Thread by @chrisrussi

1/ Read through the recently released 2020 Edelman Trust Barometer this weekend, which inadvertently makes a strong case for why a decentralized state free money, such as #Bitcoin, may continue to take root in the minds & wallets of the world’s populations.

Time for a Thread:

2/ Despite a strong global economy and near full employment, the majority of respondents in developed markets surveyed by Edelman do not believe they will be better off economically in 5 years’ time:

3/ Predictably, the study reveals global distrust of major institutions climbing to new highs. More so than any other institution, the Government is perceived as the least fair, with 57% of the world’s population asserting it only serves the interests of the few

4/ Disparagingly so, the Government and Media are increasingly being viewed as both incompetent and unethical

5/ Here are some other quick figures that stood out:

61% believe that the government does not understand emerging technologies enough to regulate them well

66% do not have confidence that their current leaders will be able to successfully address their country’s challenges

6/ Cont'd

76% of people worry about false information or fake news being used as a weapon

83% of employees globally are worried about job loss due to concerns such as the lack of training, cheaper foreign competition, immigration, automation and the gig economy

7/ A paradoxical question begins to emerge:

Despite full employment and a stock market that continues to set new all time highs, why do people perceive they are worse off economically?

8/ The answer almost certainly lies in the growing amounts of income and wealth inequality, the chasm it has created, and what I’ll call the “Keeping Up with the Joneses Effect” (or the 💁‍♀️"Keeping Up with the Kardashians Effect"💁‍♀️, if that appeals to you more)

9/ Wellbeing is subjective.

When people look around them and see the pie of the Joneses (or Kardashians) in the top decile growing exponentially faster than their own, it drives a sense of anxiety, distrust and unfairness in the system

10 / The Edelman data supports this: In markets with high income inequality, the gap between trust in business and trust in government is much wider (12 pts) than the gap in low inequality markets (4 pts)

11/ This chasm is perhaps made most visible by looking at the U.S. Gini Coefficient (a statistical measure of economic inequality and wealth distribution). 0 representing perfect equality and 1 perfect inequality, with all scores falling in the .25 - .60 range

12/ The US has continued to set new all-time highs and is nearing .49. For comparison purposes, European and developed countries that have similar income per capita as that in the U.S. tend to average in the low to mid .30’s, according to data put forth by the St. Louis Fed

13/ The US’s current levels of economic inequality, however, place it on par with the Gini averages of most sub-Saharan African and Central American countries (which typically rest b/w .45 - .55). South Africa currently has the world’s highest coefficient at around .63

14/ The last time the U.S. experienced inequality levels this high was the WW1 & Great Depression eras

15/ This begs further questions:

If employment is at all time highs, productivity is at all time highs, and the stock market is at all time highs, why has inequality and the Gini coefficient continued to accelerate?

16/ There’s a multitude of contributing factors, but to oversimplify, here are perhaps some of the biggest culprits:

American workers across the board are taking home a smaller portion of Gross Domestic Income than ever before

17/ /Exacerbating things further, wage growth has been sluggish and uneven for the majority of American workers (in particularly the middle-class). This despite tremendous increases in productivity

18/ From 1946-1980, nearly everybody in the U.S. saw their post-tax income double in lockstep, apart from ultra-high net worth individuals

However since 1980, almost half the population registered hardly any income growth at all, while the top 1% enjoyed extraordinary growth

19/ Accelerating this bifurcation further, the world has entered into an unprecedented economic era. One marked by sustained low (even negative) interest rates and historical levels of Central Bank Balance Sheet expansion stemming from prolonged Quantitative Easing

20/ Naturally, as the returns on cash have plummeted due to low interest rates and with more easy money injected into the system than ever before, asset prices have skyrocketed

21/ This has given way to the longest bull-market in history. Nearly 11 years and counting… Most bull market cycles last 4.5 years

22/ So why hasn’t this decade long of unprecedented wealth creation “trickled down”?

Or, said differently, why then, according to the Edelman report do so many people feel like the economy isn’t working for them?

23/ Well, as described above, although the returns on assets have been stellar, returns on labor have been pretty dismal

24/ The unfortunate reality is that the majority of American’s rely on a monthly paycheck and modest savings to capture wealth and have surprisingly little exposure to equity capital markets

25/ Since wage growth has struggled to keep up with inflation (especially in the services sector), returns on labor have been getting crushed, largely preventing the 90% from incurring any real meaningful wealth accumulation

(Cont'd)

26/ Instead, the tremendous gains in the stock market have been disproportionately captured by the much smaller, wealthier % of the population that possessed the most asset exposure

27/ *To no fault of their own*, that segment using debt and the gains from their existing asset appreciation, has been able to acquire an even larger portion the total available asset pie

28/ *(Off thread here, but I want to assert that I’m in no way attempting to vilify the rich. I’m just trying to point out the knock-on economic effects of these economic policies. Put colloquially, “Don’t hate the Player, hate the Game.”)

29/ * (Unless, of course, that player is an asshole. I suppose as a rule of thumb, it’s ok to dislike assholes -- rich or poor).

Ok - Back to the thread

30/ The increase in asset concentration has produced massive wealth polarity

This has led to the top 1% of US Households controlling a larger share of wealth and assets then the bottom 90% combined

31/ And the richest 10% of households controlling 70% of entire countries wealth, up from 60% in 1989, according to data provided by the Federal Reserve

32/ Moreover, corporate stock buybacks have surged in this low interest rate environment, reaching historical levels in 2018. This, too, has played a significant role in propelling equity markets and wealth upwards

33/ Alarmingly, corporations have been far and away largest net purchasers of equities over the past decade. Household’s and other domestic entities have actually been net sellers

34/ When corps use cash to buyback shares, they aren't reinvesting their cash back into the firm or paying workers more. Instead, the financial engineering reduces the share count, while artificially inflating stock prices and earnings per share in the process.

35/ The main benefactors being the existing asset holders. This shifts even more of the wealth upwards, since the top 1% own about ~50% of all corporate equities, with the top 10% accounting for roughly 89% of all equity ownership, according to the Federal Reserve

36/ Exacerbating things even further, half of all buybacks are now funded by debt, and companies have been spending more than what they are generating in free cash flow on them

37/ Shifting our focus to fiscal policy, taxes on the wealthy have fallen precipitously over the last 70 years. @DLeonhardt presents this in the form of a pretty cool infographic here:

https://twitter.com/DLeonhardt/status/1181004566088814594

38/ Moreover, through sophisticated multinational structuring, corporations have become more adept at tax avoidance.

Such tax loop-holing and structuring has enabled corporations to contribute less in tax revenues, despite earning more profits than ever

39/ Simultaneously, governments can’t seem to stop spending.

According to the CBO’s most recent projections, the federal budget deficit will top $1.0 trillion in 2020 and average $1.3 trillion per year over the 2021–2030 period

40/ Federal debt is now at levels that exceed the Great Depression and, at $1 trillion dollars, the interest rate to service that debt will exceed the U.S.’s entire Military Budget.

Perhaps the balance sheet is where the true WMD’s are hiding

41/ Jokes aside, it doesn’t take an advanced economics degree to determine that more money going out with less money/revenue coming in, is a recipe that can potentially lead to slippery situations

42/ The result is massive amounts of unfunded liabilities (SS, Medicare, pensions, etc) that have shown no sign of shrinking any time soon

Unfunded labilities arise when the amount of the social benefits promised exceeds the NPV of the tax rev designated to pay those benefits

43/ Current conservative estimates indicate this number is around ~$55T, with others, such as Laurence Kotlikoff expressing it could be as high as $210T.

nytimes.com/2014/08/01/opi…

44/ Who eventually is going to pick up the multi-trillion dollar tab is anyone’s guess.

45/ Modern Monetary Theory, among many nonsensical things, laughably posits that deficits don’t matter and that governments will be able to responsibly “print” their way out of these liabilities;

However, that is a whole other can of worms which I’ll save for a different thread

46/ Still, these sentiments, or the short-sighted quest for immediate gains, seem to be germinating in the minds of central bankers and politicians globally who are taking on more exotic forms of debt and aggressive measures to keep the show going

(Cont'd)

47/ In August of 2019, the amount of negative-yielding debt (debt at sub-zero interest rates) hit $17T

48/ For the uninitiated, negative-yielding debt isn't something that is normal. Imagine a bank lending you $100, and saying you only have to pay back $98. In fact it’s ludicrous, & relies on a greater fool to take on addt'l debt at even more negative rates to generate any returns

49/ If this reminds you of the structure of a Ponzi Scheme, it should.

50/ I’ll just leave this here, without comment:

51/ This begs yet another intriguing question:

If things are as you claim they are, then how come we haven’t seen massive amounts of inflation? Why are we still well under the 2% levels the Fed targets?

52/ That’s a good question, that I’m not sure anyone has a real answer to.

Globalization and technology costs curves have certainly played a role in holding down inflation; however, it doesn’t mean it hasn’t reared its ugly head elsewhere.

53/ n fact, rising home, healthcare, and educational costs, coupled with declining purchasing power, have all worked in tandem further “knee cap” the upward mobility of the middle-class

54/ This is a major reason why many people feel like they are “running in place” or that “the American Dream” is no longer tenable

55/ All of these variables and more* have been instrumental in fueling the feelings of general economic uncertainty and institutional distrust expressed by those surveyed in the Edelman report

56/ These feelings are being reflected in other indexes as well, such as the Global Economic Policy Uncertainty Index, put forth by Scott Baker

57/ But most shouldn’t need fancy surveys to tell them this.

58/ A quick walk down San Francisco’s Market Street, or a brief scroll through the rage-fueled politics on Twitter or nightly TV should provide enough anecdotal evidence that the economic inequality is real, and that frustrations are beginning to reach their boiling points

59/ The bitter truth remains that the world’s trust in economic and political institutions is deeply fractured; And it’s having devastating results:

60/ We are witnessing an erosion of liberal democracies, a rise in populism, a resurgence of “strong-man” type leaders, a growing distrust of capitalism, increased domestic and geo-political tensions, government shutdowns, Tradewars, Brexits, etc.

61/ A record number of large-scale protests rocked the world in 2019, most centering around frustrations with economic conditions, corruption, and state-sanctioned restrictions on civil rights and liberties:

62/ If the world’s stage becomes more Brechtian in nature; If these crucial institutions are left unreformed; If these growing populist frustrations remain unaddressed; and If monetary and fiscal policy becomes more irresponsible ....

63/ Then I, and many others, expect more and more individuals to seek to opt out entirely, and gravitate towards decentralized supranational solutions.

Built in the aftermath of the 2008 financial crisis, #Bitcoin is poised and ready to enter stage left.

64/ In fact, we are already beginning to see Millennials, a digitally native generation, one that grew up with OSS, was hardened by the 2008 crisis, and is less trusting of banks, slowly begin to move into the asset class

65/ / It’s important to assert that I’m not advocating for Anarchy, rooting for economic collapse, or even for Bitcoin to supplant the US dollar’s hegemony. Rather, similarly to Milton Friedman, I’m simply advocating for an open source and competitive Alternative to exist:

66/ “That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable” – Milton Friedman

67/ Afterall, if a government’s principal responsibility is to protect the rights, freedoms and safety of its citizens, shouldn’t its money’s principal responsibility be to secure the economic rights, freedoms and purchasing power its holders?

68/ And if global governments are unable to provide for that, or are marred by their own corruption and monetary ineptitude, shouldn’t a globally accessible, state-free, censorship resistant digital alterative exist?

69/ One that encodes freedom of exchange, security of property rights, and the principles of sound money directly into its protocol?

70/ This is the promise I believe #Bitcoin delivers upon, and this what I believe the world’s frustrated citizens will begin to wise up to in the coming years.

The End.

* Tweet appendix: IMO, global trust has also been exacerbated by other (perhaps more nuanced and difficult to measure) factors including:

Widening political gyre( aka polarization /partisanship), the rise of Social Media contributing to the blurring of news vs opinions ...

Internet virality enabling the spread of misinformation at scale, heavily filtered and algorithmically induced echo chambers, general corporate & political malfeasance/corruption, etc.