August 14, 2021 • 27 mins
This week, Jon Huntley, senior economist at the Penn Wharton Budget Model, came on to discuss the budgetary and economic impact of the infrastructure package. Rune Christensen, the co-founder of MakerDAO, joined to talk DeFi and decentralized stable coins. Zvi Schreiber, the CEO and founder of Freightos, an internet marketplace for the trillion-dollar international freight market, came on to talk about his new book: "Money, Going Out of Style: The Story of Money and Thee Mystery of its Decline" and why he thinks fiat currency is having a midlife crisis. Then John Gerner, the managing director at the consulting group Leisure Business Advisors, reacted to Disney earnings and explained why he was impressed.
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Episode Transcript
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Speaker 1 (00:08):
Welcome to Watch You Miss this week. I'm Caroline Hyde.
This podcast has some of our favorite interviews from the
Daily Show after the Market Close that I co anchor
along with Joe Wisenthal and remained Bostick. What do your
miss on Bloomberg TV. It's a perfect way to kick
off your weekend. This week marked a major victory for
President Biden's economic agenda, where the Infrastructure Agreement passing by
(00:30):
a massive margin in the Senate. Now, the legislation still
faces an uncertain future in the House before heading to
the President's desk, but it already is prompting questions about
how it will all be paid for. And we've got
a view on the budgetary and economic impact of the
bill John Huntley. Now he's the senior economist at the
Penwaton Budget Model who has a new report out on
the legislation. We started by asking John about the long
(00:53):
term impact on the all important deficit um, Well, the
least as compared to the compromises that they were discussing
in June, definitely increases deficits and debts a little bit. Um.
You know, they're they're depending a lot on money. It's
being returned from you know, COVID and a number of
other programs that would have been returned to the US Treasury,
(01:15):
but that money is now going to be used to
spend spend UH, to be spent on infrastructure. Answer that
will raise the debt and deficit and both shorthand long run.
When we talk about some of the provisions that we
were put in here, John specifically to try to sort
of pay for this, some would ask a why is
that even needed? If you have a bill and you
have proposals here that UH, some would argue, are actually
(01:37):
going to contribute to GDP growth? Do you know sort
of need sort of a pay in uh in order
to justify that? Doesn't the GDP growth of the potential
for that? Isn't that justification enough? Does that exist for
this bill? Um? Well, certainly for the you know, the
infrastructure is going to be productive and it will help
increase GDP, particularly over the long run. It takes a
(01:58):
long time for infrastructure to be comfort and generate additional
GDP UM. But it does matter how we pay for it.
So deficit spending has a habit of crowding out private
private capital investments. So the factories that the computers, the
equipment that generate goods and services, and so UM, deficit
spending has a habit of offsetting some of the benefits
(02:20):
from the public capital investment, and different types of taxes
and different types of revenue sources have different effects, and
they may be able to find some that have less
of an offset against the productivity benefits from from the
public public infrastructure investment. John I spent some time chatting
with people on the municipal side of this when they
think about a Scott Minor, the CEO of Guggenheim, has
(02:44):
come out and saying that issuing and paying for this
via municipal bonds or Build America bonds is it makes
cities and states partners and infrastructure investments instead of just
passive bystanders to the Fed. Why aren't we talking more
about that? Um, I'm not entirely sure. I mean, I
think people have been looking to the federal government for
(03:05):
a long time to sort of taken an active role
in promoting infrastructure, and particularly projects that span over multiple
jurisdictions where it may be more difficult to get municipalities
to agree on the terms and the types of projects
to be built. And so I think that that why
they're they're emphasizing sort of federal involvement because it's it's
in some ways easier for the federal government to get
(03:26):
some of these projects across because uh, you know, they're
lending incentives for these for the municipalities and the state
and local governments to work together to build new infrastructure
um and it might be more difficult for them to
to pursue these projects on their own. John, I want
to go back to how your analysis originally when when
in June the original infrastructure bill you thought led to
(03:49):
higher GDP, whereas now you feel the deficits are higher
and this proposal versus the earlier version. Can you remind
us exactly why what is it that's going on that
makes you feel that GDP just isn't going to be
as injected with with growth as it wasn't the first version.
Absolutely so, in the first version there were more there
are more sources of revenues. In particular, they had allocated
(04:12):
UM there they're anticipating about a hundred billion dollars from
an increase in i r S enforcement so that the
i r S would be able to do investigations and
world audits, and that would generate some significant amount of money, uh,
and that that would continue to raise money beyond the
tenure window over which you know, the Congressional Budget Office
and we look and and so we anticipated the debt
would actually go down in the long run and we'd
(04:33):
be crowding in a little bit of private capital. We've
been encouraging a little bit more investment from private households
um so that would be to hire GDP. The current
bill has um you know, spends a lot more unused
funds and things that we think will increase the deficit
in debt over the long run. I mean, but as
you sort of model this over at Penn Wharton, John,
I'm wondering, how do you sort of factor in. I
(04:54):
guess the intangibles are sort of maybe the second order
benefits of these types of bills. You talk about a
hundred and plus billion dollars for roads, bridges and other
types of infrastructure projects. You talk about public transit, you
talk about airport facilities. These are all things that at
least in the past, we've pointed to and said dis
encourages private business development, encourages a lot of other things
(05:14):
that could generate revenue. And I'm saying how do you
actually factor that into a model when it's not necessarily
a one for one equation. No, that's a great question. Um,
that's really the core of what we're doing here. Is
it work. When we build public infrastructure. We're raising the
productivity in our model and theoretically in real life UM
of people, of workers of capital. You know, you're making
(05:36):
people as trucks more effective. You know, they can get
goods to where they're going faster. You know, if you
have better airports, they're spending less time on the ground
waiting their landing slot times. Um. These sorts of things
are directly reflected in GDP, and they're reflected in our
model as well. UM. Some of the infrastructure projects, particularly
water infrastructure, may not be as well measured by GDP.
(05:57):
In those cases, they have some significant you know, health
benefence after the communities in which these investments are made
and may not actually be captured by an analysis. Now
we had to invite back a guest who got cut
off last week. Ruined Christensen is the co founder of
Make a Doo and who was set to join us
last week, but due to some technical difficulties, it cut
(06:18):
that conversation short. Now it prompted some pretty wild conspiracy
theories across social media. I think at one point I
even became a crypto meme. But we had to get
back to that conversation, that interview to talk about the
future of crypto, of stable coins, of indeed the ecosystem
is Remember the Infrastructure Bill was in some way almost
(06:38):
hijacked because of a cryptocurrency focus. We started by asking
Roon about the different mechanics of decentralized stable coins, which
is what make it ours building. Yeah, I mean really,
the basic idea under being defied is that, you know,
the financial infrastructure of the future should not be controlled
(06:59):
by a single person or a single group making decisions
behind closed dolls. Right. We think that creating financial infrastructure
that is controlled openly with decision making processes that involves
you know, stakeholders of all kinds. Um, it's just going
to be you know, a better and more equitable infrastructure
for the future of finance. So, okay, you're stable coin
(07:24):
Die is backed by a range of crypto assets opposed
as opposed to one dollar for one dollar and a
bank somewhere, so it's more decentralized. That makes them one
of the biggest assets that people pledge as collateral is
the centralized stable coin U S d C. Are you
therefore backdoor centralized if a sort of a regular if
(07:45):
a centralized stable coin is one of the biggest assets
back in your coin, I mean, it's definitely not ideal
that right now most of the collateral is in a
single asset, because basically the idea behind the decentralized stable
coin like DIE is that you want to really diver
sify the collateral that use. But I mean, the great
thing about having USCC, basically having dollars backing DIE is
(08:07):
that it's quite easy to to sort of use it, right.
And so what what Maker is now focused on is
deploying it's collateral and and and really deploying capital to
real world assets. And I think one of my favorite
examples is actually, you know a small business called New Silver,
which is an American real estate shorter mortgage lender that
(08:30):
has set up the world's first decentralized line of credit.
So basically it's established a relationship where you have a
decentralized protocol maker now providing cheap and affordable credit to
a small business in the US and then turns around
and lends that out to entrepreneurs and businesses in America,
And I think that's an example of like how defy
can you know, cut through financial barriers and established these
(08:54):
direct relationships that just give better terms to regular people
add to growth in the US to a large extent.
That's the argument. That's the argument that's being put in
particular on Capital Hill right now. The force with which
cryptocurrency came to bear, you know, some of the technology
that was deployed to be able to cool your senator
with ease, when suddenly it was realized that the language
(09:16):
was like to about to get into the infrastructure bill
and is still in the infrastructure bill that's going to
the House would remain as someone who's of course got
a stable coin, but also got the maker coin as well,
which is you know, ethereum based. The whole premises upon decentralization.
How how much of a warrior is what's that in
the infrastructure bill right now for your own ecosystem? I mean,
(09:39):
so I actually think that the whole I mean, everything
that happened with the infrastructure bill, I mean, I really
like to focus on the positives because I think it
is amazing to see the level of political momentum and
the understanding on the center flaw of the advantages that
you know, defies already created. The I mean, because here's
the thing. When it comes to the benefits to the U. S.
(09:59):
Economy of defied, I mean, the most important thing to
understand is that it's disproportionately benefiting the United States. Right.
Stable coins they're basically the lifeblood of defy, and you
know all of them are U S. Dollar based, Right,
Nobody else is getting this this advantage, and this is
resulting in actually I just calculated this morning, right today,
(10:20):
already it's more than a hundred billion dollars of capital
that's been deployed into the US economy in the form
of you know, corporate bonds and treasure bills, you know,
providing investment, creating jobs. Right, and um, I mean it's
it's it's establishing the United States dollar as the internet
reserve currency. Well, okay, ruined, but I mean some of
(10:43):
the criticism the pushback to that would be, well, the
US government wants to establish the dollar as the internet
reserve currency. Are you worried at all that the Fed
the Treasury might actually come in and you serve some
of the games that you've made. So in the end,
I believe that given the I'm given the comms ation
that's already happening, and given sort of the effects and
ground in terms of just like the incredible momentum and
(11:05):
this disproportionate advantage that that defies is creating for the
US economy, I really believe that we'll see, you know,
a positive outcome that's gonna regulate the space sensibly and
promote innovation. But you know, because the reality is that
while America is right now benefiting far more than basically
any other country in the world, this is global technology, right,
(11:28):
I mean, this is technology that's completely bottomless. And if
the politicians and the regulators where to create a hostile
environment for crypto in the US, you'd simply see all
of this, all these benefits just slip away right to
another country. Um, and I really think that would be
historical mistake. So your system has actually two coins. There
are two tokens. There is the stable coin die that
(11:50):
basically maintains its peg to the dollar, and then there
is the maker token. And holders of the maker token
have done extremely well. There is a stability fee that
actually burns token. So the supply drops. It sounds very
much like a buyback. And we know that Gary Gensler,
for example, has been talking about, you know, some of
these tokens and D five maybe their equity and should
(12:12):
be treated as such. Will this be an Does this
concern you that? Or is there do you believe that
the maker token is a de factive form of equity.
I think the thing that really sets defy a pot
is the you know the fact that there's really no
single person, there's no company in charge. Right. So what
(12:34):
the maker token allows people to do is to directly
participate in governance of the system. Um so, so holders
of this token they actually directly vote with the token
on you know, questions like what collaterals should we include,
what kind of of parameters and terms should we give it? Right?
And so they're they're they're actually you know, they're looking
(12:55):
at projects like Neil Silver, which are described earlier, right,
which is talking when we're talking about lending money into
to real estate in you as, there's also other projects
like solar X, you know, a solar farm in New
in Long Island. And it's it's this transparency and this
community governance that allows people from all over the world
(13:15):
to actually sit and directly make these decisions. Right, there's
not some sort of CEO or boss or middlemen that
makes the decisions for them, right, they actually have to
do with themselves. But are you worried about a boss
being formed as regular You speak so optimistically about what
has been created in the United States already and how
indeed it could be driven off shore if regulation isn't
(13:38):
done well and right, you want to focus on the
positives that's been taken from the Senate floor. You want
to talk about the positives that already be injected by
Defy into the United States. Is there a risk the
US loses that? Well, I mean, like I said, I
still I really am very optimistic in the political momentum um,
(14:00):
and I think that it's just a simple fact that yeah, there,
I mean, there is the readily risk that this gets
driven offshore in the US, and it would probably be irreversible, right,
you would the U s would would kind of just
lose this this massive amount of capital and innovation that
sort of dropped into this lab for free essentially, and
we'll go somewhere else. You know, I'm not aware, right,
(14:20):
the United Kingdom, Switzerland, Singapore, European Union. Surely there's going
to be someplace where there are are you know, politicians
and lawmakers that want to create an environment that welcomes criptnovation.
But the reality is I mean, based on what I
heard in the Senate, right, I think that probably that
it is the US that really it's gonna take the decision.
(14:45):
He also caught up with a repeat what you miss
guess that's Sweet. Shriber is the CEO and founder of frets,
the internet marketplace for the trillion dollar international freight market.
Now We is also the author of a new book,
Money Going Out of Style, The Story of Money and
the Mystery of its Decline. Now Sweet told us why
he thinks fiat currency is in the midst of a
(15:05):
bit of a midlife crisis. We started by talking about
the important anniversary that falls on his book, launched August
the fifteen. That's the date that the US broke away
from the gold standards back in one and this fifty
year experiment it's around its course. Absolutely, it was time
to coincide with the anniversary. As you said, this weekend
(15:26):
is exactly fifty years from when Nixon unlinked the dollar
and then off the other currencies. On linked from gold.
So for thousands of years, you know, money was a
commodity or linked to a commodity, and suddenly, exactly half
a century ago, it became an intriguing and tangible thing.
And yeah, I did time the book to coincide with that,
(15:47):
acceptable that in the anniversary Fear. Currency of course is
trying to be overtaken by new and more cutting edge
crypto related currencies. But I'm interested into what you think
is going on at the moment in terms of fair currency.
When you say it's having a midlife crisis in the book,
what exactly is that crisis? What exactly printing too much
(16:08):
of it, inflationary pressures, erosion of the dollar, what is it?
You see? Yeah, I think it's a combination of printing
too much of it and then that money is not
getting spent. So in the seventies and Katie referenced deflation,
So in the seventies, the central banks printed too much
money and that resulted in inflation. But in the last
thirteen years, the central banks have really printed vast amounts
(16:32):
of money and it hasn't caused inflation. I know there's
been a little inflation in the last couple of months,
But the amount of money printed in the last thirty
years is staggering. The US based money has increased from
from about a trillion dollars in two thousand and eight
to six trillion, so it's gone up, and the actual
spending on goods and services as going only gone up
(16:52):
about fifty in the same period. So if you look
at the velocity of money, thirteen years ago, each dollar
was spent about ten times a year, so it's culated,
you know, it was paid as a salary and then
spent on goods and services ten times a year. Now
it's only about once a year. So when I called
the book money Going out of Style, I was referencing
the fact that in the last decade plus, money is
(17:14):
just not being spent. Well, I want to bring it
back to the bond market market because in your new book,
you seem very concerned about negative real interest rates. But
if we look at the bond market, we haven't seen
positive real rates at least on the tenure since March,
so it almost feels like we're at a new normal.
So why are negative real interest rates so worrying? Yeah, thanks, Katie,
(17:38):
that's a great question. I am worried about negative real
interest rates. They've been with us for a decade now,
almost almost consistently. Today, if you lend money to the U. S.
Government on a on a inflation protected bond for ten years,
you get back you're guaranteed to get back one percent
less than what you invest today. So that doesn't sound
(17:59):
very attractive, right, And this is really a whole reversal
of the way the economy works. Throughout all of history,
if you were saving, you were rewarded for saving, and
if you were borrowing, you paid for the privilege of borrowing.
In the last ten years, that believe it or not,
has got reversed. And when you say you get no
interests and in fact, after inflation, you're actually paying for
(18:21):
the privilege of of you know, saving, whereas you can
borrow if you've got good credit, you can borrow for
next to nothing. In Europe you can borrow for less
than nothing. And that that is a scary reversal of
the value of time, where people are actually you know,
paying a premium to to have things later. Yeah, you know,
it's actually I mean in this conversations of course we're
(18:43):
talking about of course the idea here too that you
have a lot of this physical stimulus coming down the
pipe here. Of course, this of course means more debt
potentially being issued by the Treasury. A little bit earlier
in the day here on Bloomberg Television, we spoke with
Chris Brightman. He's a c I O and CEO over
at Research Affiliate Partners. Here's what he had to say.
I think you put it very Siscimply, if you have
(19:04):
the Treasury wire transferring trillions of dollars of newly created
money into people's bank accounts, it's going to reduce the
value of dollars relative to goods, services, and stuff. This
seems to be the issue that a lot of people
in the market as they are concerned about here the
(19:25):
Treasury continuing to pump money out there, the idea that
over time this could actually devalue the dollar in some way.
That hasn't necessarily happened yet. I mean, with negative real yields,
with all the concerns we have, that hasn't materialized. When
do you think, if at all, we get to the
point where that does become a material factor. Well, remain
I think it may have materialized in a non obvious ways. So,
(19:48):
like you said, and like your guest Starlier said, for
the last decade plus, the FED and other central banks
have been printing money at at an incredible rate, and
the textbooks say that that should cause in Asian goods
and services should should have their price increase, and that
has not occurred, or only, you know, relatively slightly. But
instead a lot of that money has increased the prices
(20:10):
of stocks and properties and cryptocurrencies. So I think you
get this sort of ironic situation where a lot of
money is being printed and instead of driving up the
prices of goods and services, it's driving up the price
of stocks and other investments. And in the book I
do explore whether this is perhaps related to increasingly extreme inequalities.
(20:31):
So if you give money to somebody who needs more
goods and services that they'll buy more goods and services,
you give the money to someone who's already got all
the goods and services they want, they spend that money
on speculative investments. Perhaps this week we also got some
blockbuster earnings from none other than Disney. It's been such
(20:52):
an attractive stock over the years because well, the ecosystem
it's built, just think movies. Products you can buy from
those movies hotels based on those movies, even theme parks
inspired by these movies, and before the pandemic, parks business
was actually the biggest source of revenue on a percentage basis.
The numbers, of course dropped off with COVID, but now
seemed to be coming back with especially strong booking numbers
(21:13):
for cruises. We got some perspective from a man with
decades of experience in the hospitality businesses, John Gurnham, who
is managing director of the consulting group Pleasure Business Advices.
We started by asking John if he was impressed by
Disney's earnings numbers and if this looks like the road
to recovery. I am impressed. I think there was some
(21:34):
concern based off of the the latest delta variant situation,
but we'd already within the industry received some encouraging signs
from competitors such as Universal Theme Parks and the Sea
World Parks that they were still performing better than expected.
So in many ways we would expect Disney, the leader
(21:54):
of the theme park group, to perform better than expected
as well. It seems to be performing better than expect.
Did I mean we're showing uh images on the screen
now of people cleaning and people in face mask here
with regardless to the steps that Disney has taken to
make sure that not only things are clean but that
people can feel safe here, has there been any sort
of additional costs that are that are I guess material
(22:15):
enough for investors to be concerned about. Well, I think
the key thing to keep in mind here is how
critically important it is for Disney to maintain its trust
with visitors. Disney has a great brand in our industry.
People feel that Disney is a trusting company that when
you go there, they're going to be doing everything that
(22:35):
they can reasonably do to keep you safe in this situation.
And already they've done some recent steps such as bringing
back the indoor masking requirement. They put a many more
plexiglass barriers inside of chew lines and other areas you
can you can see many signs that they're doing everything
that they can. And this is so important because right
(22:57):
now we're still in a situation where actually in Florida
there is an increase in cases uh and so there's
going to be concerned. But a lot of these tourists,
and remember we're only a few weeks from the end
of the traditional summer season ending at Labor Day, A
lot of those visits have already been locked in, and
so these visitors are very likely going to come as
(23:18):
long as they are assured that Disney is doing everything
that it reasonably can to be a safe place to
visit and a safe place to work as well. John,
And what of course, is affecting so many businesses at
the moment, is it quote unquote labor shortage and ability
to get people in and working for you but at
the given wage. And there's been viral videos that reportedly
(23:41):
showing Disney World and the like if you're going to
TikTok sort of perhaps feeling the strain of that not
able to clean up at the pace that they would
wish to. How much is that something that really Disney
needs to understand and ensure that they're tackling at great haste. Well,
Disney is not only a leader and customer service within
(24:03):
our industry, of the theme park industry, but for businesses
in general, and so as a result, people expect Disney
to maintain that high level of customer services, including cleanliness
and all all that customer service entails. Of course, you know,
we all understand that there are labor shortages, and that's
going to have some impact. But as long as Disney
(24:25):
is doing everything that it can to maintain its expected
UH service levels, then they should be able to work
through this current labor shortage situation. John, what we love
about getting you on is you also speak to some
of the intangibles, some of the properties and the values
that maybe don't necessarily show up on a quarterly cash
(24:45):
flow basis, but you talk about the real estate portfolio.
With rising real estate prices across the country, how could
they also benefit from the brand, but also of course
owning some of these properties. Yes, I think it's just
all important. When you're looking at the different divisions of
Disney to keep in mind that they have fundamentally different
(25:06):
business models. The movies and the TV shows, the whole
entertainment side much more term results, much more quarterly focused
type of businesses. The theme parks, the resorts, the real
estate operations, the cruise lines, those are all long term operations.
(25:26):
And so although of course revenues profits are important as
far as how they can provide value to the to
the company, they can also help the company financially by
increasing its asset value. And if we're seeing real estate
values overall increasing. We have to remember Disney owns tens
(25:47):
of thousands of prime real estate acres uh, much of
which has already been developed, well much of it has not,
and that in the long term is an important aspect
of its operation. You know, as as exciting as the
movie and the TV side of the business are the
theme park and resort side and real estate development side
(26:10):
of the business traditionally, over the decades has provided that
long term stability and financial support and foundation that has
really helped the company in the long term and has
made it a really good long term investment. And that's
it for this week, and in fact that's it for
(26:30):
now What's you miss this week? What we're signing off?
This will be our last episode. Joe is taking a
step back from What's You miss But of course you
can still find him on odd lots of Tracy Halloway
wherever you listen to your podcasts, and of course that
newsletter Hepit's out. You can still catch me and remain
alongside Taylor Riggs every weekday. But that he took five
pm East to Numbling By TV. Thanks to everyone is
(26:53):
listened over the years have really really you
Welcome to Watch You Miss this week. I'm Caroline Hyde.
This podcast has some of our favorite interviews from the
Daily Show after the Market Close that I co anchor
along with Joe Wisenthal and remained Bostick. What do your
miss on Bloomberg TV. It's a perfect way to kick
off your weekend. This week marked a major victory for
President Biden's economic agenda, where the Infrastructure Agreement passing by
(00:30):
a massive margin in the Senate. Now, the legislation still
faces an uncertain future in the House before heading to
the President's desk, but it already is prompting questions about
how it will all be paid for. And we've got
a view on the budgetary and economic impact of the
bill John Huntley. Now he's the senior economist at the
Penwaton Budget Model who has a new report out on
the legislation. We started by asking John about the long
(00:53):
term impact on the all important deficit um, Well, the
least as compared to the compromises that they were discussing
in June, definitely increases deficits and debts a little bit. Um.
You know, they're they're depending a lot on money. It's
being returned from you know, COVID and a number of
other programs that would have been returned to the US Treasury,
(01:15):
but that money is now going to be used to
spend spend UH, to be spent on infrastructure. Answer that
will raise the debt and deficit and both shorthand long run.
When we talk about some of the provisions that we
were put in here, John specifically to try to sort
of pay for this, some would ask a why is
that even needed? If you have a bill and you
have proposals here that UH, some would argue, are actually
(01:37):
going to contribute to GDP growth? Do you know sort
of need sort of a pay in uh in order
to justify that? Doesn't the GDP growth of the potential
for that? Isn't that justification enough? Does that exist for
this bill? Um? Well, certainly for the you know, the
infrastructure is going to be productive and it will help
increase GDP, particularly over the long run. It takes a
(01:58):
long time for infrastructure to be comfort and generate additional
GDP UM. But it does matter how we pay for it.
So deficit spending has a habit of crowding out private
private capital investments. So the factories that the computers, the
equipment that generate goods and services, and so UM, deficit
spending has a habit of offsetting some of the benefits
(02:20):
from the public capital investment, and different types of taxes
and different types of revenue sources have different effects, and
they may be able to find some that have less
of an offset against the productivity benefits from from the
public public infrastructure investment. John I spent some time chatting
with people on the municipal side of this when they
think about a Scott Minor, the CEO of Guggenheim, has
(02:44):
come out and saying that issuing and paying for this
via municipal bonds or Build America bonds is it makes
cities and states partners and infrastructure investments instead of just
passive bystanders to the Fed. Why aren't we talking more
about that? Um, I'm not entirely sure. I mean, I
think people have been looking to the federal government for
(03:05):
a long time to sort of taken an active role
in promoting infrastructure, and particularly projects that span over multiple
jurisdictions where it may be more difficult to get municipalities
to agree on the terms and the types of projects
to be built. And so I think that that why
they're they're emphasizing sort of federal involvement because it's it's
in some ways easier for the federal government to get
(03:26):
some of these projects across because uh, you know, they're
lending incentives for these for the municipalities and the state
and local governments to work together to build new infrastructure
um and it might be more difficult for them to
to pursue these projects on their own. John, I want
to go back to how your analysis originally when when
in June the original infrastructure bill you thought led to
(03:49):
higher GDP, whereas now you feel the deficits are higher
and this proposal versus the earlier version. Can you remind
us exactly why what is it that's going on that
makes you feel that GDP just isn't going to be
as injected with with growth as it wasn't the first version.
Absolutely so, in the first version there were more there
are more sources of revenues. In particular, they had allocated
(04:12):
UM there they're anticipating about a hundred billion dollars from
an increase in i r S enforcement so that the
i r S would be able to do investigations and
world audits, and that would generate some significant amount of money, uh,
and that that would continue to raise money beyond the
tenure window over which you know, the Congressional Budget Office
and we look and and so we anticipated the debt
would actually go down in the long run and we'd
(04:33):
be crowding in a little bit of private capital. We've
been encouraging a little bit more investment from private households
um so that would be to hire GDP. The current
bill has um you know, spends a lot more unused
funds and things that we think will increase the deficit
in debt over the long run. I mean, but as
you sort of model this over at Penn Wharton, John,
I'm wondering, how do you sort of factor in. I
(04:54):
guess the intangibles are sort of maybe the second order
benefits of these types of bills. You talk about a
hundred and plus billion dollars for roads, bridges and other
types of infrastructure projects. You talk about public transit, you
talk about airport facilities. These are all things that at
least in the past, we've pointed to and said dis
encourages private business development, encourages a lot of other things
(05:14):
that could generate revenue. And I'm saying how do you
actually factor that into a model when it's not necessarily
a one for one equation. No, that's a great question. Um,
that's really the core of what we're doing here. Is
it work. When we build public infrastructure. We're raising the
productivity in our model and theoretically in real life UM
of people, of workers of capital. You know, you're making
(05:36):
people as trucks more effective. You know, they can get
goods to where they're going faster. You know, if you
have better airports, they're spending less time on the ground
waiting their landing slot times. Um. These sorts of things
are directly reflected in GDP, and they're reflected in our
model as well. UM. Some of the infrastructure projects, particularly
water infrastructure, may not be as well measured by GDP.
(05:57):
In those cases, they have some significant you know, health
benefence after the communities in which these investments are made
and may not actually be captured by an analysis. Now
we had to invite back a guest who got cut
off last week. Ruined Christensen is the co founder of
Make a Doo and who was set to join us
last week, but due to some technical difficulties, it cut
(06:18):
that conversation short. Now it prompted some pretty wild conspiracy
theories across social media. I think at one point I
even became a crypto meme. But we had to get
back to that conversation, that interview to talk about the
future of crypto, of stable coins, of indeed the ecosystem
is Remember the Infrastructure Bill was in some way almost
(06:38):
hijacked because of a cryptocurrency focus. We started by asking
Roon about the different mechanics of decentralized stable coins, which
is what make it ours building. Yeah, I mean really,
the basic idea under being defied is that, you know,
the financial infrastructure of the future should not be controlled
(06:59):
by a single person or a single group making decisions
behind closed dolls. Right. We think that creating financial infrastructure
that is controlled openly with decision making processes that involves
you know, stakeholders of all kinds. Um, it's just going
to be you know, a better and more equitable infrastructure
for the future of finance. So, okay, you're stable coin
(07:24):
Die is backed by a range of crypto assets opposed
as opposed to one dollar for one dollar and a
bank somewhere, so it's more decentralized. That makes them one
of the biggest assets that people pledge as collateral is
the centralized stable coin U S d C. Are you
therefore backdoor centralized if a sort of a regular if
(07:45):
a centralized stable coin is one of the biggest assets
back in your coin, I mean, it's definitely not ideal
that right now most of the collateral is in a
single asset, because basically the idea behind the decentralized stable
coin like DIE is that you want to really diver
sify the collateral that use. But I mean, the great
thing about having USCC, basically having dollars backing DIE is
(08:07):
that it's quite easy to to sort of use it, right.
And so what what Maker is now focused on is
deploying it's collateral and and and really deploying capital to
real world assets. And I think one of my favorite
examples is actually, you know a small business called New Silver,
which is an American real estate shorter mortgage lender that
(08:30):
has set up the world's first decentralized line of credit.
So basically it's established a relationship where you have a
decentralized protocol maker now providing cheap and affordable credit to
a small business in the US and then turns around
and lends that out to entrepreneurs and businesses in America,
And I think that's an example of like how defy
can you know, cut through financial barriers and established these
(08:54):
direct relationships that just give better terms to regular people
add to growth in the US to a large extent.
That's the argument. That's the argument that's being put in
particular on Capital Hill right now. The force with which
cryptocurrency came to bear, you know, some of the technology
that was deployed to be able to cool your senator
with ease, when suddenly it was realized that the language
(09:16):
was like to about to get into the infrastructure bill
and is still in the infrastructure bill that's going to
the House would remain as someone who's of course got
a stable coin, but also got the maker coin as well,
which is you know, ethereum based. The whole premises upon decentralization.
How how much of a warrior is what's that in
the infrastructure bill right now for your own ecosystem? I mean,
(09:39):
so I actually think that the whole I mean, everything
that happened with the infrastructure bill, I mean, I really
like to focus on the positives because I think it
is amazing to see the level of political momentum and
the understanding on the center flaw of the advantages that
you know, defies already created. The I mean, because here's
the thing. When it comes to the benefits to the U. S.
(09:59):
Economy of defied, I mean, the most important thing to
understand is that it's disproportionately benefiting the United States. Right.
Stable coins they're basically the lifeblood of defy, and you
know all of them are U S. Dollar based, Right,
Nobody else is getting this this advantage, and this is
resulting in actually I just calculated this morning, right today,
(10:20):
already it's more than a hundred billion dollars of capital
that's been deployed into the US economy in the form
of you know, corporate bonds and treasure bills, you know,
providing investment, creating jobs. Right, and um, I mean it's
it's it's establishing the United States dollar as the internet
reserve currency. Well, okay, ruined, but I mean some of
(10:43):
the criticism the pushback to that would be, well, the
US government wants to establish the dollar as the internet
reserve currency. Are you worried at all that the Fed
the Treasury might actually come in and you serve some
of the games that you've made. So in the end,
I believe that given the I'm given the comms ation
that's already happening, and given sort of the effects and
ground in terms of just like the incredible momentum and
(11:05):
this disproportionate advantage that that defies is creating for the
US economy, I really believe that we'll see, you know,
a positive outcome that's gonna regulate the space sensibly and
promote innovation. But you know, because the reality is that
while America is right now benefiting far more than basically
any other country in the world, this is global technology, right,
(11:28):
I mean, this is technology that's completely bottomless. And if
the politicians and the regulators where to create a hostile
environment for crypto in the US, you'd simply see all
of this, all these benefits just slip away right to
another country. Um, and I really think that would be
historical mistake. So your system has actually two coins. There
are two tokens. There is the stable coin die that
(11:50):
basically maintains its peg to the dollar, and then there
is the maker token. And holders of the maker token
have done extremely well. There is a stability fee that
actually burns token. So the supply drops. It sounds very
much like a buyback. And we know that Gary Gensler,
for example, has been talking about, you know, some of
these tokens and D five maybe their equity and should
(12:12):
be treated as such. Will this be an Does this
concern you that? Or is there do you believe that
the maker token is a de factive form of equity.
I think the thing that really sets defy a pot
is the you know the fact that there's really no
single person, there's no company in charge. Right. So what
(12:34):
the maker token allows people to do is to directly
participate in governance of the system. Um so, so holders
of this token they actually directly vote with the token
on you know, questions like what collaterals should we include,
what kind of of parameters and terms should we give it? Right?
And so they're they're they're actually you know, they're looking
(12:55):
at projects like Neil Silver, which are described earlier, right,
which is talking when we're talking about lending money into
to real estate in you as, there's also other projects
like solar X, you know, a solar farm in New
in Long Island. And it's it's this transparency and this
community governance that allows people from all over the world
(13:15):
to actually sit and directly make these decisions. Right, there's
not some sort of CEO or boss or middlemen that
makes the decisions for them, right, they actually have to
do with themselves. But are you worried about a boss
being formed as regular You speak so optimistically about what
has been created in the United States already and how
indeed it could be driven off shore if regulation isn't
(13:38):
done well and right, you want to focus on the
positives that's been taken from the Senate floor. You want
to talk about the positives that already be injected by
Defy into the United States. Is there a risk the
US loses that? Well, I mean, like I said, I
still I really am very optimistic in the political momentum um,
(14:00):
and I think that it's just a simple fact that yeah, there,
I mean, there is the readily risk that this gets
driven offshore in the US, and it would probably be irreversible, right,
you would the U s would would kind of just
lose this this massive amount of capital and innovation that
sort of dropped into this lab for free essentially, and
we'll go somewhere else. You know, I'm not aware, right,
(14:20):
the United Kingdom, Switzerland, Singapore, European Union. Surely there's going
to be someplace where there are are you know, politicians
and lawmakers that want to create an environment that welcomes criptnovation.
But the reality is I mean, based on what I
heard in the Senate, right, I think that probably that
it is the US that really it's gonna take the decision.
(14:45):
He also caught up with a repeat what you miss
guess that's Sweet. Shriber is the CEO and founder of frets,
the internet marketplace for the trillion dollar international freight market.
Now We is also the author of a new book,
Money Going Out of Style, The Story of Money and
the Mystery of its Decline. Now Sweet told us why
he thinks fiat currency is in the midst of a
(15:05):
bit of a midlife crisis. We started by talking about
the important anniversary that falls on his book, launched August
the fifteen. That's the date that the US broke away
from the gold standards back in one and this fifty
year experiment it's around its course. Absolutely, it was time
to coincide with the anniversary. As you said, this weekend
(15:26):
is exactly fifty years from when Nixon unlinked the dollar
and then off the other currencies. On linked from gold.
So for thousands of years, you know, money was a
commodity or linked to a commodity, and suddenly, exactly half
a century ago, it became an intriguing and tangible thing.
And yeah, I did time the book to coincide with that,
(15:47):
acceptable that in the anniversary Fear. Currency of course is
trying to be overtaken by new and more cutting edge
crypto related currencies. But I'm interested into what you think
is going on at the moment in terms of fair currency.
When you say it's having a midlife crisis in the book,
what exactly is that crisis? What exactly printing too much
(16:08):
of it, inflationary pressures, erosion of the dollar, what is it?
You see? Yeah, I think it's a combination of printing
too much of it and then that money is not
getting spent. So in the seventies and Katie referenced deflation,
So in the seventies, the central banks printed too much
money and that resulted in inflation. But in the last
thirteen years, the central banks have really printed vast amounts
(16:32):
of money and it hasn't caused inflation. I know there's
been a little inflation in the last couple of months,
But the amount of money printed in the last thirty
years is staggering. The US based money has increased from
from about a trillion dollars in two thousand and eight
to six trillion, so it's gone up, and the actual
spending on goods and services as going only gone up
(16:52):
about fifty in the same period. So if you look
at the velocity of money, thirteen years ago, each dollar
was spent about ten times a year, so it's culated,
you know, it was paid as a salary and then
spent on goods and services ten times a year. Now
it's only about once a year. So when I called
the book money Going out of Style, I was referencing
the fact that in the last decade plus, money is
(17:14):
just not being spent. Well, I want to bring it
back to the bond market market because in your new book,
you seem very concerned about negative real interest rates. But
if we look at the bond market, we haven't seen
positive real rates at least on the tenure since March,
so it almost feels like we're at a new normal.
So why are negative real interest rates so worrying? Yeah, thanks, Katie,
(17:38):
that's a great question. I am worried about negative real
interest rates. They've been with us for a decade now,
almost almost consistently. Today, if you lend money to the U. S.
Government on a on a inflation protected bond for ten years,
you get back you're guaranteed to get back one percent
less than what you invest today. So that doesn't sound
(17:59):
very attractive, right, And this is really a whole reversal
of the way the economy works. Throughout all of history,
if you were saving, you were rewarded for saving, and
if you were borrowing, you paid for the privilege of borrowing.
In the last ten years, that believe it or not,
has got reversed. And when you say you get no
interests and in fact, after inflation, you're actually paying for
(18:21):
the privilege of of you know, saving, whereas you can
borrow if you've got good credit, you can borrow for
next to nothing. In Europe you can borrow for less
than nothing. And that that is a scary reversal of
the value of time, where people are actually you know,
paying a premium to to have things later. Yeah, you know,
it's actually I mean in this conversations of course we're
(18:43):
talking about of course the idea here too that you
have a lot of this physical stimulus coming down the
pipe here. Of course, this of course means more debt
potentially being issued by the Treasury. A little bit earlier
in the day here on Bloomberg Television, we spoke with
Chris Brightman. He's a c I O and CEO over
at Research Affiliate Partners. Here's what he had to say.
I think you put it very Siscimply, if you have
(19:04):
the Treasury wire transferring trillions of dollars of newly created
money into people's bank accounts, it's going to reduce the
value of dollars relative to goods, services, and stuff. This
seems to be the issue that a lot of people
in the market as they are concerned about here the
(19:25):
Treasury continuing to pump money out there, the idea that
over time this could actually devalue the dollar in some way.
That hasn't necessarily happened yet. I mean, with negative real yields,
with all the concerns we have, that hasn't materialized. When
do you think, if at all, we get to the
point where that does become a material factor. Well, remain
I think it may have materialized in a non obvious ways. So,
(19:48):
like you said, and like your guest Starlier said, for
the last decade plus, the FED and other central banks
have been printing money at at an incredible rate, and
the textbooks say that that should cause in Asian goods
and services should should have their price increase, and that
has not occurred, or only, you know, relatively slightly. But
instead a lot of that money has increased the prices
(20:10):
of stocks and properties and cryptocurrencies. So I think you
get this sort of ironic situation where a lot of
money is being printed and instead of driving up the
prices of goods and services, it's driving up the price
of stocks and other investments. And in the book I
do explore whether this is perhaps related to increasingly extreme inequalities.
(20:31):
So if you give money to somebody who needs more
goods and services that they'll buy more goods and services,
you give the money to someone who's already got all
the goods and services they want, they spend that money
on speculative investments. Perhaps this week we also got some
blockbuster earnings from none other than Disney. It's been such
(20:52):
an attractive stock over the years because well, the ecosystem
it's built, just think movies. Products you can buy from
those movies hotels based on those movies, even theme parks
inspired by these movies, and before the pandemic, parks business
was actually the biggest source of revenue on a percentage basis.
The numbers, of course dropped off with COVID, but now
seemed to be coming back with especially strong booking numbers
(21:13):
for cruises. We got some perspective from a man with
decades of experience in the hospitality businesses, John Gurnham, who
is managing director of the consulting group Pleasure Business Advices.
We started by asking John if he was impressed by
Disney's earnings numbers and if this looks like the road
to recovery. I am impressed. I think there was some
(21:34):
concern based off of the the latest delta variant situation,
but we'd already within the industry received some encouraging signs
from competitors such as Universal Theme Parks and the Sea
World Parks that they were still performing better than expected.
So in many ways we would expect Disney, the leader
(21:54):
of the theme park group, to perform better than expected
as well. It seems to be performing better than expect.
Did I mean we're showing uh images on the screen
now of people cleaning and people in face mask here
with regardless to the steps that Disney has taken to
make sure that not only things are clean but that
people can feel safe here, has there been any sort
of additional costs that are that are I guess material
(22:15):
enough for investors to be concerned about. Well, I think
the key thing to keep in mind here is how
critically important it is for Disney to maintain its trust
with visitors. Disney has a great brand in our industry.
People feel that Disney is a trusting company that when
you go there, they're going to be doing everything that
(22:35):
they can reasonably do to keep you safe in this situation.
And already they've done some recent steps such as bringing
back the indoor masking requirement. They put a many more
plexiglass barriers inside of chew lines and other areas you
can you can see many signs that they're doing everything
that they can. And this is so important because right
(22:57):
now we're still in a situation where actually in Florida
there is an increase in cases uh and so there's
going to be concerned. But a lot of these tourists,
and remember we're only a few weeks from the end
of the traditional summer season ending at Labor Day, A
lot of those visits have already been locked in, and
so these visitors are very likely going to come as
(23:18):
long as they are assured that Disney is doing everything
that it reasonably can to be a safe place to
visit and a safe place to work as well. John,
And what of course, is affecting so many businesses at
the moment, is it quote unquote labor shortage and ability
to get people in and working for you but at
the given wage. And there's been viral videos that reportedly
(23:41):
showing Disney World and the like if you're going to
TikTok sort of perhaps feeling the strain of that not
able to clean up at the pace that they would
wish to. How much is that something that really Disney
needs to understand and ensure that they're tackling at great haste. Well,
Disney is not only a leader and customer service within
(24:03):
our industry, of the theme park industry, but for businesses
in general, and so as a result, people expect Disney
to maintain that high level of customer services, including cleanliness
and all all that customer service entails. Of course, you know,
we all understand that there are labor shortages, and that's
going to have some impact. But as long as Disney
(24:25):
is doing everything that it can to maintain its expected
UH service levels, then they should be able to work
through this current labor shortage situation. John, what we love
about getting you on is you also speak to some
of the intangibles, some of the properties and the values
that maybe don't necessarily show up on a quarterly cash
(24:45):
flow basis, but you talk about the real estate portfolio.
With rising real estate prices across the country, how could
they also benefit from the brand, but also of course
owning some of these properties. Yes, I think it's just
all important. When you're looking at the different divisions of
Disney to keep in mind that they have fundamentally different
(25:06):
business models. The movies and the TV shows, the whole
entertainment side much more term results, much more quarterly focused
type of businesses. The theme parks, the resorts, the real
estate operations, the cruise lines, those are all long term operations.
(25:26):
And so although of course revenues profits are important as
far as how they can provide value to the to
the company, they can also help the company financially by
increasing its asset value. And if we're seeing real estate
values overall increasing. We have to remember Disney owns tens
(25:47):
of thousands of prime real estate acres uh, much of
which has already been developed, well much of it has not,
and that in the long term is an important aspect
of its operation. You know, as as exciting as the
movie and the TV side of the business are the
theme park and resort side and real estate development side
(26:10):
of the business traditionally, over the decades has provided that
long term stability and financial support and foundation that has
really helped the company in the long term and has
made it a really good long term investment. And that's
it for this week, and in fact that's it for
(26:30):
now What's you miss this week? What we're signing off?
This will be our last episode. Joe is taking a
step back from What's You miss But of course you
can still find him on odd lots of Tracy Halloway
wherever you listen to your podcasts, and of course that
newsletter Hepit's out. You can still catch me and remain
alongside Taylor Riggs every weekday. But that he took five
pm East to Numbling By TV. Thanks to everyone is
(26:53):
listened over the years have really really you
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