Sovereign Finance

Rob Drummond
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  • ENTREPRENEURSHIP

Connect the dots between personal finance, global finance trends, and deep human history. Tune in every week to demystify the money puzzle, and protect your interests in a turbulent world. sovereignfinance.substack.com

  1. 4D AGO

    The Great Global Transformation

    Rob’s comments below are in italics.Derek’s comments below are in normal font. We’re talking about a book you’ve been reading today. What is it, and what do we need to know? It’s called The Great Global Transformation, written by a chap called Branko Milanovic. I got it on a whim when Amazon recommended it — people who bought this also liked that — which, apart from being a clever upselling technique, is actually pretty useful at times. Anyway, this author was a former economist with the World Bank. He’s an economics professor at City University of New York and also a visiting professor at the London School of Economics. It’s a very data-heavy book, but the statistics are extremely well presented. There are plenty of good graphs and tables. One thing that drives me mad is when a book would really benefit from visual presentation and it’s just solid text. This author is clearly a very good communicator. The main thrust of it is something we’ve discussed before — the shift in wealth and productivity, particularly to Asia, predominantly China, but also many other parts of the region. I noticed at lunchtime that the honey I was using was made in China… It’s not like we don’t have bees here! Yeah, that is ridiculous. Well, I do get it — it’s cheaper to exploit people on the other side of the planet and ship it over to sell in Aldi. Our village shop sells locally produced honey from a man just down the road who has 200 beehives. How you run an operation like that, I can’t imagine. You have thick skin! In more ways than one! Anyway, one interesting statistic in this book was the increase in the share of global production in China versus the United States. Measured in purchasing power parity, the two actually crossed over in 2015 — eleven years ago. How do we define purchasing power parity? It’s the opposite of measuring currencies at market exchange rates. According to exchange rates, the U.S. produces significantly more than China—about 1.5 times as much. However, if one dollar’s worth of renminbi buys you twice as many goods in China as a dollar would in America, then purchasing power parity adjusts the statistics to allow for that. It also buys you twice as much honey, apparently. Yes. So it’s obviously a more accurate measure of actual goods produced, rather than just a numerical figure. The other interesting thing about the two graphs is that on the purchasing power parity version, the curves are essentially smooth — a steadily rising production rate in China and a steadily declining share in America. Whereas on the market exchange rate version, there are fairly wild zigzags. Throughout the 1980s, it appeared that America’s share of world production was climbing rapidly, and similarly in the latter half of the 1990s. That’s highly artificial. It’s not reflecting anything happening in the real economy — it’s a reflection of the dollar appreciating rapidly on the currency exchanges. This shows how loose the coupling is between the real world of factories, farms, and work on the one hand, and financialised measures on the other. It also surprised me that the gap is so large, since there should be arbitrage opportunities when currencies are misaligned with their actual purchasing power. The whole idea would be to bring those into line with one another. Of course, the reason the dollar has such strength is that it remains the world reserve currency — for now. As we’ve said several times, that could change extremely rapidly. I’ll go through the book further, and perhaps next week I’ll have a few more insights to summarise. The other thing I was slightly sceptical about is that many of these statistics are expressed in terms of GDP. As I’ve said previously, I’m sceptical of GDP as a real measure of wellbeing, and we’ve given a number of reasons for that. In this context, though, whilst I’m confident in my scepticism of it as a measure of wellbeing in developed, prosperous economies: GDP is often inflated by ever-faster obsolescence. The faster your washing machine wears out and has to be replaced, the higher the rate at which currency flows through the economy. That’s plainly not a serious advantage to anyone. You get whatever you incentivise. If you incentivised longevity, your washing machine would never break — you’d just replace parts. But that’s not what’s incentivised or measured. Absolutely. On the other hand, if you take a poverty-stricken part of the world where many people lack clean water, sanitation, indoor bathrooms, or anything beyond the most basic appliances, there is obviously enormous scope for improving their material circumstances. That improvement would correlate fairly well with GDP as a measure. So perhaps the higher up Maslow’s hierarchy of needs you go, the less important GDP becomes? Exactly. Those were the main points on that. As for world events, did you pick up on the scale of the police brutality in suppressing demonstrations against Herzog’s visit to Australia? Yes. It’s remarkable to me that such indiscriminate government-sponsored violence can be unleashed in what we consider a civilised country. What surprises me too is that they felt there might be some advantage to it. Just shows their true colours, doesn’t it? Even if they dislike people demonstrating against Israeli war criminals visiting the country, the far more astute response would have been to sit it out, wait for it to blow over, and let people forget about it the following week — rather than going out and clubbing and pepper-spraying inoffensive elderly people. It’s worth remembering that Australia was founded by prison guards, not by convicts. Yes. Anyway, those are my comments for this week — we’ll pick up a few more threads next week. Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

    12 min
  2. Why We Do What We Do

    FEB 17

    Why We Do What We Do

    Rob’s comments below are in italics.Derek’s comments below are in normal font. We were talking last time about marketing and sales for sovereign entrepreneurs who want a guide to how to market and sell themselves and their services to trade on their own terms. In editing the show, I reflected that we talked about a lot of tactics, but there’s actually a foundation: the best marketing is a business that markets itself. People go through the service, they talk about it, they talk to each other about it, and they leave great reviews. Once you’ve got that basis, that alignment really stems from you doing work that is aligned with your purpose, values-driven, and, in some regard, mission-driven. Once you’ve got that foundation in place, then all of the stuff you’re doing with ads, with writing the book, with all of the other stuff that we talked about, is really going to amplify that. Whereas if you’re trying to amplify something that’s out of alignment, you’re just going to make problems for yourself and fund the Google Christmas party when you run ads. There’s more than enough of that happening already. So I just wanted to mention that because it’s been bugging me for a week or so! Yeah, good point. I wondered what you thought about that? Well, when you say it, I thought, “Why didn’t I say that?” The reason I didn’t say that is because I thought it would be obvious, but maybe the obvious needs stating more than anything. My motivation in running my own businesses, which I’ve now been doing since I finished my last employment in 1975, was that I didn’t want to be at the dictate of somebody else telling me what my schedule had to be, what I had to do, what I wasn’t allowed to do and all the rest of it. But beyond that, it was a form of self-expression. A lot of us end up as accidental entrepreneurs, where we end up out of work for a time and go it alone, or in my case, I was a boneheaded entrepreneur because I just thought I could do it better myself! Then I got into business doing something that I thought I wanted to do, but actually it wasn’t really what I’m here to do. I’ve had to unpick that over several years. So business is the ultimate journey of self-discovery. Yeah. You might have to go on that journey, but once you’ve got that alignment in place with purpose and passion in service to others, marketing and sales will become a lot easier. Well, the whole point about what we’re doing here is to save people the pain of finding things out the hard way! But anyway, yeah, good point. I’ll just say one more thing: the whole point is self-expression. When we were talking about sales, we were talking about meeting the real needs or desires of your potential customers or clients. So it goes without saying that you’ve got to have a clear idea of what you actually want to contribute. You’ve got to really be in their corner. Of course, you’ve also got to operate with the world as it is. There’s this tension, isn’t there, between doing the work that you love and finding a commercial fit in the marketplace. You’re finding problems people are trying to solve and trying to marry that up with what you love doing. It requires a degree of art to marry those two things up, and it can take time. You might not get it right the first time. Yeah. Don’t Get Blindsided By Environment or Market Changes Going back to my lessons from Hard Knocks, a key one I was going to mention is that you’ve got to have an eye on the world and how it changes around you. I was completely blindsided by that. I had more or less accidental success for several years. That came from the fact that I was in a very unusual position. I had a fair degree of competence in both digital and analogue electronic design. I’d also had a background in computer programming during my time in various corporate environments. I was developing software at that time, a torturous process on big mainframe computers. So I knew about computer programming, and then microprocessors came along. That was a natural development on the hardware side, given the digital electronic design I’d been working on. I also had a grasp of the principles of writing computer code as software. There were very few people who had both electronics knowledge and software capabilities because they were just entirely different fields until the arrival of the microprocessor. In most environments, people would be doing either one or the other. So things went brilliantly because there were plenty of problems that could be solved cost-effectively with this technology. There was very little in the way of finished products. Not even very much in the way of tools to help you with the design and implementation. As well as having that mix of skills, I also had the ability to talk to people and listen to them and engage with them and figure out whether or not I could address their problems, which was again quite unusual for people who were tech boffins. So with all of those things, it was an automatic success. I thought I’d discovered the keys to the kingdom. I was going to be set up for life. What I didn’t realise was that the world around me was evolving all the time. I only had about 10 years of things going that swimmingly well. First of all, there was an economic downturn that wiped out the ability of many of my potential customers to buy what I was offering, no matter how much they wanted or needed it. Secondly, these skills that I had became commoditised. The third thing is that there were a lot of already off-the-shelf solutions to the things that would have had to be custom-built before. There were already things that made it very easy. For instance, you could go a long way by setting up a spreadsheet and putting a few macros into it without needing the next level of expertise in software design. For all these reasons, I could no longer command the same premium. Had I been aware of that, I could have easily pivoted to my strengths. I could probably have focused more on getting the deals together and subcontracted out the day-to-day implementation. But I didn’t realise that, and so I had a very rough few years and got really demoralised. I’m getting huge echoes of what’s going on today in a lot of places. That would be like still coding websites by hand when you can get AI to do it. A lot of people have had the rug pulled from under them. Keep an Eye on Macro Changes There’s also the bigger situation in the world as a whole. Looking around today at current events it’s similar, but more extreme. We’ve still got the ceasefire being ignored in Israel while a frightful human tragedy unfolds in real time that we can actually see and stream - to the extent that we’ve got the stomach for it. Do you want to talk about the documentary you mentioned before the call? Yeah, it’s a dramatisation of the slaughter of an entire family that happened in Gaza. It’s called The Voice of Hind Rajab. Hind Rajab was a six-year-old child who was left alive in the car which had been gunned down by the IDF. It had 350 bullet holes in it. A rescue centre had managed to contact the child after being contacted by a relative in Germany. So they were speaking to her. Some of the movie is an actual live recording of this child going through the attempt to rescue her. I won’t go into any more than that about it. But it was a very harrowing experience for an hour and a half. But I was glad I went through it. Because even though I get the picture, I know how bleak it is, this brought it home to me on a completely different level. It was an hour and a half for a set of events that in real life took four hours for the people on the ground to go through. So it was fairly close to real time, except that it was actually in reality about a third of the time span that it unfolded to play out. So that, I guess, underlines the tragedy, because you’re faced with that. You think, this is appalling. How can human beings do things like this? You realise that this is exactly what has happened tens of thousands of times over. The people who are perpetrating it are either convinced they’re doing the right thing or completely oblivious to the suffering. It’s a broken overarching narrative. Yeah, which we’ve got, you know, the insanity breaking out, the obviously warlike threats towards Iran. I thought it would have been obvious after the events of last September that Iran is not going to take another attack lying down. The consequences for so many people are going to be so appalling. This comes back to the fact that whatever we do in our own lives, we depend on a functioning planet. That functioning is really quite a fragile system. One of H.G. Wells’ novels was The War in the Air. In that, he wrote it around 1905. So it was a prophetic novel. In that, at the end of the novel, the world economy had completely unravelled. All of the cities had collapsed. People were eking out a bare existence subsistence farming wherever they could. Obviously, that was unduly pessimistic with the next two wars, because although there was a great deal of ruination, it didn’t actually destroy the whole of human society’s functioning. But there’s no guarantee that any escalating conflict now wouldn’t have that effect and send us back at least to the Middle Ages, if not the Stone Age. You have to look, you have to look these things in the face though, don’t you? That’s the point that we’re trying to make. You get nowhere by being an ostrich and sticking your head in the sand. All that happens is that it’d be more of a shock. Of course, the more people ignore it, the more the perpetrators of all this are emboldened and empowered to keep raising the ante, which appears to be happening. We’ve got so-called peace negotiations in Ukraine, which has to be pure political theatre. There’s no indication from either sides’ stated positions that they’re really work

    26 min
  3. Globalists vs Localists: Are Things Unravelling?

    FEB 8

    Globalists vs Localists: Are Things Unravelling?

    Rob’s comments below are in italics.Derek’s comments below are in normal font. We’ve had the World Economic Forum meeting in Davos recently and various other events. We thought we’d review what’s gone on from a Sovereign Finance lens. Where do we start? Well, I just wanted to point out that in the last few days, gold has broken the £4,000 an ounce mark. It’s down slightly from that, but the short answer is it’s up 50% since five months ago. It’s up by about 25% over the last three weeks, which is pretty dramatic. Once again, as I would always say, this is not the rise in the price of a substance. It really is a reflection of the currency’s decline in value. Right, because people are more interested in gold when they lose confidence in the currency. Yeah, it’s not an investment in the sense that it’s going to actually provide anything, but it’s a hedge against inflation is the simplest way of putting it. The central banks are making no bones about the fact that they’re stocking up on gold and replacing large amounts of their dollar reserves with gold. This is now being openly discussed. As we’ve said several times over the last few months, a feedback loop is at play. The decline of the dollar and its position in the world is likely to enter a positive feedback loop, accelerating the process much faster than many people would have expected. That was the subtext of a lot of what was going on in Davos. All of those Davos meetings, as long as we can remember, have been a mutual admiration society of extremely wealthy people. They reinforce confidence among the “elites” in how things are moving. Of course, these people are essentially globalists: not merely being realistic about the fact that we live in one world, but that they would like a unified global power structure with them in charge. Does that make us “localists”? What’s the buzzword for it? The principle of subsidiarity. It would be the opposite of that, I guess: making every decision at the lowest level that it is possible to make it. Which was how the United States was envisioned, wasn’t it? Yeah. For the last 75 years, since the end of the Second World War, there’s been a constant set of assumptions amongst the financial and political elites. One of those assumptions is the dominance of the United States dollar as the safe harbour, if you like, to rush to when there’s any uncertainty. As the backbone of the international currency system. As a solid reserve in the accounts of central banks everywhere. The funny thing is that it made sense when the dollar was locked to gold at $35 an ounce. That relationship has been severed for an awfully long time. Yeah. Once that was severed, you would have thought that would have been the end of it. But it has managed to hold on for twice as long as it was actually “as good as gold”. That’s one of the assumptions that we’ve been working on for the last 75 years. Another assumption was the unity of the European nations, at least the more prosperous Western European nations. Another was that transatlantic cooperation would exist between those prosperous European nations and the United States. Another was United States hegemony over the rest of the world, either through its economic stranglehold or its military power. That’s being projected on its fleets all over the oceans and its military bases all around the planet. Finally, you know, again, something we’ve touched on several times is that the United States is now, whichever way you cut it, in the end-of-empire part of the cycle. Every single empire in history has followed the same trajectory, starting out as a previous one was declining. Gradually ramping up faster and faster, then reaching a plateau of complacency. Then things start to unravel and fall into a steeper and steeper decline. The British Empire had, to all intents and purposes, about 350 years of dominance, culminating in a period when it effectively dominated the globe. Just like every other empire, it was pretty brutal towards the populations of its vassal states. Every empire is essentially grand larceny on a huge scale, enforced with brutal naked force. But it took 350 years for it to reach the end of its cycle. In 1913, I don’t think many people could have realised where it would be by 1925 or 1930, let alone by 1946. Then we had the gradual coming to terms with reality as we severed ties with all our colonies. We turned them into members of the Commonwealth, which, of course, has not actually improved the lot of most of the population there either. The point being that in that end cycle, they become deranged. Certainly, this is the only way to view global events now, as the behaviour of the United States seems increasingly irrational. Of course, there are a lot of people who think that Trump is the cause of this. It’s better to look at it in terms of him being the symptom, not the problem. If they got rid of Trump and replaced him with anybody else, would it be any better? It might be handled with a bit more subtlety, that is all. It’d still be the same s**t. Yeah, it would be the same old thing. At Davos, we saw many presentations from various people, either trying not to face up to this or, frankly, admitting it. There was Mark Carney, the Canadian prime minister and former governor of the Bank of England, so - a globalist through and through. He said it was the end of the rules-based order. He had another phrase about values-based realism, but it’s just another cliché trying to paper over the cracks. There is a potential for international legality, which is called the United Nations Charter. It was set up at the end of the Second World War, as we know, with the idea that this would never happen again. Of course, the promise of the European Union was that it would prevent warfare between the European nations. It would deliver peace and prosperity. We’re increasingly seeing that the European Union is visibly failing to deliver prosperity. It’s far from delivering peace. It seems to be uttering more and more warlike proclamations. Part of the reason for the EU’s fragmentation is the loss of cheap Russian energy. There’s also the demographic collapse. The population age has peaked. We’re now getting a far larger proportion of the population being of an increasingly elderly age, such as myself. That means that there are fewer and fewer younger people. Whether the retired people are supported by state pensions which are coming from taxation on the people who are working, or whether they’re arrangements through investments through pension funds that are invested in industrial concerns or invested in government bonds which have to be again funded from taxation, the bottom line is that the support of the no longer working part of the population has to come from the people who are. Once population peaks and goes into decline, we lose that ratio. That is happening right across Western Europe. As I said, we’ve got political fragmentation, with more and more nationalistic rabble-rousers coming to prominence across Europe. The existing leadership, as we’ve pointed out, is not only devoid of strategic thinking but has also failed to carry the support of the electorate. The only trouble is that the alternatives coming to the fore seem even worse than the current incumbents. The Labour Party didn’t really win the last election. It was just that the Tory party lost it. It’s looking increasingly likely that both the Tories and Labour will lose the next election, with the Reform Party under Nigel Farage being the likely alternative. Farage is being teed up by the powers-that-ought-not-to-be as the next PM. Yeah, it looks very much like it. It seems out of the frying pan into the fire to put it bluntly. Yeah. Up until now, the Davos crowd has taken for granted that global integration was well along the way and would solve all other problems. All of a sudden, over the course of literally the 12 months since the last meeting there, this is no longer looking at all plausible. Meanwhile, on the other side, as we’ve discussed before, a parallel system is being set up by the BRICS nations. Various other combinations of Asian and the global south generally. Increasingly, they’re setting up a parallel system that will override the dollar-based global banking system. In the background, of course, we’ve got the four major areas of serious conflict in the world: Iran, Venezuela, Ukraine, and Israel. The takeaway here is that the playbook, which has worked very reliably for the US empire over the past 70 years, is suddenly ceasing to function. We mentioned a week or two ago about Venezuela. They tried various measures to destabilise the country and bring it into line. None of them had really worked. Culminating with the kidnapping of Maduro, rather than causing the regime to collapse, it actually seems to have solidified the solidarity of the population behind their government. We could say the same thing for Iran. This was one of the things that was admitted, not only admitted, but declared proudly at Davos by the American Treasury Secretary. Iran had been subjected to economic warfare, for want of a better term. He was openly admitting that that was one of the prongs of the attack on Iran. Then they had the attempt by Israel to decapitate the leadership, which didn’t have the desired result. There seems to be an increasing assumption that the US will make another attempt to attack it. But the results are not entirely predictable and are certain to be catastrophic. The only question is how catastrophic and to whom. My guess is that in some conflict, Iran is the most likely one, there will be some massive loss of life of American servicemen on a scale which probably eclipses even that of Vietnam. Yeah. It depends. That could provoke an open revolt among the American population over the government’s mismanagement. But of course, it

    18 min
  4. Marketing & Sales for Sovereign Entrepreneurs

    FEB 5

    Marketing & Sales for Sovereign Entrepreneurs

    Rob’s comments below are in italics.Derek’s comments below are in normal font. We’re going to talk about marketing today, which is my wheelhouse and probably yours as well. Many people are always in search of the next marketing secret or hack. So what do we have to say about it? Whatever you’re doing in business, unless you’re finding customers and they’re actually making a purchase from you, you haven’t got a business at all. I’ve titled this segment “Marketing and Sales,” which may cause some dissonance for many people. Usually, the phrase is put as sales and marketing. But it’s worth bearing in mind that marketing comes first, and the sale is the end of the process. Sales That said, many people are intimidated by selling. Part of that is the misconception that it’s an adversarial contest in which the winner is the person who makes the sale. A good shift in mindset is to realise that as long as you’ve got an honest product that is appropriate for the customer, the actual winner in a sales transaction is the purchaser. The purchaser has got something they wanted or needed. The seller has only got money. The money’s only of genuine value to them when they exchange it for something they actually want or need. So in that individual transaction the value should be greater to the buyer. Yeah. So having said that, the marketing comes first. What marketing is doing is providing a stream of customers, of prospects who are ready for the sales conversation. I have a client who says that a lead a day keeps the downturns away. Yes, it does. Anyway, so as the sale is the simplest part, I’ll just discuss that because we can dispose of that fairly rapidly. As I’ve said, what is important is that you’ve got an honest product at a price which appears fair to the prospect, a price that feels appropriate to their circumstances and their needs. If they’ve been prepared by what you’ve done in the marketing process by the time they’re having the conversation, if they are genuinely matched to what you have on offer, the product will practically sell itself. There’s a really brilliant book called The Secret of Selling Anything by Harry Browne (Amazon link). Although it’s a rather cheesy title, it’s the exact opposite of what you might be expecting. It’s not full of slick tricks and techniques to bamboozle or coerce people, which is how many people view the sales process. It’s basically a very detailed exposition of giving people what they want and making sure the value is highest to the buyer.. Essentially, Browne says want to conduct an honest conversation with the buyer. The best way to start is to ask them what their most pressing problem is. Presumably, if they’ve been through any kind of nurturing process, they’ll know the sort of thing that you’re offering and the sort of issues that it addresses. So they will answer in that context. Then you explore it. You explore whether the price you want for it is fair to them and whether your product actually meets the need or desire they currently lack. Then you explain how your product meets that desire or need. The sale will only happen under those circumstances. There are a few other things. A great list called the five power disqualifiers by John Paul Mendocha. Do you remember him? Yeah, John is one of Perry Marshall’s colleagues. I was literally just trying to pull up what the five power disqualifiers were. Yeah, from memory, it was something like, do they have the bleeding neck problem? Do they have the decision-making capability? Do they have the money to pay for it? Do they buy into your unique selling proposition? If you run through the list of disqualifiers, you’ll save yourself a lot of wasted time by talking to people who are not going to buy for one reason or another. One disqualifier it to find out whether they really have the authority to make the purchase decision. Many salespeople spend a lot of time talking to people who are perfectly happy to talk to them, but haven’t got the authority within the business to make the decision So the full five power disqualifies are: * Do they have the money? * Do they have a bleeding neck? A bleeding neck is a dire sense of urgency, an immediate problem that demands to be solved right now. * Do they buy into your unique selling proposition? Perry says, if you’re just going into a market, the question is what big benefit will they buy into? What deal would they snatch up in a hot second? What benefit do they want that other guys are not promising? * Do they have the ability to say, yes, we’ve just been over this. Major decisions in our house are made not by me, but by Linzi. * Does what you sell fit their overall plans? If your service requires major brain surgery on the part of the customer. He ain’t gonna take your offer unless brain surgery is literally a lot less painful than the alternatives. Right. Okay, so that deals with sales. Marketing Now, marketing really covers everything involved in acquiring, developing, and retaining a customer for repeat business. That was Peter Drucker’s definition, wasn’t it? That marketing is everything to do with making and keeping a customer. Yeah. So let’s talk about the arrangements we’ve got to, to harness potential customers and get them engaged with you. Obviously, a starting point for that is advertising. We’re all aware of the myriad forms of advertising that you have. An important thing to understand is the necessity of split testing. You can come up with the most brilliant creative you can imagine. Unless you actually test it against some alternatives, you’ll never know whether what you’re putting out actually resonates with the target audience. This has been made much easier with the internet, because it’s very quick and easy to put out alternative wordings, see which gets the best response, try alternative versions of the sales page, see which gets the best response, and gradually dial it in. This is something which really smart advertisers have recognised for over a hundred years. There are a couple of classic books on this. One is Scientific Advertising by Claude Hopkins and the other is Tested Advertising Methods by John Caples. A little bit of a caveat on that: the fifth edition of Tested Advertising Methods was totally revised by people who had no idea really what John was getting at. Yeah, I’ve got a copy of the fourth edition. So you want to look for a secondhand copy of the fourth edition or earlier, which is what John actually wrote. Claude Hopkins in particular was a pioneer of the discount coupon for groceries and the like. The obvious reason for the discount coupon is to encourage people to try it at a lower price and feel they’re getting a bargain. But the real purpose of the discount coupon was to include a small code somewhere on it. When the coupons came back, and the retailer was reimbursed for the discount they’d given to the customer, it’s worth noting that this is a win-win-win situation. Assuming that the product is one that the customer likes when they try it out for whatever reason, they’re a winner. They’re a winner because they’ve got it cheaper than the first purchase, which has reduced the risk involved. The retailer is pleased because he’s made a sale he might not otherwise have made, perhaps bringing in the customer. He’ll also buy some other things while he’s there. The retailer also wins because they get a share of the cash when the vouchers are redeemed. The supplier is winning because he’s expanding his customer base. But more importantly, he’s getting feedback and intelligence on which of the adverts he used to offer the coupon worked, because each coupon carried a code indicating which advert it was. You could run a lot of different adverts across different media. You could see which ones were most effective in terms of the return he got on his advertising spend. Once again, this is a classic technique that has been around for over 100 years and has been supercharged by how we can deliver messages on the internet. You can even do it for phone calls. You could have multiple phone numbers that can be tracked to different sources. Or you say, ‘ring up and ask to speak to Derek or John’, or someone who doesn’t exist. Then you know that if they ask for John, they came from that ad. Yeah, you know where they came from. So that’s a core skill to master in this area. Another important concept is the ladder of awareness. Depending on what your product is, it might be something the prospect is already aware of or already exists, and that’s the question. You have to move them on to: why should he choose your version of this product rather than any other? Going back down the scale, there are some products that the customer doesn’t even know exist yet. So informing him about the product’s existence is something you do. According to what your product is and how aware they are of it, the kind of communication you need to start having with them is determined. Do you want to say a bit more about that? Yes, I do. So if you go to Google and run a search and look at the ads, most of them speak to solution-aware people. But in any market, there might be a much wider pool of people who are less solution-aware or aware that their ankle hurts, but are not aware of ways to fix the problem. Although not even problem-aware. They’re just like hobbling around in the street. You might be able to reach them with an ad, but it’s going to be an interruption. Eugene Schwartz did a great job outlining the different levels of awareness in Breakthrough Advertising, another book we can recommend. Yeah. That book was out of print for a long while and secondhand copies were very expensive, which is an indication of the value they held. I think Brian Kurtz revived it, but it’s still quite expensive. But there may be PDF copies somewhere. Right, but it’s a wor

    24 min
  5. 5 Current Affairs Events Worthy Of Your Attention

    JAN 24

    5 Current Affairs Events Worthy Of Your Attention

    Rob’s comments below are in italics.Derek’s comments below are in normal font. We were originally going to cover entrepreneurship, sales and marketing in this conversation. That is coming next time, but we felt compelled to comment on some goings-on. So what are those goings-on that we need to talk about? Right, well, there are five that are worthy of comment. Obviously, one is the ongoing situation in Venezuela. The second one was a speech from the Iranian representative to the UN Security Council. The third one is Trump’s latest soundings on Greenland. The fourth is Trump having done another U-turn over who he says is responsible for failing to reach a peace treaty in Ukraine. It’s now gone back to being Zelensky’s fault. The fifth is a speech Putin gave to ambassadors from 32 other countries in Moscow. As far as I can see, it hasn’t received any media coverage. So let’s dive straight in. 1. Venezuela It’s still a mystery how they pulled off the arrest of Maduro…. It could all be theatre. It smacks of theatre, doesn’t it? It does. Having got him to New York, he’s now going to wait two and a half months until he gets the next bit of his trial. I don’t know what conditions he’s been kept under. It seems like a very high-risk move without it being at all clear what outcome they want. It’s clear that the United States would like to simply steal all of Venezuela’s oil and any other mineral resources it has. But it doesn’t appear to have been thought through. It wasn’t clear what they were going to have as a result of the immediate abduction. The vice-president, who is now acting president, has made it absolutely clear that they’re not turning themselves into a vassal state. They haven’t got an alternative government plausibly lined up. The ridiculous opposition leader who was given the Nobel Peace Prize for no noticeable reason and has now donated her medal to Trump is in no position to form a government. It’s not at all clear that if American oil companies sent in their executives and technicians to improve the infrastructure and extract the oil, they’d be safe, or that their safety could be ensured. So it’s difficult to know where it goes from here. This is actually the fifth attempt to destabilise Venezuela and bring it under US control. They started off by imposing sanctions a few years back. They then attempted to have a regime change, putting forward Juan Guaidó. Having said that, the 2024 election was invalid; elections seem to be getting less and less credible everywhere in the world. More and more people are realising that we’ve been given a plastic steering wheel to try and steer the car with. It looks a bit like it. Then they tried diplomatic isolation. Finally, they had a system of conditional export licences for Venezuelan goods, none of which was enough to pressure Venezuela into falling in line. It does seem that the major impetus for feeling they had to do something comes back, yet again, to dollar hegemony in international trade, specifically in oil. Once again, Venezuela had made it clear that it was about to start accepting alternative currencies and to use the Chinese financial settlement system to conduct the deals. Then, of course, we’ve had the blatant piracy of attacking and capturing oil tankers on the high seas. It seems that if the United States wanted to destroy any credibility it has as an honest operator on the international stage, it couldn’t be going about it more rapidly. I saw a Pirates of the Caribbean AI-generated meme with Trump’s face on it. There’s a lot of banter going around the internet at the moment. Yeah, replacing Johnny Depp’s face with Trump’s. It’s almost too easy, isn’t it? Okay, so that’s a question of ‘watch this space’. Any attempt to invade a place which is three times the size of Vietnam and similarly mountainous and jungle-covered would obviously be catastrophic for any forces that the United States could bring to bear. Bluntly, it seems like yet another failed attempt to rerun the playbook, which has worked so well for the last 50, 60, 70 years: drum up some protest, work behind the scenes to get a disgruntled opposition group with enough power, weapons and training to rush in and take over, then provoke some triggering event. This also appears to be what is happening in Iran. I was going to say that. That sounds very similar to what we’re seeing in Iran. We’ve had open admission from certain people in power that there are Mossad agents on the ground. 2. Iran Yeah. This is extraordinary. Once again, there are broadly two... There’s no doubt that there have been a lot of demonstrations in Iran. In the Western media, they seem to have been portrayed as protests against the government in general. The alternative narrative is that the first wave of demonstrations was a protest demanding that the government address the rapid inflation caused by the rial’s devaluation. They just circulate photos of protests that may or may not even be in the correct location or the correct time. You can’t believe anything you see. The reports I find credible from Iran say they were entirely peaceful. Then there was a flare-up of violence, which included the burning of mosques, which doesn’t seem likely to have been instigated by Iranian anti-government protesters, bearing in mind that it’s a very solidly Islamic country. As you say, there have been actual honest admissions by people in the West that Mossad agents were involved. That seems highly plausible. In other words, it’s the same thing we’ve seen in all kinds of things, from the World Trade Organisation meeting in Seattle years ago to the student fee rises protests when the Conservative government came in about 10 years ago in this country. You get a few people in there who are not actually part of the protest group, but they’re there to stir up trouble and create violence. Yeah, I suspect that stage name ‘Tommy Robinson’ falls into that category. Yep. So then there have been very large demonstrations. The agent provocateur factions seem to have quietened down. Incidentally, there are again two narratives about the jamming of the Starlink signals in Iran. This is being portrayed as an attempt at censorship to prevent the protesters from getting accounts of the demonstrations out to the wider world. The alternative explanation is that they were shut down to prevent coordination of the agent provocateur factions. Anyway, be that as it may, the violence subsided. There have then been very large demonstrations, which again are portrayed as anti-government. But there seems to be a strong case that they were actually pro-government demonstrations, demonstrations of support and solidarity. At the UN Security Council, the Iranian delegate made a very forthright and clear statement about the entire thing. Once again, this doesn’t seem to have been widely reported, though it’s easy enough to track down on YouTube. It’s well worth investing 10 or 20 minutes in listening to. It’s important to actually listen to people and form our own assessments of their integrity and their plausibility. Otherwise, your worldview gets hijacked by powerful interests. Yep. So there’s no doubt that the United States is genuinely rattled by the amount of Chinese infrastructure being installed in South America, including ports, railways, and energy facilities. There seems to be very little they can do about it. Again, over time, we’ll find out whether this can be taken at face value as Chinese support for improving the lot of those countries and for building a mutually beneficial relationship, or whether claims of some underhanded motivation can be justified. But it’s worth watching. 3. Greenland Trump’s been nattering about Greenland on and off ever since he was inaugurated. It seemed to me totally implausible that they could actually act on this. It seemed like empty rhetoric, but all the indications are that he’s fairly serious about this. The thing that I am continually puzzled by is wondering how many of these things that Trump comes up with are, first and foremost, his own brainstorms, and how much of it is him putting the public rhetoric on the surface of decisions that have been made behind the scenes by other actors. As this is an audio-only podcast, I can tell the listeners I have a large grin on my face at this question! Of course, we now know that the Europeans have protested about this because they say Greenland really belongs to Denmark. Although Denmark, of course, has no more claim on it than the United States does, and they haven’t behaved particularly supportively or generously towards the island’s native population. Nonetheless, this has led to greater fragmentation between Europe and the United States. We had a suitably unimpressive speech about it this morning from Keir Starmer. 4. Trump’s n’th U-Turn on Ukraine Then, fourthly, the latest on the Ukraine situation is that Trump has now been saying that the obstacle to peace is Zelensky. I would say that’s fair comment, but yet again, it’s a bit like a weathervane in a whirlwind. The fact that he says this today doesn’t mean it’s what he’s going to say tomorrow, and it certainly wasn’t what he was saying yesterday. I’m sure the Russians have just decided that they did their best to engage in some dialogue. I thought back at the time of the Alaska meeting that this was really the dawn of a more sane opening of dialogue, normal diplomatic exchange, and communication and cultural exchanges between the West and Russia. But clearly there’s no sign of it. Once again, the best way to put it is that it was pure theatre. 5. Unreported Putin Speech Finally, there was a speech by Putin, which if you rely on mainstream media, you wouldn’t know about. But once again, it was delivered to a meeting of the ambassadors and some supporting staff from 32 countries in

    17 min
  6. A 2026 Review of US Debt & The Future Prospects of the Dollar

    JAN 14

    A 2026 Review of US Debt & The Future Prospects of the Dollar

    Rob’s comments below are in italics.Derek’s comments below are in normal font. I’ve come across some numbers regarding the United States’ current financial position. Now, of course, the debt numbers we’re talking about run into the trillions. Bear in mind that a trillion dollars represents in round figures the lifetime earnings of a million people. I will put a link into the episode we did on big numbers, where we explored the true scale of millions, billions, and trillions. Yeah thanks. So now we’re talking entirely in trillions. The US stock market valuation (equity stocks in United States corporations) is $42 trillion, and $22 trillion of that is held by overseas investors. So if they start to have reservations about the dollar’s ongoing purchasing power, this could itself trigger a stampede. Then you’ve got the US government debt, which is now up to $38.6 trillion. It seems to add a trillion every time I come back and have another look at it! Once again, a substantial portion of that is held by foreign investors. I had to go back and see how much China holds. China, of course, has to tread a fine line. It doesn’t want to get left holding the baby if the value of the dollar goes into free fall. At the same time, it obviously doesn’t want to be blamed for crashing the global financial system by holding a fire sale. But it’s been steadily reducing its dollar holdings by amounts that are pretty big movements when we’re talking about national currency reserves. When the music stops you don’t want to be the one left without a chair. That’s right. For those figures there, of course, you’ve got a vast amount of US consumer debt as well. That also runs into the trillions. But the context is that the United States’ GDP is about $31 trillion a year. But bear in mind that much of that is imported goods, paid for with dollars created out of thin air. A lot of it, as we’ve discussed, is either financial transactions or replacing things that become obsolete or worn out, rather than the creation of any novel wealth. But either way, those liabilities, if you add them all up, vastly outweigh the actual economic activity going on in the United States. I was motivated by this because there are various discussions about, well, yeah, this will take years to play out. But I thought it was worth revisiting the hyperinflation in Germany in the 1920s. At the time of the Versailles conference, it was apparent to people who were really on the ball that Germany would never be able to pay the reparations imposed on it for the cost of the First World War. That much was obvious to me as a 13-year-old sitting in history class 80 years later, too. Yeah. It appears that spinning up the printing presses was a colossally naive move. The alternative view is, of course, that the German finance minister was not at all stupid, and he was not economically naive, and he knew perfectly well what he was doing. This was to essentially inflate the debt to the point of non-existence. In fact, even after that conference, the German economy appeared to be holding up quite well. The stock exchange was still rising. That continued until December 1st, 1921, when the German stock market peaked and began to decline. It took less than two years from that point to the point when they threw in the towel, discontinued the Reichsmarks, and issued the new currency in Deutschmarks. This was in November 1923. So from the beginning of December, when the economy turned round, it took 23 months for the fall to happen. By the time they abandoned the Reichsmark, the exchange rate, which I hadn’t picked up on, was actually $4 trillion to one Reichsmark. I’m not sure what the exchange rate was. I’ll check up on that and we can add a note to the page when we publish this. But in round figures, it would have been somewhere around parity. All of the currencies were broadly similar at the beginning of the 20th century. The exchange rates were in single digits, whether one, two, three, or four, depending on the direction. So these astronomical amounts persisted in some European currencies before the euro was introduced. I remember thinking, you know, why are these Spanish pesetas such tiny amounts? What about the lira, which was running at 2000 to the pound when I was travelling in Italy. If you needed change from a 100 lira note, they gave it to you in sweets. Of course, this was all because of the collapse of the currency values during the war. The French franc had been broadly in the same ballpark and was replaced by francs at the rate of 100 to 1 after the Second World War. So basically, the German currency went down and down in value until it was literally one-trillionth of its value at the beginning of the First World War. That is essentially what happens when confidence is lost, and it is lost through the process of currency debasement. For instance, the $38 trillion US federal debt had gone up from $14 trillion in 2007. So it increased by a factor of about two and a half in less than 20 years. I’m deeply suspicious about the accusations of incompetence as well. I think it has been allowed to happen. Well, when you’ve got debts on this scale, it’s obviously physically impossible for them to actually be repaid in reality. Yeah, because there’s not enough wealth in the world. The GDP of the world wouldn’t scratch the surface. If they attempt to, they’re now caught between a rock and a hard place. They can’t repair it, and any attempt to have another round of so-called quantitative easing will accelerate the evaporation of confidence worldwide. So we could certainly be looking at something far less than the two years it took for the German currency to collapse in the 20s. Bearing in mind that we live in a much more rapid world in every respect now. The feedback loops are everywhere. Yeah. Which reinforces my prediction that we’d see something dramatic sometime this year. The other thing, of course, is that all the time, American government securities are being retired at the end of their time, and they can no longer sell long-dated bonds. So it’s all being refinanced by short-dated ones, and the prevailing interest rates are going higher and higher. Which ties into what I was talking about recently: the market interest rate is determined by both the basic rental of money, which has historically been about two and a half per cent. Plus factors to allow for your evaluation of the likelihood of default and your estimation of the likely buying power of the currency when you repossess it at the end of the loan period. It comes back to confidence, doesn’t it? How that process had been short-circuited by the ongoing creation of new currency. It looks like that levitation effect has now run out of steam, and so all the feedback loops are going to be going in the opposite direction. This is the situation we’re in, and it also explains the hysterical and reckless attempts to do things like attempt to seize Venezuelan oil. Which one way or another is not going to happen. There’s no doubt that the American oil companies would like to go in there. They’re not going to go in there if any people they send in to manage the oil wells and the refineries are in danger of getting sorted, and there’s no way that the Americans can provide security. So that is the main thing on my mind when I look at the global financial situation. Of course, you know, we’ve now got the Singapore Gold Exchange opening vaults in Hong Kong and Saudi Arabia. At some point in the future, we’re going to see convertibility of the Chinese Yuan into gold. At some point, that’s going to become a fixed rate. This will be a full circle back to the situation of America at the end of the Bretton Woods Conference in 1946, where because the dollar had a fixed exchange rate to gold and America had the gold, and nobody doubted it at that time. The dollar was as good as gold, which is why it became the reserve currency and people were prepared to hold it. Plus, there was the deal Kissinger made with Saudi Arabia: they would always sell oil for dollars, would not present them for conversion to gold, and would invest them in US government bonds and other US securities. Which was a confidence trick that held up for 50 years and is now running out of steam. So the only question is how rapidly and what form the ensuing chaos takes. We were talking last week about the various promises that Trump made, pre-election, and we omitted one… Which was perhaps the most important one: the promise to audit the gold in Fort Knox. At the end of Bretton Woods, it was asserted that the American Treasury’s gold holdings at Fort Knox would be audited annually. In fact, they were only audited once over the next 10 or 12 years, during the Eisenhower presidency. They haven’t been since. There was a publicity stunt within the last decade. I can’t remember exactly when they took a bunch of American politicians on a sightseeing tour of Fort Knox, opened one or two vaults, and showed them cages full of gold bars. Nobody actually checked whether it’s real gold. Nobody actually checked whether there was anything behind the front row. Nobody looked in more than a very tiny proportion of the total vaults in the building. Nobody even counted the number of bars in the ones they looked at. So it was purely a PR exercise. So nobody knows whether there’s anything significant there at all or what relationship it has to the nominal holdings of the US government or the US Federal Reserve balance sheets. We let the fox guard the hen house and have neglected to audit how many hens remain in the hen house after all this time! Yeah, exactly so. So interesting times. The other thought I had as you were talking about the dollar was I remember when I spent six months in South America about 17 years ago. The South American currencies are notorious for hyperinflation, and it was advised at the

    18 min
  7. Is the United States an Empire in Violent Decline?

    JAN 12

    Is the United States an Empire in Violent Decline?

    Rob’s comments below are in italics.Derek’s comments below are in normal font. Editor’s note: this episode contains two discussions covering current affairs, one from 12th December 2025, and one from 5th January 2026. (The Editor got distracted by Christmas!) We’ve published them together as one backs up the other regarding our stance on the dollar. There is an audio interlude between the two segments on the audio version. Comments from 12th December We’re wrapping up some recent current affairs today. What’s been going on that people need to know about? Well, one of our themes has been that we’re plainly at an end-of-the-empire situation with the United States. The US has been the predominant world power since the end of the Second World War. It’s been a remarkably short run as empires go, because it’s clearly in decline. Empires do some pretty crazy things as they die as well. Yeah, they usually do. What makes this situation unique is that we’re now literally in a position to end life on this planet. Certainly all higher life forms, or even if it didn’t go that far, the complete destruction of the human global civilisation, possibly the extinction of the human race. We’ve never been in that situation before. How we navigate this is obviously critical, and it’s obviously out of our hands. The more people who have a realistic assessment of the situation, the more likely it is that pressure will mount to navigate it safely. I just wanted to indicate a few of the areas where it’s showing up. It’s like Groundhog Day. We keep saying it’s the situation as it has been, but it’s getting more extreme. You’ve got the Israeli government continuing its devastating destruction on the Palestinian areas of its own state, also lashing out into surrounding states like Lebanon and Syria. It’s a matter of time before there’s another attack on Iran, although you’d have thought that the decisiveness of the response last time might hold that off. Who knows? The other ongoing conflict is, of course, Ukraine. The way that it’s developed on the ground over there in the last month or two has come as no surprise to me because I’ve been following this. It was quite obvious that despite the accounts we’ve had in the Western mainstream media trying to put the best gloss possible on it, Russia was making the running. However, this has now become so obvious and so unavoidable that it’s no longer possible to pretend otherwise. Yet the so-called leaders of Britain, France and Germany continue to deny this. They think that somehow or other they can roll it back. They continually try to find a way to confiscate the frozen Russian assets, which are mostly held in a Belgian bank. The Belgian government is resisting that. The logic of doing that really defies common sense because the idea was that when Russia had been defeated, these could be legitimately confiscated. I don’t know whether legitimate is quite the right word. There’s no logic whatsoever if you assume that there’s any chance that Russia might not be defeated. The chances of it being defeated look increasingly remote. Also, the unmistakable support that the Europeans are giving to the Ukrainians really amounts to the reality of their being in conflict with Russia. Of course, we’re all hoping that it remains contained. Russia doesn’t actually strike out at our own countries, which it could make a very strong case for doing. Recent developments have been the attacks on Russian oil tankers. Most of the ones that have been attacked have been empty, as far as I can figure out, and on their way to pick up a shipment. There have now been five that have been badly damaged, probably rendered unusable. The logic behind this was supposedly that if they could strangle Russia economically by cutting off its oil exports, it wouldn’t be able to continue to maintain the war in Ukraine. There hasn’t been any sign. So the sanctions didn’t work, so we’re going to try and sink all the ships instead. As I say, they’ve attacked five so far. I don’t know how many tankers they have in total, but I believe it’s somewhere in the region of 1,000 or 1,500. They’d have to sink a lot more before it would have any real impact on Russia’s economy. But it’s obviously a flagrantly illegal act under any interpretation of international law, as is the sinking of half a dozen to a dozen small Venezuelan boats because they were transporting drugs destined for the USA. Yeah, that’s a cover story for implementing the geopolitical change they want to enact. This has been taken a step further. I don’t know whether you noticed, but one of these boats was heavily damaged and its hull was still floating in the water. It’s on video, which has gone around the world, that two passengers were seen clinging to the hull of the boat. Another attack went in there and killed them in cold blood. That is an absolutely black and white war crime under the Geneva Convention. Even if the original attack was justified, which it clearly isn’t—assuming that there was a strong case that they were smuggling drugs, which is highly unlikely because the United States coastline is 2,000 miles away and those boats don’t have that range—but even assuming that, the right thing to do obviously would be to intercept them, search them, collect the evidence and put them on trial. Give them an appropriate punishment, which isn’t the death penalty for smuggling drugs anyway. Certainly not in international waters. This has taken another notch up with the American commandos dropping from a helicopter onto a Venezuelan oil tanker and capturing the tanker on whatever pretext, which is simply an act of piracy. This is visible for the whole world to see. So America seems to me to be eroding its own credibility faster than it’s achieving anything useful. Yeah, I sometimes wonder what goes through the minds of those commandos. They must just blindly follow orders. You have very little option but to follow orders if you are in the military. It’s not a—I don’t mean this to be patronising—it’s not a thinking man’s occupation. That’s the way I would look at it. If you turn the tables on any of these situations, if these things were happening to the United States boats or oil tankers, it would be the end of the world. It would trigger a chain of events that could be catastrophic. Yeah, we’re still in the phoney war stage. We don’t know what’s going to happen. The usual way these situations work out is that the CIA have paramilitary forces in the country and they execute a coup against the leader, which could well happen. However, what would happen after that is anybody’s guess. Maduro obviously does have enemies. No leading politicians fail to do so, but he obviously enjoys enormous support from the majority of the population. Any attempt to set up a puppet government there would be extremely troublesome, to say the least. So there we’ve got it. The other thing from the economic realm is that the stranglehold the United States has had over world finances, because there was really no alternative, has now decisively come to an end. The entire BRICS group now has sufficient trade among themselves that it no longer needs the United States or the Western world in general as a marketplace. It no longer depends on them for supplies of anything because China’s manufacturing and technical sophistication is rapidly outstripping everybody else’s. They don’t need them for the financial arrangements because they’ve set up a parallel system that will almost certainly work better anyway. The necessity of holding dollars as the reserve currency has more or less eroded over the past year or two. China steadily reduces its holding of US Treasury bonds of one sort or another. It’s replacing that either by gold or by holding the currencies of its trading partners. So, in a way, we’ve come full circle to the way the system of international exchange worked before America essentially monopolised it in the aftermath of World War II. I was thinking that maybe this was the primary change that happened after World War II. Yeah, it was. The Bretton Woods system really locked the rest of the world into subservience to the United States. At the time, that made sense. It was by far the most economically powerful nation in the world. It was by far the richest. It was owed money by most of the European countries. It had gold backing to the dollar, which rendered the dollar literally as good as gold. That lasted less than 30 years, 25 years until Nixon closed the gold window. Now that it can no longer rely on that and no longer enforce the dollar as the purchasing mechanism for oil, it could unravel very much more rapidly than anybody expects. I don’t know at what point it would become the case that it can no longer pay all these military personnel stationed all over the world in any currency with meaningful buying power. But that would handicap its ability to exert military force. The unknown quantity is whether it would do something utterly destructive in response. For all that, I’m still of the opinion that we’re going through some kind of birth process of a more positive era for the human race. Time will tell whether that was fruitless optimism or whether there is some hope of that. I think it has to be, otherwise we won’t be here. There isn’t a middle way. I don’t think we can continue in this manner. It’s not doing us any harm to be aware of what’s going on as long as we don’t let it drive us into depression, which I’m doing my best to avoid. Yes, keep standing in the light. Comments From 5th January 2026 I’ve noticed every January that the ‘False Matrix’ or ‘The Empire’ doesn’t waste any time kicking off the next psyop. There are always bushfires or a war. In this case, the president of Venezuela has been abducted. We don’t have a

    30 min
  8. The Essential Nature of Money

    JAN 4

    The Essential Nature of Money

    Rob’s comments below are in italics.Derek’s comments below are in normal font. We’re going to get back to a core topic today: the nature of money. At some point in the sovereign finance journey, everyone realises that the money that you thought was real in your pocket isn’t as real as you were led to believe growing up. So what else do we have to say on this? First, at the end of the day, money is a tool. It’s a tool that can be used like any other tool for good or for ill. If you’ve got a knife, you could use it to prepare your dinner, or you could use it to stab somebody. If you’ve got a hammer, you could use it to construct things, or you could use it to break things up. The same goes for money. It’s a tool that can be used to generate prosperity. We’ll say in more detail in a minute about how to do that, or it could be used to exploit and to expropriate, which is a lot of what’s happening at the moment. But it is value-neutral as a thing in itself. So what is money’s purpose? Its purpose is to smooth the path of the accumulation of wealth. How is wealth accumulated? It’s accumulated either by creating it, that is by, let’s say, manufacturing something, or by growing food or other products from the ground. The accumulation of wealth is furthered by trade. Once somebody’s manufactured something, it’s of limited utility to them, assuming they could have made all of whatever product it is they wanted for themselves. Beyond that, the value lies in trading it with someone else to get something they want. Money is obviously the means by which they can do that. Other ways wealth is increased are by moving things and people around. Things that are abundant in one region of the world have a much higher value where they’re more scarce. So moving them from where they’re abundant to where they’re less abundant is a form of trade. Money facilitates that. Operationally, the obvious nature of money is as a medium of exchange. There are two or three other classic definitions, but I wanted to examine its essential nature. It seems to me that the essential nature is that it’s a store of energy. If you think about it, any work that we do requires energy. If we’re moving things around, we’ve got to use our muscles to move them. If we’re growing vegetables, the vegetables are essentially harnessing energy from the sunlight. The physical effort that’s gone into planting them and tending them and harvesting them is also an expenditure of energy. Of course, some commodities are actual literal direct stores of energy, a sack of coal or a tank of petrol, a charged up battery. These are literally stores of energy. They are worth something. The money that could be used to purchase them is, if you like, a store of the energy of whatever work was done to earn that money. Is that a useful way of looking at it to you? Yeah, so it sounds a bit like the fuel in your tank being a store of energy that originated from sunlight. We’re pretty distanced from this in terms of money actually being that store of energy. Thinking about all of the money that is going off to Ukraine in places that’s just been magicked into existence out of nowhere. I don’t think much energy went into creating that! Exactly. That provides an insight into the system’s dysfunctionality, because what you have there is money that did not have the energy put into earning it in the first place. So coming back to the classic economic definitions, I’ve already mentioned that it’s a unit of exchange. If I’ve got a violin, I need to eat. If I’ve made the violin, that’s a certain amount of energy gone into the construction of that violin. I can’t necessarily directly exchange that for a year’s supply of potatoes, for example, nor would I want to. I’d like to convert that into something fungible that I can use to buy my potatoes, pay my energy bills, maintain my car, and do whatever else I want. That’s the most immediate and direct way. It’s also a store of value, in that I might do some work now, be paid for it, and not necessarily want to spend it immediately on other things. I’d want to put it to one side and be able to expend it at some later time that suits me. For instance, you might want to wait until someone drives into the back of your car so that you need to buy a new car in a hurry. Not that that might have happened to me this week! Yeah, exactly. It’s a unit of account, which means that, say, in a village situation, a farmer requires a set of new shoes for his horse but doesn’t have the wherewithal to purchase them immediately. So he makes an arrangement with the blacksmith that he can have the shoes now. He’ll pay them in a couple of months after he’s brought in the harvest. So the money represents the amount of the transaction to be settled at some future time. Finally, money is a unit of measure. It’s to answer questions such as: How much profit did we make this year compared with last year? Having tremendous rates of inflation can’t help with that measurement. Well, this is exactly the point I was going to make. The unit of exchange, as long as you’re expending it as quickly as it comes in, inflation really cancels out. But any time there’s a delay between the two, as there is in this situation where you’re using it as a store of value or a unit of account, it’s clearly not fit for purpose. This is true in a situation where we have inflation, particularly inflation running at the rates that it has been over the past year or so. It’s likely to continue into the immediate future. The same thing applies to its use as a unit of measure. If I’m trying to answer the question, how do my earnings this year compare with last year? If I’ve increased it by 10% but the actual purchasing power of the money has decreased by 20%, that’s not an accurate measure of change because the goal posts have shifted. So the periods of time when we’ve had stable currency, which was, for instance, the case in the United States between 1945 and 1971, or in the case of Britain between the late 1600s and 1914, was a time when the money system worked. Within that environment, it served all its purposes. As we’ve seen and as we’re learning experientially right now in a situation where we no longer have that stability, it no longer serves that purpose. It undermines the actual smooth operation of commerce in all its aspects. Money in my brain is associated with this idea of flow. If you think about the infinity sign, the number eight on its side, like it comes in and it goes out. Anything that impedes that flow will damage the long-term viability of whatever we’re using as money. Yeah. Okay, so that was my reflection for today. It’s something that it does well to bear in mind because in general, we don’t actually go any further than the abstract notion of taking money for granted. Everyone has an emotional connection to money as well. Yeah, there is that too, which is not constructive. No, that’s right. Do you think Bitcoin could eventually become money? Well, I’ve been thinking about this. I recently saw an article about electricity generation in China. There was a sideways comment in that article about Bitcoin. It’s the first time I’ve noticed anyone saying out loud and explicitly what I’ve been beginning to feel about Bitcoin. For one thing, the analogy of Bitcoin mining is actually flawed. It’s supposed to be an analogy of the mining of gold. Obviously, if you dig gold out of the ground, you can then trade that gold for anything you want. But it’s taken a lot of effort to pull that gold out of the ground. But once you’ve actually got the gold, it is persistent. It continues. It doesn’t require anything else other than making sure it doesn’t get stolen and moving it, if necessary, from one place to another to make transactions with it. It doesn’t require an ongoing effort. Bitcoin mining was arguably an analogy of that when new coins were being created. But the supposed inherent advantage was that there was a finite quantity. We’re now getting to the point where virtually all of the coins that can be brought into existence have been. It requires the same amount of computation, which requires an enormous amount of energy going into the special purpose computers that do those calculations to verify each transaction. As there are no new Bitcoins coming in, that has to be paid for by charges in the transactions, which undermines its long-term potential as a serious element in global trade. It doesn’t have the scalability to replace all other transaction mechanisms. So its only real attraction is that anyone investing in Bitcoin is hoping that someone else will value it more highly and sell it. That is the classic characteristic of a Ponzi scheme. That’ll go bust at some point. I would suspect so. There’s obviously a great deal of effort going into maintaining the illusion. Another aspect of it which is concerning is the fact that originally this was propagated as being an anarchic freedom loving attempt to generate something that would be outside the control of the existing powers that be. Of course, now we’ve got major financial institutions and major banking institutions moving into it. China has apparently banned the trading of Bitcoin internally. So that is a factor. Anyway, the point is that this article as a sideways comment actually suggested that the only merit of Bitcoin was that people were expecting somebody else to come along and be prepared to pay a higher price for it. Certainly, it is essentially a monetary exchange system, which even more than all of the fiat currencies in the exchange systems of the world, is highly volatile. The amount of speculative transactions completely dwarfs any transactions in relation to purchase or sales or commerce. So I’m not making any predictions. I know I’d be speaking well out of turn. Everybody’

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Connect the dots between personal finance, global finance trends, and deep human history. Tune in every week to demystify the money puzzle, and protect your interests in a turbulent world. sovereignfinance.substack.com

Information

  • Creator
    Rob Drummond
  • Years Active
    2024 - 2026
  • Episodes
    74
  • Rating
    Clean
  • Copyright
    © Rob Drummond
  • Show Website
    Sovereign Finance