have all been used as money in various times and places, but by the end of the nineteenth century, the entire globe was practically on a gold standard.”

“The culture of conspicuous mass consumption that pervades our planet today cannot be understood except through the distorted incentives fiat creates around consumption. With the money constantly losing its value, deferring consumption and saving will likely have a negative expected value. Finding the right investments is difficult, requires active management and supervision, and entails risk. The path of least resistance, the path permeating the entire culture of fiat society, is to consume all your income, living paycheck to paycheck.”

“As education, childcare, healthcare, and retirement become the responsibility of the state, the need for a family decreases, and the sacrifices required for it become less compelling. All the bonds of family will weaken when the state appropriates the power of provision.”

“In the world in which fiat did not finance the welfare state, family was one’s only hope for surviving childhood and old age, and so everyone had a strong incentive to invest in familial relationships.”

Chapter 8

Fiat Food

The author says why vegetable oils, soy, low/no fat, refined sugar, flour, and more are terrible for you.

“Refined sugar and flour can be better understood as drugs, not food.”

Things like soy lecithin are literally industrial waste.

“As with his architecture, art, and family, fiat man’s food quality is constantly declining.”

Chapter 9

Fiat Science

“Universities increasingly resemble country clubs, where students borrow money to live like aristocrats, doing little work while partying, socializing, and enjoying themselves.”

“Instead of beginning their adult lives by earning and accumulating capital and deferring the country club experience until they achieve financial independence and can afford it, young adults are getting the country club experience first and spending the rest of their lives working to pay it off.”

Chapter 11

Fiat States

Lenders of last resort encourage the States and institutions they back to take on more risk—because they don’t take on the risk, the lender of last resort does.

  • The IMF is a lender of last resort to third-world countries.

The WTO was created to help governments make agreements on trade. "Today, the WTO stifles the free movement of technological innovations worldwide by forcing countries to accept U.S. patent and copyright law.”

“Forcing countries to apply U.S. intellectual property laws domestically makes it much harder for developing country industries to build on new technologies and slows the speed and spread of innovation. But it does benefit the large corporations that have enormous influence over the WTO.”

“The Fed ensures that the World Bank can never go out of business regardless of whether its projects fail miserably.”

The International Financial Institutions (IFI) are the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO).

“The IFI access to a line of credit from the Federal Reserve grants them immunity from market failure.”

States have “welfare” confused. Modern welfare programs seek to give financial aid to people who need it. Real welfare would attempt to give people good health, knowledge (education), and relationships (community). Widespread wealth would be inevitable if these 3 pillars were met.

Governments cannot really invest. It is more like consumption than investing.

“The price of gold had risen from $38 an ounce in 1971 to $800 in 1980, and there were serious concerns in Washington over the dollar’s survival.”

When the US reigns in monetary policy and raises interest rates, it makes it more difficult for third world countries to pay back their debt. This leads to third world debt crisis. It’s like variable rate loans but on the State level. This happened in the 1980s after the insane inflation of the 1970s after Nixon de-pegged USD from gold.

The IFI try to plan out the economic development of developing nations. This doesn’t work because you need a free market to allocate capital to the best companies or capital allocators. To make matters worse, they enforce US intellectual property rights in foreign markets, making it impossible for developing countries to innovate. This makes their loans impossible to repay. Taking aid from the IMF, world bank, or WTO is a death sentence for third-world countries.

“Standard business cycles as explained by Austrian business cycle theory: the manipulation of interest rates downward causes an unsustainable increase in credit, which can only then be sustained with even lower interest rates and will implode as soon as these artificial rates normalize.”

  • Low interest rates allow poor capital allocators to get access to capital. The poor capital allocators fail and then they cannot pay their debts. This ultimately causes a crash.

The IFI say their objectives are development, growth, sustainability, children’s education, disease elimination, etc. but they are not their actual objectives.

"[The IFI's] real objectives are: (1) providing lucrative careers for the insiders in these organizations, (2) maintaining the dollar’s role as the global reserve currency, and (3) allowing the U.S. government an unprecedented degree of control over the economies of the world.”

Chapter 12

Fiat Cost-Benefit Analysis

"The benefit fiat offers to humanity is that it allows for savings on moving gold for payments. The costs are incalculable. We can classify the costs of fiat into four broad categories: (1) the destruction of holders’ wealth through inflation, (2) the destruction of the role of money in economic calculation, (3) the increased power of government to shape economy and society, and (4) the increased likelihood and cost of conflict."

"Inflation is the first and most obvious cost is the wealth destroyed by the devaluation of national currencies. Every national fiat currency has devalued in real terms almost every year since its creation."

Governments have an incentive to understate inflation because the panic of inflation can cause hyperinflation. If people think their money is devaluing, it can cause them to pull money from the bank and spend. This can cause hyperinflation and recession. So governments always lie about inflation stats when they are high to keep people from being alarmed.

“When compared to holding hard money with a fixed supply, the average fiat user is witnessing a devaluation of the wealth stored in their savings by around 14% per year.”

  • This is globally, so the average person around the world needs bitcoin.

“In 2019, the total global broad money supply stood at around $95 trillion, while total global wealth was around $360 trillion. This means that fiat money made up around 26.3% of humanity’s wealth.”

Further, the world’s poor have most of their wealth in money, not in financial assets. The world’s rich are the ones who hold the vast majority of the 75% of the world’s wealth that is not in fiat but in hard assets like stocks and bonds. The rich will own more liquid wealth than the poor, but their liquid wealth is a small fraction of their wealth, a fraction that declines as wealth increases.

It is inflation that causes the divide between the rich and poor. The rich invest in hard assets that protect them from inflation. The poor cannot or do not invest in hard assets which causes them to continually lose money.

Bitcoin supply is devaluing at a current rate lower than 2% per year, which is halving every four years on its way to zero, eventually.

“The financial crisis of 2008 is estimated to cost every American $70,000 in lost lifetime earnings, or roughly a total of $21 trillion for the nation overall.”

“With money expected to debase at X%, any business that offers a positive nominal return smaller than X%, will appear profitable while being a net drain of society’s capital.”

Inflation turns money into a melting ice cube, strongly encouraging individuals to spend or invest, even if they cannot find a worthwhile purchase or investment.

Government spending inherently misallocates capital. It would require clairvoyance beyond the market itself to be able to allocate capital more effectively than the market.

“The biggest and most devastating cost of fiat lies in the mechanism it uses to achieve consensus on a global ledger: violence. Whereas gold’s monetary role was guaranteed by its physical and chemical properties, and verification of its authenticity is possible, fiat’s monetary role is entirely predicated on the authority of the issuing central bank and government.”

“R. J. Rummel estimates government regimes murdered 169 million people during the twentieth century. All these governments were able to carry out these atrocities thanks to fiat money’s extreme killer app: unlimited government finance.”

Chapter 13

Why Bitcoin Fixes This

“As it currently stands, it costs around $3,000 to send a 400-oz good-delivery gold bar, worth around $750,000, across the Atlantic. A similar amount of economic value sent over the bitcoin network currently costs around $1. But as bitcoin continues to grow, you would expect this fee to rise significantly. Still, it has a long way to go before it matches the price of a cross-Atlantic gold transaction.”

Bitcoin replaces bonds:

“A large part of the demand for debt creation in the fiat system comes from the large demand for holding debt assets, such as bonds or other credit instruments, as a store of value. As fiat money itself cannot meet this demand, and as lending also creates new money, there is a strong financial incentive to create debt. Bitcoin is the astonishingly neat technological solution to this problem. It monetizes a hard asset and offers everyone a chance to hold an asset as a store of value that does not have liabilities attached to it. You no longer need others to be indebted for you to have savings.”

  • Bitcoin replaces bonds.
  • Bitcoin replaces gold.
  • Bitcoin replaces real estate as a store of value, especially once inflation is gone and house prices go sideways.
  • Bitcoin replaces equities as a store of value.
  • Bitcoin is the new savings account.

Chapters 14-18

Chapters 14-18 are great but difficult to take notes on. I highly recommend reading the full book.