Why Storing Money In Banks Is a Mistake (1)
If you're trying to use money that requires banks, you can't trust the banks, right?
You certainly can't trust the banks in Africa and South America and most of Asia.
It used to be Americans thought they could trust American banks.
Now they're realizing that they can't trust American banks.
So the first-order impact of the banking crisis is people think,
well, maybe the money I had in the bank's going away,
and so I ought to put it in a bank in cyberspace that isn't controlled by the government
or by the bankers, and that's Bitcoin.
The second-order impact is the solution to the banking crisis is print more dollars.
And if you print more dollars, the actual monetary inflation rate goes 10%, 15%, 20%.
So you think, why do you think those bonds crashed?
You know, because there are actually claims on dollars.
Do you really want to hold a billion dollars of Zimbabwe dollars?
What if I offered you 10 billion Zimbabwe dollars?
I mean, the answer is it's going to a nickel, okay?
So if the paper currency keeps crashing,
then you can't own anything that's currency-related.
You can't own a currency derivative.
You need to own something that politicians can't print more of.
Okay, well, that's oil.
That's land.
But the problem is, try hauling 100,000 barrels of oil
from where you are to London, where you want to be.
How are you going to do that?
I'll give you a billion dollars of land in Central Africa,
and then someone takes over with machine guns
and declares that everyone with large amounts of land now loses it.
That happened in Zimbabwe.
You're going to pick up the land on your back and carry it to France?
So it's simple.
If people lose faith in the banks, they lose faith in the currency.
When they lose faith in the currency, they lose faith in the government.
When you lose faith in the bank, the currency, and the government,
and someone says, what can you trust?
The answer is you can trust Bitcoin
because you can custody your own asset.
You can run your own node.
And at the end of the day,
even if the Chinese want to shut it down, they can't.
If the Russians want to shut it down, they can't.
If any nation state wants to shut it down, they can't.
If the U.S. wanted to shut it down, they can't.
And so everybody wants something that they can trust
that is beyond the reach of a corrupt politician,
a corrupt corporate executive, or they don't have to be corrupt.
They can just be well-meaning,
trying to do the right thing in a misguided fashion,
and meddling with your economic life.
If there's ever been a time for you to make that argument
and make it aggressively and scream it off the top of your lungs is right now,
especially the fact that three out of the four largest banks
that ever gone out of business in the history of America
were done in the last 90 days.
You got Whamu was the biggest, which was September of 2008, $307 billion.
First Republic was $212 billion.
That was May 1st.
Silicon Valley Bank, March 10th, $209 billion.
Signature Bank, March 12th, $110 billion.
And the next one, closest one to it is Indymac.
If you remember Indymac, it was only a $31 billion company back then in 08.
So someone may be listening to this and say,
oh my God, man, this guy's right.
Maybe I ought to start moving my money out of my bank as soon as possible.
Jamie Dimon, I know these guys are trying to get people
not to take their money out of the bank and have too many bank runs
because if they do that,
and some are taking their money out of their bank
and putting it in a money market,
is Michael saying take my money out and put it in Bitcoin?
Or are you saying maybe take it and put it in a bigger bank?
I'm a little concerned, Michael.
You sound smarter than me.
What should I do?
The average person's thinking that right now.
So are you saying that these three out of four largest banks
that went out of business that happened last 90 days,
there's more to come and things are going to get uglier
than what it's been last 90 days?
Or are you just saying the fact that if you keep your money in the bank,
at any point they can make that decision and control your money?
I'm saying that money is a store of value,
and there are multiple monies,
and they're not created equal.
So let me give you the world's worst money.
The worst money in the world is like Argentine pesos
or Venezuelan bolivars or Zimbabwe dollars or Nigerian naira.
Weak money.
The official inflation rate in Argentina is 105%.
But that's the official rate, which is that understates it.
The actual inflation rate would be higher.
And if the inflation rate is running 100%,
that means your money is losing half of its value every 12 months.
That means that within 10 years, you have nothing.
Okay.
So bad money, bad currency or bad money
loses all of its value over the course of a few years.
In Venezuela, you lose all your value in 36 months.
In Argentina, in 10 to 20 years,
the Argentine peso was one to the dollar 21 years ago.
If you had a million dollars 21 years ago,
the Argentine peso right now is about 480 to the dollar.
So that's not a 99% loss.
That's a 99.8% loss, right?
In how many years?
20?
21 years.
Okay.
So what I'm saying is you don't have money if you have weak currency.
Now, let's take strong currency.
Well, the strongest currency in the world is the dollar.
That's not money.
You're losing 99% of your wealth over the course of 90 years in the U.S. dollar.
Maybe more.
The only difference between the U.S. dollar and the peso
is whereas it takes 20 years to lose your family's fortune in the peso,
it takes about 90 years to lose your family's fortune in the dollar, right?
My house in Miami Beach was $100,000 in 1930.
It was appraised at $46 million a few years ago.
Do the calculation.
It's on a path to be worth $100 million,
which means that the U.S. dollar will have lost 99.9% of its value over 100 years.
Warren Buffett knows this.
Charlie Munger knows this.
Basically, the bottom line there is your money in the bank isn't money.
Okay, so the answer is you shouldn't have any money in a bank, right?
You're basically losing 7% of all your wealth every year in a good year if it's the dollar.
You're losing 15% of your wealth in a not good year if it's the dollar.
You're absolutely losing all your money over the course of a decade.
So that's kind of weak money.
Awful money is developing world money, the Lebanese pound.
The Lebanese pound got devalued.
I mean, you would have lost all your money in five years if you had the pound.
The strongest money, decent money, okay money was gold but not great.
The strongest money in the world is bitcoin because bitcoin is absolutely capped at 21
million.
It is global money.
You could take a billion dollars of bitcoin across the border.
You can transfer it to a counterparty and no government can interdict that and nobody
can inflate that.
So my answer there would be you can't trust any bank.
You certainly can't trust a bank in Lebanon.
Read about Lebanese banks.
You can't trust a bank in Africa.
You can't trust a bank in Asia.
Michael, but if you call Chase, their customer service is amazing.
How is the customer service with bitcoin when you call the 1-800 number?
There's nobody working at the bank of bitcoin to steal your money.
Right?
Thanks for calling bitcoin.
This is John Ducallin.
I can't do nothing for you.
You got to make the decision yourself but I just want to say hi to you.
You know, bitcoin is a bank in cyberspace run by incorruptible software.
It's going to keep your money.
If you are incompetent, then you're going to suffer the consequences.
But let's think about what banking executives in the U.S. do.
The U.S. banking system is the best in the world.
Here's what they do.
You put $100 billion into the bank.
They have the deposits.
They turn around the Federal Reserve interest rate, short-term rate was zero.
And these guys went and invested $100 billion of those deposits in
mid-dated, long-dated sovereign debt that was yielding 1.8% interest.
The Federal Reserve took the interest.
Finally, would you loan me money for 30 years at 3% interest rate?
Like, can you imagine that?
If the inflation rate was 8% or 10%,
would you loan money out at 3% interest rate for the rest of your life?
Not in a million years.
Okay.
That's what the banking executives in the U.S. did.
At the point when the interest...
Silicon Valley Bank.
All of them, right?
Signature, all these guys.
Not just the ones who went bankrupt, right?
There's a host of banks.
I think they had what was like $800 billion of unrealized losses or something.
A host of banks went and anybody that bought mid-dated or long-dated bonds
at the bottom of the market when interest rates were zero,
they were loaning out money forever at 2% interest or 3% interest or 1.5% interest.
And as soon as you redeem...
What happened, of course, is the Fed raised interest rates from 25 basis points.
Actually, the rates went from zero to 500 basis points in 12 months, about.
That's the sharpest increase in interest rates in memory.
That in itself is...
I'm not going to say what it is.
It's just horrific, terrifying to think that any public servant would do that.
But it's equally terrifying to think that if I was your money manager
and if you had given me all your money when interest rates were zero and I said,
well, I guess interest rates will stay zero for the next 30 years.
And so I'm going to loan it out as a bond and lock in a price of 2%.
You would have thought I was crazy.
No, there is no individual, no rational corporation, no economic actor that would
loan money forever for 3% interest when inflation is running double or triple that.
Who would approve that?
Who would?
And the answer is a bureaucrat, either a governmental bureaucrat,
someone that is coerced by regulatory policy where they're forced to,
for example, a bank can't buy Bitcoin, but a bank is almost obligated to buy treasuries.
Right?
So the politicians create a set of rules that strongly encourage you to do certain things
and strongly discourage you to do other things.
And generally, they encourage you to do the thing which is probably least economically viable.
But there are probably local organizations and banks and foreign countries that own their own
local currency, right?
Like, would you buy an African currency with inflation rate of 200% a year?
No, but people do.
Why?
Because the government controls or owns the entity.
And so they force that.
Just to finish this topic before we move on.
When you said all these guys that are given their money for 3% over 30 years or whatever,
there's a lot of them.
Silicon Valley Bank's not the only one.
Signature's not the only one.
There's a lot of these guys that are doing it.
Most of the banks.
Most of the banks are doing it.
We looked at the chart.
Remember that chart?
Exactly.
64% who was above it.
And then JP Morgan was the little guy at the end.
14% at the, yeah.
So the point is, don't trust your money in any bank that's basically betting it on irrational
investment.
You say something like that as a guy that's a billionaire.
