Wealth Formula Podcast

We are in a unique period of time with the economy. We know something is going to declare itself soon enough but have no idea when or what it will look like.

This time it’s not just the contrarians. Everyone is predicting some kind of trouble in the coming months ranging from a mild recession (Biden) to an all out zombie apocalypse.

Even the big brain contrarians differ on what lies ahead. Jim Rickards sees a rapidly coming deep recession followed by the Fed capitulating its hawkish stance. 

Nomi Prins forecasts a deep recession as well but sees the markets as relatively shielded because of a great distortion between the real economy and the financial markets as the Fed caters to what the markets need to grow.

My guest this week on Wealth Formula Podcast, David Stockman, differs from both Rickards and Prins. He believes that the Fed will not reverse its course regardless of recession and he also believes that what Prins describes as a distortion between financial markets and the economy will not last and that, rather, a great catchup will see the equity and real estate markets correct in significant fashion to reflect the fledgling economy.

David Stockman was Ronald Reagan’s budget director and was in Washington through hyperinflation and the Paul Volker years. He has also spent a significant time on Wall Street in his career. He knows what he’s talking about.

But so do Nomi Prins and Jim Rickards. None of them are dummies but they can’t all be right. That’s just the nature of the period that we are in. The best any of us can do is to study what the economic gurus are saying and try to make decisions based on what we can conclude for ourselves.

Listen to my interview with David Stockman HERE. And, if you haven’t done so, go back and compare these opinions with those of Rickards (episode 348) and Dr. Nomi Prins (episode 339). They all make sense but they can’t all be right.

Let me know what you think!

David Alan Stockman (born November 10, 1946) is an American politician and former businessman who was a Republican U.S. Representative from the state of Michigan (1977–1981) and the Director of the Office of Management and Budget (1981–1985) under President Ronald Reagan.

Stockman was born in Fort Hood, Texas, the son of Allen Stockman, a fruit farmer, and Carol (née Bartz). He is of German descent, and his family’s surname was originally “Stockmann”. He was raised in a conservative family; his maternal grandfather, William Bartz, was a Republican county treasurer for 30 years. Stockman was educated at public schools in Stevensville, Michigan. He graduated from Lakeshore High School in 1964 and received a BA in History from Michigan State University in 1968. He was a graduate theology student at Harvard University from 1968 to 1970.

He served as special assistant to United States Representative and 1980 U.S. presidential candidate John Anderson of Illinois, 1970–1972, and was executive director, United States House of Representatives Republican Conference, 1972–1975.

As you know, we have an Automatic Teller Machine offering and you can take a look at it at WFVelocity.com

I’ve personally been invested for 6-7 years without issue. That’s not surprising as the use of cash continues to increase in the US.

The biggest risk to investing in this type of asset is obvious—the end of cash.

Is it possible? Yes of course it is. In fact, I would say that there is a high probability that we will be a cashless society. China is there already.

However, we are not China. There are many differences inherent in Chinese culture and government that made it easier for a cashless society to evolve quickly.

And what does a cashless society in the United States look like anyway? I keep hearing people talking about central bank distributed ledger tokens replacing cash. In my view, that doesn’t really make sense. The only thing I see here is the advantage of blockchain technology over the SWIFT system.

Most US dollars are already digital. Central bank digitized dollars, in my view, would really be there to upgrade current technologies.

Cash is important to our society because it allows some level of money transfer that is truly private. Imagine if every penny you spent was tracked by the government. I bet you wouldn’t like that.

Of course lawmakers know that as well. Therefore, despite all of the speculation about the role of decentralized digital dollars, there is no active legislation in congress that suggests that this is going to happen anytime soon.

We will probably eventually be without cash but it’s not going to happen overnight. The end of cash is, in my view, a generational change that will need to have the support of citizens. That day is not here.

But don’t take my word for it, listen in to this week’s Wealth Formula Podcast to hear my discussion on this topic and more with an expert on financial technology.

Martin Chorzempa, senior fellow since January 2021, joined the Peterson Institute for International Economics as a research fellow in 2017. He gained expertise in financial innovation while in Germany as a Fulbright Scholar and researcher at the Association of German Banks. He conducted research on financial liberalization in Beijing, first as a Luce Scholar at Peking University’s China Center for Economic Research and then at the China Finance 40 Forum, China’s leading independent think tank. In 2017, he graduated from the Harvard Kennedy School of Government with a masters in public administration in international development.

Chorzempa is author of The Cashless Revolution: China’s Reinvention of Money (PublicAffairs, October 2022). He has been quoted in the Wall Street Journal, New York Times, Washington Post, Financial Times, MIT Technology Review, and Foreign Affairs.

Shownotes:

The cryptocurrency markets have been crushed and don’t be surprised if they go even lower once the full extent of the FTX meltdown is realized.

However, it’s clear to me that this in no way is the end of cryptocurrency. Believe me, I’ve been around crypto long enough to have seen it declared dead several times over. It won’t happen.

The reason for this is that behind cryptocurrency is a technology. It’s not just tulips. Tulips didn’t do anything. Underlying crypto assets lies decentralized distributed ledger technology that will change our world.

Ok…so you’ve heard me and others make that statement before and it might be getting old. So, I think it’s important to go into more detail and highlight examples of what this technology can do.

Decentralized Finance (DeFi) is a major revolution that is happening now. It is still in its infancy but it is pretty clear that this technology represents the future of banking and really all market transactions.

But why is it advantageous? This is an important question. You can easily be fooled by people selling you “tokens” while they are raising money for real estate or other assets. Tokenization does not replace good operations. In reality, most of these offerings are just marketing gimmicks. Just because your shares are represented by a token doesn’t mean a lot.

There are clearly advantages to tokenizing assets in the sense that they can be traded and potentially provide more individuals access to things in which they might not otherwise be able to invest.

But there are a lot of kinks to be worked out. And while I believe in the technology, the current state of DeFi is still fraught with charlatans and Ponzi schemes. A major reason this is possible is that few DeFi projects are purely decentralized. When someone is in charge, that’s not decentralization. 

It’s a complicated topic so I asked someone knee-deep in the DeFi world to help us understand it a bit better. You should know a thing or two on this topic as it will enter your world sooner or later. So make sure to listen to this week’s episode of Wealth Formula Podcast!

Alex Vergara is a Community Lead and Founding Member at EarthFund, the decentralized platform for a better tomorrow.