Gold can't Be The Future of Money as ‘It's Just Too Impractical’, says Dominic Frisby

Key Concepts

• Layoffs and Infrastructure Strain: High unemployment rates and critical infrastructure issues (air traffic control) signal economic distress.
• Sound Money Thesis: The idea that money should be backed by a tangible asset, limiting government's ability to inflate.
• AI and Job Displacement: Artificial intelligence is poised to automate jobs, impacting labor markets and tax revenue.
• Digital Economy and Taxation: The shift to a digital economy challenges traditional tax systems designed for physical labor and goods.
• Gig Economy and Tax Evasion: The rise of contingent workers makes tax collection more difficult.
• Government Debt and Deficits: Governments are increasingly reliant on debt to cover spending gaps caused by declining tax revenue.
• US Dollar Reserve Currency Status: The dollar's global dominance contributes to US manufacturing decline.
• Gold and Bitcoin as Sound Money: Both are presented as alternatives to fiat currency, with distinct roles.
• Triffin's Dilemma: The inherent conflict in a reserve currency issuer's need to run deficits to supply global liquidity.
• De-dollarization: The global trend of reducing reliance on the US dollar.
• Central Bank Digital Currencies (CBDCs): Digital currencies issued by central banks, viewed with skepticism by the guest.
• Monetary Revolution: A period of significant change in how money functions globally.
• Asset Allocation: The importance of diversifying investments, particularly in gold and Bitcoin.

Economic Downturn and Infrastructure Challenges

The current economic climate is characterized by a significant increase in layoffs, with 1.1 million announced by US employers this year alone, a pace not seen since the 2009 recession. Concurrently, the FAA is reducing flights at major airports due to air traffic controllers working without pay, highlighting a strain on core US infrastructure. This backdrop sets the stage for a discussion on the underlying economic forces at play.

The Sound Money Thesis and Technological Disruption

Dominic Frisbee argues that the widening gap between the economic realities of "Wall Street" and "Main Street" validates the sound money thesis he has advocated for decades. He points to the structural strain in the economy, noting that even with favorable policies and tax incentives, revitalizing US industry and Main Street will take at least a decade and likely involve significant inflation.

A key factor contributing to this strain is the impact of Artificial Intelligence (AI) on employment. Frisbee highlights a chart showing employment growth stagnating or falling as AI technologies like ChatGPT emerged, even as the stock market continued to rise. He foresees massive job displacement in sectors like transportation due to self-driving trucks. As a writer, Frisbee uses AI as a tool but acknowledges the potential for AI to make human workers redundant, impacting the individual on Main Street regardless of broader economic productivity gains.

Taxation, the Digital Economy, and the Threat to State Revenue

Frisbee's book, "Daylight Robbery," posits that state power is built on taxing labor. The increasing automation by AI and robots, which are not directly taxable in the same way as humans, poses a fundamental challenge to this model. The Challenger report's mention of AI as a cause for 31,000 layoffs in October alone underscores this threat.

The digital economy, with its global and intangible nature, has already made tax collection difficult for international corporations. However, when labor itself becomes digital and mobile, the traditional tax systems, designed for the industrial age, struggle to adapt. Frisbee emphasizes that approximately 50% of global tax revenue derives from labor income, which is becoming harder to tax.

The Rise of the Gig Economy

The fastest-growing workforce globally, aside from robots, is the freelancer or contingent worker. These individuals, often in the gig economy, pay significantly less in taxes because collection is more complex and prone to non-compliance, whether accidental or deliberate. Estimates suggest that by 2030, half the US workforce could be contingent, further eroding income tax revenue.

The Robot Tax Debate

The inability to tax robots in the same way as humans is another significant challenge. While figures like Bill Gates have proposed a "robot tax," this remains a complex issue.

Fiscal Strain in the UK and US

Frisbee describes the UK as being in worse fiscal shape than the US, with a government spending far beyond its means and relying heavily on increasing deficits and debt. He notes the US national debt has ballooned to over $30 trillion. This situation is exacerbated by the drying up of income tax revenue, the primary source of government funding. Governments, being slow to adapt, tend to become more aggressive in taxation and tax rates rather than fundamentally changing their spending or tax structures.

UK's Decades of Decline

The UK's economic decline is attributed to decades of policy that have punished productivity and rewarded debt. Frisbee suggests the UK's peak relative to the world was around 1913. He notes that UK GDP per capita is now lower than that of Mississippi, the poorest US state. A left-wing government's belief that increased government spending grows the economy is seen as counterproductive, merely reallocating existing wealth away from wealth creators. This has led to the highest exodus of millionaires globally from the UK, putting further pressure on the middle class. The UK is also importing unqualified labor, which Frisbee describes as replacing quality with "trash."

US Trajectory and Reserve Currency Status

Frisbee estimates the US is about 50 years behind Western Europe in terms of decline, attributing this to a stronger culture of business and entrepreneurial spirit in America. He believes the American dream is still alive, and the US remains the most exciting country with the largest economy. However, he stresses that the US has grave problems that could be addressed by sounder monetary policy and smaller government.

The US dollar's reserve currency status, while providing a grace period, is seen as a cause of manufacturing decline. JD Vance's assertion that this status is a "tax on the American producer" is echoed. While the Trump administration aims to reshore industry, the reserve currency status inherently makes manufacturing less competitive. To rebuild manufacturing, the US may need to sacrifice its dollar's global reserve status. Frisbee suggests a "managed decline" of this position, with no viable alternatives like the Euro or Yuan to replace it. Gold and Bitcoin, as neutral currencies, are presented as potential successors.

The Role of Gold and Bitcoin

Frisbee advocates for both gold and Bitcoin as forms of sound money, despite the historical animosity between "gold bugs" and Bitcoin enthusiasts.

Gold's Enduring Value

Gold has a history of 50,000 years as money, predating civilization. It has been used as a store of value, a reward, and a medium of barter. Its intrinsic value is universally understood across cultures and time. However, its physical nature makes it impractical as a day-to-day medium of exchange in a digital world. While gold can be used for large transactions, its use as a medium of exchange is limited by its bulk and the logistical challenges of transferring it.

Bitcoin's Digital Advantage

Bitcoin, as digital money, offers a solution for a borderless digital world. Its scalability and lack of a trusted third-party risk make it a strong contender for a future monetary system. Frisbee notes that while governments may favor gold due to existing holdings and inherent understanding, Bitcoin's digital nature provides a unique use case that gold lacks.

The Conflict Between Gold and Bitcoin

The primary conflict lies in their roles. Gold is seen as a store of value and reserve asset, while Bitcoin is positioned as digital money with no trusted third-party risk. The failure of 20th-century gold standards is attributed to their nominal nature and the inability of citizens to own gold. The practicality of gold as a medium of exchange is further diminished by the rise of digital payments.

Regulation and the Future of Bitcoin

Frisbee expresses mixed feelings about Bitcoin ETFs. While they can drive price appreciation and make Bitcoin accessible to ordinary investors, they undermine Bitcoin's core principle of being an alternative financial system. ETFs do not offer the use case of direct peer-to-peer transactions, anonymity, or the ability to avoid government confiscation in the same way as holding actual Bitcoin. He believes that while ETFs may benefit price, they dilute the sovereignty and utility of Bitcoin.

Market Consolidation and the "Debasement Trade"

Frisbee suggests that Bitcoin, gold, and silver are entering a period of consolidation after significant runs. He notes that the stock market also appears to need a period of sideways correction. This consolidation is seen across asset classes, with hot money needing to cool down.

He argues that in times of crisis, "hot money" tends to sell off, including gold and silver, due to their liquidity. Bitcoin, being a new technology and money, is inherently "bubbly" and prone to large up and down cycles. However, he advises holding onto gold and Bitcoin as hedges against serial debasement and the potential replacement of the US dollar as the global reserve currency.

De-dollarization and Central Bank Gold Accumulation

Frisbee confirms that de-dollarization is real, with central banks, particularly those along the Silk Road and in the Shanghai Cooperation Organization, increasing their gold holdings and reducing dollar exposure. This trend is driven by a desire for assets that are not subject to external liabilities, especially after the freezing of Russian dollar assets. He anticipates this accumulation will continue, with corrections in gold prices being bought up by central banks.

The US Treasury and Fort Knox

The significant increase in non-monetary gold imports into the US in Q1 of this year is noted. While the official explanation is gold moving ahead of tariffs, Frisbee speculates that some of this gold may have ended up in Fort Knox, raising questions about the actual gold reserves held there. He echoes the sentiment that the lack of an audit suggests the gold may not be present or of sufficient quality.

The Future of Money: Gold, Bitcoin, and CBDCs

Frisbee believes the future will see the "rebirth of sound money" rather than the last stand of fiat. He identifies a 100-year cycle in money, from the emergence of "running cash notes" in the early 17th century to the birth of the Bank of England, the gold standard, and subsequent departures and returns. The current era, marked by the birth of crypto in 2008-2009, the decline of fiat, and the "debasement trade," is seen as a continuation of this cycle.

He views Bitcoin as an incredible educational tool that has brought concepts like sound money and limited government into common parlance. While governments are slow to adopt libertarian principles, the internet, as a system, embraces them.

Stablecoins vs. CBDCs

Frisbee sees a significant role for stablecoins in the growing digital economy, particularly for cross-border transactions. However, he is highly skeptical of Central Bank Digital Currencies (CBDCs), deeming them "doomed." He argues that the success of fiat currency has been due to the robust architecture of payment systems and fintech built around it, not the inherent strength of fiat itself. Government-designed IT projects are historically prone to failure, and CBDCs, lacking the competitive free-market innovation of existing fintech, are unlikely to gain widespread adoption without massive subsidies. He believes the inherent incompetence of governments will prevent CBDCs from working, offering comfort to those concerned about surveillance.

Practical Advice for Investors

For ordinary savers and investors, Frisbee recommends a balanced allocation to both gold and Bitcoin. He urges individuals to "get over themselves" if they are exclusively proponents of one asset and to own both. He suggests a core allocation of 10% in gold, with the hope that it doesn't appreciate excessively, implying its role as a stable store of value. While speculative plays in silver, miners, and other cryptocurrencies exist, gold and Bitcoin are presented as the foundational assets for preserving real value in a shifting monetary landscape. He emphasizes that while technology and life are improving, governance systems are antiquated, and sound money assets are crucial for navigating this transition.