Canada Should Pull Up Their Socks? : Interview with Greg Foss ②

Greg Foss is a Canadian who spent 32 years trading credit both in Canada and the US. High yield credit (or Junk Bonds), which he focused on, trades mostly out of New York. He believes that credit markets are the most important markets in the world. Everyone focuses on equities, but the reality is credit markets are far bigger and more important.

Interview Date : 15th March 2021

How did you encounter Bitcoin?

I was asked to be an early investor in a company in Canada that wanted to bring Bitcoin to an exchange-listed fund in Canada. I helped to recruit the CIO. We took the Ontario securities commission to court to win the right to list a closed-end Bitcoin fund on the Toronto stock exchange. I was introduced to Bitcoin before I invested in that company, and as an engineer, I was convinced pretty quickly. I was shown which was essentially the blockchain-in-action. I saw the blocks that were being formed every 10 minutes, the mempool, the transactions flashing across the screen around the globe. The engineer in me was completely amazed at it.

I’ve never seen something so technologically beautiful in my life. Most importantly, it’s math and code, and there’s only 21 million Bitcoin, so there’s scarcity. It is a proven protocol that is open source. For me, it ticked all the boxes, and it’s everything I was looking for.

It took us about 4 years to win the battle against the Ontario securities commission. Canada launched 2 new ETFs, actual exchange-traded funds, which have now exceeded $1 billion invested in the Canadian market to have exposure to Bitcoin. Today, Canada has one of the most developed Bitcoin exchange-traded funds and communities in the world. It’s beautiful because it’s hedging the risks of what I term the fiat shenanigans.

What is Bitcoin to you?

Michael Saylor said it most perfectly; Bitcoin is digital energy. Let’s think about Saudi Arabia and Russia, for example. Do they really want to be selling their valuable natural resources for US fiat that continuously loses its value over time? Some might say, that’s why they are collecting and buying gold but that is not the answer. Gold 2.0 has already come out, and that already led back to Bitcoin. Gold has its problems as it does not have a fixed supply. Even if it grows about 2% a year, considering how much gold is in seawater, imagine if we technologically figured out how to remove gold from seawater; that would be the end-game for gold. Bitcoin has so many properties that gold doesn’t have like transferability, portability, divisibility, etc. As soon as the energy markets begin to be priced in Bitcoin, eventually with a high probability, Bitcoin will replace the US dollar as the world’s reserve asset.

Should the government impose regulation for a solution?

The best solutions tend to happen when it’s not government imposed. That’s what Bitcoin and the Bitcoin communities are doing. It is advancing intellectual awareness about fiat currency being dependent on complacency. It also relies on a status quo bias where people say “it’s worked up until now, so it will continue to work in the future”. Most importantly, it relies on intellectual laziness that requires people to believe and not do any digging below the surface of what a currency actually is. So, when I try to sell people on Bitcoin, I start by exposing the problems with fiat, and the fiat currency Ponzi-scheme.

Fiat relies on a continual appreciation of collateral, but the money loses value over time. This means that the value of your work, effort, energy, and time gets devalued into the future. You need an alternative, and it’s called Bitcoin. The common man can buy default insurance in the form of Bitcoin.

Should we be anti-government or anti-taxation?

That’s a difficult question. I’m a social welfare liberal but a fiscal conservative. I have a heart and I understand that it’s tough on many families, but math is math and there are always costs and benefits. As Margaret Thatcher said, “capitalism is the worst form of government except for all the other forms.” So, I’m a pure capitalist and think that communism only works until you run out of other people’s money. I believe in government for the people and taxation, but when it goes out of control, you need to find alternatives. Bitcoin is my alternative insurance against central bank shenanigans and politicians that don’t understand mathematics.

Why did the financial crisis in 2008 happen in the first place?

In 2008-2009, all the leverage in the financial system was transferred from the balance sheets of the banks to the federal government’s. It was a transfer of risk with no other choice because the Lehman brothers failed. And, if the other big financial institutions in New York, like AIG we’re allowed to fail, it would have brought down all the other investment banks and the world would have unwound.

What is our fiat currency based on?

It’s based on a fiat standard that requires a continual increase in the value of collateral in the loan. So, things like real estate have to increase and that is dangerous but it is what it is because banks are some of the most highly leveraged institutions. Their book value of equity is leveraged 25 times to their loans. So, if a loan loses 4%~5% of its value, the equity is vaporized. This is how the banking system works. Thank goodness for Satoshi in designing the most beautiful solution of math and code; Bitcoin. It is a decentralized, distributed beautiful ledger based on beautiful technology. It is anti-fiat.

What do you think of Jeff Booth’s statement “governments are trapped”?

Jeff and I are on exactly the same page. The bond and equity markets are only math, and if you understand math, you realize they are trapped. To reiterate, “The Price of Tomorrow” written by Jeff Booth is one of the best books if not the best book I’ve ever read. The man is brilliant, and I have talked to him on a personal basis once or twice. He is extremely motivated to help educate the world, and I’m honored to call him a compatriot. We believe in the simple mathematics of the markets.

How many countries in the world are going to default and what country will be the last one?

There are 188 fiat countries in the world. Almost all of them will fail before any G20 country fails. Within the G20 countries, the US dollar will be the last one to fail. In the smaller economies, and in some cases it’s that despotic leadership or criminal undertakings by various parties, etc., that come into play. Many of them are serial defaulters meaning that many are countries that have defaulted less than 20 years ago. They come back to the markets, the markets lend them more money, and they default again.

How concerning is the situation for G20 countries?

I’m very concerned about Canada as it does not have something like a European Central Bank backing. Even countries like Italy or Portugal, which have worse finances than Canada, are in better shape than Canada because they have a much stronger backing of the European central bank.

For Canada on a standalone basis, the market is telling us that it is not looking good, meaning that the 37 basis points I referenced before are a high rate for a triple-A-rated country. The market’s charging Canada single-A rates even though it’s got a triple-A credit rating. We know that the markets are typically far in advance of the rating agencies in terms of evaluating true credit quality. So, I’m not going to say which country will be first to default, but I’ll just say, right now Canada better smarten-up and start fessing up to the reality; that we printed more money and took on more debt per capita than anybody else in the world in the last 12 months.

During the Corona pandemic, was Canada the country printing the most?

Within the last 12 months, Canada has taken the awful leadership away from every other country in printing. Comparing it to Japan, Japan is a much bigger economy than Canada. So, there are always different considerations in terms of evaluating credit quality. Thus, the size of the economy is going to be a very important component. Canada, after all, only has an economy the size of California. We’re a beautiful country snaking along the US border, natural resource-heavy with generous social programs that perhaps we can’t afford if we do the math.

The credit markets are giving warning signals, but our politicians have no clue and still think “we have a free pass, and we will just be able to print our way to prosperity”.

How do you think Canada should pull up their socks?

Mathematically, it’s going to be very difficult. After years of the same patterns with printing and being backed by the government, we get used to it. Free money is like an addiction. If you tell people that you can have free money, and then you stop giving them free money, it will be very difficult to get off that addiction.

You might try to countermeasure through raising taxes, but perhaps we’re already at a level of diminishing marginal returns. This means that if we raise taxes, some of the economies will go underground to the black market, and it will be off-record so they’re not taxed.

Or, we can cut deficit spending, meaning we can try and balance the budget. However,  that in itself is painful, particularly when you’ve promised social programs to the people.

The third option is you print more money but that just makes the debt spiral turn into a death spiral. It is almost a certainty that the Canadian dollar will continue to be debased. The question is how painful it is for our future generations, and for our kids.

Interviewer , Editor : Lina Kamada


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