Dan Oliver – Myrmikan Capital
Dan Oliver is the author of an important upcoming book called Golden Tears and is also the founder of the respected research firm and junior miner specialists, Myrmikan Capital. In this fascinating interview Dan takes us on a journey into the incredible history of King Louis XIV, the banking machinations of John Law, the establishment of the Mississippi Company and the resulting credit bubble and much more. Through Dan’s rich gifts as an economic historian, political economists and active fund manager we are given a rare insight into the past and a compelling vision of the future.
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Dan Oliver Myrmikan Capital
[00:00:00]Well, Hey everybody. Jonathan Doyle with you. Once again. Welcome aboard friends to the supply side podcast. Great privileged to have the pleasure of your company for a little while. Hope we can really bring you some value today. Who knows when you’ll be listening to this, hopefully around the time it comes out, because what a time in economic history, it is in the history of political economy. Interesting. And, uh,
[00:00:32] Extraordinary things are happening extraordinary. Yes, but unprecedented, no, because as you’re going to learn from today’s fantastic guest. There is nothing new under the sun. I know many of you already know that a lot of what we’re seeing at the moment. In global debt markets in the bond markets, equity markets in real estate in many ways has happened before.
[00:00:54] Today. I’m really excited to be bringing you a great guest. We’ve got Mr. Dan Oliver. He’s from murmur kin capital. In New York, he’s also the author of a fantastic new book that you must get your hands on. When it comes out and you’ll understand. Uh, about that at the start of the interview. Cause it’s not quite released, but it’s close.
[00:01:15] I had the pleasure yesterday of reading the prologue. And I really want to encourage you to get your hands on this book. Dan, his prose is excellent. His command of history. And political economy is, uh, is really fantastic. So I want you to go to golden tears.org. I’ll give you a reminder at the end of this discussion.
[00:01:34] But check out golden tears.org. You can go and read the prologue at the bottom of that page. And you’ll see what I’m talking about. He takes us through the extraordinary situation in pre-revolutionary France. People like Louis, the 14th, John law and the Mississippi company. And, uh, you know, there is nothing new under the sun, a lot of what, uh,
[00:01:55] Dan’s going to discuss with us from history is very much likely to be playing out. Again, soon in a stock market ni you. So, um, please make sure your lock in. Listen to this. This is quality. If you want to check it out on YouTube, you should be able to find it. Uh, under the supply side, we’ve got a great video with Dan as well.
[00:02:15] So you can listen to us here on the podcast or find us. On the video version as well. So that’s it for now. Please make sure you’ve subscribed. If you like what you hear today, please send it to other interested and like-minded people. But for now, let’s do this. Everybody. Let’s sit back, relax and enjoy this fantastic interview.
[00:02:32] With Mr. Dan Oliver.
[00:02:35] Jonathan Doyle: [00:02:35] So Mr. Dan Oliver, joining us from Connecticut. Welcome aboard to the supply side podcast and thanks for making time for us.
[00:02:45] Dan Oliver Myrmikan Capital: [00:02:45] Thanks for having me.
[00:02:47] Jonathan Doyle: [00:02:47] So the biggest question on everybody’s lips is when is this book of yours actually going to get finished?
[00:02:53] Dan Oliver Myrmikan Capital: [00:02:53] you know, it’s funny. I, I run a, uh, investment fund in the junior gold mining space and anyone who knows that space knows that it’s an incredibly fault or thing.
[00:03:01] And, and, uh, and especially at the time from 2013 to two 16, it was, was quite Rocky. Uh, the GX J was down, I think 87%. I was down similarly. Um, and my wife was insistent. I drop it and do something else. And I told her that I wanted to memorialize this, this activity. So I was going to take all my letters.
[00:03:21] I’d written them and put them in a book. It would take me three months and then I’d move on to something else. So I knew it, the second I finished it, I had to shut the fund down and get a job. I didn’t want to do that. So. I made the book. It was like Penelope. I made it last a very, very, very large. And I made it bless so long.
[00:03:38] The Mark came back to the 16 and, and, and it’s been quite successful since then. Uh, and, and also writing a book, you know, the idea of, of doing it in three or four months sound like a great idea, but th the deeper I got into it, the more I went back to my letters and re-read them and said, okay, if I’m gonna write a book, I’ve got to get the sourcing, right.
[00:03:55] I can’t just, you know, letters can be a little more loosey goosey, but when you’re running a book, you want to have the, the proper references and do it academically. And so it led me back into the wormhole of re rereading in all of the theoretical books, like the mitosis and the hikes, and that kind of, but also the historical narratives, because what, what grabbed me originally about the gold thesis, the credible thesis, wasn’t the theory.
[00:04:19] The theory is interesting and important and useful, but. Probably more reading about history and reading about people, living through these different episodes and, and the, and the interest. So it’s just, it’s just interesting. But then on top of that, recognizing we were in a similar situation and understanding that if I could understand what had happened in the past, I’d have a much better chance of predicting what was going to happen in the future.
[00:04:42] So it was both an academic and interest, but, but also practical one. Uh, and, and so it’s been a real labor of love. And, and unfortunately I was on the verge of finishing the damn thing, and then the virus happened and, and we moved and business got busy. And so I it’s, it has been almost done now for three years, but I’ve been, I hopefully I will finish it soon.
[00:05:03] Jonathan Doyle: [00:05:03] I love that almost almost done for three years. So we’re getting close listening to you. It’s interesting. I know Churchill has got the famous saying that the further you look back in history, the easier it is to see into the future. And, uh, I want to ask you the, having read the prologue yesterday. Do you see yourself?
[00:05:23] As an economic historian, what’s your, what should passion cause the, the depth of history in your writings is extraordinary. And, uh, have you fused those two passions together?
[00:05:34] Dan Oliver Myrmikan Capital: [00:05:34] together? Yeah, you know, it’s funny. I was at a Philadelphia society meeting a few years ago and some, one of the speakers remarked that no one writes economic history anymore. And it’s because these storylines are interested in, in, uh, in, in Islam. So, you know, racism and sexism and colonialism, all the current stuff, and the economists are all interested in, in computer models.
[00:05:56] They’re all Keynesians. And I think if they have enough data and enough fancy equations that, that, that they can describe, uh, life that way. And so there’s no demand in academia whatsoever for, for real. Economic history that again, looks at the past and tries to use the past as, as a model to, to predict the future.
[00:06:16] I, I can’t remember which founding father it was of the United States, but, but one of them wanted to send every household have Congress in every household, a cup of facilities where the idea that if everyone wrote threats to theater days, we wouldn’t repeat the same mistakes and it didn’t happen, unfortunately.
[00:06:31] And, uh, but, but it’s, but it’s, it’s a relevant point. And, and so to answer your question, it is economic history, but there’s very little demand for it these days.
[00:06:40] Jonathan Doyle: [00:06:40] is there a sense that people want to believe that economics is a hard science that like you just said, if they get enough data, if they have enough algorithms that they can actually predict the future. But really what we’re talking about is the interplay between some of that, but also the randomness of human behavior.
[00:06:58] Dan Oliver Myrmikan Capital: [00:06:58] Yeah, well, it’s a great point. You know, a lot of my sources for the ancient material came from books written in the 1890s in the United States and 1890s, there was a big debate between the, the blurriness that the gold standard people and the silver standard people, which was a modern version of an old version of inflation idea was there’s more civil around.
[00:07:14] And so if we would monetize silver, will, will prices go up? William Jennings. Bryan was the figure behind this, and there was a big national debate about this and lots of books written about the history of credit, uh, and, and, uh, money, uh, from that perspective, 1990s. And what’s interesting, as late as that, uh, economist people are running economic books.
[00:07:33] We look back at Greece and Rome and the middle ages and make an analogy to those things and say, Hey, we can, we can learn from, from the past and apply to the present. But by the time older, one ends in the 1920s, all that has gone and you have kids and Irving Fisher and all the scientists. Who think that again, as you say is it’s a hard science that history doesn’t matter that, um, what matters is data and formulas.
[00:07:58] And if we can just get the right formulas and enough data, uh, we, you know, it’s, it’s a brave new world. We can manage the economy in a way that no one could before. And so, so it turned into a hard science from a humanity. And, and again, one of the things I’m trying to do is return the humanity to economics
[00:08:15] Jonathan Doyle: [00:08:15] it’s interesting preparing to talk the, yesterday, I kept thinking of that famous quote from George W. Bush about, uh, you know, getting the smartest guys in the room together. Right. And I keep thinking there’s a sense, reading your stuff. I’m like going, you know, I just finished reading Richard. Duncan’s a dollar crisis, which you know, was printed back in 2003. And it’s just so prescient, but this, this, he makes the point that before, uh, going off the gold standard, there’d been one major global banking crisis, I think between about 1944 and 1971. And he said post 1971 at the time of his writing, we’d already had 19. So again, it seems to be the sense of. A complete, inability to look at the outcomes of the past.
[00:09:06] So let’s talk a little bit about your prologue. I read it yesterday for people who haven’t read it yet because it hasn’t been printed yet, but that’s a, we all know that’s going to happen very soon. You wrote brilliantly about the Mississippi bubble. You wrote about, uh, the sun King Louis, the 14th of France, uh, and John law, the white Knight that wrote to the savior of a pre-revolutionary France and then blew it up.
[00:09:32] And some of the lines, I just absolutely love this. I wrote these down, John, and I want you to take us through the timeline in a second, but, uh, you know, John law famously says, I can tell you my secret. It is to make gold out of paper. I like that one. And the other one I wanted to mention was. The, uh, the finance minister called bear,
[00:09:53] uh, realized what John law was doing.
[00:09:55] And, and I’m using this as an intro to talk of course about how the federal reserve has done the same thing, but, uh, writing about this massive expansion of credit, uh, Cole bear says here begins the credit game. What means will there be henceforth of checking the King in his expenditure? I think about that at the, as a 1.9 trillion in stimulus about,
[00:10:16] Dan Oliver Myrmikan Capital: [00:10:16] Well, that’s right. The next slide, the next one was the more expenditure is the more the taxi left to go to, to pay the interest on the expenditure.
[00:10:23] So, so he knew it all back, then
[00:10:25] Jonathan Doyle: [00:10:25] Take us through it. So if people that aren’t, I mean, people have heard about things like the chill of bubble, but reading your stuff. I was like, it was just like being in a time warp, I’m going, this has happened. This has already been done and we’re doing it again. So step us through this timeline for people that don’t know, the Mississippi bubble that don’t know about John law, that don’t know about, um, you know, Louis the 14th spinners through some of that timeline.
[00:10:48] Dan Oliver Myrmikan Capital: [00:10:48] Yeah, so just quickly France. Um, what was the time? Lou? The 14th died was a bankrupt country. He spent all the money building buildings, turning Versailles, and, and so, uh, there were various ideas what to do. Uh, the Duke says SMO want to declare bankruptcy and still be wipe out the national debt. Uh, and John law showed up join law as a gambling partner of, of, of the region.
[00:11:08] And his idea was we don’t need gold and silver anymore to, to run a country you can do with the credit. So he set up a bank, uh, and the, the idea of that bank was that, uh, people could deposit their golden silver at the bank and he would issue out a script. And the reason this is so important is because the French state had, uh, revalued, his currency divide his currency, hundreds of times in the, in the previous few centuries.
[00:11:33] So nobody knew exactly what a leave meant, cause it changed all the time. Whereas John law, because he was not a sovereign it’s, it’s a key. Less than w w which is that he couldn’t devalue his knowledge. He had a contractual obligation to deliver back the golden silver to people who deposit it with him.
[00:11:51] And so because of that, the market had confidence in his, in his, uh, in his script that he wrote against the, the gold reserves that he kept at the bank. And I make the point that again, if you go through history as, as the book does later, is it when you look at any great banking system, they all start in this way, a gold.
[00:12:10] Uh, coins are difficult because each coin is different. I mean, different princes, uh, print, uh, men, different Koreans, and then each coin itself wears out at different rates. And so, so the, the advantage of the bank does is it, it weighs and assays these, these corns with the bank of Amsterdam bid, uh, but the way John law did it, uh, as well, uh, and then issues at a currency that is completely uniform.
[00:12:31] And so it was better. People prefer it. And John laws, uh, money went to premium against gold because people prefer to have the paper. Then the gold, when is solidly black. And so once the paper’s at a premium, you actually lose purchasing power. If you don’t deposit your gold the bank and get the money. Now, this is all strictly in accordance in my view with economic law and good, good governance and good everything.
[00:12:54] So that first edge worked very well. And the bank is very successful. Andy helped revive commerce because now I’m at the French currency, which was a disaster. There was now a private currency, which was stable in which commerce could rely on the second thing he did. Um, This is where I get a little more controversial, but, uh, uh, in my view, and I’m one of the reasons why here, unless you want to, because it’s a long, long conversation, but commercial bills.
[00:13:18] And then there was commercial invoices are basically as good as gold in terms of the banking system. So the banks would do is after transaction already occurred and think about not consumers buying things, just do her, but think about intermediate producers. So all consumer goods begins commodities, and then the commodity manufacturer sells a to refiner and the finer tells it to manufacturing and manufacturing, widget winds up and in some product.
[00:13:44] And so you have the supply chains and the way it works. Now, and the way he’s always worked is that, uh, someone buys a intermediate product and they say, I’m buying this product today. I’ll pay you in 30 days. And now the guy that sold that, that intermediate product wants to go buy and resupply himself, but he won’t get paid for 30 days.
[00:14:03] So he would take that bill on his customer to a bank and the bank would give them money right away. It’s called trainee financing. It’s actually news now because there was a, a major UK operation run by Aussie I
[00:14:14] Jonathan Doyle: [00:14:14] yeah. Greenville. Yeah. Lex, Lex Greensville. Yeah.
[00:14:17] Dan Oliver Myrmikan Capital: [00:14:17] which was doing this, but it wasn’t doing this, obviously because it’s blowing up these, these sorts of transactions don’t blow up.
[00:14:24] And so the bank liquified a commercial and get invoices, not assets, not, not land posted or, or, or inventories, but actual. Receipts of, of transactions that were occurred. And again, when you look back at history, you see that basically all bank systems do this too. Uh, and they do this without inflation.
[00:14:44] They have, they create more, my more and more credit balanced by these commercial invoices, which are between 30 and 90 days. It’s a very, very, short-term very, very solid again, because the transaction’s already occurred. This is not unexpected about this. And John law did this as well. And again, this is very beneficial to the economy.
[00:15:00] And because of that, the reach of his bank encompassed the whole, the whole country. I mean, within a very short bit of time, all of France was using John law’s bank. He became incredibly wealthy. And because he was so successful. Yeah. The French government of the region said, well, there’s no point even using the old official currency anymore because it’s such a disaster.
[00:15:21] We’ll start accepting John law’s currency and the payment of taxes. Now that in my view again, is, is you look at any bank system, uh, in history and that’s the progression that, that happens. Once the government starts taking the money as taxes, and then later it requires creditors to take as well. And there was, it becomes, um, a legal standard.
[00:15:40] Right? What happens then is that, um, if the, if the currency then devalues and there’s, if the bankers then start monetizing things that should not be monetized as John law did. And we’ll talk about it in a second. Um, it doesn’t matter because if I have a note. Uh, and I can go to the bank and get my goal back anytime and my no do values, no Margaret.
[00:16:00] So now it is less than the, than the goal is worth well in a free market. I’m like I’m run back to the bank and get my gold back, right. Or a spectator to buy from me and do that and make, make a profit. That’s how it works. But once the governor says, Hey, we’ll take that thing at face value. Well, it’s a pain to go get their gold and that can get full value by handing a tax man or something to my, to my creditor.
[00:16:20] And so what you find is that even a gold standard countries in the 19th century, as soon as the government says, this is, this is, uh, a legal, tender, legal standard, right. Uh, people don’t return the notes to the banks, even when they devalue. And that, and that aspect is critical because once that have happened, then John law does something different.
[00:16:39] This is where it was a very, very, very innovative, uh, fresh on the Mississippi territory that States, which was, uh, undeveloped. Shall we say?
[00:16:47] Jonathan Doyle: [00:16:47] Well, I love the part
[00:16:47] Dan Oliver Myrmikan Capital: [00:16:47] what the, what the PC way to describe what
[00:16:49] Jonathan Doyle: [00:16:49] think you talk about chart. Was, was it Charles Dickens who went to, uh, went to visit it? I highlighted that yesterday is, um, he described it as, as not exactly prime real estate.
[00:17:01] Dan Oliver Myrmikan Capital: [00:17:01] and years later, uh, it was disease and mosquitoes and natives who weren’t particularly friendly. Uh, but, but John loss, uh, w what he did was he, he S he, he bought the monopoly for that development front, from the crowd. And the previous fellow had won.
[00:17:16] He would try to get rid of it, cause it was such a disaster. And he created a new company that would develop the Mississippi. Um, and he did it in, in a funded this exact question in several ways. Uh, he, he lent money to this thing from his banks, the bank invested in this company. So again, this wasn’t creating money to buy gold and silver to, to exchange for gold, silver, or commercial bills.
[00:17:36] It was for speculative venture. So it created money against a speculative venture. And that’s how the bank system works today. Right. You go to the bank. W with a business plan or you want to buy a house or you have an asset that you want to finance and the bank will give you money against the future.
[00:17:48] Not against the transaction already happened, but something you’re going to do in, in, in the future. And then he also saw bits of this property to, to, to Pete, to individuals. The way chiro box has used to sell pieces of the moon to people, right? You send a dollar and LPs to the moon from Cheerios, but it was the same, same idea, except they actually thought it had value on like the Cheerio box
[00:18:09] Jonathan Doyle: [00:18:09] kidnapped people. Didn’t they, they actually kidnapped people and tried to force them to go out there to, it was terrible. I was reading it going well, some of them just died and like on the way it
[00:18:19] was hard.
[00:18:20] Dan Oliver Myrmikan Capital: [00:18:20] Yeah. He promised her Piper that they ran a ball of criminals and beggars until this is a great place to send
[00:18:24] Jonathan Doyle: [00:18:24] that’s how we, that’s how we, that’s how we found it, Australia.
[00:18:27] Dan Oliver Myrmikan Capital: [00:18:27] But the best part was the anecdote by the Duke sense and Mallory. So the people would pay off the people who were meant to run up the criminals to run up there with their pesky relatives and business partners.
[00:18:37] Jonathan Doyle: [00:18:37] if you had a, you had, you had some neighbors, you didn’t, like you just said, Hey, do you like travel? Do you like adventure?
[00:18:44] Dan Oliver Myrmikan Capital: [00:18:44] Yeah, exactly. So, so, so the, the asset itself was, was basically worthless, this Mississippi thing, but it started triggering the shares and it was, uh, there was a market of bills that would trade, but not shares the way we think of it. This was the first one, uh, of, of, of a share the way we, the way we think of, of shares, which is the, the representation of, uh, of, uh, equity ownership in a company.
[00:19:08] Uh, once that, once he started financing this, this company with his bank, right, issuing free money, the way the fed does just printing up money to buy, shares his bank, to push the price up. Uh, then he used the value of this company to buy other monopolies from the state of the state would create monopolies and in trade and, and tobacco growth, that kind of thing.
[00:19:29] And you could buy it from, from the stair. Then you’d be the guy to collect the taxes or grow the tobacco, whatever it is. And so he started buying all these monopolies up. And so all of a sudden this company had not just. The this, this, this land in the U S it was worthless, but it started buying up. I actually re real assets, uh, which, which were these monopolies that he would get, uh, payments from.
[00:19:48] And, and so once that happened, of course, everyone to buy this company, because, uh, because it had real value from, from the state that was derived from the monopoly of the state. But, but what, what got going was, and again, this is, this is the interesting part that you all have been waiting for is that once the share store go up in value, you could go to his bank and, uh, and pledge your shares as collateral to borrow more money.
[00:20:13] And then you could borrow more money and buy more shares, and the share price went up and see you more collateral value. So then the bank more sheriffs to buy more, more security. So you get, you get this positive feedback loop. And the value of the shares went from, I forget a bottom of wherever. It was 50 50 leaves of over 10,000 over the next couple of years.
[00:20:31] And, and there was nowhere to turn off the inflation engine, because again, the higher it went up, the more. The more credit the bank would would, and other people would give you to buy these things. So Nobel started flooding in from all of Europe to participate in this publicist, the first real credit bubble of modern credit bubble that that occurred.
[00:20:49] And I loved reading about the fact that coach seats from other countries. It was our spec there, and those cars you had to, if you wanted to go from Germany to get to France, you had to hire a coach and get there. And so someone else has snap up all the coach sees first and then sell it to you with elevated prices.
[00:21:04] So it wasn’t just the speculation and the stock that became rap. And it was all the anciliary, uh, houses nearby as like a coaches and other things that, that get caught people there so that the bubble began to affect the entire economy.
[00:21:19] Jonathan Doyle: [00:21:19] you tell a great story about how there was a, there was a hunchback who made a fortune by renting out his back as a, as a mobile desk for people to transact on, on there’s at the root camp and wild, like where all the actual speculation was happening. And we like
[00:21:36] Dan Oliver Myrmikan Capital: [00:21:36] Yeah, no, that that’s right. So, so it was a massive bubble and everyone thought John Love genius, uh, princes would send their, uh, children to sign the, to, to, uh, uh, to try to win his daughter’s hand in marriage. She was eight years old, but, you know, he was so rich that they didn’t care that he had no title.
[00:21:52] Um, and again, like all modern credit bubbles, the first part of it was, was wonderful because the missing bubble went up, everyone got rich, uh, and there were no losers, but of course all that money, credit money going to the end of the economy and people started buying, uh, lots of goods, especially luxury goods.
[00:22:09] So the prices of everything started going crazy and people who are non-involved in speculation, uh, started losing. Whereas if you were on a salary job, and then all of a sudden the things you you bought, you bought to live off, started going at Macedonian price of us a year, your life, uh, your, your standard of living went down quite a bit.
[00:22:28] So, so the first start was everyone was happy, but then of course, people started to grumble as the inflation started. Kicking in. Uh, and then the other thing happened was, uh, and I think this is particularly interesting for, for where we are the first time the stock Mississippi star broke. And I was, it was going straight up and it went down a bit around 5,000, leave a share.
[00:22:48] John law announced that his bank would buy back any and all sheriffs 10 or two at, at 5,000 leave per share. That was he basically everyone to put option a guaranteed that value. And everyone said, well, look, if I can sell back to the bank for 5,000, I don’t want to sell it at all. I guess that was what they were more than that.
[00:23:06] So it ran at 10,000 and then the next time it broke, next time I got to about 9,000, he did the same thing will work last time. Like, that’s just like the Fed’s toolkit. He had these toolkit, right? He said, I’ll buy back at 9,000. Only this time, uh, a billion shares showed up and said, okay, yeah, we’ll take that off for, right.
[00:23:23] Because we don’t think that Mississippi was worth 9,000. It was worth something, but not, not thousand. And so all of a sudden he had to print up a billion, new currency notes. To, to pay for it for all this. And so he managed to stabilize the value of the asset in terms of his currency. But of course, once he pulled it printed with billion, do notes that the currency collapsed in value.
[00:23:44] And meanwhile know the whole time this was happening, uh, France had banned the use of silver and gold as money because they wanted everyone to use John law’s money because he’d relieved the King of all the debt, the debt of the King of them take it more debt. Obviously the more easy it became to take on debt, the more they did.
[00:23:59] Um, and so, uh, people were smelling out, uh, not just gold and silver artifacts in anything. They get their hands on to try and get, get real values. And then when the end came because the, the parental has all the shares up in the, in the, uh, the currency collapsed, a mob showed up, uh, at his bank, demanding the gold and silver.
[00:24:18] And I love this. You’re a hit that he had to flee Francis guys as a woman. I always. Boys. Imagine, you know, Bernanki wearing a wig and of skulking off to some, some other country. Uh, but I guess, I guess now it’s
[00:24:30] Jonathan Doyle: [00:24:30] what’s the tipping point. Like I read it yesterday, the prologue, and what’s the tipping point in terms of where we are today. Take us back to John Laura again. It was there in the equity market really? Wasn’t and it was really around the sh the shift
[00:24:47] Dan Oliver Myrmikan Capital: [00:24:47] Let me shift gears a little bit and because that’s an interesting historical anecdote I run through again, the stages that he goes through, and my point is that it applies to all, we’ve got a bubbles, but in terms of the inflection point and not just that bubble, but all bubbles, what happens to bubble bubbles, you get a supply response.
[00:25:03] So think about the housing bubble, right? It’s it’s the same thing as the shares I’ve just described and houses. You go to the bank, you get a 90% mortgage, or they offer a hundred percent margin. Now it’s crazy. Right. And so you can afford to buy more house, obviously, if you’re getting a hundred percent credit on it, and that pushed to the prices of all the houses in the neighborhood and the next guy shows up and he gets a, more of a bigger loan because he got more collateral.
[00:25:27] Right. But what happens is, is the price, how’s it go up if people realize, Hey, well, let’s build new new houses. I mean, there’s no losses. You can’t build any your house. And so you’d get a supply response, you get more and more houses. And as you get more and more houses, what happens is the actual, uh, income, um, goes down, right?
[00:25:44] Because if you think of a bubble is that people are frenetically bidding on these assets because the bank is financing you, but anti consumer demand hasn’t changed. People don’t really need more help houses that they may have before. I mean, they don’t have the population growth. Isn’t that extraordinary.
[00:25:58] Right. And you think about all other assets, whether it’s ships or airplanes, all those things. I mean, yeah, sure. I mean, you might want to fly more, uh, if it’s, if it’s much cheaper, right. But there’s no indigenous demand growth for those things in, you know, intrinsically. And so as the economy starts building more of these things, right, you could over capacity.
[00:26:19] I mean, you were capacity prices go down. I mean, just, that’s just, that’s just economic law. Right? And so, so at some point the weight of the ever capacity is enough to start pushing prices down to spite the financing and the banks. And that’s the whole thing falls apart because the whole system, the whole bubble predicated on rising prices that bring forth in the new credit.
[00:26:38] And once prices are going down, their credit gets destroyed, right? If the pricing price, you go down, the bank says, Hey, wait a second. We’re not as collaterals as we used to be. If it’s a margin debt that you get a margin call, you get immediate, uh, uh, call on the money. If it’s a house, they can’t marshal your house, but they can not give a mortgage to the next guy.
[00:26:55] And that. Uh, pushes housing prices down so that that’s where you get the inflection point is to me is not, it is confidence and you read it, we read about have confidence breaks and things, and then the market’s down. There’s some of that, but, but there’s a real underlying phenomenon, which is again, capacity, which lowers cashflows for these highly indebted projects,
[00:27:15] Jonathan Doyle: [00:27:15] listening to you. It’s, it’s fascinating in Australia at the moment, it’s probably similar to parts of the U S some parts of the U S we’ve got a,
[00:27:22] a huge, I think, bubble in residential property. And it’s fascinating because you usually, I mean, Australia is driven in many ways by immigration. So immigration’s collapsed.
[00:27:34] Uh, you know, productivity employment is, is down, but yet house prices are just skyrocketing and credit. Issuance is just skyrocketing. The banks can’t lend money fast enough. And I’m looking at this guy like listening to you now, in terms of overcapacity, I’m thinking that the fundamentals are wrong. Like, it’s just, this there’s too much credit and there’s less people and there’s less product.
[00:27:58] So it is that’s.
[00:28:01] Dan Oliver Myrmikan Capital: [00:28:01] I’m thinking about thinking about the crash right? In, in New York city, for example, 2008, during the crash, you would always have built enormous buildings in Brooklyn, other places they were half built because there was no real demand for them.
[00:28:12] I mean, again, if you build a, someone to move into it, but not the prices you need. And even now in New York city, wherever I lived for 22 years until about four months ago, um, every third block has a tower going up and they’re all, almost all of them, either. Uh, downtown Midtown, they’re all huge office buildings.
[00:28:31] We shut out the demand for that is everyone’s online now. And a lot of that I think will knock it back to a hundred percent. You might go to the office occasionally, but I don’t think it’s going to be full-time office work for a very long time. And, and the rest of it are flats. That need to sell for 10 or $20 a piece to, to pay back the construction costs and the financing cost and the real estate costs.
[00:28:50] And again, I mean, who’s going to pay $20 million for a pretty small apartment, you know, 20 bucks you think, all right, I’m going to get the nicest thing in the city. It isn’t. Uh, and that, that seems extraordinary to me. So again, it’s just, it’s the, it’s the overbuilding of these things. And then the realization that the cashflow for these projects are currently zero, uh, and someone has to take the hit on that at some point.
[00:29:11] And again, what it does is at some point it pushes the asset prices down and then that unravels the whole system. Because again, now the banks have to reevaluate these assets and they’re all under water when they do
[00:29:22] Jonathan Doyle: [00:29:22] so let me ask you, what did John law get? Right. And what did John law get wrong?
[00:29:28] Dan Oliver Myrmikan Capital: [00:29:28] well, as I mentioned, what he got and, and it’s not just me, you know, um, I think Schumpeter called them the first modern economist.
[00:29:36] And, uh, I think even Rothbard, a couple of nice things to say about some of the things he was a fraud and he was the first, you know, first coming of, of, of Bernanki and Kings. And that is partially true, but he also said liquidity very, very, very well. And again, as I mentioned, where he got it right, was that banks are legitimate enterprises and they serve to increase the quiddity.
[00:29:57] And the way you do that is by you take again, relatively illiquid things like gold and like commercial invoices and you, and you liquefy them as nothing wrong with that. What’s wrong with the bank is when they take assets, things that are fundamentally illiquid. And, but what I mean by liquid is, and this is a distinction that, that was very, uh, apparent or discussed.
[00:30:19] A hundred years ago, not today. There’s a difference between the clarity and shift ability, right? Liquidity means how fast is something mature? So a 30 year bond takes 30 years to mature now. Yeah. If you average it out, the actual, uh, uh, uh, what was the term? I use, uh, lunch devotee of his 20 years, but it takes 30 years for the whole thing to get settled.
[00:30:40] Right? You can sell it on a market really easily. It’s really shiftable because these markets exists, but it’s not very liquid. And so what, what a bank does is, uh, it creates demand, deposits, right? And currency, which are liquid current assets. And it’s it’s, those are his liabilities and its assets should reflect that.
[00:30:59] So its assets should also be very, very liquid, current things. They’re going to commercial bill that has a maturity date. 90 days in the future is pretty liquid. Not your shiftable a 30 year mortgage is not liquid. It might be shifted if it is not at all liquid. And so what, so he, so his mistake was.
[00:31:17] Confusing shifty ability and liquidity. And that is in fact large at the core of the problem of a modern bank system is that bankers assume because they can sell something quickly to somebody else that that’s the quitter that is not liquidity, that shift ability. And I, that to me is a fundamental error of, of what, what the fed is up to, what the bank system is, is up
[00:31:38] Jonathan Doyle: [00:31:38] I’m listening to you there I’m reminded of, uh, some reading I did on re hypothecation in, uh, in repo markets. I was like, sometimes those things is shifting 30 times before anything, you know, tangible actually happens with them. It’s just like this huge shuffling of, of, of assets multiple times. Um, so let me ask you, Dan, the big question is what way are we now?
[00:32:05] Just a case of degree in terms of, you know, people are talking about an everything bubble, um, bond market, bubbles, uh, asset bubbles, equity market, bubbles, compared to what you’ve written about. So well with, you know, pre-revolutionary France and John law. Is there something specifically different about this?
[00:32:26] I mean, Jim Rogers says that he thinks it will be the biggest crash in his lifetime simply because the debt levels are so astronomically higher. Is it the same thing but bigger or is it qualitatively different?
[00:32:38] Dan Oliver Myrmikan Capital: [00:32:38] to my view,
[00:32:39] I, as I start my book with Ecclesiastics, there’s nothing new under the sun.
[00:32:42] I mean, this is, this is, there’s nothing fundamentally different about this. It’s a credit bubble and you can trace credit bubbles back to ancient Rome, ancient Greece back to you can go back to Mesopotamia. There are 28 recruited debt, cancellations, Mesopotamia. So this is actually nothing new. I would say the scale is different.
[00:33:01] Um, and, and what technology and, uh, and. Expansive, uh, federal power of sovereign power has done is allow the bubble to get tremendously large, much larger than ever has in the past. And so therefore, because the bubble is the biggest has been, which means the dislocations are biggest they’ve ever been. The crash will be the biggest it’s ever been and, and crashes.
[00:33:23] When you look at this, uh, historical bubbles that are places, it can get very, very ugly and, and, uh, and often you find the enemy credible, but you find war and war is the obvious answer. If you’re a politician, because you have all this over capacity. And you have all this unrest and unhappiness, especially among them among, you know, you’re a man are coming out of, uh, education.
[00:33:46] They can’t find jobs. And, and, and so they have no, but if there are families, the best thing to do is round them up, stick them in a ship or a tank and send them overseas, which is what Roosevelt does, what the Chinese plan to do. Uh, and, and so you, you often see unrest and violence and these things, and also everyone’s lost their money and lost their dreams and their hopes.
[00:34:04] And so it’s, uh, it’s, it, it really does challenge civilization when these things collapse. Um, and so, um, I’m, you know, I’m, I’m not terribly optimistic about the future and I think what, what. The best thing to do, realizing that is to educate people. I think that people understand the cycle and, and where we are, where we’re headed.
[00:34:24] And, and again, the why when it, when it blows up, why it blew up, um, it’s not because free markets went awry and we need more socialism. Uh, I mean, cause that, that will be the, the, what the politicians will say in the economy. So let’s say like we’ve had liquid free markets have done, we need more government regulation to prevent the free market from doing these bad things.
[00:34:41] And, and, and so the more they take control, the worse the crisis get and the more justifies more control. And so the next big crash comes, you know, the, the risk is that we would go full fascism where they took over the entire economy and say, look, you know, the few market’s no good. And of course it’s the opposite, right?
[00:34:56] Of course, the reason the crisis are getting are getting worse and worse because government power is, is growing and more and more, uh, tense. And, and, and, and it’s, it’s very, it’s very
[00:35:06] Jonathan Doyle: [00:35:06] Well, that’s why Peter shifts video. When he went down on wall street, when the occupy wall street movement was kicking off, I don’t know if you saw that video. It’s got a massive number of views. So he’s down there talking to people and they’re all, you know, raging about wall street, and he’s just there going, Hey, friends and I’m wall street, like he’s there going?
[00:35:24] You’re protesting the wrong thing. He said, it’s the bile outs. It’s
[00:35:28] that sort of stuff.
[00:35:28] Dan Oliver Myrmikan Capital: [00:35:28] stuff. Yeah, it is. But what Washington place?
[00:35:31] Cause I want to touch on something else that I think is pretty unique to my take on these things. And that is, as I mentioned to me, what John law did was legitimate was, was, um, finance, these trade receiving polls. And I want to talk about that because it really describes what’s happening in, in, in our economy, in our countries.
[00:35:48] And that is when banks do that when they only finance receivables, because they can’t because when they try to finance assets, that the money comes back to them and in the law of reflux and they have to, they lose her capital for reasons that we can talk about later if you want. Um, but what it means is that, um, the small company compete can compete with the big company because all they care about is a throughput of the marginal.
[00:36:12] Uh, a basket of goods, right? So if you’re a small shoe store, you’re buying leather. As long as the, that, that can tear leather goes through your shirt at the same speed as the big guy, you get the same credit terms. There’s no credit advantage for being large. And so you see in the 19th century, lots and lots and lots of little companies, little firms competing with each other, uh, what happens when a bank system shifts as it does as it has an, our time to asset-based where it lends against your real estate and your factories.
[00:36:38] And your goes is that the bigger companies get the best credit terms because they have the most assets. And this is in the data. You look at the federal reserve, the large, the loan is the lower. The the, the interest rate is lower kind of cost of capitalist. And what that does is it means that the larger firms can underprice their small arrivals and drive them into business or acquire them either way.
[00:36:58] And as a result, what you’ve seen the last 40 years in every Western economy is massive, massive concentration of economic power in every sector. There’s been huge consolidation, huge concentration. It’s all driven by Walshy money. Right? Cause it’s all, it’s all debt-based right. And then what happens is that once it becomes clear that the, the company is the more credit advantage it has and lowers cost of capital, right.
[00:37:21] And the more successful it is, the more, the more it’s equity value goes up. And that’s why, when you think about, uh, ETFs and, and indices rather generally constructed around the size of color, their cap capitalization weighted, right? So the base companies are in these indices, right. Which is the best strategy to have.
[00:37:39] And this is why when you look at active managers, In in, in, uh, for, uh, money management, only 20% beat their are benchmarks because the benchmark has the best strategy, which is invest in the, in the biggest company. And so along with the concentrated economic power comes, concentrated political power. If you’re a politician, you’re not gonna waste your time.
[00:37:57] Talking to a thousand small entrepreneurs who were barbershop owners and laundromat people. You, you, you go to Goldman Sachs, right? You, you, you go to that, you go to Walmart, you go to Amazon, you go to the big companies and look for big checks. And so what this credit system has done is the cost rate, all this power and create huge wealth disparities, uh, because as these firms get bigger and bigger, bigger, where they become more interested in efficiency and less interested in innovation.
[00:38:21] And what efficiency does right, is try to lower the, the input cost of all their goods. And so what you want our, uh, employees like, like the Amazon warehouse, right? What other employees do they take something out of a box and put it in different box? That’s all they do. Well, that’s not very valuable work.
[00:38:35] So the wages go down. Right. As opposed to, again, innovative firms, he looked back at the 19th century. Everyone’s trying to little firms interview, which I wouldn’t have. People make a lot of wages because they need specialized and interesting work to do interesting things. So the expansive thought, but what I want to convey is that these issues of banking and credit are not just constrained to the cotton, to the economy in terms of the market going up and down and it was going to do and what a currency into it.
[00:39:07] It does involve that, but it also involves the very structured nature of society. Uh, and, and, and, and we’ve reached an end point now where again, the, the economic powers concert and very, very few hands. And that is a very, it’s very unreal publican, undemocratic,
[00:39:26] Jonathan Doyle: [00:39:26] I think you’re absolutely spot on a couple of thoughts. I know, you know this, but, uh, you know, in the S and P I think when now the top six stocks, uh, worth more than kind of the bottom 400 combined. And the other one that’s interesting is a few years ago, I think it was Isaacson’s biography of Rockefeller.
[00:39:43] Uh, it’s called Titan, uh, it’s about 900 pages. I read that. And one of the big things that came through was whatever the. The criticisms of the guilt that I had jaw, there was a significant deployment of capital into productive enterprise. And what I’m getting at is that if you look at the market cap of Apple, of Apple, sorry, the market cap of Apple, of Apple, you find that they’ve got massive war chest, but they don’t actually employ vast, vast numbers of people.
[00:40:16] Whereas, you know, standard oil was employing large numbers of people. And there was a sort of, a lot of knock on effects in terms of other industries expanded. So the, the big companies of the gilded age seem to employ a lot of people and provide work for significantly large sectors of the economy where, um, it, it seems that some of the big caps now just don’t do that.
[00:40:36] It’s a concentration of, of, of wealth. And, and the last point, I think you might’ve, it was really important. The ontological importance of meaningful work. That you know, you talk about someone moving something from a box in an Amazon warehouse. This seems to be something about us as humans, that for cultural flourishing, we need meaningful work, right.
[00:40:57] We need to actually have something to do with our lives. That’s worth doing.
[00:41:02] Dan Oliver Myrmikan Capital: [00:41:02] No, th th that’s exactly right. And again, this is so important because the left political left assumes that economics, that free market capitalism drives wealth disparity. So if you have total free markets, you want to have a few very, very rich people in loss and loss of very, very poor people.
[00:41:19] And that’s what they use to justify progressive taxation regulation and all the things, all the destructive things they do. And my point is that that’s not the case cab does not do that. It does the opposite actually. It, it, it, it gets rid of wealth disparities through competition. And the whole point of innovation is to get rid of bottlenecks.
[00:41:39] And, you know, that’s where wealth is, right? I’m standard oil. Uh, well, before that the wheel ship captains controlled energy, or you’d go, you’d go sail around the world. A couple of times, caught some fish and come back and, and, and, you know, blah-blah-blah and dirty business until the energy was very expensive.
[00:41:55] And what standard oil did was make energy much, much cheaper, but then it created that bottleneck and, and that, and that’s how innovation happens. And that’s how. Gains get distributed among the population. And again, Wilson’s prices go down. But with the system I described, when you have this asset-based banking system, the opposite happens and wealth winds up at the top.
[00:42:13] And again, that there’s nothing for your market about that these banks exist because they are tied to the state, right? The banking system is specifically chartered to buy a government bonds to finance the state. That’s what it does. And that’s what the banking accident I stayed as of 1863 was a ballot.
[00:42:31] It was a silver war where she created banking system that would finance their war. And then they didn’t get where the system was so wonderful having this system to finance the government, spending it just got bigger and bigger and bigger. So, so again, these are non-market entities, uh, and that’s why, that’s why they exist.
[00:42:45] And again, that’s why the, the government is so powerful because they control these bags. So, so it’s important. Understand that when, when the, when the such divisiveness between the left and the right and in my personal view was that the left is a very good job describing the symptoms. Of the problems. Uh, but they do a lousy job with the solutions because again, they assume that the problem is capitalism and it isn’t the problem.
[00:43:05] It’s the
[00:43:06] Jonathan Doyle: [00:43:06] well, I think you’ve recently in another interview, you, you talked about the four main revolutions. I think it was the, the revolutionary war. There was the, uh, the, the centralization of kind of federal control in the American civil war. Um, I think we didn’t talk about something like the cultural revolution, 1968.
[00:43:25] And now you are, you’re alluding to a kind of fourth revolution, which am I right in saying that it’s it’s. It’s the, uh, the rise of, I guess, a genuine competitive socialism as a panacea
[00:43:40] again, is that what you’re seeing?
[00:43:43] Dan Oliver Myrmikan Capital: [00:43:43] Yeah, no, th that’s exactly right. I mean, as you say, the American revolution was basically enlightened investing in individual Liberty, the silver warm in my view, it was, it was based on statism. The whole idea was we were having centralized power in Washington.
[00:43:55] The sixties was a revolution against traditional values. He was right away. It was a revolution that made the state have its own religion. Uh, and so you had to hear to that. And then now this revolution is really against the individual, right? That’s what Marxism is, but we’re all going to be subsumed into this Marxist ideal.
[00:44:13] And, and, uh, it’s we were looking at, especially on the stairs, it’s so crazy. The things that the left is pushing these days in terms of the gender things and the racial things and the, and the classes, things, I mean, it really is about the government managing every aspect of you, of your identity and, and, uh, it’s, it’s, it’s frightening.
[00:44:34] It’s frightening. And, you know, I think Trump had his own personality issues, but at least as bad as this was when you had a guy like Trump at the top of it, it couldn’t do too much, too much damage. Now with Biden, the lefties back, back in China, this stuff, I mean, it rarely is. Really it’s nuts. Um, I don’t know if you saw the interchange between, uh, we probably not between Senator Rand, Paul and Biden new, uh, education secretary.
[00:45:01] I mean, it just, I don’t, does it make sense to have men run in the ladies track meet and it’d be, I mean, and he quit and he, they said, yes. I mean, if they call themselves ladies, they could, they can run with the ladies, even though they’re twice as fast. It just, it it’s it’s bananas. Yep. This is, this is what the elite, uh, of this country and really all of you, you know, unfortunately I, you know, Western civilization have gone down this total path of sanity, uh, and, uh, and I don’t ever get too deep in the woods here, but part of my thesis is that, um, W w when, what, what capitalism really is, uh, for the individual is you, you have money make my three years through work and, and you have a choice.
[00:45:47] You can consume it right away, or you can save it. Right. And, and, and through most of history in, in, in good times, good societies, you put your mind at bank, or it doesn’t matter whether the bank system exists or not, but the point is you get an increase in it. And so you can spend more later if you don’t spend it today.
[00:46:02] Uh, and so savings is always been a virtue. I’m a moral virtue. Uh, and, uh, the said the more money you get, and because when you do that, you’re going to consume your wealth in the future. It makes you very culturally conservative because you want the future show up more like, like, like the present, right?
[00:46:19] Cause it was, it was too much a strategy might lose all that investment you made. But when you’re looking at inflationary or economies, it’s the opposite, right? If you have money today, you’re probably gonna have less tomorrow because there are no good places to put it. I mean, if you’d like to do you put in the bank, you know, you’re losing out a bond, same thing.
[00:46:36] You could try the market. If you get lucky by Tesla at the right time. That’s great. But there are times where you’re wiped out. So it becomes a real, a real casino. Uh, and so people don’t say, because they’re not paid to say they consume things right away. And I think that’s why you see huge raging amounts of drug use and tattoos and all, all the things about current consumption.
[00:46:55] Cause come to ed. When you read about why more Germany is saying that the drugs of drug culture, uh, it was, it was, it was all consumer today because there was no point in saving money for tomorrow. So I think there’s a very moral aspect to this whole inflationary story, a story as well. And again, we’re seeing that today, especially United States where, uh, and, and in Europe where, uh, the elite who are the Vanguard of this have no moral base bearings whatsoever.
[00:47:20] And again, looking back at history, In my view, Christianity really collapsed in 1960s when the Kings took her money and credits are printing money. Right. And the whole idea that you would, that you would, uh, save and be moral and conservative went out the window because it didn’t
[00:47:36] Jonathan Doyle: [00:47:36] So we now have, uh, we now have the thesis for your, your second book.
[00:47:40] Dan Oliver Myrmikan Capital: [00:47:40] It was in the first
[00:47:41] Jonathan Doyle: [00:47:41] good? No, I think it, I think you’re spot on. I think you’re absolutely spot
[00:47:44] on. I spend an hour a day. Give
[00:47:46] Dan Oliver Myrmikan Capital: [00:47:46] No, I can just interrupt quickly. Again, all this is not new. I found a great quotation from the 1890s, again from a fellow who was saying, when I, when I look around the world, he was a preacher. I look around the world. I don’t see a single country in the Golston or that isn’t becoming more civilized where the working man doesn’t get a fair wages for his work where, uh, we’re where Christianity is a spreading.
[00:48:07] Right. And then I don’t see a silver country on the silver standard, which was the. You know, inflate, inflationary standard, where, where the, where there aren’t revolutions, where the universities are atrophying, where the working man doesn’t get paid for it, for his wages. And it was very stark back then, I thought, well, gee, if the silver center can do that, imagine what a duck fear currency can
[00:48:25] Jonathan Doyle: [00:48:25] I’m nervous.
[00:48:26] Uh, look reading, listening to you. Reading Nathan Lewis is, uh, the first time I read Nathan Lewis, I was like, he made that point about the moral relationship of low taxes and stable money to it, to a moral society. But, you know, listening to you, I spend about an hour a day debriefing my kids every day.
[00:48:44] They’re in good schools. Uh, but, uh, seriously, we sit around the table every night and we’re just debriefing, you know, what they were told today. And you’ve got to be across everything that they’re, you know, that, you know, recently they, um, w this email comes through, they’re going to do, they’re going to, uh, unpack the slam poetry that was done at, uh, Biden’s installation.
[00:49:06] And they were, uh, and I’m just going, no, no, no, no, no, no, no, no, no. Anyway, uh, and the other thing that’s interesting is. When you’re talking about that moral aspect of saving my son, who’s 11. He had a bunch of cash from doing all these jobs and he wanted to buy stuff. And I said to him, I had a silver one ounce, silver coin.
[00:49:24] I said, man, I’ll give you this. I bought him a safe, a
[00:49:26] little safe. I said, I’m going to give you this silver coin. I said, you give me, you know, it was about 30, 40 Australian dollars and it give you this coin. And now he’s like, he’s got this coin and he’s, he’s on the he’s on the
[00:49:37] internet, checking out the silver prices pretty regularly. So that’s a bit of fun, but listen, you and I both pushed for time today. So I’m really going to hope we can, Oh, I’m going to ask if we can do a second installment on this, but I wanted to ask you something really important. Let’s talk about gold. Let’s talk
[00:49:54] about, uh, so I just, uh, did the crypto economics program at Oxford and the volatility of crypto is problematic.
[00:50:04] I’m convinced that central banks are not going to let anything when, other than their own central central bank, digital currencies. I I’m tr is it true? Is it fair to say, do you think that gold will reestablish itself in some kind of post crisis as a monetary standard? Once again,
[00:50:25] Dan Oliver Myrmikan Capital: [00:50:25] Yeah. I mean, I’m a hundred percent sure the answer is yes. And I’ll tell you why I’m so confident. And, and that is that, um, the condom move for gold for specific reasons and call them call Minger that the founder, the Austrian school of economics talked about this, and that’s the quiddity.
[00:50:41] The marketing is liquidity to make barter more efficient and, and gold has the attributes that allow that to happen. Um, and one of the lessons of history is political power is powerful and you can diverge from. Economic laws and, and how different monies, but they always go away. Right. I mean, empires don’t last forever and yeah.
[00:51:02] And I think that does, I think is, is, is, is a fallacy. Yeah. And you have to, I think be a little more subtle again. Do you understand these things? One of the points I often make is that, um, is it again, I mean, I think banks are totally legitimate, uh, institutions. When you look at the federal reserve as a bank, forget about this sovereign aspect of it.
[00:51:22] It has a, it has assets and has liabilities. It has a balance sheet and. Um, in 19, no, I want to say 42, the fed was backed by 84% gold. So you could hold a dollar in your wallet at $1 84% of that was gold. And the rest of it was some government bonds, a solvent country. So that, that was fine. And, and a couple other things, but by the 1968, at the top of that bubble, the gold component of the dollar, and there was a percentage that gold was the assets of the federal reserve had declined about 12%.
[00:51:52] So it’s a narrow door was only 12% go. All the rest was government paper of, of, of varying quality. In my view, what happened from 68 to 1980, right? It wasn’t that the government printed so much money they did, but there wasn’t a real story. The real story was the gold went from a 30, $35, two eight 75, right at six 50, when golden had 600, $650 an ounce in 90, 80, the fed reserves balance.
[00:52:19] She was a hundred percent backed by gold. Rather than the will they hold their balance sheet time six 50 callouses was a hundred percent of their liabilities. Your dollar in your wallet again, was a hundred percent back base. So in my view, the market had put us back in a ghost hinder, then no one thinks, but that way today we’re then politicians don’t economists don’t because they don’t understand gold.
[00:52:38] They don’t care. But in my view, the, the, the economy did at the free market, did it. Right? And then what’s happen is that the model, the Kings used to call themselves monetarist now of their base, the same people got got in charge. And so all the credit was wrong out of the system. And they started doing the same thing only more.
[00:52:54] So the buying bonds, and they’re much more sophisticated now, and the banks are more powerful. So they put it, they let it go incredibly longer. There’s a great quote from hired late seventies who said that, that he never went. I imagined you could go so far. Right. But he knew it would, it would, it would blow up in the end.
[00:53:08] Of course he was right. I, you sent me a day is it’s unimaginable. They’ve been able to run this thing for 40. Uh, 40 odd years, but, but they’ve done it. And the oldest now represents around 6% of the Fed’s balance sheet. I mean, 6%. So my view is half the price. It was in 1968, uh, $300 an ounce. I mean, that’s how cheap it is and what the market will do.
[00:53:31] The market is always more powerful than the government in the end. Yeah. And we know this because thinking about the number of price controls, there’s a great book called 5,000 years of price controls. I mean, this is nothing new, uh, but they’re they’re, they never worked because the market’s more powerful.
[00:53:44] And at some point the market will force go back into the system because it’s free market money and. It could be different ways. It could be the goal goal is your price again, that rebalanced the Fed’s balance sheet. And that will require gold prices up at the 10, $15,000 an ounce range. And that’s assuming that the balance he doesn’t change, which is a bad assumption.
[00:54:03] I think it’ll get bigger, right? It could be a total abandonment of the dollar and, and these, these currencies, which again are pretty new. I mean, you know, the, the, the pound Sterling left the gold standard for 20 years in the 19th century, after the deploy on our Wars, right? I mean, it’s, this, this is nothing terribly impressive to me, four years of long time, but in the span of world, history of the Chinese left gold sculpture in a few times, actually we were more of a copper center, but they always went back to it because they had to cause the market forced them to.
[00:54:29] So it’s not, the politicians will get become wise and economists will reform ourselves and actually be economist as opposed to politicians. Is it, the market eventually will force it on the governments, in the economies, whether it, whether they want it or not. So, so the answer is yes. I mean, now the timing, that’s a different question, but the outcome is certain because again, empires don’t last
[00:54:48] Jonathan Doyle: [00:54:48] And your take on the crypto space like this, you know, if you’re ever feeling like you need to be energized, you just have to listen to Peter Schiff, talk for a couple of minutes on, on Bitcoin. And he just like, I think we could call it an unambiguous position, but, uh, look, it’s self-referential, it’s, uh, it’s volatile.
[00:55:08] It’s how it’s a store of value. I don’t see what’s your take on central bank, digital currencies. I’m convinced that central banks are not going to let private cryptocurrencies survive or flourish. And what’s your take on what kind of play can you see happening from central banks in terms of trying to avoid gold standards, avoid a day of reckoning by issuing digital currency
[00:55:33] Dan Oliver Myrmikan Capital: [00:55:33] Yeah, well, so I, I wrote a paper on Bitcoin, which, which I’m happy to send you a couple of years ago, three years ago, where I discussed again from a theater, swimming, McGarry, and perspective, the problems with Bitcoin and all the currency, which again is volatility. And what the reason gold is so stable.
[00:55:48] The reason, one of the reasons why it works at Wells money, because if gold gets to scarce, the price of gold goes up and all the marshal minds open up and people sell their jewelry and meltdown gold. So this is the marshal supply increases and vice versa. So it’s actually tied to commodity prices through mining and every consumer product begins as a commodity and S and so in gold standard countries, what you see is today, but looking back at the history is that because commodities are stabilizing gold, right?
[00:56:17] All the whole price chain is, is also stable and gold as well. And then consider price or tip on goals. So it’s, it creates stability. Now, just a quick, quick aside, uh, what happens in a fear currency like we have is that gold and commodities react very quickly to monetary, uh, developments, right? So they become volatile.
[00:56:37] They seem volatile in the Fiat currency, but when you have all these intermediate suppliers who supply chains, those are long-term contracts or semi long-term contracts. And so they don’t just surprise us every day. And so what happens is it looks as their gold is volatile. It can compare to consumer prices because consumer prices are sticky because of all those intermediate supply chains with lots of contracts.
[00:56:58] So, but in a gold standard, uh, consumer prices and all prices have become very, very stable as against the gold again, because of Gold’s connection to commodity prices through mining, there’s actually no equivalent to Bitcoin, right? People think erroneously that Bitcoin responds to the price of energy. It doesn’t right.
[00:57:16] Remember the Bitcoin algorithm is. Uh, there is a winner of that tournament. Every 10 minutes. There are lots of competitors that the, the, the form is very complex and it takes a lot of energy to solve it. If there were a few competitors, uh, uh, it takes a little bit of energy. Yeah, I saw it, but it’s still, it increases every 10 minutes at that asymptotic rate.
[00:57:36] So it has no tie to commodities or life or anything else. There’s no reason why you would ever become stable. The only theory that is presented is that the real simply needs X amount of base money because Bitcoin’s perfect. It will fulfill the need and that need is stable and Bitcoin will fill it a hundred percent therefore, to become stable for that reason.
[00:57:56] I, I it’s, it’s, it’s so absurd. I’m not going to, if you want me to know why that’s wrong, we can read the paper, but that is, that is wrong. So I, I think Bitcoin is not going to work. It’s a great speculation. One of the reasons it is because I mentioned earlier, Bubbles collapse. When you get a supply response and you can’t get a supplier sponsored Bitcoin.
[00:58:15] Now you can have other corrupt cryptocurrencies. Maybe you are kind of, I don’t know, but a Bitcoin proper you can’t. And so you can put up to any, uh, Mauer. And the only thing that will kill it is when enough people have borrowed enough money to buy it, people write their mortgage, their house, or the maximum credit cards I have to buy Bitcoin.
[00:58:32] Well now have issued payments to pay, to maintain an investment. So some point that will, that will tumble that, that pyramid in, in, in my view, I’ve lots of friends who disagree with me, but that’s my, my take on it. In terms of your question about the central bank cryptocurrencies, I think that is very likely to happen.
[00:58:48] And the reason is because before any of these innovations happen, you see lots of acronyms papers written about them, and there’ve been more and more academic papers written about this. And that’s how you know that that’s a signal that they’re moving this direction. Right. And what’s in it for them. Is that.
[00:59:04] Um, a couple of things, uh, if they move to a cryptocurrency, well, first of all, you know, like Rogoff says, all right, we’ll only criminals. You just cash, right? If you’re, if you as a cashier mustard, criminal, or terrorist, uh, because you’re outside the, the, the, the legal system, right? So in a, in a cryptocurrency world, they could, they could track every single transaction.
[00:59:23] I think about that. And this is actually what Vladimir Lenin wanted to do. He, he said he wrote that that a big bank was the skeleton of a socialist economy, because that’s how you track all the different transactions happening. So that’s, that’s number one. They’ve been basically, they’re all Marxists.
[00:59:37] They don’t call themselves that, but, but that’s what they are in essence. So they want to track all that stuff. And the other thing is the way the fed coin proposal is being gets a proposal. But papers you read is that you will be implemented by the banks. Okay. So thinking about this URA NTM machine, if your, your bank is it’s free, they’re getting money.
[00:59:56] Otherwise you go to someone else, you can pay two or 3%, right? I mean, two or $3 charge. Well, imagine if every single transaction. With the fed coin, the banks took a little tiny piece of it, right? I mean, how, how wonderful for them. And so, and so the banks are pouring money into crypto research. Not because they’re big libertarian Bitcoin fans is because they view the threat of being disaggregated by free market money.
[01:00:19] They don’t want that, but the water do is develop a program that the central bank will sign on to where they become an integral part of the payment system. So they can scalp a tiny bit of money for every transaction they economy. So it’s really, really scary stuff. I mean, it’s like, you wonder, uh, what, when you read about Louis the 14th and again, John law’s situation where you have people running around trying to find and confiscate gold and silver in transaction, because it was made illegal, you know, they didn’t have the informers and apparently, you know, you didn’t, you had to watch of your servants cause they would turn you in and because they get some reward if they did.
[01:00:54] Right. But you think about today, the opportunities for it to tell Terry and country they have like in China, Where they, uh, have cameras everywhere where they can monitor your existence on the computers where they can what’s proposing to is, is, uh, is track every single transaction you make. It’s, it’s
[01:01:12] Jonathan Doyle: [01:01:12] Yeah. One of, one of the things that came through at Oxford was, um, that in a, in a fully cryptocurrency based ecosystem, every dollar is programmable. Like you can literally, so, and the way to think about that is in a social credit Chinese style system, if you’re subversive in any way, it’s very easy
[01:01:32] for your dollars to be turned off for your dollars to only work well for your dollars to only work within 50 miles of your home.
[01:01:40] So you can’t get gas in another city, or you can’t stay in a hotel here, like all these different permutations. Now you and I both got to go. So what I am going to do, I’m desperate to get you back. Cause we have so much more to cover, but to wrap up on this first installment, because I got a feeling you and I could talk for hours, I’m absolutely loving this.
[01:01:58] Let me ask you, why should people read golden tears? This book that is
[01:02:03] almost finished? Why should people read it?
[01:02:06] Dan Oliver Myrmikan Capital: [01:02:06] Yeah. Well, I mean, as we met nearly like the church or quote, which I haven’t memorized it, I think you have, but the deeper you look back in history, the more you can look forward to me. And that was really the part of it. Again, I wrote this partially for myself to understand the gold market, the market I’m in and credit bubbles, which is, I mean, go aside, interesting oldest sister, right.
[01:02:22] Is, is how gold reacts and reveals the credit bubble. That that’s interesting. So you have to understand that and the realization that, again, that none of this is new, this has all happened, uh, over and over again. And one of the things I really spent a lot of time doing was finding quotations in these historical events.
[01:02:40] Like some of the ones you highlighted, which you read them from, from, uh, tens or hundreds, sometimes thousands of years ago. And, and you instantly recognize them. And you say that describes perfectly where I am right now. And that’s, that’s the magic of it. And I think that reading these accounts and reading all these quotations and reading about people, living through these, the, these situations can, again, illustrate the pattern and help you the reader, uh, get through the pattern on scans
[01:03:08] Jonathan Doyle: [01:03:08] I’ve got another favorite saying that it’s okay to make mistakes as long as
[01:03:12] they new ones. So I look at our financial sees and liberating your, your great work here. I’m there going? We’re not making new mistakes here. We’re making the same ones. So, Dan, listen, I want to thank you so much for your time. I, sorry.
[01:03:26] We both got to wrap this one up, but there’s so much more, we are going to cover. Um, I’m going to get you back on the show as soon as you’re available, but, uh, listen, thanks for this first installment. I’m going to send people in the right direction to the mimicking capital and to where they can find out more about the book.
[01:03:42] But thanks so much
[01:03:42] for joining us today.
[01:03:43] Dan Oliver Myrmikan Capital: [01:03:43] Thanks for having me.
[01:03:56]Jonathan Doyle: [01:03:56] Well, Hey everybody, Jonathan with you, once again. Hey, did you enjoy that? How good is Dan Oliver and, uh, such a great discussion. And did you get the sense there’s so much left to discuss. One of the great things about doing this show is that we get our best guests back. Very quickly. So I look forward to bringing Dan back on the show very soon, because I felt like we scratched the surface.
[01:04:18] But, uh, it looks, it just think it’s fascinating. The Dan has that deep conviction, that gold is going to reestablish itself. As it always has. We’re at the long journey of classical economics. So please make sure you go and check out. Murmur cam capital. Uh, so that’s M Y a R M M Y R M I K a N. Go check out.
[01:04:38] Beacon capital. Uh, Dan’s newsletter, his writing is available there. It’s fantastic. And that’s a Myrmikan.Com. So M Y R M I K a n.com. And of course his book, golden tears.org, golden tears.org. I want you to go check that out. Uh, really want to support what Dan’s doing. I think many of you would agree that education is such a crucial thing for so many people.
[01:05:04] At the moment. Look, that’s it for us for this week. Please make sure you’ve subscribed to the podcast wherever you’re listening to this. Hit that subscribe button on Apple podcasts. Leave a review would be fantastic. And, uh, come across. If you’re hearing this somewhere else, come across to supply side partners.com supply side partners.com.
[01:05:23] And make sure you’ve got your name in there for the regular installments. We send out emails when new episodes pop. So please make sure you’ve done that. That’s it for now for me? Thanks again to Dan for making time for us to got so much out of it. Myself, we’re gonna listen to this again a few times. But that’s it for this week my name’s jonathan doyle this has been the supply side podcast and we’re going to have another episode for you very soon
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