21 March 2023

Preston Pysh talks with Security Intelligence Director, Mathew Pines about Bitcoin and global macro impacts happening around the world. They also discuss the importance of stable coins and the US potentially ensuring a CBDC doesn’t jeopardize the trust in the USD.

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  • How Matthew Pines became familiar with Bitcoin.
  • Was the balance of payments between net producers and net consumers a reason why we have so many global issues?
  • How often do companies Matthew consults with, bring up Bitcoin?
  • What is the impact China is going to have from a geopolitical standpoint?
  • How does Japan’s interest rates underpin the rates around the world?
  • How geopolitical decision are extremely complex and not made with just a monetary lens.
  • What caused the dollar to change course in November?
  • Why the US Treasury and FED may need private stable coin issuers instead of CBDCs.
  • What is Matthew’s take on the BIS and their proclamations against Bitcoin?
  • How do we address Elected Officials to affect change?


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Preston Pysh: Hey everyone. Welcome to this Wednesday’s release of the Bitcoin Fundamentals Podcast. On today’s show, I have a very astute global macro and security intelligence thinker, Mr. Matthew Pines. Matthew has made quite the splash online in the past few years for his deep, critical thinking and complex understanding of the global dependencies and incentives.

[00:00:18] Preston Pysh: On our discussion today, he talks about China and its deeply manipulated market conditions, Japan being a major choke point for international interest rates, central bank digital currencies, and why there might be an incentive for the United States to not implement a CBDC relative to multiple private stable coins and many, many more interesting ideas.

[00:00:37] Preston Pysh: So without further delay, here’s my chat with Mr. Matthew Pine.

[00:00:44] Intro: You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now for your host, Preston Pysh.

[00:01:03] Preston Pysh: Hey everyone, welcome to the show. I’m here with Matthew Pines. Matt, I’ve been following you on Twitter and your content and the things that you’re publishing is phenomenal, so I’m really excited to have this opportunity to chat with you.

[00:01:15] Matthew Pines: Yeah, I’ve been a longtime listener, first time guest, so I appreciate you having me on.

[00:01:19] Preston Pysh: Yeah, great to have you. I’m curious, and I’m sure the audience is curious, just with your background in cybersecurity and macro and advising as a consultant, how did you come across Bitcoin?

[00:01:30] Matthew Pines: I’ve been curious about lots of kinda emerging technology for a while. Kind of have a, I have that nerdy streak. I actually though came across Bitcoin through like a college buddy of mine who I think was like, you know, really into the kind of crypto ICO phase back in the day.

[00:01:45] Matthew Pines: And I remember having conversations with him bar and kind of various kind of friendly gatherings and I was like very ill disposed to it initially, right? Because I just got a very scammy vibe and I really didn’t dig too much into it. I sort of read all the, the major fund pieces and I was like, all right, this thing is dead after this sort of bubble fades and it didn’t fade.

[00:02:02] Matthew Pines: And so I paid more attention to it over the years. But like my professional career was mostly in the sort of national security kind of thinking through kind of bigger challenges to the US government across lots different dimensions, whether it’s counter-terrorism, where it’s sort of nation state, whether it’s sort of like emerging technology forecasting.

[00:02:17] Matthew Pines: And so Bitcoin was never like directly involved in. It was only in the past, I’d say like a year and a half or so have I sort of started to think through more about Bitcoin as relevant on the geopolitical stage. I think even folks that were really bullish about Bitcoin five years ago, you know, still that was a very speculative, kind of far out into the future idea that like Bitcoin would have a sort of macro and even a geopolitical sort of role to play.

[00:02:40] Matthew Pines: And so that’s really where professionally my sort of analytic background and my sort of experience thinking through kind of these different questions and the sort of dynamics that play, you know, started to be applied to thinking through how Bitcoin could play a role. And I think that’s been sort of where I’ve been focusing the last, you know, year to two years is starting to try to apply some more.

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[00:02:59] Matthew Pines: At least tentative, rigorous analytical thinking to like those different what ifs. I did a lot of scenario analysis in, in my time, lots of different emerging technologies and I just didn’t see that being applied to Bitcoin as an emerging, not only technology, but emerging sort of social phenomenon and emerging kind of macro asset class and transmission system for, for value globally.

[00:03:19] Matthew Pines: So that, that opened up a lot of different possible avenues for questions that, you know, I just like to go in different. Yeah, that’s, that’s kinda what got me into it.

[00:03:26] Preston Pysh: Matt, I’m, I’m curious if the balance of payments between net producers and net consumers, like when we look at the Russia, Ukraine situation, would you say that events like that is where it really kind of started showing up on the global stage as far as ways to conduct payment that are in a decentralized way where you don’t have to trust the dollar it was, was it really kind of the erosion of the trust in the dollar?

[00:03:51] Matthew Pines: I mean, this is where I think through in terms of, so historically speaking, right, like monetary regimes are somewhat downstream of geopolitical regimes and monetary regimes are, you know, hard to dislodge, right? Like, so, like there is a certain stability, at least in terms of like human lifespan, right?

[00:04:08] Matthew Pines: Like there’s a certain generational existence that people become a comfort accustomed to. This is the unit of account. There are sort of periods I say you call like punctuated equilibria, right? So use like the evolutionary analogy where there’s like long periods of stability that sort of breathe their own instability as a result of those long periods of stability, sort of latent frictions and stressors build over time.

[00:04:30] Matthew Pines: And they create conditions for a more disruptive rupture. And that’s usually where you see those more, hey side of like chaotic dynamics that in, in, in the past we’ve associated with like phase transitions in terms of both the monetary regime, but as well as like the geopolitical regime. I see these different indicators of stress in the global system, not just in the monetary system, but in the global geopolitical order, kind of the whole set of arrangements, institutional sort of frameworks and sort of modes of thinking that have sort of grown up in the post-war era and sort of evolved over the course of, of kind of you know, really the last 20, 30 years of unipolar hegemonic dominance in the United States.

[00:05:06] Matthew Pines: And sort of neoliberal, kind of globalization is like reaching what we think of as like this potential instability point. And so events like the sanctions on Russia’s central bank reserves I see as like indicators along that sort of overall trajectory of larger, you know, hitting different threshold points for, for instability.

[00:05:23] Matthew Pines: And so Bitcoin I see in that larger context. So I think bitcoin is just one indicator. So like, what, what happens to Bitcoin, I think is indicative of, or you’re sort of looking, using it as a measure potentially of these stresses that are really hard to get a handle on in, in the, in the global system, which are really interdependent, hard to pull apart.

[00:05:39] Matthew Pines: and these are non-linear systems. Like I studied physics as as an undergrad. Like you’re not going to just like plot the line and say, this is like where you’re going to be in five years. You’re really trying to figure out are we hitting some critical threshold points where like aggregated and hedging behavior leads to sort of vicious feedback loops, right?

[00:05:55] Matthew Pines: And this is where you get to sort of dangerous states in that graph, right? where certain destructive jumps can happen that would be sort of unthinkable if you were just looking at the past history. And so that’s, that’s where I think I pay analytic attention to Bitcoin because it is potentially one of those, I think like the last functioning smoke alarm, right?

[00:06:11] Matthew Pines: Like it is highly sensitive to even sort of marginal changes to first order to liquidity, but on a geopolitical layer, I think it’s also potentially going to become another indicator in the next few years about those potential fractures. And then, yeah, that’s the, that was the doorbell. Like, well what, how would you interpret changes in Bitcoin relative to the sort of the larger shifts at play?

[00:06:32] Matthew Pines: But yeah, I don’t think it’s as simple as like loss of trust in the dollar. I think it’s a, a combination of like overall, like loss of trust in trust itself as a stabilizing force in a global order that had an unquestioned hegemonic sort of status quo power that was going to set the rules and enforce the rules, sort of with unquestioned a capability.

[00:06:52] Matthew Pines: When that starts to be called into question and when sort of the monetary commons that that sort of security monopolizer has sort of created in the post-war era starts to become gated and condition, then you see potential avenues for folks to start to hedge against that sort of weaponization being used against them.

[00:07:11] Matthew Pines: And that’s where I think about what geopolitical actors can start to have a vote in how the global monetary arrangement is, is structured. And this is like the lesson in history is that things look stable until they’re not. And then everyone constructs an irrational explanation post hoc that tries to make it seem inevitable.

[00:07:26] Matthew Pines: But in, in the real time, it’s very hard to predict.

[00:07:29] Preston Pysh: I’m going to jump to a question I had later because I’m just too excited to ask this, this particular question. So you do consulting with other nation states and I’m curious, companies, companies. Companies in, in different countries. Yeah. How often are they bringing up Bitcoin in particular Central Bank digital currencies?

[00:07:48] Preston Pysh: And I guess if they’re not bringing those up, what are kind of the number one or two things that they are bringing up and, and, and have they ever brought those types of things up? I’m just trying to understand like, what does conversations sound like as you’re talking with these multinational type entities?

[00:08:05] Matthew Pines: Yeah, it has not come up. Bitcoin CBDC has been the subject of zero of these engagements. Yeah. The driving, I’d say friction turning into potential fracture that a lot of companies are trying to assess and then recalibrate themselves to is really the US China dynamic. I mean, we were involved a lot in sort of the acute re response and sort of warnings about the Ukraine invasion and that that was like much more like acute response.

[00:08:30] Matthew Pines: Like how do you exit Russia? How do you lock down your critical ip? How do you handle kind of, you know, this disruptive, like effect on your over overall organizational strategy. But then everything sort of shifted to China. China’s like the elephant in the room here because China is the locust of globalization.

[00:08:46] Matthew Pines: I mean, that was really what globalization was built on, was bringing China into the globalized economic order and every multinational, you know, had to have a China strategy for the past 20 years. . and so all the C-suites that are sort of running these companies in their mental model, China was the sort of the growth engine.

[00:09:02] Matthew Pines: China was the next big market, and that was how often how they built their careers, or at least how they thought about this globalized world where it was just a matter of sort of arbitration and efficiency and you know, maximizing shareholder returns. That’s all they really had to focus on, and making sure they’re on the cutting edge of technology, product development, et cetera.

[00:09:18] Matthew Pines: Now it’s really coming into the boardrooms and the C-suites that we are helping to engage is really one, like that world is not going to exist anymore. It hasn’t, it basically broke. It’s just sort of in the process of shifting and no one quite knows exactly where it’s going to.

[00:09:32] Preston Pysh: And how is that received? Is everybody kind of nodding their head whenever they hear you say what you just said?

[00:09:38] Preston Pysh: Or are they kind of battling and fighting back and saying, well, I don’t know that I necessarily agree with that point of view because I agree with you a hundred percent, but I’m curious if it is definitely a spectrum.

[00:09:48] Matthew Pines: Some companies, yeah, some multinationals have identified this risk early and actually came to us and say like, we know this is a problem for us.

[00:09:56] Matthew Pines: How can you help? And, and it really depends on the nature of the business, right? Like some are professional services firms where it’s mostly like a matter of data flows and sort of critical IP and client information. How can they still deliver? How do they sort of have a China for China strategy versus, you know, kind of their global strategy.

[00:10:11] Matthew Pines: Some have made like deep capital investments in China. You know, they’ve got billions of dollars of physical plan and infrastructure and local partners and relationships and upstream and third party vendors. And that’s a harder thing to just. Relocate. Mm. And China is not an easy thing to just like replace globally.

[00:10:27] Matthew Pines: It’s not like a China equivalent. You could just go to the, oh, like the better ch like the less risky China. It doesn’t exist. Different companies that either are faced more direct or more indirect risks from China in various ways, whether it’s, they’re posturing more for just a more, like a more messy world, right?

[00:10:43] Matthew Pines: Where they just have to have more redundancy in terms of their supply chains, or they have to recognize the fact that China’s really interested in their ip. So as like a cyber threat. They have to be really sort of postured against China for particular reasons. Just, you know, in terms of their, their particular technology all the way to like the more acute scenario planning, which no one really expects as like the central case, but now has to be sort of increasingly looked at as a plausible scenario to assess is like acute risk of a conflict, right?

[00:11:11] Matthew Pines: Like a Taiwan style scenario where that would be a very disruptive event to . , many multinationals. and several years ago it was kind of this tail risk that didn’t really have to have a plan for or a contingency worked out. Now they do. A lot of them are thinking they have to do this. And so that’s a lot of what’s happening now is more and more companies are waking up to this fact is this is not a, not a risk that they can ignore.

[00:11:34] Matthew Pines: And it’s complicated for each business. And so we’re seeing that start to shift. But some folks are further along. I mean, with the Russia thing, some companies were like, yep, we’re out. Other companies were like, even after the invasion, we’re like, well, we’ve been here for 20 years, nothing’s going to change.

[00:11:49] Matthew Pines: We’re like, okay, good luck. You know, you do your thing. So everyone’s into in a different spot and for the folks that that are, but I think that window is, is is moving.

[00:11:59] Preston Pysh: You know, if I was just going to generalize it into a single word, it’s trust. The trust is eroding companies that used to do business in China, it’s eroding.

[00:12:08] Preston Pysh: You can’t trust them to deliver on at the prices, the schedule, the all of it like you did five, 10 years ago. What’s driving that, particularly with China? What’s driving that?

[00:12:23] Matthew Pines: Yes. This is a complicated question. I won’t give the full, you know, historical analysis. And it is kind of a, you get into this game of like security dilemmas where one person’s defensive move is perceived as an offensive move from the other side.

[00:12:36] Matthew Pines: And so attributing like who’s to blame is sort of as an analyst and as a consultant, sort of not my job, it’s just assessing the dynamics at play and understanding where they’re going to go. And the dynamics we are in is like in a clear deterioration of the US China relationship. Which, if I had to like simplify it went from one of like really close and almost strategic alignment in the Cold War era where we saw them as a strategic partner to support our containment strategy for Russia.

[00:13:02] Matthew Pines: And that was, or the Soviet Union. And that was really effective. And, you know, we had Biden and Dja Ping, you know, sign like intelligence agreements. Well Biden helped sign this agreement when he he went over to Beijing in like the late seventies. It worked out like an intelligence steering, you know, partnership basically through the, through the eighties we had like c and NSA analysts stationed in the, you know, the remote parts of, of China with Chinese, like p l a second analysts helping the jointly monitor Russian missile launchers.

[00:13:27] Matthew Pines: Like that was a close working relationship. And through the nineties, you know, this really turned into, okay, how can we really bring China into the global market? And so bringing them, sort of, giving the most favor nation trade status, giving them, you know, helping them get into W2 in 2001. and then really try to like hyper charge this sort of globalization machine, which like a high level sort of schematic view was basically how can we leverage this sort of low cost labor to produce the consumer goods that the American consumer like wants to consume.

[00:13:56] Matthew Pines: And in order to do that, we have to basically send dollars to China. China’s going to accumulate those, those dollars and they’re going to recycle those dollars into back into the United States economy. In particular, our, our assets and in particular are our sovereign debt and that like chime system, right?

[00:14:09] Matthew Pines: Like surplus matching, deficits, consumption matching savings. Like this was the system that like, from an economic perspective kind of balanced. What, what we’ve seen in the past 20 years is that that system generated more and more imbalances. So more and more surpluses and more and more deficits on each side.

[00:14:27] Matthew Pines: More and more ownership of our assets by China and more and more debt obligations to China from us. As well as, as China got richer and got wanted to climb the value chain, their ambitions for where they wanted to move strategically, you know, equivalently went up the chain and so those went into things that you would expect, like their military modernization.

[00:14:47] Matthew Pines: And so they aggressively accelerated their military modernization, especially when Xi Jinping came into the office in 2013. That is usually where people mark as like the major turn in this strategic relationship from being one of like potential competition, but still kind of in this like friendly, globalized world to like one of more rivalry.

[00:15:05] Matthew Pines: And the acute sense of anxiety in the West and the US in particular about that rivalry has like only gotten worse and worse as China’s like the pace at which they’ve closed the gap, especially in the military domain, has, has, has been really fast. Like and so I think there’s now this anxiety in the west, the US defense planners in particular, that we may not be able to prevail in a peer-to-peer conflict with the degree of certainty that we had five or 10 years ago.

[00:15:31] Matthew Pines: And that’s like when your job is to basically be the global security guarantor and you’re the hegemonic power, like that is the thing that keeps you up at night. And so that is what is generating a lot of the underlying anxiety and now it’s manifesting in the overall what you might call like securitization of the relationship.

[00:15:46] Matthew Pines: So from the trade war under under Trump, which is kinda a blunt instrument across, you know, just overall economic trade has now spread into a lot of different like very specific areas where we’re trying to aggressively restrict. China’s ability to, yeah, keep up with the, the technological frontier, in particular in domains that we think are sort of dual use according to sort of China’s civil military fusion strategies.

[00:16:06] Matthew Pines: So things like ai, broader semiconductor technology, quantum information systems, even moving into things like biotech, synthetic biology, like these are the strategic technologies of the future that China has aggressively put out a roadmap that say we want to be the global leaders in these technologies.

[00:16:21] Matthew Pines: And it’s not just those, it’s also broader energy, sort of renewable technologies, a whole suite of things that they want to try to capture the industrial sort of leadership and globally, which is a real strategic challenge, United States. And so that is, that is this competitive dynamic, which is one moving potentially from like this one where it’s like you’re in a race and at first you’re focused on just running faster than the other.

[00:16:43] Matthew Pines: To then realizing the guy’s catching up to you. And so you want to like try to throw some sticks or some rocks back to slow him down to like, at the end of the stages you just like stop running and you try to tackle him, right? So he doesn’t, right. So it’s like we’re in that, I say we’re in second phase right now, right?

[00:16:58] Matthew Pines: And then each step in the escalation, you’re willing to take more personal costs in order to prevent the other guy from winning, right? And, and that’s a thing where we’ve seen the relationship shift over time, like strategic competition, strategic rivalry to like strategic enmity where we’re like willing to like impose costs on ourselves, on our allies in order to make sure China can’t advance.

[00:17:19] Matthew Pines: And this is yeah, it hasn’t gotten better. We’ve seen things like export controls, like investment screening, the sort of reverse CFIUS proposal come out. A whole bunch of things on sort of pressure campaigns to our, to our allies like the Dutch and Japanese and South Koreans to restrict semiconductor technology in China.

[00:17:38] Matthew Pines: So there’s a lot there, but it is, it is, generally speaking, we are more elements of relationship. What’s what I call it like, like a sort of geo-economic war, right? It’s not just trade war, it’s sort of a securitization of lots of different policy that affects technology flows, capital flows, even people flows.

[00:17:54] Matthew Pines: And it just generally speaks like this tension is growing and it’s sort of this mutual suspicion about does China have larger ambitions for Taiwan? And what does that mean for us strategic posture globally. This is why this is the central like geopolitical anchor for how the world might shift in the next five or 10 years.

[00:18:10] Matthew Pines: Why so much attention is on it is because China was, is still at the heart of globalization. . . And if that fundamental dynamic starts to change, then that, that’s going to have ripple effects to everything else, including Bitcoin, right? I mean that is, yeah. It’s hard to hard to, hard to think it’s going to stay in isolation, like that.

[00:18:27] Preston Pysh: You recently tweeted out, and I, you’re going to have to say the quote or the gist of your, of your tweet a little bit better than I’m going to do here, but it was in reference to Japan and the People’s Bank of China and that relationship really kind of being the keystone to watch from a central banking standpoint.

[00:18:43] Preston Pysh: And I think you, you even got into some of the interest rate dynamics from a global perspective. Talk to us about what you mean by some of that.

[00:18:51] Matthew Pines: I think Japan is very critical to this, this overall geo-economic competitive dynamic for lots of reasons. But the, in particular, the, the role that the Bank of Japan plays, I think is a, is a case study and how important Japan itself is to this.

[00:19:03] Matthew Pines: You can zoom in on like the monetary dynamic. . , and that is a good way to understand how there’s a similar dynamic playing out in these other domains, whether it’s technology, whether it’s military, et cetera. These are all interrelated from a strategic point of view. But just from the monetary perspective, bank of Japan is very critical for like, like the bumper sticker is that essentially Bank of Japan’s yield curve control has been defacto US yield curve control because they’ve, by running essentially yield curve control on their domestic savers, they’ve suppressed, you know, essentially financially repressed their domestic savers.

[00:19:31] Matthew Pines: So those domestic savers who hold yen have to look for other ways to get yield on their assets. So they need to, you know, convert those yen into dollars and then go buy dollar denominated debt assets that can give them a slightly better yield. And so that structurally has meant a flow of capital from the Japanese saver in.

[00:19:48] Matthew Pines: Into saving and dollars, mainly US treasury securities, but also other dollar denominated corporate debt. So that equit, yeah, yeah, yeah. So that structurally means there’s like a, there’s a net bid that’s coming out of Japan for US debt, which has kept all things equal US debt yields lower than they otherwise would.

[00:20:04] Matthew Pines: There’s a, there’s a, there’s an extra bid for them. And so this is how, like the mechanical flows of how Bank of Japan monetary policy effectively impact US yields. And they are the, the single largest holder of US treasury security debt. So this is not like a second order thing, like the, their flows make a structural difference.

[00:20:22] Matthew Pines: And I don’t have the numbers off the top of my head, but like what we saw last year in the sort of high degree of like, say, especially like 10 year US treasury note bond volatility, now that folks have kind of be looked back at the different accounts that track these things on someone of a lag in terms of like central bank holdings around the.

[00:20:38] Matthew Pines: Basically drawn the conclusion that a lot of that was driven by Bank of Japan or Bank of Japan related selling. So like Japanese institutions, insurance companies essentially selling their treasury portfolio to get liquidity. And that, that was why we saw the move index reach levels that were potentially dangerous and why Yellen came out and said, we’re acutely monitoring liquidity in the treasury market, which for them is like a major red alarm, right?

[00:21:01] Matthew Pines: They’ve had issues in the past where the off the run, meaning like the sort of not freshly issued debt securities in the treasury market require this sort of smooth plumbing of dealers and sort of collateral transformation using those debt securities where everyone is willing to essentially hold it as effectively money.

[00:21:19] Matthew Pines: But whenever there’s like a sort of a run in those, in that, in that shadow banking collateral transformation system for liquidity, they sell treasury securities and the collateral transformation sort of plumbing gets clogged and those markets essentially frees. And we saw that in March of 2020 where there was just like no bid for off to run treasury securities.

[00:21:39] Matthew Pines: Yeah. Since that was really what precipitated this crisis response by the Fed. Among other things associated with the pandemic, but like trillions of dollars of qe very quickly. So this is why I paid really close attention to the Bank of Japan because their, what they do on the margin can affect liquidity in the treasury market like we saw and also affect yields.

[00:21:56] Matthew Pines: And this is sort of mechanical transmission of, of the Bank of Japan’s policy. And we’re seeing potential changes in that structurally with Kuroda leaving and his successor potentially being not quite the same guy. So I follow a really great analyst. He’s su super hilarious named Weston Nakamura.

[00:22:12] Matthew Pines: I think he’s at Real Vision. He used to be a Goldman Sachs and a trader as well. And he’s like laser focused. So all this stuff I sort of steal from him about bank of. He’s like done some really good analysis, like not just the incoming leadership, but like the policy signaling that we really was like premised on Kuroda.

[00:22:27] Matthew Pines: The man, he was like a unique personality. He was this kind of like somewhat comical character in the central bank world. And he was running for the past 10 years, the most aggressive, most innovative experiments in central bank monetary policy. Like the first one to do quantitative using at scale then like quantitative and qualitative using QQ e then ZIRP and then nerc, and then all of these different yield curve control policies is bringing different parts of the curve down.

[00:22:51] Matthew Pines: Like he was just aggressive. We’re just going to keep doing, keep like aing up and that worked up until really Ukraine and then yeah, structural inflation sort of being embedded in the system because Japan is a net energy importer and now they’re a structural competitor for LNG. Yeah, so Europe, that’s cutting off their dependency on Russia.

[00:23:08] Matthew Pines: And so now we as sort of the net sort of gas provider to our geo-economic allies on both sides of Oceana, mainly Western Europe and Japan. Like it’s kind of a, okay, who’s going to feel more pain and trying to balance the pain across those two things. But structurally speaking, this means that there’s just inflation in Japan for the first time ever.

[00:23:25] Matthew Pines: Really? Yeah. Yeah. In decades. And that’s why you’re seeing these caps on the yield curve being tested. And so that is why so many people tip, pay attention to it, because that if that goes away, then the ripple effects to the US treasury market can be asymmetric.

[00:23:39] Preston Pysh: And it seems like when you look at the Japanese yield curve, it, it seems like none of it’s under control.

[00:23:44] Preston Pysh: Like it’s not aggressively selling off, but especially for everything outside of the 10 over there because of the tens that for people listening, the tens, the only thing, at least my understanding is, is the tens the only thing that is having the yield curve control applied to it. It’s at 50 bips right now and everything else is supposedly free and open as far as the movements on the 30 year or you know, the five year or, or whatever.

[00:24:10] Preston Pysh: But when you look at that 10 year where the yield curve is applied, you can see it’s just been pegged at whatever before, I think it was 25 bips. I mean that yield was pegged at 25 bips relentlessly through the whole period. Now it’s been pegged at 50. , the others are selling off. I think their eight year has actually gone through their 10 year for a higher yield.

[00:24:30] Preston Pysh: So it seems like they’re just going to have to keep in the current environment, it, it seems like they’re going to have to keep raising that yield curve control on the 10 year with nothing in sight suggesting that natural forces are going to bring, bring it back down. I don’t know where I’m really going with a lot of that description other than just providing a little bit of clarity for people that are listening to our conversation and what it might mean for the broader context.

[00:24:52] Preston Pysh: But if they can’t get it under control, it almost seems like the rest of the market is being wagged by their tail of their ability to kind of control this very substantial large credit market over in Japan and it being the lowest yielding credit on the planet and everybody else being a kind of a, a yield premium to them.

[00:25:12] Matthew Pines: I’m with you. I find it fascinating. Yeah, no, and this is where I connected to like the geopolitical stories that like these sorts of decisions aren’t made in a pure vacuum. . on like what’s best for the Japanese bond market. Right. Like what, what I think is what I read between the lines and some other smart people I follow read between the lines is that like Japan is critical to any military scenario involving China.

[00:25:34] Matthew Pines: We have been aggressively pushing them to expand their military, you know, formally right? They don’t have a military, but like they’ve made changes to the constitution in the past. Allow them to expand the military. They’re going to sort of double their military budget. They’re going to increase basing access for Marines to be able to, you know, do significant military operations in a Taiwan scenario like our bases inside Japan.

[00:25:54] Matthew Pines: I think maybe you’ve been ba maybe even based there at one point in your career, have strategic consequence for our ability to project force in that region. . . So like, we will not, like, these decisions aren’t made in a vacuum and when push comes to shove, like the US has strong influence on Japanese monetary policy.

[00:26:12] Matthew Pines: So the very reason that it affects us monetary policy. Yes. And, and these decisions about who gets to run the Bank of Japan. Well, not like they picked this guy. I think I, I’m not going to pronounce his name because I’ll butcher it. I’m not a Japanese speaker. And it was like a surprise. Pick the guy who they thought they were going to pick, like.

[00:26:29] Matthew Pines: Turned it down.

[00:26:29] Preston Pysh: What, what, what’s his background? Is he, is he going to come in and be very dovish?

[00:26:33] Matthew Pines: Is he going to come in and be, he was more an academic and he was so no really knows what he’s going to do because he honestly, he was like kinda surprised. I think everyone’s kinda surprised that this guy was picked.

[00:26:43] Matthew Pines: The real action is going to be his like, number two guy who, again, I don’t remember the name. Uda, I think, who’s been like the, like the technician who’s been executing these monetary policy kinda experiments for the past number of years. And this is a guy who’s like, almost like a day trader, right? Like to run the run, run the bank, Japan’s operations.

[00:27:00] Matthew Pines: You actually have to like, do daily, like almost open market operations. And there’s certain parts of the 10, to your point, like they own. Cause every, every part, every different, there’s like different like issues, right? And certain issues have more liquidity than others. The Bank of Japan is like selectively trying to do these purchase and repo operations to keep things from totally freezing out, even though they own sometimes more than a hundred percent of the total issuance in a particular tenor.

[00:27:24] Matthew Pines: And so they’re buying everything up. And then they’re relenting it to the market, like dealers who are then allowing other folks to shortell it. And that creates this feedback. But Japan has to buy it again. So they’re buying like multiple times. And that’s not a great place to be in. Insane. It’s insane.

[00:27:40] Matthew Pines: Yeah. But this is where, like Japan, Japan matters for a lot, right? One is like all these dimensions, like semiconductor export controls, defense modernization and strategic kind of conflict scenario planning, overall kind of economic sanction strategies, not only against China, but like they were critical to the sanctions against Russia.

[00:27:57] Matthew Pines: So Russia, when we sanctioned their reserves, there was a blocking sanction put against the Russian central banks. G seven fiat reserves. It wasn’t just dollars, it was all the G seven, including Japan. Yeah. And Yen is a major reserve currency held by the Russians as part of their overall portfolio. And those deposits were held.

[00:28:13] Matthew Pines: The Bank of Japan, the Euro deposits were held at Buddhist bank, you know, essentially in a, in an account custodian for the European Central Bank. So when we did those blocking sanctions, the Japanese government had to agree. And actually they didn’t sign on to that statement until like a few days later.

[00:28:26] Matthew Pines: So like the Europeans were like pushing the yelling, we need to do this. And they said, okay, we’re going to issue this statement on like a Sunday. And, but the Japanese didn’t sign on until a few days later cause they were plot kind of Blackfoot. They were like, they basically were like kind of told you’re going to do this.

[00:28:41] Matthew Pines: Right? Right. And they were like, oh, we need a few days to actually figure out how we’re going to do this because we didn’t think this was going to happen. Cause that’s my read the situation. But that is like a really revealing, sort of historical episode of just where Japan ranks and sort of the, the geo, the geo-economic pecking order in terms of like, okay, when push comes to shove and we need you to like play on one team, this is what’s going to happen.

[00:29:00] Matthew Pines: This is where these dynamics come into play. And not just, it’s not just the monetary stuff in a vacuum, right. Especially when the strategic competition and the geopolitical rivalry is starting to heat up. The last point in Japan is like, we don’t have any direct Japanese clients, but we’ve had conversations and it’s interesting, like Japan business is heavily invested in China, Japan, money center banks have made massive loans to China.

[00:29:23] Matthew Pines: . . So like economically, there’s a really tight dependency in coupling between the Japanese economy and the Chinese economy. And this is, I think, a similar dynamic you see play out, it’s different, very different from Russia, which is like, there wasn’t a whole lot of direct like economic coupling.

[00:29:37] Matthew Pines: There was like energy coupling and that obviously was been the major issue with that. , but it’s much more complicated and much more kind of inextricable with the degree to which sort of western economies and the Chinese economy are like, they’re tied at the hip at the same time that like at the political layer, there’s this like drive to decouple and pull, and those are, those are opposing forces.

[00:29:58] Matthew Pines: One force being driven by, you know, the security stakeholders, like the intelligence and the military and the political officials. And the other is sort of the economic officials, right? The economic interests. So Wall Street, Silicon Valley, the equivalent in Japan who don’t want to go into that decoupling direction.

[00:30:14] Matthew Pines: And that is what we’re seeing right now is this sort of game of sort of political economy test of power, right? Who has more relative power in this era? Do the geopolitical and military and security prerogatives, overweight, the economic and kind of capital interests. And yeah. We’ve seen this play out in different historical periods of time where during peacetime, the economy and capital usually runs.

[00:30:36] Matthew Pines: It’s when the bombs start flying or when the missiles start flying that the, the state comes in and starts setting the rules.

[00:30:44] Preston Pysh: You know what I love hearing from you, Matthew, is just a lot of the times in myself in particular, I get so focused on just the financial lens. . , and there’s so many other pieces to this, and I think that when you talk about government officials, a lot of the times they might have just one area of expertise, and it might be military, it might be finance, it might be, you name it, and they don’t understand maybe the other very important lens inside of the, the government itself.

[00:31:12] Preston Pysh: So like your description of how intertwined Japan is with China from a financial standpoint. Will be in stark contrast to a person looking at it from a military lens from US to China and not realize that there’s huge interdependencies back to the US from the financial piece of the interconnectedness.

[00:31:31] Preston Pysh: And so it just, I love how it gives the listener kind of this glimpse as to the left hand might not be talking to the right hand in some of these policy decisions. And it might not seem like it makes sense, but that’s because they’re, they’re looking at it from a very myopic they’re, they’re lane only stovepipe kind of lens as they’re making some of these decisions.

[00:31:49] Preston Pysh: It’s fascinating. One thing that I, that I wanted to highlight for people listening is, and, and I’m curious your opinions on this map, but it, it seems like the pivot has already taken place from, if we were looking at it from the US lens for the past 10 years, it’s been really kind of easy to understand when the Fed is conducting a pivot.

[00:32:09] Preston Pysh: because they’re either doing quantitative easing or they’re doing quantitative tightening now they’re doing quantitative tightening. But they’re also releasing liquidity through the repo market and the treasury general account. . , which is why I suspect the markets are going sideways is because there’s liquidity coming in while they’re tightening it, the sign, it’s almost like they’re hitting the break and they’re hitting the gas pedal simultaneously.

[00:32:32] Preston Pysh: And this seemed to have occurred back when you had mentioned the quote about Yellen saying that things were getting illiquid in the treasury market and this is when we saw this pivot really kind of take place right at that moment in time. I want to say this was back in end of November maybe. Do you have any thoughts on some of that or what that might mean, Mo, moving forward for Bitcoin or markets at large?

[00:32:55] Matthew Pines: Yeah, I mean this is the multi-trillion dollar question, which is this, like how does the tightening path, what is the terminal rate? Right? And what are the inputs to that, you know, fed reaction function. And then what does that mean for overall sort of asset valuations? Again, like I’m not a trader, so you know, I don’t have like a whole lot of skin in that particular game.

[00:33:13] Matthew Pines: But I, I would say mechanically the objective that seems to be, at least in the back of Powell’s mine, is to try to take the air out of some of these like securitization, Ponzi and like asset backed security schemes that have sort of popped up in an era of Zirp where the Fed put provides essentially a guarantee to the mezzanine and all of these complex funding transactions.

[00:33:33] Matthew Pines: Yes. That Wall Street’s been able to basically manufacture safety off of the implicit fed. And just like print money effectively on off the back of the Fed’s policy. And I think that has created, you know, distortions in the overall financial system that got really hypercharged with the pandemic because we just had to kind of just throw money out the door and guarantee corporate credit and do all sorts of things that would be sort of unthinkable.

[00:33:57] Matthew Pines: And now the fed’s trying to like put the genie back in the box right, trying to unwind a lot of the moral hazard that may have been implicitly baked into the market and priced into a lot of these different securities markets. And I think they’re trying to, but in a controlled way kind of do a controlled demolition of those parts of the market that they feel like were overly inflated on the backs of this implicit moral hazard if, but that was just going to guarantee all this commercial paper and you know, when push comes to shove the Fed will just be there.

[00:34:24] Matthew Pines: Think they’re trying to chip away at that slowly. But they also have, as we mentioned, like this geopolitical prerogative, which is like cannot let the treasury market break. Like when the treasury market breaks, doesn’t matter. Like everything else you think is important, they have to come in. And so they’re trying to do two things.

[00:34:39] Matthew Pines: They’re trying to both stabilize the treasury market, which you, you, I mean, it’s the most important market in the world. And yet it’s also like very inefficient from the perspective of overall pricing. Like there’s no common like feed right for the treasury market. There’s all these different issues. And so this, this complicated fractured trading market between dealers and OTCs and just, it’s like a complicated thing.

[00:34:59] Matthew Pines: So they’re trying to do on that side, like stabilize the treasury market’s market structure with things like central clearing where, and then like more like real-time pricing potentially. There’s lots of potential risks there too. Like there’s a reason they want to have some non-transparency in the treasury market.

[00:35:15] Matthew Pines: Cause most of the sellers and buyers in the treasury market are like sovereign. And those people don’t want to have all of their bids placed, you know, with Citadel in real time and have everyone be front run, right? They want to buy 10 billion as a, you know, in a clip with like a phone call and no one knows about it till like a month later.

[00:35:30] Matthew Pines: So like there is a tension there between how they want to try to reform the treasury market and make it more efficient and therefore more controllable and put in more of these buffers. So if there’s like a March, 2020 style, like off the run, just dealers say no bid, and it just like freezes up and then the Fed loses their mind, they want to prevent that from happening

[00:35:49] Matthew Pines: And so they’re really worried about market dysfunction, but they have to have this sort of credibility for their quantitative tightening. And as going back to like this non-linear thing is like the overall reserve, like what’s the what’s it called? Like the lowest, I know there’s like a, like the lowest kind of I was Right.

[00:36:03] Matthew Pines: Estimate like what’s the level of reserves in the banking system. , that’s like the equilibrium level, right? . like whatever, eight some trillion. Now we want to get to roughly estimated like 6 trillion. You need to like pull down about 2 trillion in QE over the next two years. And that means you need to find 2 trillion worth of balance sheet capacity to absorb those treasuries.

[00:36:23] Matthew Pines: So the game is try to find balance sheets that either you can incentivize with higher rates, or like compel with regulation or PR or geopolitical pressure to like absorb the treasury issuance that the Fed wants to get off its books. But they also want to do that in a way that doesn’t create this hit some sort of air pocket instability where, so they want to do it slowly, right?

[00:36:44] Matthew Pines: I mean, and this is the game, right? Like they can manage that, but like, they’re not the only person potentially doing qt, like Bank of Japan could be doing qt. The Saudis could be doing qt. Anyone who’s a seller of TR of treasuries is contributing to QT and the inverse, right? And so they can only control one input to this system.

[00:37:01] Preston Pysh: How do you think they view, and when I say they, I’m talking governments at large, particularly the US government view, stablecoin potentially answering that question that you just proposed, which is who has a balance sheet large enough in order to soak up all these treasuries?

[00:37:16] Matthew Pines: Yeah. That is an interesting kind of interesting development, right, which I don’t think was in their models a few years ago, which is that here’s a net new bid for treasuries.

[00:37:25] Matthew Pines: And like, I just have a nuanced perspective on this. I think on one dimension it’s good to have a new buyer of treasuries when you might be missing buyers for treasuries, you know from, from existing sources like, you know, the market will find a, a clearing yield and if there’s a net buyer, you know, maybe the yield is lower than otherwise would be for you, and that makes your, your, your servicing costs lower.

[00:37:47] Matthew Pines: The question for me is though, where on the curve does that actually matter, right? And if. If they actually are functioning more as like money market funds or like highly regulated, you know you know, like kind of just like simple narrow banks that have to just only hold the most high quality liquid assets.

[00:38:05] Matthew Pines: That might be like three months or one year less. So, which is really in the policy rate area where the Fed kind of controls that rate anyways. . Yeah. And so they might not have that much of an effect unless they’re allowed to buy longer dated pay paper, they can go out and buy 10 year paper and then do more complicated kind of


[00:38:22] Preston Pysh: I don’t think they’re incentivized to do that because they, because of all the interest rate risk, that’s a . or the, that’s due to inflation. , you know, you go out and you buy 30 year credit with these types of, with the volatility that you have in inflation. And I mean, you could get absolutely wrecked on the, the face value of that debt over, over such long duration.

[00:38:44] Preston Pysh: So I think they’re incentivized to go after short duration credit . to put on their balance sheet and protect their buying power with just a, a reason why I’m, I, I guess you could say the yield’s higher than the 30 year yield right now. So they’re good. They’re double incentivized. A few trans points.

[00:38:59] Matthew Pines: Yeah. Or I think it’s more in the second order effects and honestly haven’t thought this all the way through. Cause it’s very complicated. It’s more in the international domain where. Net dollarization of economies that are currently not dollarized. If stablecoin can help affect the dollarization of those economies, then the local institutions and banking systems that get then sort of, sort of crypto dollarized.

[00:39:21] Matthew Pines: Yeah. Maybe not by their own sort of national level decision making, but sort of through the organic adoption of these dollar-based stablecoin that they have to hold matching dollar assets. And that contributes to kind of a net liquidity bid to a broader spectrum of dollar a, you know, dollar debt securities in, in, in the international funding markets.

[00:39:39] Matthew Pines: So there could be like an indirect effect where just in general there’s more dollar demand and therefore there’s more demand for dollar substitutes along the money curve. And so like that raises the, the net demand across the curve. And that affects, you know, and they need this. They need this.

[00:39:55] Matthew Pines: Yeah. I mean, this is the thing, I mean the history, and this is all stealing from Lynn Alden is like these periods of high structural debts. Lead to this sort of no win situation for, for different fiscal authorities that have competing obligations. And so we running into a period and I think just today talked about how, you know, globalization going reverse is going to be net inflationary, right?

[00:40:14] Matthew Pines: Like this kind of duh. But like really what is trying to internalize what that means is like a lot of things they’re like that I don’t think our assumptions were, were aligned with, you know, only a few years ago. So things like, okay, we have to find more redundant supply chains. We have to change business models.

[00:40:31] Matthew Pines: We have to move out of an area that may have been optimal for production to an area that’s like second order production because of geopolitical risk. We have to increase our net spending of defense from like maybe a peace dividend era, two to 3%, to like a more conflict prone era of three to four, maybe 5% of gdp.

[00:40:48] Matthew Pines: We have to meet these climate objectives that we set for ourselves across the world for net zero, and that means doing a lot of heavy capital investment in rewiring the grid and new en new energy infrastructure. We have to pay out these obligations to our, our, our, our elderly in terms of social security and Medicare.

[00:41:05] Matthew Pines: These, these entitlements that are also like pegged to the cost of living and that we have to like sell down. We have to, I think Luke Roman pointed, like we’re actually like net liquidating the, the, like the treasury portfolio to pay out these entitlement obligations. So before they were like a net bid for those because they’re sort of matching assets and liabilities and now they’re paying out so, All these things are like on the margin, don’t break the camel’s back, but like you’re moving into an era where collectively they’re putting more stress on the, on, on the treasury market.

[00:41:35] Matthew Pines: And then you’re just waiting for some black swan right. To come in and like really mess up the apple cartt. And like, you might assume there’s no such things as a black swan, and I think we know that it’s not the case, right? Or even a gray swan, like a Taiwan scenario is not even a black swan. That’s like something like we could reasonably put up.

[00:41:51] Matthew Pines: Oh yeah, yeah, yeah. And and that would, that would, that would mean, yeah. I mean that would be yield growth control instantly, right? There’s no way that you get to that scenario when the Fed isn’t owning 20 trillion in a few, in a few months. Right. It’s just, yeah.

[00:42:04] Preston Pysh: So like , there’s something that’s a that’s a great point.

[00:42:07] Preston Pysh: Yeah, that’s a great point.

[00:42:08] Matthew Pines: Yeah. So this is where these these are all pointing in the direction of structural stress on the treasury market. And yeah, my, my broader thesis in this is maybe the connection to Bitcoin is that like we’ve, we’ve premised a lot of the geo-economic. Sort of power of the United States on the fact that we can leverage our sort of this, this this sort of senior ridge that we get to just like, you know, reinforce this, this this this sort of military complex that allows us to then keep structural demand for our assets high.

[00:42:36] Matthew Pines: That has worked in an era where the military deterrent credibility was really high, and therefore we could just have this trade from our assets for consumer goods, basically, right? Like we will sell off to OPEC plus in China. Our most desirable assets, which we have a lot of, we have got a lot of great farmland and a lot of desirable real estate, a lot of great tech companies.

[00:42:56] Matthew Pines: All that is really desirable, scarce assets. Folks in Russia and OPEC and China kinda want to buy. And so that was, the trade is we’ll buy your energy, we’ll buy your commodities, we’ll buy your cheap consumer goods and maybe even more expensive consumer goods as they move with the value chain. And in, in exchange, you get to acquire our, our assets.

[00:43:12] Matthew Pines: And that’s, that’s why you have the fire sector grow so much, right? Because the function of the fire sector, financial insurance, real estate, is to recycle those capital flows from the net surplus nations into our assets to help. You know, that’s like the consultants right to help. Okay? This is, we’re, we’re going to create a nice debt security for this Middle Eastern chic to buy into as part of this complicated investment trust.

[00:43:33] Matthew Pines: And this is why all we, you know, all the, all, all the London City lawyers, this is how they make all our money. That is a world built around. This, this ca, this dollar surplus recycling flows and it really enriched certain elements of society and it really undermine other elements, right? You can imagine like the pathological political consequences of expanding your fire sector and then undermining manufacturing and industrial heartland, right?

[00:43:53] Matthew Pines: And that creates the political reaction that we saw in the last few years in the West. But it’s now also creating a geopolitical and a military dynamic where the military’s now realizing, oh, we don’t have a defense industrial base to actually make, make all the missiles and, and our, and artillery shells and ships that like, let alone just keep supporting the nutritional war in Ukraine is straining our capacity.

[00:44:13] Matthew Pines: We would run out of missiles in like two weeks in, in a, in a Taiwan war, right? And then who’s got the, the, and then it’s the game of who’s got the industrial capacity to gear up for an nutritional fight. And guess what? China has all the ship building capacity. China has all the factories, China has all the surplus labor.

[00:44:28] Matthew Pines: We’ve lost those high, you know, high skilled trades lost the industrial capacity, the manufacturing capacity, the ship building capacity, that’s creates a strategic. Danger zone. And so this is where the connection between the dollar system that functioned really well for the United States and its sort of its security position in the world has now kind of come back to bite us.

[00:44:47] Matthew Pines: And that we’re trying to struggle with like, well, how do we reconcile this? And it’s a political economy problem. Back to my, my point before, it’s like, do d in the IC recognize this as like a big problem, but Wall Street, Silicon Valley private equity, like the status quo is working, right? . . And so it’s like, how do you, how do you, how do you, it’s not like a uni, it’s not like one person makes the decision here.

[00:45:06] Matthew Pines: It’s like a lot of competing dynamics and those people have a lot of money that buys a lot of influence.

[00:45:10] Preston Pysh: Going, going back a little bit to where we were talking with the stable coins. When you look at this between a central bank digital currency and keeping stablecoin as a private entity or shell to issue tokens that represent treasuries or actual US dollar value it almost seems like the US should be incentivized to stick with the private stablecoin issuance model because I, I think it, it demonstrates, Trust and will demonstrate to the rest of the world that they’re not going to issue some central bank digital currency.

[00:45:44] Preston Pysh: That, that basically turns into a coupon that only lasts for six months or one year or whatever, that they want to put a duration to, to the quote unquote money, which it, it’s definitely a coupon at that point. . do you agree with this? And, and more importantly, do you think that this is something that policy makers are going to understand and try to implement?

[00:46:09] Preston Pysh: Because they understand the importance of, of trying to protect that trust by allowing it to remain private?

[00:46:17] Matthew Pines: Yeah, I would agree. I think, you know, in general I’m in the sort of the George Shelton camp of sort of, at least this, this, this part of the monetary kind of philosophical space where, yeah, I think, you know, letting competition for these dollar substitutes in the crypto space work is just an extension of what we’ve currently allowed in the Euro dollar system with dollar substitutes that are generated by shadow banks.

[00:46:39] Matthew Pines: And you know, there’s been always this sort of, the history of basically the post-war era has been the history of the Fed, you know, Trying to either contain or allow the expansion of the sort of Euro dollar market, right? And really that means is the issuance of dollar substitutes, right? That aren’t direct liabilities of the Fed through this sort of hierarchical monetary system.

[00:46:59] Matthew Pines: And where you have commercial bank money in the United States, it has direct access to fed money in order to, you know, make money good. All of its deposits. And that’s, that’s the premise of the onshore dollar system. That’s the offshore dollar system, which are dollar substitutes being issued, essentially invented by, by other financial institutions.

[00:47:16] Matthew Pines: Also non-bank financial institutions that do not have direct access to the fed liquidity window. And that’s sort of been this sort of like acceptable and it’s created like a bunch of moral hazard potentially. That’s where that’re in right now, which is, and I’m coming back to stable, stable points.

[00:47:31] Matthew Pines: Cause think this is just a new version of an old problem. Yeah. Which is how do you allow elasticity in the dollar markets to function in liquidity needs of, you know, the private sector and all of its manifestations that the central planner can’t possibly see and recognize with the central algorithm, a tuning and a portioning credit credit, right.

[00:47:49] Matthew Pines: To whoever needs it for whatever business or consumption of purpose at any given time. This sort of, you know, the, that’s just like, like from a computational perspective, not something essential issue or can do. So there’s just like sort of this free market for money in the global system, and it’s regulated by access to collateral and then the inner dealer market of, well, do I accept your collateral in order to trust your sort of dollar token?

[00:48:10] Matthew Pines: And that’s exactly what we see in like Tether, right? It’s like, do you trust the collateral? Maybe you do, maybe you don’t, but there’s a market for that, right? And so people will accept that token, that dollarized token, to the extent that it meets the purposes, right? And there might be a risk premium attached to it.

[00:48:24] Matthew Pines: And that’s just the nature of the market. We see it right now. There’s, there’s dollar substitutes like that floating around. And so it’s like, okay, if we allow, and that’s been a push in a pool because if they let that go too much and then they get ahead of over there, they get over their skis and then things really blow up and they become.

[00:48:39] Matthew Pines: The cause of the freeze in the global dollar system. That’s why we have swap lines. That’s why we have these global repo facilities to essentially make money good. All of those implicitly money like dollar promises, right? Like there’s a bunch of dollar promises out in the, out the global dollar system that maybe don’t exactly have a one-to-one, you know, fed liability to back it up.

[00:49:01] Matthew Pines: And so, you know, but if everyone gets off side and there’s a major run in the offshore dollar system, the function of the Fed is to be the global lender of glass resort liquidity provider for the shadow banking system. And that’s, that’s what they’ve done. But it creates more hazard in that global, in that global system that they’re still struggling with, right?

[00:49:17] Matthew Pines: So I think dollar-based stablecoin are a version of that same sort of sort of give and take where here’s another mechanism to potentially dollarize the world in a more efficient way and in a way that actually helps dollarize like individuals who have a need for dollars to fuel like their immediate, you know, daily needs as opposed to.

[00:49:35] Matthew Pines: Dollar like repo to support the like you know, maybe shady dollar funding and like speculative gambling by different shadow banks in the global dollar system. So if we’re okay with like a bunch of, you know, Dubai banks, like going leverage happy, right? Like, I think giving access to dollar stable coins to, you know, the, the man in the street in Nigeria.

[00:49:57] Matthew Pines: Should be like acceptable. And I think a private space stable, a private stable going issue is much better positioned to, to meet that need than, than like, you know.

[00:50:05] Preston Pysh: Not to mention the technical risk in decentralizing the technical risk across.

[00:50:09] Matthew Pines: Oh hundred percent. Yeah. And instead is recognize this, they put out the white paper, like cyber security is what I do in my day job, is looking at, you know, different like threat models for different corporate networks and, and other systems.

[00:50:19] Matthew Pines: And yeah, the CBD C for the Fed would be like top of the list, oh my god, list for, for China. You know, cause that just, you know, creating the most juicy target. And yeah, that would be a, a, you know, a big, a big, I mean.

[00:50:31] Preston Pysh: You want to talk about a, an achilles heel on a global scale, like literally that, that’s it as far as I’m concerned.

[00:50:38] Matthew Pines: No, you don’t want to have single points of scale. And I think in general, right, like we’ve had decentralized money, we just haven’t really recognized it, except when it breaks. And then the urge is to centralize it and regulate it and corral it. and that’s, that has mattered because the backing collateral for that decentralized, the money network has been the US treasury security and that we’ve allowed like, you know, minor dysfunction to happen.

[00:50:59] Matthew Pines: The problem is because our, because of the global monetary system is structured economic system structured that like we have to, you know, run more and more deficits like structurally, that means we have to just like print more treasury securities . . And so this, like, this is creating like a tension that is now coming to a head, which is like they can’t let this decentralized dollar system continue to operate the way it has because then it won’t effectively absorb all of this, all of the treasury issuance that, that the sovereign needs to get.

[00:51:26] Preston Pysh: It’s on the way. That’s on the way.

[00:51:28] Matthew Pines: Yeah. And so it’s about corralling global capital into a nice killing pen, give them the treasury securities and then do the Lin Alden financial repression inflation come back, you know, to like kill 30 to 60% of their. They’re, they’re purchasing power over a decade.

[00:51:43] Matthew Pines: That’s like the best case scenario for, for the, for the, for the government right now. Yeah, so I think cbd, c even, even the, I think the Powell, I mean, I’ve heard is like he’s not a fan of CBDs Kashkar. He is not a fan. Most of the Fed doesn’t actually want cbd. C people pushing it are more in the White House, especially in the Treasury Department.

[00:51:59] Matthew Pines: And some people on the hill that see this, that see the same problem and their solution is just going to be double down on control. Right. eventually, like there’s some people who actually just want to cut the Fed out, right? Like, it’s like the horseshoe theory, right. Bitcoiners and the Treasury, you know, like MMTs are both like, you know, and the Fed , right.

[00:52:16] Matthew Pines: But they want to end the Fed and replace it with essentially direct more control. Control, yeah. By the treasury Department. Going back to essentially the, you know, the, the, the World War II and the immediate post-war era where the Fed was just a, an arm of the treasury and, you know, monetary policy was a, was a political decision.

[00:52:34] Matthew Pines: and yeah, I think that’s not necessarily the best course of action, but that’s that, that’s, that’s really what you’re seeing behind the c c argument is this political argument over how do we resolve this imbalances? And does this mean we need to go to more control? That means we need to undermine the Fed’s independence.

[00:52:48] Matthew Pines: Or do we mean do we like try to take advantage of these new technologies in a way that maybe gets us out of the jam?

[00:52:54] Preston Pysh: When you see the head of the BIS Agustín Carstens, he says that central banks have defeated crypto was the quote, I think this was from last week or the week before. What is your take on such pronouncements and why such pronouncements are being made?

[00:53:10] Matthew Pines: So if you listen to what central bankers say, I have nothing against them personally. Right. I’m sure you know a lot of them are just technocrats, right? Maybe some of them are power seeking malign people, but like I at least try to treat them as like their institution first. And then the person is usually just like an artifact of the institutional prerogatives that they grew up in.

[00:53:26] Matthew Pines: And they don’t hold that job unless they supports institutions prerogatives. And if they don’t, they leave and someone else comes in who does? So he’s like a character too. He’s easy to sort of personifies like big, bad man . Well I try to step behind like what is institutional incentives of the b s, which represents us the Central Bank of Central Banks.

[00:53:43] Matthew Pines: And they view, like, they view the sort of fiat liabilities that circulate as money in the economy. Really the banking system, they view it as their product. Like they actually view it almost as like a company views a product that they make. Yeah. Right. Except they have a, they have been given a state monopoly to issue that product and so they view any competitors to that product as a threat.

[00:54:04] Matthew Pines: And like what else everyone else does, you know, in a competitive environment is you talk down your competitors and you try to like, make it seem like it is even a competition and these competitors are bad and they’ll give you cancer and they’ll punch.

[00:54:15] Preston Pysh: And if they weren’t and if they weren’t competitors, you wouldn’t be talking about it, right?

[00:54:19] Matthew Pines: Yeah. I mean it’s, it’s a clear, it’s a clear demonstration. Like they actually listen to what they say, right? They actually have a view the liabilities that they issue as like their property that they control access to, right? So like they have the responsibility and the authority normally granted to them by the constitutional processes of the state’s.

[00:54:36] Matthew Pines: Who have given that charter, some of which may be more legitimate than others. Right. And there’s, there’s certain challenges in, in our current institutional framework that even central bankers have pointed to. So like Paul Tucker, who was the number two Bank of England, super well-respected monetary official.

[00:54:50] Matthew Pines: He’s also, I think now at Harvard, he is written a book, a book called Global Discord. It’s a great read, kind of very technical and academic, but he’s really drawn a bright light at this issue of the potential, you know, legitimacy problems that central banks have, especially in the modern era and how this is now becoming overlaid with the geopolitical frictions.

[00:55:06] Matthew Pines: . To really put central banks in a difficult spot. And I think Bitcoin is like a convenient stalking horse for them, but kind of like poke at when they’re really anxious, like, and they’re heart of hearts, they’re actually more worried not about bitcoin, they’re worried about state capture o over them taking away their independence.

[00:55:21] Matthew Pines: B i s has diplomatic immunity. Right. It’s like that could be taken away pretty quickly. Like they get nice, they, they have a nice life basically. There’s a lot of perks. A lot of perks and they had a lot of power and they were sitting. If you think about it from the perspective of like institutional power and like how that conveys like personal status, human beings are status animals.

[00:55:38] Matthew Pines: Like we won’t always want to be at the top of the different status hierarchy. And in the sort of halian days of the American and unipolar order, globalization, finance, capital ran the world. Central bankers were like the top of the pyramid. They were able to make the argument successfully that they were independent from politics so they could sort of step aside the sort of scrum of national politics and they could sort of take a larger view, more technocratic view of the global order and try to like smooth out the business cycle, coordinate policy across all the major leading economies.

[00:56:09] Matthew Pines: Meet together in these small cloistered clubs and say, this is our plan for the world. We’re going to do this. Right. It wasn’t like this nefarious cabal of like, this is our scheme. It’s like, this is what the world allowed them to do because we were in this sort of more stable arrangement and they could effectively do that.

[00:56:23] Matthew Pines: the problem they’re running into now is like geopolitics, technology change, national political pathologies that are coming up and potentially undermining the claim to legitimacy that they’ve relied on is fundamentally threatening their existence. . , and I think Bitcoin is just like the most obvious, most overt challenge to them, right?

[00:56:40] Matthew Pines: It’s like literally addressing them head on is like, we’re here because we don’t like you and we’re going to do our own thing, and if we succeed, it’s sort of a demonstration of your, of your lack of credibility. So that obviously like that is like a political challenge, right? More than even a monetary challenge in this scheme of like, we’re in a narrative world, right, where it’s all about memes, , right?

[00:56:58] Matthew Pines: It’s like memes and vibes run everything. They’re trying to like, you know, win the mimetic war, right? Is framing the issue in a way that’s favorable to them. That’s I think, where we are now. But yeah, I think central bankers are defending themselves from more from, from just Bitcoin in, in this current world.

[00:57:12] Matthew Pines: I think they have got, they’ve got a lot of challenges and I think this is manifested in some anxiety that comes out with remarks like

[00:57:18] Preston Pysh: that. You were a congressional intern for a member of the House of Representatives. I’ve had a couple friends that have done this type of job, and it’s always fascinating talking to them about what that’s like working in the member’s office and just interactions with the district and the people from the district.

[00:57:38] Preston Pysh: And I think a lot of Bitcoiners, and we’re obviously talking about Bitcoiners here in the US, are extremely suspect of actually having their voice heard from members of Congress. And so I, I want to ask you this from your point of view. If the staff or the members receiving calls on a weekly, twice a week kind of basis on a particular topic, How is that viewed?

[00:58:04] Preston Pysh: How is that perceived? Does it actually have an impact on their thinking? Does it have an impact on the bringing awareness? And it’s a little bit of a leading question because my personal opinion is that it does have an impact. And it is important is, especially for people here in the US that are trying to have policy shaped, Bitcoin’s going to, in my opinion, Bitcoin’s going to be successful, whether it happens or not here in the US because it’s, it’s such a global phenomenon.

[00:58:30] Preston Pysh: But as an American, I would like to see us get it right. and, and, and for politicians to maybe dig in a little bit deeper. So can you tell us what that experience was like? And then also tell people the impact that reaching out and maybe voicing your opinion or your concerns to local representatives.

[00:58:51] Matthew Pines: Yeah, so one of the main jobs as intern, aside from giving tours and learning slash making facts about why a certain stain on the marble might have been from a dual that you know happened a hundred years ago and actors probably just someone’s coffee, they dropped, right? You gotta, you gotta spice up the tour when you’re doing it.

[00:59:05] Matthew Pines: For the 10th time was responding to constituent emails and every email had to get responded to every phone call He had to take notes on what was the phone call was about, write up a summary of what the phone call was and then respond to, so like every single my representatives, it was like every single contact had to be responded to.

[00:59:23] Matthew Pines: Now. Most of the time you have like standard issues, like can someone complain out gases or tax, like gas prices or taxes or the war in Iraq or whatever. And so you had like a standard form letter. . . So you had like dozens of these form letters and that you had that you could like go to and be like, this is the congressman’s position and we appreciate your, you know, your interest.

[00:59:40] Matthew Pines: He’s got an upcoming vote so you have to like tailor it a little bit. But like that was a key function of the office was respond to constituents and we tracked what topics are being asked. . and like what are new things being asked about. So if he goes to a town hall meeting, he doesn’t get like surprised on the spot.

[00:59:54] Matthew Pines: He doesn’t have anything to like go to. The worst thing that can happen, not just in Congress, but like any environment is like your principal, whoever that is, your boss, the C-suite executive, the cabinet official, the president, the congressman, the senators, like the worst thing that could happen to them is they get asked a question in public and they have like no idea what to say.

[01:00:12] Matthew Pines: And so they always want to feel like they have some position, whether it’s tentative or somewhat. That does matter. And I know folks that I work with at the Bitcoin Policy Institute, which is sort of this organization that we fill with on the side, is to like help out with bitcoin policy in the national security space, kinda analysis and outreach.

[01:00:28] Matthew Pines: Grant McCarthy in particular, who’s the co-founder with David Z of b p i, he’s had dozens of meetings on the hill with staffers from both sides of the aisle. And I talked with him about like what that experience is like, and he’s going in there and he’s a really good talker and a really good listener.

[01:00:43] Matthew Pines: And he’s not trying to, like, he’s not advocating really from us. He’s just like, we can be a resource to help you as you’re confronting this really complicated thing, which is digital assets more generally and in particular Bitcoin and it’s, and it’s role and it’s, and how it works and how it could help in these different dimensions.

[01:00:59] Matthew Pines: And here’s some like rigorous research and here’s how to sort out, sort of signal the noise. And, and that’s been really well received, at least that I’ve heard from him is these are junior staffers. They’re 20 somethings that are tasked with like a broad portfolio and they’re just going to Google their first response to a question.

[01:01:14] Matthew Pines: That’s an easy thing to like improve, like that’s low hanging fruit. So that like the first thing isn’t just like a degrees ditch economist thing. It is like they’re going to find that matter what, right? Because it’s been search engine optimized everywhere. But like, give them something else.

[01:01:30] Preston Pysh: Let’s say you took 10 calls in a week in your particular office, your member’s office about Bitcoin or stablecoin or you, you name it, right?

[01:01:40] Preston Pysh: If that topic keeps getting hit by a different caller, like talk us through how that awareness would, would 10 calls be kind of a big deal? Would three calls, a hundred calls? I, we, we just don’t really have an idea of what that would look like and what the protocol would be for addressing a high volume event.

[01:02:00] Matthew Pines: It’s probably different in each office, depending on how responsive their particular congressman. It doesn’t take much. I’d say like even like a handful of like personal letters or personal phone calls could get elevated. . someone certainly asking a question at a town hall meeting and like someone who’s credible and is like, I want a response.

[01:02:17] Matthew Pines: Right. That will get a response. Congressman will remember that. He is like, oh, that person was asking about that thing and I didn’t know quite what to say. Like, I don’t want that to happen again. So it doesn’t take much Isn’t like you need like thousands of people. It just Yeah. It doesn’t, especially in, in the, in the house for presenters in the Senate, it’s a little bit more of a machine.

[01:02:33] Matthew Pines: much bigger population. The threshold is probably an order of magnitude hire for the typical senator’s office and then for the White House, it’s like an order of magnitude hire there. Yeah. Right. So it’s like, that’s probably my heuristic.

[01:02:44] Preston Pysh: I guess what I’m getting at is, so we have all these meetups that happen all around the US and I think it would just be extremely powerful for the organizers of a lot of these meetups to put together talking points or to collectively kind of, I’m going to say the word bombarded, but that’s not the word I’m looking for, but just to collectively work together to start informing and most importantly, educating.

[01:03:07] Preston Pysh: Like bring the awareness through the volume, and then work towards helping the member understand why proof of work is far superior than proof of stake and more of these nuanced things so that we’re not getting these people up on the hill completely, not understanding anything they’re talking about and just buying into that.

[01:03:26] Preston Pysh: Some Crypto Solana person, or will you name it crypto token person, went in there and was lobbying on behalf of whatever they were trying to sell. But we actually get real people who have real interest in getting sound, immutable money, working together to inform elected officials.

[01:03:43] Matthew Pines: Yeah. I think the key is, it’s also, it’s important to be respectful in this, right?

[01:03:47] Matthew Pines: Like, yeah, yeah. What, what will be, what will be not productive is if it’s like a harassment campaign. Yes. Being like, idiot, you don’t get it. Bitcoin’s going to succeed. It’s like, sorry, that’s not going to win you any friends. So being polite, be respectful, be curious, offer to help. These things are pretty compensated, right?

[01:04:03] Matthew Pines: In a civil society, but sometimes you have to say that .

[01:04:07] Preston Pysh: No, I think that’s such a great point, because I think that anybody who’s reaching out in that type of way is just immediately written off as just being a, a crazy person.

[01:04:15] Matthew Pines: It’s on Twitter, right? Like do you, do you respond to like trolls? Like No, just, no.

[01:04:19] Matthew Pines: Yeah. You’re not contributing to positive discourse, so people are going to just tune you out.

[01:04:24] Preston Pysh: I know you have a hard stop here very soon, but last question real quick. I know you have time in the nonprofit space and have interactions in the nonprofit space. How do you think Bitcoiners can leverage that more for getting grants, getting funding in order to do some of the things that they’re working on?

[01:04:40] Matthew Pines: That’s a good question. This is the thing that I, I’m not like deep in fundraising for bpi. I just helped do with national security stuff. But I do know that like, it’s heavily like cyclical in terms of like bulls and bear markets and Bitcoiners, you’d be surprised. Don’t want to just easily, you know, give up their coin.

[01:04:55] Matthew Pines: So it is, I think, a tough environment for nonprofits in general to try to fundraise, especially where Bitcoin is a decentralized open source project, right? . , there’s no corporate interest on the line. There’s no shareholders or public or private financial interests that can easily see, like, I need to protect my moat.

[01:05:11] Matthew Pines: I need to get this regulatory provision in because my business model requires it. Like, the function of lobbying is structured around having those sorts of outside incentive structures drive particular lobbying and advocacy and, and advocacy efforts in general. Bitcoin doesn’t have it. There’s no ceo, there’s no like central planner who’s like, this is our strategy for, for Bitcoin, you know, regulatory priority.

[01:05:34] Matthew Pines: It’s kind of, you kinda have to just like, you know, talk to the right people and like make the argument. I don’t know. It’s probably a larger question for how big Bitcoiners should just be a little bit more attuned to, again, it’s kinda the irony of like this originally kinda like libertarian project trying to create like common goods, especially in their own civic jurisdictions, right?

[01:05:52] Matthew Pines: It’s a global project, but it, it has very much like a local territory depending on where you live and what jurisdiction you’re subject to, right? It’s not about like Bitcoin on a global basis. It’s about protecting like your access to the Bitcoin network or wherever you live, right? . , which I think you have two options in general, right?

[01:06:07] Matthew Pines: Any political theorist, like voice and exit, you can always leave, but that has a hike that has lots of costs to leave a, you know, a certain, certain political jurisdiction. I think Bitcoin has been too quick to think. I just take my seed phrase and I bounce and it’s like, okay, maybe you’re like a single dude who’s got no material possessions and no family in social attachments.

[01:06:25] Matthew Pines: So you can just post up in some Costa Rican jungle and like live off your coin and your star length. Great, right For you, maybe you don’t have a whole lot of territorial attachments, but most people ha have like civic and social and political and familial attachments to where they live. And that means you gotta engage politically with where, with where you exist.

[01:06:41] Matthew Pines: And that means voice. That’s where I would say like people, okay, I think over index on the exit like properties of Bitcoin and I think that makes the discount, the importance of voice. So yeah.

[01:06:53] Preston Pysh: Matt, I have thoroughly enjoyed this conversation. You’re just a wealth of information on the global macro side.

[01:06:59] Preston Pysh: I would love to sit down with you and Luke Roman together for a conversation. I think that would be a blast. It was great. But yeah, thank you so much for making time. This was very enlightening and such a pleasure to have you.

[01:07:11] Matthew Pines: Yeah. Yeah. Next time we’ll talk aliens. So, teaser, teaser for those people.

[01:07:15] Matthew Pines: So, so on

[01:07:16] Preston Pysh: that, on that topic, I reached out on Twitter and said, Hey, does anybody have any questions for Matt?

[01:07:21] Preston Pysh: And there were so many alien comments and my personal, I don’t know what it is, I just find that topic to just not be that exciting . So I saw the topics on like, people’s bringing that one up and I was like, it get, I’m not asking that.

[01:07:36] Matthew Pines: It get, it gets the people going, man. It gets people going. It’s I think that’s a long conversation.

[01:07:41] Matthew Pines: Yeah. It should be interesting few years I think on that issue,

[01:07:45] Preston Pysh: Matt, give people a handoff if they want to learn more about you.

[01:07:48] Matthew Pines: Yeah. So certainly I’m on Twitter, I sort of just think in public at Matthew underscore Pines just hit me up. I just tweet about random things and geopolitics, cyber, macro, whatever.

[01:07:58] Matthew Pines: Things that seem, seem to catch my. If you happen to be a C-Suite executive and are confronting some strategic coupling between your geopolitical and your cybersecurity risk, that is my day job. We spend a lot of time advising multinationals on that exact exact questions. We’re on the director for security intelligence at the Krebs Stamos Group, so you can look us up there.

[01:08:16] Matthew Pines: You want to engage me as a, in a professional capacity. And then I actually published a novel expectation value. So it’s a, basically a science thriller about, you know, quantum computing and ai and Oh, that’s, check that out. It’s on Amazon, Kindle and Print. It’s actually this thing right here. That’s pretty cool.

[01:08:34] Matthew Pines: Yeah, it’s quite, it’s a little bit, it’s a little bit thick. So, and then BPI Bitcoin Policy Institute, that’s where I’m an security fellow. And yeah, think they’re be doing a DC Policy Summit in April. So look up the Bitcoin policy Summit. It, it’s invitation only, but if you’re in DC and you have interest in Bitcoin, national security and larger policy questions, reach out to me.

[01:08:53] Matthew Pines: David Zell and Grant McCarthy are the ones putting it on. We’d like to get, get folks invitation for that. And also support PPI’s work. They take donations and. Yeah, I think they have I think, higher ROI on every Satoshi they receive in terms of their broader educational efforts inside DC. So yeah, it’s keeping myself busy.

[01:09:09] Preston Pysh: Fantastic. We’ll have links to all that in the show notes. And again, thanks for joining me. Yeah, thanks for having me. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener if you enjoyed the show or you learned something new or you found it valuable.

[01:09:34] Preston Pysh: If you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next.

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