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I took this excerpt out of a Substack posted by Dan Denning with Bonner Private Research. The link is: https://www.bonnerprivateresearch.com/?r=12gpq2
Dan and his crew are big time gold bugs. They do recommend clients have a 1% allocation to Bitcoin in their portfolio.
Credit-based systems require infinite expansion to avoid collapse. Every dollar of debt is someone else’s asset. In a deflation of financial asset prices–which is what happens when credit stops expanding–the value of those assets either reverts to a long-term mean. Or it crashes (if the asset is backed by cash flows the borrower fails to generate).
This point came up in a private presentation I heard this week from Jeff Booth. Jeff made a compelling argument with two main points. The first is that the natural state of free markets is deflation. By that, he meant that if money is sound and markets are free, prices of goods and services will tend to fall over time. This is great for both consumer choice (more stuff and lower prices) and individual freedom.
Jeff’s second point, though, was what I mentioned above. Credit based systems (based on paper money) require constant expansion to avoid collapse. This results in either ‘structural’ inflation of 3-4%. Or episodes where the entire price level shifts upward dramatically in a great wave (this happened in 2020 with the huge year-over-year growth in the money supply shifting prices higher by 20%).
Long story short, Jeff believes that these two forces—the natural tendency toward deflation in free markets and the requirement for inflation in credit-based systems—are in conflict. Something has to give. They cannot permanently co-exist.
If Jeff is right, all assets denominated in fiat/fake money will go to zero. All of them. Anything denominated in the currency of the inflationary regime is at risk. As a consequence, he’s saving and spending in Bitcoin, which he believes to be both sound, secure, and bound by energy limits.
It takes a lot of almost religious conviction to take this view. Jeff has also ‘done the research’ and written a book about it. The book is called The Price of Tomorrow: Why Deflation is the Key to an Abundant Future. If I understand Jeff’s argument, it’s that Bitcoin is the current ‘price’ of a future with sound money, in which this fiat regime has failed.
What do you think? I’ll be reading more about it this weekend and will have more to say next week. It certainly was a thought-provoking talk.
One part that did confuse me, though, is why Bitcoiners always talk about what people need to ‘understand’ or to ‘learn’ about Bitcoin. One of the great virtues of Adam Smith’s definition of free market capitalism is that it doesn’t require book learning or an essay. By acting to improve their own circumstances, and with the help of the division of labor and free trade, individuals improve their own lives AND the lives of complete strangers in Adam Smith’s world.
People become a ‘node’ on a freedom network simply by finding out what they’re good at and then providing that service to others. It’s virtuous AND lucrative and mutually beneficial. It’s a win-win deal for everyone. And it doesn’t require anyone to ‘learn’ anything.
But maybe I’m missing something. I’ll take a deeper dive into the book this weekend and get back to you next week. Feel free to educate or correct me in the comments below.
Until next week,
Dan
