Thread by @vikramQL

Watched @CaitlinLong_’s awesome talk at the @mises institute back in June. Started taking notes, and thought they were worth sharing as a thread. I’ll try to quote where I can, but some of this stuff is me paraphrasing mixed in with my thoughts. All credit to Caitlin, though! 👏

1/ She outlines two scenarios where $BTC is a possible solution:

1. 💰 The Moneyness of Credit
2. 🕵️‍♀️ Inaccuracies in Wall Street Ledger Systems

Will cover what both of those mean here.

2/ Economist Doug Noland has written about debt issues in his “Credit Bubble Bulletin.” Debt instruments (like bonds, treasury notes) function as “money” in institutional markets, resulting in a bubble.

Here’s a link to the Credit Bubble Bulletin: creditbubblebulletin.blogspot.com

3/ “Can’t trust our brokerage statements” & we need an honest ledger system. Primary problem w/centralized authority in this space is that the “current system creates more claims to wealth than there is real wealth.”

However, we have “history’s first universally honest ledger.”

4/ Murray Rothbard’s “Mystery of Banking” describes fractional banking in detail. She gets into the development of the “shadow banking” system where we now have major debt outside of the traditional banking system.

Here’s a free copy of the book: mises.org/library/myster…

5/ Someone write update called “The Mystery of the Shadow Banking” pls thx

6/ Money now has a broader meaning in the securities market versus the fiat market. “Money” is anything that can be financed in securities financing markets, and *especially* those that can get financed at the Fed.

7/ Because of this ability to get financed at the Fed, these debt instruments can be considered money. Consider this when you hear that sometimes treasury bonds are more valuable than cash, or that institutional markets’ treasures are preferred over cash.

8/ What’s the impact of all this? Well, it’s the ballooning of debt, particularly since 1983.

9/ She dives into the numbers here, which get really interesting. Non-financial sector debt = $72 Trillion (real borrowers outside the financial sector). There are notions of legitimate and illegitimate debt (commodity credit vs circulation credit):

Graph from @CaitlinLong_

10/ She then looks into the change of these things over time. In the past, we had a tether (no, not that $USDT Tether) of the amount of debt we could create (the gold standard). This all changed in 1968:

Graph from @CaitlinLong_

11/ In 1971, after Breton Woods was abandoned, and the Fed started shifting the target of quality of credit to price of credit, they basically “gave keys to the kingdom” to create as much debt as wanted as long as it stayed in a particular range.

12/ This was a colossal error, and it was never publicly revealed apart from the rummaging through old Fed meeting notes. Instead of trying to control M1, they targeted the Fed Funds rate instead.

13/ What’s the outcome of this? Take a look at this graph Caitlin posted of five prior bubbles. Look at the relation between US debt growth and these bubbles. We’re currently in a government financed bubble - “the biggest bubble of them all"

Graph from @CaitlinLong_

14/ Now onto Wall Street’s Ledger Systems!

Title of this part is that they are “Prone to Inaccuracies”

In the old days, issuers issued stock certs to investors or through an agent. Simple.

Now, since 1994, you have 5-6 layers in between.

wat?

Graphic from @CaitlinLong_

15/ This creates all kinds of risks, like counterpart, operational and over-issue risk. Our tech currently is well past this, but we are stuck with this outdated, dangerous system. A large problem is that there is a *ton* of third party trust risk. What does that mean?

16/ Dole Foods: 37mm shares out, but class action w/ 49mm claimants w/ valid brokerage statements saying they owned Dole Foods shares

Wondered abt this when I traded. How accurate is snapshot of stock ownership across market at given time, esp. w/ stock settling taking so long?

17/ Proctor & Gamble: Big proxy fight w/ shareholder voting. First vote, +6.2mm spread. Second vote, -42k spread. Third vote, +400k spread.

This is insane to me. It was insane to P&G too, because they ended up ending the fight for the board seat.

18/ How can you trust centralized parties after hearing these kinds of things? How much of the market is inflated supply?

19/ Caitlin references “The Block Chain Plunger,” a speech at the Council of Institutional Investors (Sep 2016).

Here’s a link: cii.org/files/09_29_16…

20/ She points out something that’s just phenomenal: An overissues US Treasury mkt. There are estimates that only 1 in 3 parties who think they own a US Treasury actually do.

Want to repeat this. Only 👏 1 in 3 👏 parties 👏 who think 👏 they own 👏 a US Treasury 👏 actually do

21/ “This game of musical chairs is not going to end well” 😡 (angry face is me)

22/ But there is good news on the horizon, which is “History’s First Honest Ledger” that is "governed by the laws of math, not the laws of man” and that “multiple parties can see the same data at the same time and trust that it’s valid”

23/ Right now, banks keep their own ledger copies and reconcile them later, which is why they’re interested in blockchain. She then gets into a great discussion around the history of $BTC, the “first truly denationalized money that wasn’t specie.”

24/ She walks through some critiques of Bitcoin and that it has utility and value because of it. Some numbers: US payment systems market caps are $600 Bn (I think this was public companies in the S&P?). Critics are missing that $BTC’s value is intertwined with its payment system.

25/ She mentions @saifedean’s The Bitcoin Standard, saying that it “should be in everyone’s library.” A few takeaways - particularly money has always changed forms over time, and $BTC is interesting because seignorage goes back into itself.

26/ There’s a lot of excitement in this talk about what Bitcoin can bring us, and that it is “all happening in parallel and outside the traditional financial system.”

Great quote at the end:

“I think capital markets won’t be fair unless and until they use honest ledgers”

27/ Oh, and of course here is @CaitlinLong_’s actual talk in its entirety!: