Bitcoin 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. It is like, "Well, technically according to Harvard, inflation..." No. How about fuck 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 mansplain me. Don't treat me like an idiot, like a peasant. I know what it is because I've lived it. This is what inflation is: $100 of groceries used to get you a full cart of groceries. $100 of groceries today only gets you some of a cart of groceries. The same monetary units, the same $100, gets you less stuff. That'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. 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 and the central bank to print unlimited amounts of it. In theory, you weren't allowed to print dollars when $1 represented a specific amount of gold. You could only have outstanding dollars that backed 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. So, let me read to you guys what the cost of living was in 1970. A new house was $23,450. The average income was $9,400 in 1970. A new car was $3,450. A movie ticket was $1.55. Gasoline was 36 cents a gallon. A postage stamp was 6 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 the people didn't do anything wrong. Now, the problem is, well, what's everything cost today? And I'll get more into this in a second. Well, "What's a new house today, Jack? It was $23,000 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 $3,400." Well, it depends. Do you want to drive a used Toyota Camry or do you want a Rolls-Royce? You see?
So, let's first start back to inflation. Man, this topic gets me wound up. I apologize, but holy moly, 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. This is not satire. I swear to God. Mainstream economists say inflation is good, and this is what's called Keynesian economics. Now, this is their legitimate claim. And by the way, this is what they teach in school. They teach this in school. 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 and 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.
Guys, this is not a joke. I swear to you, this is Keynesian 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. And in order to keep the economy humming and 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 Warsh is there. How dare I disrespect Kevin Warsh? Kevin Warsh is sitting there looking at all this data and 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 dumb shit. Guys, I'm not joking. This is quite literally the economic reasoning for inflation because everyone has heard this: 2% 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? 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 Warsh does. If Kevin Warsh 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 shit condo. I'm still going to want to live on Miami beachfront real estate rather than a shit apartment in Midwestern America. I want to consume what I've earned no matter what Kevin Warsh 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 they do in private, unauditable. 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 fuck 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? It is outrageous. But this is the problem that we have from government getting too big and money being a centrally planned entry in a database.
Sorry, this topic gets me so wound up. It really bothers me. So anyways, the hard money claim is the opposite of that: my money should hold 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 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? I 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: a discount to tomorrow, an inability to lower their time preference, an inability to delay gratification, high time preference spending, and a devastation of value today of health, of wealth, of capital, of family, of everything. It's utterly preposterous, honestly.
So to 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. 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. So what I'm calling money are claims used to command these resources. I have dollars 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 printing more dollars does not automatically create more stuff. Meaning this: if I have—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%, 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 main point of this: inflation creates the illusion of productivity and the illusion of growth and the illusion of innovation, but 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 a claim 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 and plant four so that you can produce more corn. That's your total of 10. 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 to plant four. So, I've decided to eat seven bushels of corn and 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 10. So, 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 and plant three or eat six and plant four. But you have 10 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 is 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 silver futures contracts. Turns out you need real silver. And so we've created the illusion that 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. 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, 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 paper claims to only 10 resources, well, 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 up when denominated in paper claims. That is inflation. That's how prices 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 paper claims just make Bitcoin's price go higher. So then at the very end you get adjustment in pricing, which 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. Okay, this is critically important. Inflation is not spread evenly, like, "Okay, we're going to devalue the dollar, but at least everyone feels it evenly and benefits from it evenly." 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 going to print all sorts of money, which they kind of have already started to do. Now, slow 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 going to issue a lot more credit and that's going to 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? Does 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 all of this spreads through the economy so that your neighbor's got the inflation-adjusted promotion, like, "Hey, we gave you a bonus," or "We gave you a raise or a promotion because of 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. Your salary resets 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. How often do stock prices change between market open and close? How often does the Bitcoin price change? 24/7/365. You see, inflation is not even. This is why it's not 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. Our neighbor can own Bitcoin, can be DCAing 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 Warsh says, "Our target is 2%," what is he talking about? Don't even—I've already displayed enough emotion on this show. Don't even get me started. Listen, there is no such thing as the inflation rate because, 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 ribeyes or do you want to be eating porridge slop? Totally different inflation rates. Do you want to be driving a Rolls-Royce or are you okay walking? Totally different inflation rates. So the notion that there is an 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. Sorry. 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'm a man of the people through and through. At this point, I've made that decision. That ship is gone. I'm going to call it how I see it. It's garbage. And I'm not saying it's the Trump administration's fault. It's not Bessent's fault. It's not Warsh's 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 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 on 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. That's incredible. Amazing. What about a Caesar salad? Well, with a Caesar salad, 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 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, 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 a relationship with professors, and I wanted to meet who my future wife and the future mother of my children is going to 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, no. The inflation rate of that is tens of percents 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'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 rate is very easy to measure. Think about Bitcoin. I want Bitcoin. What's the inflation rate of Bitcoin? Well, it's its CAGR. 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 as I was years ago. Hundreds of thousands of bitcoins was one average home when I got into Bitcoin. Now, an average home's like three bitcoins. So, 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 pleb slop bonds?" Oh, inflation rate's not bad. You're good. You're good.
So, who gets the money? This is the Cantillon 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 at 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, well 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 1970 slide. In 1970, the average income was $9,400, guys. Crazy. Today, what's the average income? I don't know the answer, but how easy is it to make $9,400 today? It's not that hard, right, relatively. In 1970, it took you a whole year to make $9,400. Today, it takes you less than a year to make $9,400. 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 $9,400 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 that 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 gone 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. Your claim that you lent them money and they owe you money back—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—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'm telling the truth. This is either freedom of speech or we're not living in the America I thought. Do not own bonds. Do not own the dollar. This is why we own Bitcoin. 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. 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 whole 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 3 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. 0% chance. And the people that 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 answer is yes. So, back to basics: what happens when demand for money rises? Well, in a soft money system, when demand for money rises, they can just print more money. So, right now, Scott Bessent 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 else you'd save. How offensive is that? God, I can't get over that. "We designed inflation in the system or else you'd save for your future." So they force you to spend. They supposedly understand what quality of life you want and what goods and services you want to consume. Utterly and completely ridiculous, all of that. That's what a soft money standard is. Now on a Bitcoin standard—I'm not even going to call Bitcoin a hard money standard because it's a fixed money standard. A hard money standard would be gold, but you can still create more gold. On a fixed money standard, demand goes up and you cannot print the money. If what Scott Bessent needed was Bitcoin and not dollars, he'd have to go buy it from guys like me. He 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 the money that I want. You can't just print it out of thin air. You've 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 if 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 humans collaborating and unifying. So the supply of gold does respond, and gold typically inflates at about 2% a year. So the reason gold has been a great money is because 2% is reasonable, and if the things around you are inflating 2%, then gold should be relatively fixed price. It was like a flat rock for a very long time. But 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 Satoshi started the network. It doesn't matter. None of that matters.
So, life on Bitcoin—I want to talk about this—life on the Bitcoin standard in the age of AI. 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 humanoids and robots. Medicine. People are coming up with cures to cancer already. Crazy. So, we're going to be able to create a lot more drugs, a lot more medical care, a lot 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, an abundance of energy because of AI. What about education? We'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? Humans are constantly innovating. It's actually a shame that we live 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 or money? Creating more resources, just innovating like using AI to make housing more affordable and more efficient and build it better, or more medicine or more energy or more education, that's creating more resources in the economy. But they're creating more money more than we're creating resources. On a Bitcoin standard, there's only 21 million and that's it. So 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. I've said before—I don't know if I've ever been able to explain this quote, but I've had this quote that 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've got mine, and I buy more every single day in cold storage.
So in a soft money world, you have a relatively fixed amount of resources and a growing amount of monetary claims. The money grows faster than the resources, which causes inflation. On a Bitcoin standard, you have a 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 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. What's the price? $80,000. Your dream house is 10 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, not because I'm smarter than anyone else, not because I'm faster or 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. So 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, I already made this point: the dollar system can have rate changes and credit expansion and fiscal spending and buybacks and balance sheets and liquidity programs and all this nonsense. If Bessent wants more Bitcoin, there's only one place to get it: the market. The market. He can 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 the system we deserve. By the way, these 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'd have a nice car. So that's what I'll leave you guys with: a little bit of macro, a little bit of 101 inflation from first principles, and then 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 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've got the majority of the world out there flying blind, sitting in dollars and government bonds, and they're going to 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, I promise you, or we're living through some form of austerity or something equally as insane. But it seemed like this was always going to be the answer according to the math, and now Bessent and 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 haven't. 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.
