Introduction:
This is my point of view summary of this 51 minute interview of Lyn Alden by YouTuber Max DeMarco, where she explains why our money is broken. This woman is an systems engineer by training, and self taught expert on Macroeconomic and inflation. She is an author and she has become one of the most sought after speakers on this topic, by those that understand or seek to understabnd why our money is broken. This summary is followed by the video of the interview and the transcript of the interview. So you can read her words and follow along with the YouTube Video interview if that helps you to understand the subject matter.
Summary: Why our money is broken
The Problem of Centralized Money
The current money system is controlled by central banks and governments.
This happened because old types of money, like gold, were too slow for a fast, modern world.
When the telegraph was invented in the 1860s, information could move instantly, but moving gold still took days.
To fix this gap, countries made centralized ledgers (like banks and central banks) that everyone had to trust.
This system gave the government and bankers a lot of power.
Bitcoin is a new solution.
It is money that can move as fast as information, is very hard to control or stop, and cannot be easily created out of thin air.
The Hidden Tax of Inflation
One of the biggest problems is inflation, which happens when the supply of money keeps growing (about 7% per year in the U.S.).
This creates a hidden tax on everyone:You get diluted: If your boss doesn't give you a raise of 7% every year, your money buys less, and your share of the overall money network shrinks.
You have to work harder just to stay even.
The Rich Get Richer:
People who have easy access to loans can borrow this growing money, then use it to buy things that hold their value, like real estate.
This makes the gap between the rich and everyone else wider.
How Broken Money Funds Wars
The current system allows huge conflicts, like the War on Terror, which is expected to cost $$13$ trillion. This is possible because the true cost is hidden.
Instead of asking people to pay a high "war tax," the government can pay by creating more money.
This is an opaque process called monetary debasement.
Because the consequences (like higher national debt) are delayed for decades, no one blames the leaders who started the war today.
The Flaws Pushed Up
The flaws in the system have been building up for decades, especially since the U.S. stopped linking its currency to gold in 1971.
Whenever the economy had a big crash (like the housing bubble in 2008), the central banks just added more and more money to fix it.
1. This didn't solve the problem; it just pushed the risk higher—from banks up to the government's level.
Because of the 2008 crisis, central banks around the world started losing trust in the main system and began buying gold again.
2. Lyn Alden believes that people are waking up to these flaws.
The way to protect yourself is to opt out of the system by not holding large amounts of currency that can be arbitrarily created, and instead, choosing reliable money like Bitcoin.
The Video.
The Transcript Outline:
The Broken Money System: A Discussion with Lyn Alden
The estimate so far for the war on terror cost is $$13$ trillion. Lyn Alden, the founder of Lyn Alden Investment Strategy and the author of Broken Money, a best-selling book on the evolution of money, is a leading voice in macroeconomics markets and Bitcoin.
The Flaws of the Centralized System
I think the current system is based entirely around the premise that money at the base ledger is inefficient and more efficient layers are built on top of it, usually state-sanctioned, because as you centralize things, it's easy for the state to take it over. Everybody's using these centralized efficient ledgers because there hasn't been a better alternative.
What Bitcoin really is, is money that can't be debased, money that flows across borders, money that is very hard to censor. That's all it is. If you play the money game 100 times, it will always end up at the same result. But is Bitcoin able to break that cycle?
Technological Inevitability and the Dawn of "Broken Money"
I was already kind of aware of a lot of problems in the current system. My first investment was gold and silver coins as a kid, so I was aware of inflation as a long-term issue. I was aware of public debt in the United States and other countries and knowing from history that generally when that gets to a very high level it's likely to be inflated away.
I explore in the book the technological inevitability of some of these things. As an example, the bicycle would come before the car, which would come before the plane because those later ones build on earlier technologies. It's been a similar thing with information transfer.
Before the telegraph, most technologies and monetary transactions would move at the speed of physical transfer. A lot of the money at the time was trying to make that more efficient: analog encryption techniques, paper, book binding, printing press.
The era of broken money began with the widespread deployment of the telegraph (starting around the 1860s). This was the first time we made information transfer almost instantaneous while physical transfer (like gold settlements) was still slow. We were in a world where instantaneous transactions could occur but not settlements. The only real way to solve that was centralization—you had to trust a ledger during that intermediate period.
When currencies fail, you never really see a country revert to gold because gold can't just teleport around in the way that fiat currency can. In 2009, for the first time after that big gap, we now have digital settlements that can happen roughly at the speed of light.
The Subtlety of Inflation and Fiat Inefficiency
The current system works so well because it's subtle, especially in developed countries. A big thing that goes unnoticed is anchoring bias around the unit of account.
- In the United States, broad money supply goes up by 7% a year on average. If you're a wage earner or a small business, and you're not raising your wages or prices by 6% or 7% per year, you're getting diluted. The burden of effort is always on those trying to keep pace with inflation.
- Overhead Costs: If you have very rapid inflation, overhead is way higher. For example, a restaurant has to change its menus constantly. Basically, finance becomes a larger share of your business when inflation's very high.
- Privileged Access to Credit: In a fiat system, those who have privileged access to credit can short the devaluing unit (borrow) and buy scarcer assets with it (e.g., real estate, cash flow businesses). In a world where access to credit is a key driver of wealth creation, this is a major source of inequality.
The Problem of War Finance
This broken money system is able to finance war because it makes the true cost opaque and deferred.
- During the beginning of the Iraq war, over 70% of Americans were in favor of invading. If you had asked, "There's a 10% war tax on your income to pay for the war in Iraq," that approval number would be way less.
- The cost is instead opaquely deferred through monetary debasement.
- In the fiat currency world, the slice they can take off the top (via printing money) is much, much bigger because debasement is no longer physical. This allows wars to take place at a massive scale because the consequences are delayed so much that no one even blames the original political actions.
📈 The Road to Broken Money
I think the Global Financial Crisis (GFC) was a big changing point, but the system's flaws accumulated over time:
- Centralization as a Solution: Every friction in money for several centuries was solved by a layer of centralization (e.g., moving from coins to banks to central banks). This culminated in the world reserve currency central bank, resulting in roughly four layers of centralization.
- Leaving the Gold Standard: Going off the gold standard in 1971 created a ticking clock where public debt and resource consumption slowly accumulated over 40 years.
- Liquidity Response: Every time there's a potential bust (1987 crash, late 1990s dot-com bubble, 2008 housing bubble), central banks come in with more liquidity, pushing the problem up to a higher level. The real estate bubble was pushed up to the sovereign level during the GFC.
- Global Loss of Trust: Ever since the GFC, you saw a structural shift: central banks around the world reversed decades of policy to start reaccumulating gold tonnage. The GFC was the culmination that woke a lot of people up to the severity of the issue.
📘 Outline of the Transcript
I. Introduction to Broken Money
- A. War on Terror Cost Estimate: $$13$ Trillion.
- B. Speaker Introduction: Lyn Alden, Macroeconomist and Author of Broken Money.
- C. Thesis: The current financial system is fundamentally flawed and people are waking up.
II. Core Flaws of the Centralized System
- A. System Premise: Centralized, state-sanctioned ledgers built on inefficient base money.
- B. Definition of Bitcoin: Undebasable, censorship-resistant, borderless money.
- C. Technological Inevitability of Broken Money:
- Pre-Telegraph: Monetary transactions moved at the speed of physical transfer (slow settlement).
- Post-Telegraph (1860s): Information became instantaneous, but settlement remained slow, forcing reliance on centralized ledgers (trust).
- Bitcoin (2009): Closes the gap by allowing fast, digital settlements, making centralized ledgers technologically obsolete.
III. The Subtle Inefficiencies of Fiat
- A. Anchoring Bias and Wages:
- Money supply grows $\sim 7%$ annually; wages often lag, leading to dilution.
- Employees must change jobs to "re-anchor" their salary and keep pace.
- B. Inflationary Overhead:
- Rapid inflation forces frequent renegotiation of contracts (e.g., restaurant menus), increasing business overhead.
- Finance becomes a larger, unnecessary share of business activity.
- C. The Credit Arbitrage:
- Privileged entities use credit to borrow the devaluing fiat unit.
- They buy scarce assets (real estate, stocks), creating wealth disparity.
IV. The Financing of War
- A. Opaque Deferral of Cost: Fiat allows governments to finance wars without immediate, visible taxes.
- B. Iraq War Example: High approval for invasion, but hypothetical 10% war tax would have lowered approval significantly.
- C. Mechanism: Fiat allows the government to defer costs through monetary debasement (printing money) on an abstract layer, which is much faster than historical physical debasement (melting coins).
- D. Protection: Individuals must opt out by refusing to hold large amounts of the debasing currency.
V. The Road to the Global Financial Crisis (GFC)
- A. Compounding Centralization: Every monetary friction was solved by adding a layer of centralization (banks $\rightarrow$ central banks $\rightarrow$ reserve currency central bank).
- B. The Ticking Clock: Going off the gold standard (1971) initiated a slow buildup of debt.
- C. Liquidity Intervention: Central banks fueled bubbles (Dot-Com, Housing) by injecting liquidity, eventually pushing the systemic risk to the sovereign level (taxpayers) during the GFC.
- D. GFC as the Culmination: Led to social anger (Occupy, Tea Party) and a structural shift as global central banks started reaccumulating gold, signaling distrust in the dollar.
VI. Conclusion & Definitions
- A. The Need to Opt Out: A call to action to use Bitcoin as an alternative.
- B. Money vs. Currency:
- Money: In and of itself (e.g., gold, silver).
- Currency: A certificate redeemable for money, or enforced through state policy (e.g., paper notes, fiat).
- C. Historical Emergence: Money typically emerges from the bottom-up; the state-issued money idea (Chartism) only became popular after the telegraph gave state-backed systems a temporary efficiency advantage.
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🙋♂️ Author: Shortsegments
This post was written by @Shortsegments, an author who has been covering cryptocurrency, blockchain technology, decentralized finance, Bitcoin, Ethereum, and digital ledgers for seven years.
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