Lesson 3: WTF is Inflation?

0:00Bitcoin 101 inflation and inflation from first principles not jargon not nonsense not garbage Really what is this thing? How does it work? Why is it here? And if we all adopt Bitcoin will it still be here? Can we solve for inflation? Okay, it's felt necessary for me Firstly, let's start with the experience of inflation because people get lost in Definitions which really pisses me off. This is like well technically according to Harvard inflation No, how about you? How about Let's just talk about the experience of inflation I've experienced inflation everyone listening to this has experienced inflation Don't man explain me don't treat me like a moron like an idiot like a peasant I know what it is because I've lived it This is what inflation is a hundred dollars of groceries used to get you a full card of groceries A hundred dollars of groceries today only gets you some of a cart of groceries The same monetary units the same hundred dollars gets you less stuff

1:01That's what inflation is that's the experience of it And it doesn't matter how educated someone is what their religious beliefs are what their political beliefs are What their demographic is it does not matter We've all experienced it and I don't need to go to Harvard or actually understand what the technical definition is You that's what inflation is we all know it because we've all lived it now on this screen for the podcast listeners This is the cost of living in 1970 what's the relevance of 1970 well It was the last full calendar year before the dollar divorced itself from the gold standard Which allowed politicians in the central bank to print unlimited amounts of it in theory You weren't allowed to print dollars when one dollar represented a specific amount of gold You can only have outstanding dollars that back to the gold you had in the vault But when you sever the relationship between the dollar notes floating around in our pockets And the gold that's actually in the vault then you can create as many dollars as you want which results in inflation

2:04So let me read to you guys what the cost of living was in 1970 A new house was 23,000 dollars 23,450 The average income was 9,400 dollars in 1970 A new car was 3450 dollars a movie ticket was one dollar and 55 cents Gasoline was 36 cents a gallon A postage stamp was six cents Bread was a quarter 25 cents Now fast forward to today Same dollars same country same everything Same everything we didn't move We didn't change nations we didn't change currencies We didn't we the people didn't do anything wrong we didn't do And the now the problem is well what's everything cost today and I'll get more into this in a second

3:10Well, what's a new house today jack it was 23,000 dollars in 1970 what is it today? Well, it depends what type of house do you want? Do you want to live on Miami Beach or do you want to live in rural Kansas? Well jack what's a new car cost it used to be 3400 dollars Well, it depends do you want to drive a used Toyota camera or do you want to roll his Royce? You see So let's first start Back to inflation man this topic gets me wound up I apologize, but holy moly it just once you understand Basics which I really hope this show gives you guys It should infuriate you what these people have done infuriate you So there is a group of people that think inflation is good. I this is not this is not satire. I swear to god Okay mainstream economists say inflation is good and this is what's called canesian economics

4:15Now this is their legitimate claim and by the way, this is what they teach in school They teach this in school. This is like if you pay $40,000 of tuition a year to learn economics. This is what you learn They claim that if money were to hold its value You would wait to buy things And they think that's a bad thing they think delayed gratification and low time preference is bad So Prices must rise a little bit which is another way of saying erosion of your purchasing power in erosion of the value of your money Must happen a little bit to keep you spending all the time therefore The economy this whole thing called the economy Can be acting and behaving to our standards That guys I'm not this is not a joke. I swear to you

5:16This is canesian economics on inflation They say if your currency was hard and held value Well, then you wouldn't wake up and spend all of it every single day In order to keep the economy humming and keep keep all the economic data churning through We have to inflate things just a little bit so that you're incentivized to spend it today rather than save it for tomorrow and so As a result of all of this someone has to sit at the dial and set the cost of money That's why Kevin Worsh is there how dare I disrespect Kevin Worsh Kevin Worsh is sitting there looking at all this data In analyzing to the perfect tune What the cost of money is and how much my life should be inflated away Just so that if I wanted to save money I shouldn't and I should go out and spend it on on dumb sh** Guys, I'm not joking. This is quite literally the economic reasoning for inflation because you everyone have heard this

6:21Two percent is the inflation target the target how about the target is zero No, no, no, zero would be too low Then you would have a low time preference then you'd have delayed gratification Then you would save a lot of money for your future. We can't have that This is the claim now What is the hard money theory? What is my opinion? What is the opinion of a bitcoiner? Okay? the opinion is that Nobody asks me how badly I want to spend I want to spend because I'm human as a human I naturally want to consume Kevin Worsh does if Kevin Worsh raises or lowers rates in September I'm still going to be hungry. I'm still going to want a car rather than walk I'm still going to want to fly united rather than kayak to Europe I'm still going to want a penthouse rather than a sh** condo I'm still going to want to live on Miami Beachfront real estate rather than a sh**

7:22apartment in midwestern America I want to consume The what I've earned no matter what Kevin Worsh decides in September it is so offensive For these people to make the claim that my desire to consume what I've earned is based on their economic phenomena of data analysis that Do in private unauditable What in what an offensive thing to claim That they understand the quality of life that I want No things need to be inflating in your life jack because trust me you wouldn't want to be saving for your future How the f**k do you know what I want? You have no idea if I want to get married next year How many kids I want if my family is sick if I want to move to the suburbs or if I want to live in an urban city Who are you to determine my life my consumption?

8:27It's it is it is outrageous But this is the problem this is the problem that we have From government getting too big in money being essentially planned entry in a database It's sorry this topic it gets me so wound up it really bothers me So anyways That my my claim the heart money claim is the opposite of my money should hold the value things around me should get cheaper over time And it is a good thing for me to be saving it is a good thing for me to have delayed gratification It is a good thing for me to place a premium on tomorrow It is It is of a high functioning society for me to have the belief that tomorrow could be and should be and will be better than today That is necessary or else I've made this point a million times I would just eat donuts and get fat tonight because who cares about tomorrow?

9:30I would get blackout drunk tonight because who cares about tomorrow? I would spend all my savings tonight because who cares about tomorrow? And that's a lot of what goes on in society is a discount to tomorrow and inability to lower their time preference and inability to delay gratification High time preference spending and it just devastation of value today of health Of wealth of capital of family of everything It's it's utterly popostrous honestly So it's in the mechanics of inflation We must understand this more money does not create what I call wealth and by wealth I mean what's the difference between monetary units and the things that they actually are purchasing So what I describe wealth in this slide is food housing energy machinery labor software medicine transportation These are the things you can't actually print now monetary units like dollars you can print

10:32So what I'm calling is money or claims used to command these resources so I have dollars as a as a means to command more food or more housing or more energy the more dollars that I have the more I can command these resources But by printing more dollars It does not automatically create more stuff meaning this if I have let's let's take a very simple economy for the sake of the math If I have 10 real resources in the economy and I have 10 monetary claims on those resources Now let's say I increase the monetary claims by 50 percent Meaning I go from 10 monetary claims in the economy to 15 monetary claims I still only have 10 real resources. I cannot print Doctors buildings cars. I can't print these things Yes, I can print monetary claims on these things, but I can't print the things therefore Here's the the the main point of this is that inflation

11:36Creates the illusion of productivity and the illusion of growth and the illusion of innovation But it is no it is not real It is not real which causes these boom and bust cycles Because you can't print all of the things that the money has acclaimed to which is what causes the prices to rise So I give you this example. Let's say you have 10 bushels of corn okay Let's say you plan to eat six in plant four So that you can produce more corn that's your total of ten Now if I could inflate real things I would say you know what I'm a little more hungry than eating six But I still want a plant for so I've decided to eat seven bushels of corn in plant four Yeah, but jackass you can't because that would mean you have 11 bushels of corn But you don't have 11 bushels of corn you have ten

12:38So that's not an option you have to and we've talked about this in one of the earlier 101 episodes You have to make these decisions at the margins you have to decide how hungry are you versus how much do you want to optimize for your future You can either eat seven in plant three or eat six in plant four But you have ten bushels of corn period sorry And we must understand the difference between real resources and their inability to be inflated and printed out of thin air Versus paper claims that we use as a means to command these real resources A piece of paper cannot create the 11th bushel of corn. I've talked about this before One of the things that's happening right now is there's a serious demand for commodities because AI infrastructure is being built all over the world And guess what you cannot build an AI data center with you can't build it with silver futures contracts turns out you need real silver And so we've created the illusion

13:40That there's an abundance of silver But when people actually need the real silver Well there goes the price there goes the price of gold there goes the price of Bitcoin Do you understand So credit can change who gets the resources, but it cannot create resources themselves So more credit in the system cannot create another worker in the workforce It cannot create another acre of land. It cannot create another power plant It can't create another GPU for AI. It cannot create another barrel of oil It can create another claim To command these resources But on a relative basis this these resources remain relatively fixed So this is what happens when they create more money and more credit That creates more bidding for the same things So if I have 10 Resources in the economy and 10 paper claims against those resources There's one paper claim per resource now if I create 15

14:43Reese uh paper claims to only 10 resources will now I have more than one paper claim per resource So a resource will now be worth more than one paper claim the price of the resource went on When denominated in paper claims That is inflation. That's how price is rise You create more money and more credit. There's more bidding for the same things That means real supply grows slowly if at all Sometimes more paper claims will grow the supply of the real stuff because there's more money to produce more But take Bitcoin for example You can't make any more Bitcoin so more people paper claims just make Bitcoin's price go higher So then at the very end you get adjustment in pricing Which is guys this is why inflation reduces your purchasing power one monetary paper claim gets you less of the goods it's competing for the more units that they create Now we must understand that inflation is uneven

15:44Okay, this is critically important inflation is not spread evenly like okay, we're gonna devalue the dollars, but at least everyone Feels it evenly and benefits from it evenly that I wish that was the case that is not the case So first they create new money and new credit in the system then asset prices rise government spending increases lending increases at the fundamental level like banks are giving out more loans only later after that Do wages get impacted? rents get impacted Services get impacted and then only after that way after that do consumer prices get impacted like the cost of your food But let me put it to you guys this way Let's say the US government is gonna print all sorts of money which they kind of have already started to do Now if I was a hedge fund that got access to some of these so let me hold on let me slow down

16:46Slow down for a second One way the US government can print money Is making it easier to create credit create loans so they can go to the banks and say hey You can take certain collateral from hedge funds and from Wall Street folks and treat that collateral as in the money good no matter what So treat all of their treasuries all of their bonds as in the money good unlimited leverage against it Okay, now banks are gonna issue a lot more credit and that's gonna be highly inflationary and they're creating a lot more monetary claims on the stuff in the economy right like we just went over but who gets access to those loans Do's your neighbor does your old high school classmate? No the normal person doesn't get access to that who gets access to that hedge funds Wall Street So who gets to buy Bitcoin with unlimited leverage with freshly printed currency because of the government To buy Bitcoin at 60k who gets access to that now by the time

17:50All of this spreads through the economy so that your neighbors got the got the inflation adjusted promotion like hey, we gave you a bonus or we gave you a raise or we gave you a promotion Because inflation but they got that promotion one year later two years later Bitcoin is at 250k So the hedge funds on Wall Street got to buy Bitcoin at 60k the day that bessent made that announcement And your neighbor gets to buy Bitcoin with their new promotion bonus, but Bitcoin's at 250k Well, who got to benefit from inflation? The guy with unlimited leverage at 60k or your neighbor who's buying the top You see So that's what I put on this slide Everyone's money and prices don't reset at the same time So your salary once a year your rent once a year, but how often do your food prices change More frequently how often do home prices change every single day?

18:54How often do stock prices change Between market and close how often does the Bitcoin price change 24 7 365 You see inflation is not even This is why I saw fair and this is why everyone must own Bitcoin Bitcoin is the most sensitive instrument we have access to To monetary liquidity as soon as money starts getting printed Bitcoin reacts immediately So we all get access to own the thing that performs the best in the face of all of this Like our neighbor can own Bitcoin can be DCing even if it's a dollar a week So I made this point earlier and I have to reiterate it Now we get on to well, what's the rate of inflation when Kevin Worc says our target is 2% what is he talking about? Don't even I've already displayed enough emotion on the show don't even get me started Listen, there is no such thing as the inflation rate

19:55Because again, these are implying that they know what you want I'll tell you the inflation rate, but you have to tell me what you want Do you want to live on the beach in Miami? Or do you want to live in an apartment in rural Kansas? Totally different inflation rates Do you want to be eating grass fed ribbys or do you want to be eating porridge slop? Totally different inflation rates Do you want to be driving a rural's voice or are you okay walking? Totally different inflation rates So the notion that there is in inflation rate that they can measure implies they know how I want to live You guys don't know me you didn't consult with me you have no right to tell me How I should be saving and how I should be living garbage manipulative tactical garbage

20:56Sorry And you guys don't know there's a lot of people out there that will ping me and say hey you got to be careful about How you talk about government on your show or who you're calling out That ship has sailed brother I I'm a man of the people Through and through at this point. I've made that decision that ship is gone I'm gonna call it how I see it. It's garbage and I'm not saying it's the Trump administration's fault It's not best since fault. It's not wortches fault. This is decades in the making But I call it how I see it garbage So what I have here on the slide How how about learning math? What's the inflation rate for learning math? Well learning math has gotten Incredibly cheap You could talk to your AI agent in your phone and you got that app for free. You could look it up on YouTube So much productivity. There's an abundance of accessible information that can teach you base level math

21:57That's incredible amazing What about a Caesar salad? Well a Caesar salad is there's not really inflation I don't expect there ever to be inflation for a Caesar salad because that's pleb Slop food. That's not real nutrition If you if what you want to do for the rest of your life is cut leaves off a tree and put dressing on it and call that dinner Then yeah No inflation So if what you want out of your life is to learn math and eat leaves off a tree No inflation. You're good What about things like college tuition? College tuition could be considered learning math No, no, no, but I mean I wanted to join a fraternity and I wanted to go to football games And I wanted to learn more than just mathematics and I wanted to build towards a career And I wanted to have relationship with professors and I wanted to meet who my future wife and the future mother and my children is gonna be That's what I meant by learning math. Oh that learning math. Oh Well, this is why you must be specific if you want to learn math go on YouTube. Oh, you want to go to college? Oh, yeah, no, no, the inflation rate of that is

22:59tens of percent a year Okay, what about health care? Well, if you just eat salad every single meal and you don't give yourself proper nutrition and you get disease Oh, okay So you are willing to eat salad, but you're not willing to just be malnourished and die. Oh, yeah, well health care That that's that's really really expensive. So you tell me what you want and I'll tell you the inflation rate So anytime anyone says oh, I know the inflation rate liars liar liar liar they don't know what you want They don't know what you want to consume I'll tell you the inflation rate the inflation rates very easy to measure think about Bitcoin. I want Bitcoin What's the inflation rate of Bitcoin? Well, it's its cager Bitcoin goes up 40% a year on average So unless I'm getting a 41% raise every single year In Bitcoin terms, I'm not going to be able to acquire the same amount of Bitcoin every single year When I got into Bitcoin over a decade ago I was able to buy a lot more Bitcoin than I can today Of course, I'm not making as much money in Bitcoin terms and I was years ago hundreds of thousands of bitcoins was the average of was that was one

24:06average home when I got into Bitcoin now in average homes like three bitcoins So right I'll tell you the inflation rate tell me what you want. Oh, you don't want to save in Bitcoin You want to save in plebslot bonds. Oh inflation rates not bad. You're good You're good So who gets the money? This is the contillion effect who gets the money first matters obviously because if they're going to create new currency Whoever gets it first wins because they get to spend it before the prices have adjusted They get to buy Bitcoin at 60k they get to buy all the eggs before the price goes up They get to hoard all the beef before the price of beef goes up whoever gets the money late Has to consume the adjusted prices This is why it's so unfair and it's so uneven So if you owe a fixed amount of dollars weaker currency can help this ties it back to the macro section If my debt is fixed in dollar terms and the dollar is getting weaker

25:09Well, then it's easier to earn that amount of dollars to pay the debt back. You understand Let me go all the way back to the 1970s slide In 1970 the cost or the average income was $9400 guys Crazy So meaning And today what's the average income? I don't know the answer But how easy is it to make $9400 today? It's not that hard right Relative it in 1970 it took you a whole year to make $9400 Today It takes you less than a year to make $9400 so by making the dollar cheaper and devaluing it and debasing it It's easier to pay back debt. Let's say I owed someone $9400 and that's been fixed since 1970 Well, it used to take me a year to earn that and pay them back now it does not take me nearly a year You understand so

26:09That is why Governments try and have their expenses fixed in dollars and then devalue the dollar It's easier for them to pay it back. That's that whole debt to GDP concept. We've already went over that so in this situation Where the dollar is getting inflated and inflation is happening in our lives and especially when they're fixing the cost They're willing to pay on their debt Who loses the lender and the currency holders? You're claim you lent the money and they owe you money back What the the claim that they owe you back is going to get you less stuff by the time they pay you back Because they are going to have inflated it away and the inflation is going to be rising faster than the yield that they're paying you So in this era I cannot stress enough Do and I know and I know people are saying you can't say that the government's going to be pissed if they hear you I don't care I guess I'm telling the truth. This is either freedom of speech or we're not living in the America. I thought

27:11Do not own bonds Do not own the dollar This is why we own Bitcoin They cannot think of Bitcoin like a bond that has zero yield but infinite price that no one can control That's what I want to own you're yield. I don't give a fuck about your yield You're not going to pay me the yield of the inflation rate anyway I'm not expecting you to make me hold on yield. I want something that floats truly in a free market in the dollar price So that when you print money and it goes up 25% in three days just like that. That's what I want to own So I will not own dollars and I will not lend you guys money zero percent chance And the people that that's continue to hold dollars and continue to lend the government money those are the losers now quickly to end this whole episode Let's talk about what would the world look like on a Bitcoin standard Can living on a Bitcoin standard fix this the answers yes So Back to basics what happens when demand for money rises well in a soft money system when demand for money rises

28:14They can just print more money. So right now Scott Besson really needs more money people aren't willing to lend him money What can he do he can just print his own money and what does that do that results in inflation? Which we just went over very straightforward from a first principles basis and these guys are inventing metrics like the inflation rate And they're telling you you need inflation or or else you'd save how offensive is that god? I can't get over that we design inflation in the system or else you'd save for your future You guys so they force you to spend They they supposedly understand what quality of life you want and what goods and services you want to consume I'll utterly and completely ridiculous all of that. That's what a soft money standard is now on a Bitcoin standard I'm not even a call Bitcoin a hard money standard because it's a fixed money standard a hard money standard would be gold But you could still create more gold a fixed money standard Demand goes up and you cannot print the money if what Scott Besson needed was Bitcoin and not dollars

29:17He'd have to go buy it from guys like me. You can't print Oh You want Bitcoin Scott offer me a good price and maybe just maybe I'll go into cold storage and sell you a little bit of mine That's that's the money that I want you can't just print it out of thin air you got to go get it from the market So again gold is hard because It's harder to produce gold than it is dollars, but it's not fixed So the gold price goes up you have more incentive to mine gold But mining takes time it takes capital it takes energy it takes geology it takes It takes humans collaborating and unifying So the supply of gold does respond and gold typically inflates at about two percent a year So the reason gold has been a great money is because two percent is reasonable and if the things around you are inflating two percent Then gold should be relatively fixed price You know it was like a flat rock for a very long time

30:19But Bitcoin is even different than that because if its price goes up and its demand goes up and mining competition goes up The issuance doesn't change the issuance is determined by the protocol because of the difficulty adjustment when sitoshi started the network It doesn't matter none of that matters So life on the Bitcoin I want to talk about this life on the Bitcoin standard and the age of AI So AI is going to create an abundance of more stuff Elon talks about this all the time And it's true think about it housing We're going to be able to build faster and cheaper housing because of AI because of humanoid and robots Medicine people are coming up with cares to cancer already Crazy so we're going to be able to create a lot of more drugs a lot of more medical care a lot of more medical solutions We're all going to be way more informed on how to be healthy We're going to know what to eat when to eat it how to work out We're going to be able to measure our bodies much better What about energy? We're going to have way more energy and abundance of energy because of AI. What about education?

31:20We're all much smarter much more educated. We have access to much more information because of AI So this is an abundance of real resources remember back when I said there's real resources and then there's monetary claims on those resources We're humans are constantly innovating It's actually a shame that we live in an in an era of inflation because we are constantly producing more resources for ourselves But they're printing more money than we're making new resources which is crazy. It's absolutely absurd If we had a fixed money then everything around you would go down in price because you're producing more resources than money Think of it that way Which one's growing faster? Resources for all of us are money and creating more resources is just innovating like using AI to make housing more affordable And more efficient and build it better or more medicine or more energy and more education That's creating more resources in the economy But they're creating more money more than we're creating resources but on a Bitcoin standard There's only 21 million and that's it

32:23So as the world gets more productive and produces more stuff That stuff is competing for the fixed 21 million sats So it's not Bitcoin competing for stuff. It's an increasing amount of stuff That's competing for bitcoins All of human pro I've said before I've now I don't know if I've ever been able to explain this quote but I've had this quote that is owning Bitcoin allows me to be long humanity and what I mean by that is all of human progress competes for a fixed amount of bitcoins. Oh great someone invented AI Well, guess who gets the benefit from that me I do because they can't print more money than humans are making cool shit with AI So all of this progress that's going to be made with AI is going to have to compete for the fixed amount of sats And I got mine and I buy mine more every single day in cold storage So on a soft money world you have a relatively fixed amount of resources in a growing amount of monetary claims The money grows faster than the resources which causes inflation

33:26On a bitcoins standard you have a relatively growing amount of resources So on a relative basis which one's growing faster resources grow faster than the monetary claims So you get to benefit from human human innovation human productivity from a growth in resources That means prices fall When I got into Bitcoin my dream house was hundreds of thousands of bitcoins Today my dream house is like five or whatever I don't know what's the price 80,000 Your dream house is ten bitcoins What are we talking about So every single year my life gets cheaper because of the money I use you have to understand this Not because I'm better than anyone else now because I'm smarter than anyone else that cuts I'm faster I'm stronger None of that Simply because I use a money they can't make more of As long as my money is not growing faster than the resources that I want to consume I win I win. It's that simple guys

34:31So my life is getting cheaper because we as humanity got better That's it That's it I get to benefit from human innovation that's it So it's a fixed amount of Bitcoin and as humans continue to innovate and build cool shit more stuff That's it that's it So anyway, and I mean I already made this point the dollar system can have rate changes and credit expansion and fiscal spending and buybacks and balance sheet and liquidity programs and all this nonsense If Besson wants more Bitcoin there's only one place to get it the market The market he could spin up as many miners as he wants the difficulty will adjust and he'll get a block on average about every 10 minutes That's it. That's the system that I want That's a system we deserve by the way

35:32These people telling me well without any inflation you'd save money Yeah, I'd save money and I'd have kids and I'd have a big yard and I've had a nice car You guys So That's what I'll leave you guys with a little bit of macro a little bit of one-on-one inflation from first principles And then what what money would you want to own and what money do you want your parents to own and your friends to own and your colleagues to own And again, it takes time to have to build the conviction to go all in on Bitcoin like me But owning zero Bitcoin to me is a bigger risk than owning any at all You got majority of the world out there flying blind sitting in dollars and government bonds and they're gonna get crushed I just walked you guys through the math These guys have to implement some form of yield curve control and let inflation run

36:32I promise you or we're living through some form of austerity or something equally as insane but it It seemed like this was always going to be the answer according to the math and now bests into these guys are effectively Communicating it that's why Bitcoin has started to move that's why this bear market looks like it might be ending And if this is what's happening you guys think you've seen a bull market in 2025 I promise you you have an I promise you you have not Because we would get real money printing in 2025 the Fed was still shrinking their balance sheet. We were still living through monetary tightening So in summary no man should work for what another man can print that is the case for Bitcoin period