Correcting Dalio
Not just because I'm arrogant, but because he’s wrong
Digging into (and correcting) the latest chapter of Ray Dalio’s “The Changing World Order”, which you can find a link to below.
Yeah yeah yeah.
I can already hear all of you people saying “well Dalio is worth billions, and who the fuck are you? some punk-ass Bitcoin fanatic who’s run some startups”.
Well..yes — that’s exactly what I am — but I’d also like to think I’ve got a good grasp on economic first principles, and more importantly general first principles that are based on sound logic.
If you’re not convinced, I invite you to read through some of my prior writing. I’ve done enough on medium for you to make up your mind, and if you need a suggestion with where to start, maybe begin with “Why Bitcoin Matters” or “The Halving”. Or if you’re after some fire, you can check this out, which I believe is the most important thing I’ve written to date:
Anyway…enough about little ol me.
Onto Dalio & his latest (well, probably not latest by the time I move this out of the draft, but whatever) piece: Chapter 2: Money, Credit & Debt:
As I was reading it, I was baffled by a number of claims & statements he makes, despite his supposed grasp of economics & money, and despite his claim to have worked closely with a number of historians & the like in order to put this together.
I don’t know how he’s made such egregious errors. BUT…
Never fear, Aleks is here.
In my finite wisdom & unbounded arrogance, I’ve arrived to assist you, the reader (and perhaps Ray Dalio if you decide to read this) to better grasp some of the concepts & ensure you don’t have any of the core primitives discussed in that work misunderstood.
So here goes….
Money
First thing’s first, Ray Dalio, that’s a very light definition of Money.
Money is not just a medium of exchange. It’s much deeper than that.
Money is the mechanism via which participants in society can effectively collaborate. This mechanism is used to represent the product of one’s time & labour (ie; their work) and as a result, allows them to save it for future exchange. It then also functions as a means via which those members can relatively value (or price) all other products in their economic / market/society.
SoV, MoE, UoA (discussed in the article Why Bitcoin Matters, linked to below)
So whilst you’re definitely on the right track, without really defining money as the “fabric of society”, you risk having the reader believe it’s just some random object we use for exchange or just another “hallucination” which some have called it.
It’s so much more than that, and if we don’t honour & recognise that depth, we’ll continue to repeat the patterns.
I describe Money at length in this article here:
And Nick Szabo, one of the greatest minds of the modern era, discusses money in a brilliant historical expose here (written in 2002):
Next...
When I read things like this from I scratch my head..
“that system periodically breaks down. As a result, since the beginning of time, all currencies have either been destroyed or devalued”
There is a dangerous initial presupposition here, and it’s the thinking within this exact framework as to why most people don’t get bitcoin.
It’s baffling to me that someone would take the “breakdown” of the system as a given, instead of enquiring into why it breaks down.
Now..if you’ve done some inquiry, you‘ll’ know exactly why, but let me try and put it as eloquently as I can:
When you concentrate money into the hands of a non-organic issuer, money no longer maps to energy/time/work because the issuer will inevitably “brrr” (that’s the scientific term) their way into enriching themselves.
Again: MONEY IS THE FABRIC OF SOCIETY.
It’s the measure of wealth, and any issuer/controller of money, from time immemorial, have advantaged themselves. Whether it was the holder of the ledger who added a couple of extra strokes to his balance, or the Roman emperors who debased their coins, or the Spaniards who flooded (and subsequently blew up) their economy with all the cheap gold they stole from Latin America through to the modern-day thievery occurring at the hands of governments and central bankers.
This is not “normal” — it’s just a function of issuer concentration. Falling into that presuppositional trap is exactly how we repeat the same old process.
Thankfully, this stupidity can now be removed from an economy & society, with the use of an organic form of money that’s immune to any form of issuer concentration.
This is the paradigm shift you’ve been talking about Ray Dalio, and yes, it’s called Bitcoin.
Moving along…
(now I’m going to pick at things here & there)..
This one always frustrates me, because it’s based upon a poor presupposition as well, ie; that stimulants are a normal thing that should be used.
I’ve used pre-workout at the gym in the past, and in fact, when I was younger, probably too much. I don’t use ANY of that stuff anymore, because I wrecked my adrenals in the process. Long term, that’s not a price I'm willing to pay, especially for the short term “gains”. The same goes for why I don’t drink coffee — I don’t need to develop a crutch.
There is ALWAYS a cost to using these, and that cost is generally dependent.
Well, dependence until it becomes the thing that actually kills you...
Stating that the central bank's actions are a “stimulant” that is supposed to help the “patient” (ie; economy) when things are lagging is a ridiculous presupposition because you don’t help a junkie by giving them adrenaline laced with more drugs….
This is merely a function of some people’s arrogant perception that you can somehow centrally manage a complex system & “smooth the cycles”.
NO. YOU CANNOT!
The more you use your stimulant, the more the patient becomes dependent on it. The Cure? Dunk the stimulant.
Moving along, to the one that really triggered me...
“iNtrINsiC vALuE”
First of all, let’s be consistent.
Some perceived notion of ‘usefulness’ is how you define intrinsic value, and use it to support why Gold has preferred “money” after you JUST defined money as having no intrinsic value!?!?
And furthermore, this notion of intrinsic value. Really???
Repeat after me:
There is no such thing as intrinsic value
Sound economics 101. All value is subjective.
Don’t believe me?
How valuable is Gold after an EMP goes off, and the mob is coming to take your food? I’m sure Lead will be a far more valuable thing. As will a toilet.
Or Air…that’s universally “valuable right”?
How about when your child is drowning, and in order to save them, you have to choose between your air supply & their life??
(Picture the iRobot scene here — Will Smith).
All value is subjective and relative. There is NO intrinsic value, and the fact that I need to point this out to someone running a $160bn fund is extraordinary, to say the least.
There are objects with attributes that we collectively (and subjectively) converge upon consensus as good “things” that we can use to represent value, but the idea that Gold became a “hard money” because it had some intrinsic value is preposterous.
The first person who found gold, whilst everyone else was on a “Salt Standard” or the “Shell Standard” wouldn’t have been able to trade an entire cart full of it for a mere Chicken!
Gold won out over centuries because it had some unique attributes (what we refer to as the attributes of money) that made it useful as money (ie; a representation of time/energy/work).
And as consensus was achieved society was able to more broadly store the product of their labour, exchange it a future date, and have an idea of how much that labour was “worth”.
Can you see it??
Yes — the 3 functions of money as an emergent phenomenon of an objectively useful object which we subjectively converge upon & agree best represents + measures ‘value’.
You’re welcome.
Actually, while I'm here, a brilliant young Lawyer & Bitcoiner named Conner Brown wrote a great piece which will help you dispel the myth of “muh iNTrINsiC vALuE”:
Next up...
Central Banks can “Rig the Game”
This part is not a correction. You, sir, are 100% right. But the fact that you’re right angers me because it’s actually the core of the problem.
Does this seem like a very “fair” and “sensible” system to live in?
Absolutely not.
Whilst the rest of us idiots spend our two finite & limited resources (ie; time & energy) to receive in return “money”, ie; the product of that labour, these few organisations (which are just a collection of privileged individuals) get to change the rules to suit themselves, at the expense of the rest of us.
Note: When one group can change the rules to suit them, the fabric of society will always tear — as it has before, and as it is right now.
This is not capitalism, this not logical, natural, or functional.
It’s literally a scam.
And FYI; it’s exactly why Bitcoin was created and has emerged as an unstoppable opt out of the current madness.
Growth in Money Supply
“Provided it’s put to productive use” is a very naive assumption.
Participants & constituents in a society/economy are all looking to make the best possible yield at the lowest possible risk, and this is all driven by base incentives & disincentives. By making money “easy”, you incentivise one not to “produce”, but to exchange it for harder, more finite assets or to spend it today because it’s easy to get tomorrow.
BOTH which drives negative feedback loops in the economy, ie; higher asset prices which disproportionately benefits those who got the money first (The Cantillon Effect), and incentives to consume today and not save for tomorrow, thereby actually eroding capital.
By definition, any new supply of money into a system, that has not come from an increase in natural productivity or innovation, is a bad thing, because it DOES NOT MAP to any real gains in society.
All it does is distort market signals, prices, and further spreads any Cantillon-like inequalities.
In fact, I would go so far as to say that any introduction of new money in a system disincentivizes real production, because the need to innovate to create wealth diminishes and is replaced with the chase for yield via ever more exotic, fragile, complex financialisation in order to put that new “money” to some sort of levered use.
It’s crazy. The second, third, and subsequent order effects are what destabilises the entire system.
Again. Bitcoin. Incorruptible Fixed Supply. Problem Solved.
Finally some truth
Yes…I’m being facetious, we agree on more than we disagree, but this, in particular, we 100% agree on. BRAVO.
And this ladies & gentlemen is what we call the “State-Run Ponzi”.
Bernie Madoff is an amateur...
Gold is Old
Boomer bricks have had their day. We’re not unwinding a $10bn asset class tomorrow, and we may not have ‘peaked’ in USD/fiat terms, but the hedy day has come & gone.
There’s a new world where people are finally able to move their money without the risk of trusting the next arrogant central planners to do the right thing.
It’s like discovering a new land, but it’s in the virtual realm. A realm that has no physical borders or boundaries.
That world, where capital is now flowing, is called Bitcoin.
Gold may have been where the flight to safety went in the past, but because it has NO intrinsic value, and it’s perceived monetary premium will continue to diminish (especially as the economic mass of the world shifts over to the next two generations) Gold will come to be valued as a regular good in the market, useful for its physical properties, and priced in Satoshis.
Pegging Shittier Fiat to less Shit Fiat.
Ray goes on to discuss much of the spiraling out of control that happens toward the end of a fiat money standard. And he’s basically right.
Governments tighten their grip, make it harder to buy hard assets, try & outlaw investment in or even confiscate hard assets from their holders, all the while wealth gaps stretch to extremes, people blame each other (but surprise surprise, it was the cronies running the show who generally get away scott free because you idiots are fighting each other) and everyone starts to flee to a new place where they can salvage some wealth or rebuild (if they even can)
One of the interesting things Ray brings up here is one I wanted to highlight and that’s the futile attempt of banana republics like Zimbabwe who try to restore faith in their shitshow by “pegging” their fake currency to less fake currency.
How’s that worked out for you?
Yeah…
This is why the only solution is to completely abolish central banks and central planners.
The central banks because on a bitcoin standard, we just don’t need them.
The central planners, because a localised, distributed / decentralised free market is more robust, functional, morally superior, and anti-fragile (to use a Talebism) than anything the arrogant puppet masters can hope to ever be.
We didn’t reverse the downturn
Just pointing out this section here from the screenshot below:
“ …because only MP3 would have worked to reverse the downturn”
The downturn was not reversed. It was just transformed.
A friend of mine, and fellow Bitcoiner Hass McCook tweeted out a while back his prediction for next year:
- Dow: 40,000
- Unemployment 40%
And to be honest, that may not be too far off.
MP3 didn’t reverse any downturn, and if anything took what was an extremely necessary natural corrective mechanism (ie; an overvalued asset bubble popping) and stopped it in mid motion.
Are you kidding me?
That’s like the Junkie who finally decided to give up, and whilst he was resolute in his action & was obviously in pain, you inject him with a MEGA dose of Heroin.
Nooooooooooo...
This was NOT a solution & it didn’t reverse anything. In fact, it just resulted in another epic economic distortion that will separate Wall Street and Main Street more than ever before.
And again, you & I will foot the bill, or more likely our children & their children. They’ll try to appease us with measly $1200 cheques in the mail, whilst the rest of the stimulus is handed out to gamblers, ie;
- Hedge Funds,
- Stupid companies who had no savings & spent it all on stock buybacks,
- Other insolvent or over-levered institutions, who also had no savings
Pain is a natural part of life, assuming you want growth.
Whether it’s the gym, learning a new skill, spiritual, emotional, mental growth.
It all takes pain & sacrifice, but we’ve become a society of weaklings who avoid pain at every turn.
All this does is kick the can down the road & hide the damage, until of course it’s too late to do anything about it & the entire system (human body, markets, economy) is destroyed.
The market crashing (ie; correcting) IS THE MARKET trying to FIX ITSELF!!!
By intervening, we’re not helping, we’re doing more damage.
We’re not allowing this thing to find it’s natural equilibrium.
Conclusion
Well, the time has come to complete my rant. I haven’t written an article for a while, maybe it’s because I’ve been Zen..or perhaps I’ve had an adequate outlet on Twitter. Whatever the case, this triggered me, so for that, I’m grateful...
Let’s end on this note, which once again, credit where credit is due, Ray Dalio is very accurate in saying:
Recency bias is a useful form of cognitive generalisation, but can be very dangerous coming into a phase shift — particularly when that phase (or paradigm) shift has a cost associated with it.
In recent times times, despite the glaring signs, collective recency bias has been strong, and right prior to the so-called “Corona Crash”, everyone was partying like it was 1999.
That hasn’t worked out so well as a survival strategy (and of course, shouldn’t) but unfortunately, the modern world works in mysterious ways, and those who were sensible, prepared, a prudent and managed risk well, will now have to pay for those who were not, and did not.
These distortions can only go on for so long, until the fabric tears or the phase shift occurs (slowly, then all at once).
I like this idea of phase shifts, and will probably delve into it on another article. In short, though, think about H20 (water).
Ice → Water → Steam
Solid → Liquid → Gas
It’s the same molecule but transforms its structure abruptly as the temperature changes at the point of its phase shift.
I think societal paradigm shifts are similar. They build up beneath the surface, and as the temperature rises, the phase shift approaches, until it triggers and cascades into a fundamental change in how we operate.
Cave Men → Hunter Gatherers → Agrarian / Ancient Empires → Feudal Times → The Church → The Nation State → The Digital Age (Bitcoin).
The social frameworks within which we live continue to evolve, and we’re still the participant humans (at least for now).
The paradigm shift that Ray keeps talking about, that is on the horizon, is not just a 70yr “long term debt cycle” shift, but a much larger multi-century “societal shift”.
It started with the advent of the digital age, and the core ingredient was planted almost 12yrs ago now and it’s about to enter its 4th epoch.
It’s UNLIKE what we’ve had I the past (Zero to One) hence “few understand this” (thanks to Pierre Rochard), but it’s absolutely necessary for the innovation that’s at the center of societal phase shift to be unique and fundamentally different to what came before it.
THIS is the nature of progress.
Much like our understanding of physics transformed from Newtonian physics to quantum physics, #Bitcoin is a transformation of the very fabric of society (money), and it will have an enormous impact on the world.
This article was of course inspired (or triggered is maybe more accurate) by Ray Dalio, and the latest chapter in his new ‘book’:
Robert Breedlove has done a far more in-depth ‘Open Letter’ to Ray, which is a brilliant piece that I highly recommend you read:
Although my article is probably more in the fashion of Allen Farrington’s latest takedown of Nassim Nicholas Taleb, except unlike Allen, I don’t have the fortitude to write 30,000 words (dude — I started but have definitely not finished).
Of course, if you enjoyed this article, make sure you “give it the claps”, then maybe more people will see it.
Likewise share it around, on twitter and the other socials you’re on (including, god forbid, you still share via that thing called email), and who knows, perhaps Ray will have to more actively ignore it...
Finally, if you’d like to read or learn more, see links below.
Thanks again!
Written by:
Shout out to @ Amber Labs
