Do people demand more dollars? : Interview with Andy Edstrom ②

Andy Edstrom, CFA, CFP is Head of Institutional at Swan Bitcoin. He may be best known in Bitcoin for authoring Why Buy Bitcoin, opining that MicroStrategy might borrow in order to buy Bitcoin, and for shaming wealth managers for not owning Bitcoin for their clients. He can be found on Twitter at @edstromandrew, and his podcast appearances and writings can be found at

Interview Date : 10th February 2021

Why do governments buy gold?

Governments buy gold for a few reasons. Firstly, there have been times in history when gold has backed money.  We’ve been on a gold standard or a silver standard for periods in history. Thus, by buying gold, people and investors will have confidence in the country’s currency and demand it to potentially benefit from it. Moreover, China, Russia, and other countries have been buying gold in recent years because they are tired of using the dollar not because it’s bad but the United States has gone to great lengths to make it difficult for other countries to use the dollar. The government has used sanctions and cut countries off from accessing the dollar. Foreign countries don’t like it when the US uses its currency as a weapon.  Also, the amount of debt that the US has incurred is worrisome, so for a long time, China, Russia, and many other countries European countries have been thinking about making moves toward a world in which they don’t have to use the dollar.

Is the limited supply of Bitcoin enough for everybody?

It doesn’t matter what the number of Bitcoins is, provided that the number is limited. Whether it’s 21 million or 21 billion is not significant because Bitcoins are divisible to 100 million satoshis per Bitcoin. So even if Bitcoin reaches $20 million in value per bitcoin, one satoshi will be worth about a penny. Even then, if the value of Bitcoin continues to rise, you can have services that will hold the coins but provide smaller denominations. I don’t worry about there being enough Bitcoins in existence. I do think that a fixed supply of money will be better for the economy and the average person in the long run.

What are you looking out for concerning Bitcoin?

I’m always looking at whether it keeps working. If it stops, doesn’t execute transactions roughly every 10 minutes or if it stops moving billions of dollars of value per day, then that will be concerning. If a bug is found in the code that somehow has escaped the scrutiny of developers over the last decade or more, that would also be concerning. Another aspect I’m looking out for is government rectitude or the government’s ability to balance their budgets instead of printing more money. If governments stopped overspending, that would probably be bad for Bitcoin because Bitcoin would not be as attractive relative to fiat currencies.

On the upside, I’m looking for continued adoption of Bitcoin. When you look at a linear graph of the price of Bitcoin, it looks parabolic. However, if you look on a log scale, it’s a pretty clean upward sloping curve over time suggesting a classic adoption scale.  We indeed have had these periods of mania followed by huge crashes several times, but if you smooth those out over time, you see that more and more people are using it and the price has kept going up. Tesla buying Bitcoin and putting it on its balance sheet is a sign that it’s being adopted. People like me talk about how they’re buying, and helping their clients getting exposure to Bitcoin is a sign of adoption.

What is the biggest problem with government debt?

The biggest problem with the government debt is that there is too much of it. If governments print and create too much money and continue to lower interest rates, then consumers rationally will borrow more money. For example, if my mortgage interest rate is 8 percent per year,  I can only afford to borrow a quarter of a million dollars and service that mortgage. However, if my mortgage interest rate is lowered to 2 percent, I can afford to service a million dollars on the mortgage. The governments have implemented this policy for over 50 years now in which they’ve lowered interest rates that cause people to borrow more. It is a bubble where it forces asset prices to prices up, and it dramatically increases the number of debts in the economy. Such a system drives companies to borrow lots of money, and then when they have a downturn like in a pandemic, they can’t pay their people nor their bills because they’re too indebted. As a result, they have to be bailed out by governments. The biggest problem with debt is that it will make a bad ending for everyone if there’s too much, and I believe there is too much. But even if we had normal levels of interest rates in the world, we would have a great depression. So, that can’t happen and I think the only way out is for governments to keep printing more and more money to procrastinate eventual inflation.

What kinds of basic goods are there and how are they different?

The Austrian economist Carl Menger identified 3 types of basic types of goods: consumption goods such as food, clothing, and everyday utilities, capital goods such that produce consumer goods, and monetary goods, or money. When more money is getting printed, it flows into capital assets, like our houses, real estate, stocks, bonds, etc. However consumption goods have not gotten expensive, or at least, they haven’t gotten expensive as quickly as capital goods or investment goods have. I believe that actual real inflation is higher than what governments say. I don’t believe that inflation is 2% in the United States for goods and services. It must be measured incorrectly, however, inflation in consumer goods has been much slower than inflation in asset prices so far, which I think eventually is likely to change.

Do people demand more dollars?

With respect to consumer price inflation, there is a question of people’s demand for money. People do demand more money because they want to hoard more money when they are nervous about their prospects. Amidst a pandemic, when there’s a good chance you’re going to lose, it’s more likely you’re going to hold on to your cash because you can’t be as confident about collecting a paycheck. However, if the money you are holding is losing value, people start to realize they are losing purchasing power so they will cease to want to hold it at some point. Because humans are herd animals and pay attention to what their neighbors are doing, they will replicate their neighbor’s actions. So, when the government creates massive amounts of money, and suddenly people stop hoarding that money and try to dump it at the same time, it will be a problem the government cannot clean up.

Do you think we have lost the stability of our fiat currencies?

Yes, I do. I think it’s extremely unlikely that government-issued currencies will maintain their purchasing power in the next decade or two. I think they’re likely to lose purchasing power more quickly in the next decade than they have in the prior few decades.

How are stock values so high?

Stocks are valued based on the present value of future cash flows. If I expect a company to make profits in the future, I have to consider its discount rate and its present value today. In principle, when the discount rate goes down, the price or the value of the stock goes up, so the discount rate can be looked at as a long-term interest rate. However, central banks have lowered long-term interest rates that have effectively reduced the discount rate thus increasing the value of stocks.

Another factor is all those bailouts the central bank and the government have conducted. They have bailed out financial markets so many times that investors have become numb to the risk and more confident in making profits. If we consider the tremendous scale of the stock market today, a crash of 30%~ 40% in stock prices would have a real negative effect on the economy. People who own stocks will feel poorer, meaning they will spend less which causes a downward spiral for the economy. So, if the government doesn’t prop up stock markets, we could have a deep recession or a great depression, therefore they are forced to continue to prop up this facade for as long as they can.

Interviewer , Editor : Lina Kamada


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