Ep 56 – Jason Cozens: The Solution to Bank Risk is Gold
In this thought-provoking interview Jason Cozens, founder and CEO of Glint, discusses the future of money and the role that gold can play in a modern financial system, riddled with bank risk. Jason shares his insights on why the traditional banking system is failing to meet the needs of consumers. Keith and Jason explore why gold is money, not an investment, and how Glint is making gold more accessible to the average person.
Connect with Keith Weiner and Monetary Metals on Twitter: @RealKeithWeiner @Monetary_Metals
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Transcript:
Benjamin Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Benjamin Nadelstein. I am joined, as always, by founder and CEO of Monetary Metals Keith Weiner. We are joined today by the founder and CEO of Glint, Jason Cozens. Jason, welcome to the podcast.
Jason Cozens:
Thank you very much, Ben. And it’s a privilege to be on your podcast.
Benjamin Nadelstein:
Jason, you got to tell us, where are we catching you today? Are you in New York City, Los Angeles? Where are you?
Jason Cozens:
Yeah, well, I do spend a lot of time in New York, about one week a month that normally I think I spent last year because that’s obviously more than 50 % of our customer base is over the US. But I’m in London. It’s where I base myself, my family are. And I’m actually we’re doing this podcast from the F&A club. So it’s a venerable club of mainly academics. I don’t quite know how they invited me, but I’m very fortunate to be a member of the club. It’s a beautiful building and some very interesting people are members.
Keith Weiner:
I had a chance to meet with Jason in the club while I was in London some months back, and it’s a shame we didn’t have a chance to record the podcast there because that would be the one and only appearance on the podcast where I would have had not only a suit but actually a tie. I know. One of the few times… You can’t take me out of my natural habitat. In London, I do down the tie sometimes.
Jason Cozens:
Well, you looked fantastic, Keith. We’ll have to get you back in with the tie and the shirt next time.
Keith Weiner:
I look forward to it.
Benjamin Nadelstein:
Okay, so, Jason, for anyone who doesn’t know, what’s your back story and how did you get Glint get to help consumers invest in gold?
Jason Cozens:
Okay, well, how long have you got? I’ll try and keep it short, but look, for someone who’s disrupting the financial services industry, I am not from financial services. Really, my background couldn’t be further from financial services. I qualified as an architect originally, Ben, and actually worked in Hong Kong for a couple of years. There is one of my buildings up on Windom Street there in Hong Kong. I only saw it up to the third floor because I came back to the UK. But when I was in Hong Kong, I really got into my first computer, especially around things like visualization. I realized at the time that, Wow, computers are going to completely revolutionize how humans communicate and how they do things. When I came back from Hong Kong, I threw myself into the world of virtual reality. The first time it was cool. From there, really, my career, my company that I set up, Visuality, we pivoted into building websites. I started hiring teams of software engineers to build some of the first e-commerce systems for the high street retailers here in the UK. So back then, there were no off-the-shelf software systems.
There was no Shopify or anything like that. So we had to build the content management systems, the e-commerce systems from scratch, we had to look into the future and think about what was it this emerging digital ecosystem could offer and how could we leverage it? That was a really fun time.. Com boom and going through the bust. My life really, I was into building virtual architecture, websites, e-commerce apps. Then 2008 happened, the global financial crisis, which some of your viewers and listeners will be very familiar with, some of your younger ones, not so much. But for those who don’t know, Keith, you’ll be able to describe this better than I can. But from my perspective, we came to the verge of complete collapse of the financial system. And if you listen to some of the Chancellor’s, the financial, the Fed people talking about it now, in hindsight, we were literally hours away from a complete breakdown in the banking and financial system. And so for me, I think a lot of my clients, it was the first time that I realized that when you put your money in the bank, it ceases to be yours. That money is lent out, it is given to people, it’s put at risk.
And there is no money in the bank. If we all asked for it, there’d be a run on the bank, there’d be no money to give to its clients. And so I thought, well, hang on, I’m not that bothered about the small amount of interest I get from leaving my money in the bank. What is that risk free deposit store of value? Where can I put my money where it’s not put at risk? And actually, the whole banking system really is a farce hiding in plain sight. When people talk about risk to me, they sometimes talk on a note in great detail about the risk behind systems around vaulting, etc. But actually the banking system, people put their money in the banks and yet it is the biggest… There’s nothing there. It’s the Emperor’s new clothes. But of course, when you start thinking about that, you start thinking about other related issues. And of course, the other big one that came up in my mind was the fact that money does not buy you what it used to buy. And I think you don’t have to be very old to start realizing that when you were younger, something would cost X and now it costs X times three or X times 10.
Jason Cozens:
Why is that? Have these things got bigger, better? What’s happening? Of course, the real shocking realization or real shocking truth for me that really came back, and I’m going to have to say this about four times just so that listeners really let it sink in. And actually, on your podcast, they probably know this already, but the US dollar at the time had lost 85 % of its purchasing power and now I think it’s 90 %. And that’s like, Wow, we’re using a form of money that’s become worthless nearly. And of course, it’s not just the US dollar, it’s every fiat currency. And I learned that up until 1971, the dollar had been backed partially by gold. It had relative gold standard. Nixon temporarily took us off the gold standard. It was supposed to be a temporary window. Yeah, temporarily. And we’re still in that temporary window. And of course, because the US didn’t want… My perspective on it is that the US didn’t want to lose its gold. The French were busy going into New York Harbor with their warships asking to exchange their dollars for gold. Fort Knox was going down. How far down?
We don’t know, of course, because I don’t think there’s been an audit since or many. And we came off the gold standard. And so I was introduced to gold really through that process, through that thinking. And I thought, well, I looked at gold and gold still buys you what it did 3,000 years ago, never mind 50. So why don’t we just put ourselves on to our own personal gold standard? Why can’t we enable gold as money in electronic payments? I thought to myself, every day I was looking at things differently with the thought of how can we do this better? How can we do it more efficiently? How can we do something new in relation to an industry using this emerging digital ecosystem? A bit of a curse, really. I literally looked at everything, everything I did. I was thinking this way. It was an obvious thing for me to do was to think, well, why can’t we just enable gold as money? If it’s no one else’s liability, if you’re buying the right type of gold, if it’s e if it’s reliable in that regard, if it has been money for thousands of years, why can’t we use all this tech to be able to use gold as money?
So that’s what we did. I was delusional enough to think that I could make that happen. A lot of people said I wouldn’t be allowed to or we wouldn’t be able to. But perceived and persevered, sorry. And yeah, that’s what we’ve done. Glint now for a number of years has been enabling gold as every day money. We’re the first company in the world to enable money in electronic payments with the Glint app and with the Glint Mastercard. So you can literally buy gold at $10 worth, $1 worth. You can save it. You can send it to other people that have Glint accounts and you can spend it anywhere in the world. Recently I did my little… I mean, Keith, you were over here in London and went on the different places around the world. I did something similar. I was in Dubai and Switzerland and Auckland recently in Sydney, and I paid for the whole trip, of course, with gold. It’s doing its job for me and for a lot of our customers, believe in it too. I’m happy. I also don’t want to waffle on too much about it, but I really do believe that the monetary system is one of the biggest reasons why we have so much inequality in the world.
I believe in a world where everyone has an equal opportunity to prosper. I don’t think the game should be… The dice should be stacked in the favor of one set of people. And of course, the way money is created through debt and through lending, of course, those with money can borrow as much as they want and buy assets and it’s creating an increasing divide. I don’t think it’s right that because of that, three people in the US own more than 50 % of the other half of the US population. And I think those distortions are wrong, but I don’t think central banks are going to do anything about it anytime soon. So I think it’s up to entrepreneurs and individuals to look at ways in which we can opt out of that system and effectively put ourselves on our own sand money systems, whether they be crypto or gold based or whatever.
Benjamin Nadelstein:
Well, Jason, I always find that so interesting because people always scoff at this idea of gold. Oh, you want to go back to a gold standard? Let’s get our coin purse out and have some coins jingling on a rope belt and we’re going to walk around and what? You’re going to pay with a gold coin? That’s ridiculous, right? Well, maybe, Keith, we’ll start with you. What do you think can change the perception of gold as a monetary medium, as a monetary piece of it or asset or instrument versus the dollar or something else that most people think people want to money. I just.
Keith Weiner:
Wanted to first add a comment about the imminent collapse of the financial system. And that was sticks out of my mind as reading an interview with this woman. I’m trying to remember and I want to say Carmine something or other, who was an attorney who was some assistant to then Treasury Secretary, Tim Geitner. And she was talking about in the days when the crisis was erupting, and they had these very intense meetings. And basically, Tim Geitner ran from the room and went into the men’s room and was just sobbing. And he came back and he said he felt like he wanted to throw up. And that was the leading minds, allegedly, who chapered the economy. Before the crisis, they used to call it the… Not just the new economy, what was the term?
Benjamin Nadelstein:
Well, there was the great moderation, Keith.
Keith Weiner:
Great moderation, that was the term I was looking for. Yes, the great moderation that they had created. And when that great moderation turned into a great crisis, they wanted to run from the room and go throw up. And these are the people to whom everybody blindly entrust their faith and their belief that, yeah, these people got it. It’s all good. And all we have to do is worrying about the next consumer purchase we want to make or who’s winning on the sports game. Your question was, what does it take to change the perception of gold? Partly I think it’s to present gold as a more serious, more adult thing. That’s why I’ve been as aggressive as I have about attacking and debunking the various conspiracy series. The latest was, I don’t know if you saw this, Jason, some little bit called something with corner, got a little spot on Australian broadcasting company saying that the Perthment had sold, quote, diluted, unquote, gold to the Shanghai Gold Exchange. This diluted it. Now, the body of the article acknowledges the so called diluted gold was in fact better than 99.99 % pure. So the concept of dilution and the concept of 99.99 %.
Now, most people, unless you’ve taken chemistry lab at the university level, may not realize that every little bit of additional purity you’re trying to get, whether you’re distilling alcohol or refining gold, is exponentially more expensive. There’s no such thing as 100 %. There’s always an impurity because to be exposed to the air, you’re getting some impurities, little bits of dust or landing in your molten gold or whatever. And people make much ado of this. And according to the article, it wasn’t that it was impure gold, although the headlines had diluted. But the issue was that what was in the.01, which was a tiny fraction of the total weight of the bar, obviously. But within that.01, the specification provided by Shanghai for silver was exceeded. It had too much silver within that point, I don’t know why. And I’m like, man, if there’s something that smells a lot like a nothingburger, that surely has got to be the nothingburger. And so the Shanghai Gold Exchange came out yesterday with some announcement that said this is false and the Perthment and the Shanghai Gold Exchange reserved the right to take all legal actions, to preserve our reputations.
Keith Weiner:
I was like, Okay, well, that’s the bun for the nothingburger. I think we need to get past all those stuff. And now I think it’s about… I like what, I’ll say it the American way, what Clint is doing. I think you British would say, what Glint are doing. It’s a plural for company. And you study math, which is a plural and we have math here as a singular. I like what Glint is doing because you’re building the infrastructure to allow gold to be used in a certain sense in a conventional way, which is, okay, I have money and it’s parked over here. And then if I want to spend my money, I can. And you’re just enabling that. So we’re not back to the medieval period where you have to walk around with a little leather purse jingling on a robe belt on your robe that you wear around. It’s on your Apple wallet or whatever it is. And so it has very modern accoutement to it. But those gold, rather than bank liability, which, Jason, to your point, the bank liability is a return free risk and the risk is opaque. It’s unmet, it’s unknowable.
I’m not even sure the CEOs of the banks actually truly understand the derivative book and what a disorderly unwind might look like. Certainly the regulators don’t understand it. Certainly the public doesn’t understand it. Anyway, so instead of that, you have gold. All that makes sense. And it will help people become familiar with gold in a different context. Obviously, Monetary Metals, we’re doing something that I think is necessary, which is if gold is money, that’s the thesis. Money should be able to earn in return. And not just because it’s going up in terms of a falling fiat, but actually generating more money.
Jason Cozens:
Well, it’s funny you should mention that, Keith, because I was at, let’s just call it a conference of the gold industry. And I met somebody who told me that he had been the chairman of this Venerable Club of people from the gold industry. And when I told him what I did, he said to me, he tried to pop holes in it. And he said, Well, gold doesn’t give a yield. And I said to him, Yes, but neither do dollars or pounds give a yield. If you stick them in the vault as we do with our customer gold, they don’t give you a yield either. And of course, you can decide to choose to put your pounds or dollars with an element of risk if you want to get a return. But of course, you can do that with gold too. And he had nothing to say, but I think it’s this 50 years of temporally coming off the gold standard has somehow made people think that gold isn’t money anymore.
Keith Weiner:
Yeah. So this guy who’s gold central is the good old boy of the good old boy’s network of gold. Completely dismissing doing anything new with gold. He just wants to keep it in stasis as it was and not change. It reminds me of a very sad expression, which unfortunately is all too often true. And the expression or the saying is, or the quote, and I don’t remember who said this, science advances one funeral at a time.
Now, I don’t wish anybody ill. I think in this case, it’s not going to be a funeral so much as we, the Gold 2.0 companies, will just move the ball forward and the old guard will be standing there in the 10 yard line just out of the action, off the camera, wondering what the heck happened. But I had a very similar experience, Jason, when you said a lot of people said they won’t let you do it. It can’t be done. In the US, they point to cases like Bernard Van Nodhouse and what’s his name? Douglas Jackson. And these are people who make pretty obvious legal blunders. You can’t stamp a coin and put a dollar face value on it. That’s right. Bernard Van Nelhouse did. You can’t flunk the anti-money laundering laws as Douglas Jackson did. And so they point to that. So they won’t let you. They’re going to shut down gold. And it’s like, no, look, there’s a bunch of laws you got to comply with. I don’t necessarily agree that those laws should be, but if you’re going to do business, then that’s just the environment. You just have to build compliance team. and compliance process, and you have to do it.
And if you do all those things, then nobody shuts us down. Nobody shut us down.
Jason Cozens:
And that’s what we’ve been very much adopting and embracing the regulatory environment since before we even started. So we are regulated by the Financial Conduct Authority, part of the Bank of England, and it’s painful. And it means that you have to spend a lot more time and money on things and setting up the processes and the governance around your company. And actually, we were able to do this, even though gold itself isn’t regulated by the FCA because we’re dealing with client money. And as you say, sometimes we don’t agree with some of the the centralized government initiatives there to protect us. But in this particular case, it’s very frustrating to be doing this and watching, for instance, a lot of people in the cryptocurrency industry running roughshod over these regulations. I see the regulatory clampdown that’s been going on with crypto, who, by the way, are my friends. They have a similar vision and mission, I think, for the world. But it’s no surprise to me that we’re seeing a big regulatory clampdown on this. I don’t think there’s some big conspiracy as to some requirement not to let cryptocurrencies take hold. I think that they generally believe these institutions that, hang on, we’ve been set up to protect the needs of the consumer.
And when things like FTX happen, and of course, they’ve been caught off guard and they need to make sure that these companies are all playing on the same level playing field. And really that’s in a way, one of the reasons why I’m quite glad that this regulatory leveling up is happening because either you get rid of all the regulations or you make sure everyone’s complying with them. But it’s not good to have a situation where it’s or it’s different for different people. But going back to your question, Ben, I think it’s also a matter of perspective. It’s no coincidence that I was in tech for a long time before I came across this issue about money and about the monetary system and gold. And it’s no coincidence, I don’t think that certainly to start off with Glint, our early adopters were older, typically 35 and 40 up. And we’re definitely reaching a younger audience now. But perspective is really important. As I’ve got older, I’ve realized how quickly life goes by and actually how short our lives are. I’m 52. I talk about when we came off the gold standard, that was in 1971, just 50 years ago.
It is nothing. I was in Sydney seeing my friend the other day and I felt like I’d only been gone three months. It’d been nine years, nearly a whole decade. And yet if you’re a young 35 year old person and you haven’t read history or don’t have any interested in history, you have no idea what the norm is like. So you have no idea what normal interest rates are. You have no idea what inflation is. You have no idea what gold is. And it’s because for this tiny short period of time, that this is how the world works now.
Keith Weiner:
I gave a talk at a simpatico company here in the US that organized a seminar and I gave a talk. And the person at that company who did all the event planning and everything was the administrative assistant of some sort. And she was, I don’t know, 23 or 24 years old. And a lot of my talk was about the interest rate, the collapse of the interest rate. Post 2008, nobody can earn interest on their money anymore. She came up to me afterwards. She said, I never thought about it. Because basically her entire time that she’s been aware, I mean, one becomes aware of these things, I guess, before when turns 21, but let’s go at 14 or 15 or something like that. There hadn’t been any such things interest. And she just thought that was life. That was normal and plan around it and whatever. And she had a little bit of perspective that, yeah, before 2008, there was actually interest, not a lot, but something. And everyone just takes for granted today. And recency bias takes over and yeah, it’s a limo, right?
Jason Cozens:
Yeah, recency bias, that’s a phrase I think I just learned from you. It’s a good, it’s a really interesting phrase. I think people mix up the perspective they have and the surprises they get from recency bias with black Swan events, which really should be two very different things. It’s not really that surprising that we’re having inflation now and it’s not surprising that we have normal interest rates again. These are not black Swan events, but for a 34 year old or 35 year old, many of which are in very influential positions. I know in the many of our world leaders and local leaders are now coming into power at quite young ages, which is good to get young blood into politics. But of course, there’s no perspective there unless they’ve taken the trouble to understand, to get the perspective which I think people need. And obviously, as you get older as well, there’s a tendency for a lot of people to get set in their ways, which is what you were talking about before, Keith. And somehow we need to get that married with the creativity and the flexible mindset of a younger person. Not quite sure how that happens.
It’s not always screwed because the young people don’t have the perspective and the old people don’t have the flexibility to change the thing.
Benjamin Nadelstein:
Your Honorable Host is 24 and is into gold and is still flexible, hopefully. Can’t touch my chose, but flexible in other ways. All right, so why don’t I ask you this? Let’s say I am 24. I’ve never heard of this whole gold thing before. I’ve heard of meme stocks and crypto and I don’t know, you guys are old heads talking about gold. Why don’t you each give me the one minute pitch? Why should I have gold? Is it a good financial option? I’ve never heard anything about gold. Today is my first day.
Keith Weiner:
Jason, we’ll start with you. Let me just interject one thing. Don’t call us boomers.
Benjamin Nadelstein:
Okay, you’re not a boomer.
Keith Weiner:
Jason’s 52, I’m 55. We are generation X. I’m proud of it.
Benjamin Nadelstein:
Okay, generation X. I’ll start with Jason.
Jason Cozens:
Jason, give me the one minute pitch. First of all, I don’t think gold is an investment. Let’s be really clear. From my perspective, stocks and things like that that you are investing in a company which is run by people. It has a thesis that it might grow. You are definitely putting your money at risk. That money could all go to zero if that company goes bust. And so we’ve seen 85 % falls in stock markets before. You can see certainly see 100 % falls in individual stocks. These are risk assets which you’re investing in. Gold is money. It is the most sound money available. It is the golden constant. It doesn’t ever change. The confidence in Fiat currencies, the US dollar goes up and down and generally down, which makes it look like the price of gold is going up and down and generally up. So we’re in a situation now where young 24 year olds are thinking they’re getting disillusioned about saving. They don’t think they’ll ever be able to afford an apartment or a house. So they get involved in speculative things, speculative high growth options, investments that might be able to get them to catch up.
Jason Cozens:
They’ll be able to effectively they feel like they’re swimming against the tide. How do they get that? How do they move forward? My message is this, look, absolutely, download apps like Robin hood, get involved in looking at how you invest in businesses and stuff, but be very clear about the difference between that and sound hard money. Gold is the choice for me, if you want to save your money and you want to make sure that its purchasing power for the long term doesn’t decrease, you might find that in 10 years time or 20 years’ time when you’ve got the gathered enough gold, you’d be able to have a deposit for an apartment that you’ve always dreamed of. Whereas if you just saved it in US dollars, pounds or euros or whatever fiat currency you’re in, I can just about guarantee it would be worth a lot less than it was previously. So don’t put all your eggs in one basket. Make your investments if you need to. I would also say dollar price average, don’t just go out and save up your money and then buy as much gold as you can. As I said, it might be a time when the fiat currency has got a lot of confidence behind it or not.
You might be buying at a high price or a low price. Just buy a little bit every month. Why not? And then when you need to spend it, you can do. And it should have… More often than not, it would have kept up its purchasing power. And make sure you’re buying real gold. There’s a lot of stuff out there, unallocated gold ETFs that are or tokens backed by gold or supposed to be backed by gold. I always say make sure you’re buying real allocated gold. And of course, if you want to get yield on that, then that’s over to you guys. Okay, Keith, your turn.
Benjamin Nadelstein:
You’re now a boomer, but you’re definitely older than 24. So give a 24 year old advice. They’ve never heard of gold. Maybe they’ll think about investing after they hear from you.
Keith Weiner:
I think it really starts with an education and it starts with, and I 100 % agree with something Jason just said that gold is not an investment, it’s money. Now, in the context of investment, what’s money? Money is the thing that you want to hold when you don’t actually want to invest, when you want to sell your investments and not be invested, not taking the risk, not exposed to systemic risks and crisis and whatever. When you sell and you want to cash out and just hold money. Money is not an investment. It’s the anti investment, but it’s this thing that when you’re not investing, you’re holding money. And that should lead you down a conceptual, almost epistemological path. Okay, well, what does that mean? What’s the difference between a stock? I can sell my stock and buy consumer goods with it, especially if somebody were clever enough to hook up an API to my stock account and let me spend my stocks. Or I could have an ETF of a basket of stocks and then sell that down. What’s the difference? Why is stocks not money? Well, as Jason said, counterparty. Money is the thing that there isn’t a counterparty.
Money is the final payment to extinguish a debt when there isn’t anybody else. You’re literally taking your marbles, getting up, brushing off the sand and leaving the sandbox and taking your marbles home. Why is that important? When does that matter? And there’s a whole conceptual set of things. The Bitcoin people, and I agree, Jason, a lot of what started as ethos is very similar to what we’re trying to do. But then a funny thing happened along the way, which is number go up. And the more the number go up, the more that it’s, first of all, attracting people that don’t have any idea, don’t care what the original ethos was. It’s now about rolling the dice, baby needs a new pair of shoes. Come on, let’s go. And they start to say all these things which are very glib and smoothly roll up their tongue. And you really have to have a thoughtful response when they say, well, Bitcoin is self custody and gold, you must custody in the hands of somebody else. Now, first of all, you can obviously hold your own gold in your own hand as you could with your Bitcoin, except the Bitcoin, you’re not holding the Bitcoin.
The Bitcoin, to the extent that it exists, exists as the number in a database maintained by others. You just have a password that unlocks that record. And so you have to think about this at a deeper level. And as you do, you come to realize why. Gold always was money long before the baby boomers and continues to be money long after the baby boomers. And I’ll just add one thing Jason said, the golden constant. I point to the fact I had a debate with a gentleman. Did you see the debate, Jason? I debated Pierre Rochard, one of the leading Bitcoin voices under the auspices of the Soho forum.
Jason Cozens:
I haven’t listened to it yet, but I’m going to.
Keith Weiner:
I put up one slide. We had an opportunity to put up slides if we wanted. I just wrote one slide and it was a slide showing the price of gold for 5,000 years, and it was just a flat line. And I said, look, this is not just how we’re being funny. One equals one, A equals A totology. This actually means something. And what it means is that for 5,000 years, we’ve been accumulating gold. It’s the only commodity for which there’s no such thing as a glut, which is accumulated it without any particular limit. Now, economics teaches us that commodities have a value at the margin, a marginal utility which diminishes as the quantity goes up. That is each additional unit, whether it’s oil, whether it’s wheat, whether it’s cotton, whether it’s copper, each additional unit is worth less at the margin until a glide is the point where the market value actually falls below the cost of production. Nobody can make any money producing it anymore. They have to shut down production. Of course, that incentivizes additional consumption until the blot is worked off. But it’s not true with gold. That for 5,000 years, we still produce gold, its value hasn’t fallen either at all, I would argue, or if it falls, it falls so slowly, it might as well be a flat line that the value of the Mth plus one ounce of gold is the same as the value of the nth ounce.
Which if we think about it, that’s exactly what you’d want to monitor in unit. Now, we’re not talking about in this case savings, we’re talking about economic calculation. The most fundamental and important calculation in economics, economics has to explain how the firm does this, is the firm has to know whether it’s creating or destroying wealth, which means it needs some arithmetic, some calculus to say, Okay, we operated for a year, are we richer or poorer than we were before? And if you’re counting your richness or your poorness in terms of grains of sand, molecules of water, but even bales of cotton or barrels of oil, well, the values of those things can go up and down so much that they can go up or down more than whatever the net change in wealth of the firm is. So you need an objective unit to measure things like wealth creation in the firm and profit and loss, especially in long term businesses where you have long term finance and debt capital and equity capital. You’re not just looking at, kid opens a lemonade stand for a day and buys $5 worth of ingredients and sells it for $10.
It’s easy to know whether the kid lost money. But now, let’s say you want to borrow money and operate a factory for 30 years. How do you know at the end of 30 years, you paid $100,000 for the factory. In 1993, the factory in 1993, the factory is now a million dollars. Is the factory worth more? Or is the monetary unit with which you measure the factory worth less? And because gold has demonstrated that the N plus one unit is valued the same as the end to end it, going back 5000 years, then gold is the way you perform that calculation, which avoids the booms and the busts and avoids the need for the gaiters of the world to have to go run to the toilet and feel like they want to vomit. That ties it all together.
Benjamin Nadelstein:
Okay, you convinced me, Keith. I’m 24, but after hearing that speech about gold, I am so in. Gold is money. It’s not an investment. Okay, I know we’re about to wrap up here soon, but I want to get to a bunch of different topics, get your lightning round quick thoughts on a bunch of different topics from the UK to the pension system to funding to rate hikes. So I’ll ask the question. I’ll each give you a quick short minute to explain what your thoughts are, and then I’ll go to the other participants. So I’ll start with you, Jason. Have you seen how rate hikes are affecting, let’s say, your business personally or businesses in the UK? And do you think that because of that, the Fed or the ECB is going to have to turn around and pivot?
Jason Cozens:
I think that the winds of inflation and the winds of recession are conspiring to create a storm that the Fed… It’s impossible for the Fed or any other central bank to battle or fix. Of course, we all know that in order to battle inflation, the Fed is increasing interest rates. Of course, that creates recessionary pressures on the environment. Businesses, people are becoming under increasing pressure as their cost of money, which for the last decade or so has been free, suddenly they’re realizing that it comes at an extreme and a lot bigger cost. Of course, to fight recession, you need to do the opposite. You need to loosen monetary policy, print more money, and lower interest rates. So the two battles are in complete… The solutions are in complete opposites. We’ve got this storm that’s been brewing with that. At the moment, I see the Fed being very robust about its interest rates. I can’t see it happening, continuing in the long term. I suppose the US has the advantage over a lot of other economies in that it’s a bit more buoyant. It can create its own money as well. And it has benefited from that over the last period.
Jason Cozens:
It’s a stronger position than most. But I see, look, businesses are going to be going bust and so are people. People’s mortgages, up until now, they maybe haven’t had to renew their mortgage. When is their mortgage renewed? Is the majority of people’s mortgages going to come up for renewal next year? At what point? At some point that’s going to happen and the Fed is not going to allow people to lose their homes on a mass scale. They’re not going to allow businesses to go bust. And yet all this free money up until now, these junk bonds, so to speak, have been propping up inefficient businesses. It’s been a massive inappropriate allocation of funds into the economy, it’s all going to shake out. And so at that point, I think they will have to pivot and they will have to lower interest rates. And then we’ll be back into a battle then with recession. And I think we’re going to ping pong between the two problems for the next 10 years.
Benjamin Nadelstein:
Keith, I want to hear your take. Do you think that the way that these rate hikes are destroying businesses, leading us towards a recession if we’re not in one already, do you think they’re going to have to pivot?
Keith Weiner:
Yeah, absolutely. I was going to say to Jason’s comment about some of the differences between the US economy and the rest of the world. I’m trying to remember the statistic, but the majority, or if not, vast majority of home residential mortgages in the US are fixed rate for relatively long terms, and that’s not true in the rest of the world. So rising rates aren’t necessarily going to hit homeowners in the form of higher monthly payments. However, it’s going to hit them in the form of lower home values because most people who buy a home are payment buyers, not really care what the price is, they care what the payment is. And so with an interest rate now what it is versus what it was a year ago, people can afford a lot less house. So once the comparable start to fall, I think a lot of people are going to say, I’m so upside down in this house. It’s called dingle mail. They put the keys in the mail and send it to the bank and they just walk away. That was commonplace in 2008, 2009. And I imagine we’re going to see a lot of that.
Keith Weiner:
So you have two problems. The creditors are going to be in a bad way because the debtors will be defaulting on all sorts of things. We already see the statistics that subprime auto loans have rapidly rising default rates right now. I don’t think there’s yet data showing rapidly rising mortgage defaults, but I imagine that will be coming in the rest of the world as the payments go up. As far as business, people talk about the crowding out effect of the government borrowing. Right now, if the government is saying, hey, we’re going to pay you on a short term treasury bill called 5 %, and now the Fed is actually threatening to hike that even higher. So let’s say the one month tee bill is paying 6 %, well, a business in order to get that investor to say, I’m not going to lend to the government 6 %, I’m going to lend to this risky, small to medium enterprise. What interest rate does that risky, small to medium enterprise have to offer in order to get that capital? Well, it has to be a hell of a lot higher than 6 %. Now, the problem is for decades, the interest rates have been falling.
And every time the interest rate takes down, it enables the next marginal business to open up their new store, their new plant, their new dock, warehouse, whatever, and supply, expand production. Which means that they pull down as long as there is a positive spread between the marginal return on capital and the market rate of interest. And then the rate of interest is being manipulated by the government, so it’s not subject to a free market and the forces that would occur in a free market, then you’re just pulling down the return on capital. So we spent 40 years pulling down return on capital. We spent over a decade at effectively zero interest rates and pulling down the return on capital across the board to marginally above zero. Now you say, let’s hike the interest rates to 6 %. Well, nobody’s return on capital is suddenly sky rocketing to 6 %. And so the only way to rectify that is as the cost of borrow goes up, firms are either going to liquidate their capital stock in order to repay their debts and effectively try to de leverage somehow. But if the entire economy is full of a one sided trade where everyone’s trying to de leverage, then that doesn’t work, or they just default.
And bit by bit, all those production capacity has to be destroyed, which if you’re interested in lower consumer prices, we’re talking about massive destruction of supply. That’s not necessarily going to do with what people want. Anyways, I apologize. That was a longer answer. It’s supposed to be a lightning round.
Benjamin Nadelstein:
That’s okay. We’ll do one more quick lightning question which is, okay, a lot of people have said, Keith, Jason, yes, you’re right. The monetary system has issues and the way we’re going to fix those issues is that the governments and central banks are going to offer a digital currency. This will help put interest rates lower if we need to. We can make sure that people have safety of their deposits. You can always check on your phone and say, Hey, listen, my digits say that I have my money right here. You can send it back and forth to each other. What do we need gold for, Jason, if we’re going to have a central bank digital currency?
Jason Cozens:
I think central banking digital currencies pose the biggest threat to civil liberties we’ve ever had. First of all, why is that? Well, I think it’s a problem at best that’s trying to find a solution that doesn’t exist. And at worst, as we’ve seen in China, it’s a method of mass control over citizens and population. Why do we need it? We already have innovation within the financial system around things like cross border transactions and new and interesting ways of making payments, etc. But of course, I generally think that people within the central banking digital currency world have the best intentions. But the problem is if something is corruptible, eventually it will be. These CBDCs will become programmable. They won’t be able to resist it. That means they can control. They’ll say, hey, it’ll all happen at the next crisis. They’ll say, listen, we now can just be able to inject money to the people who need it most because now we know everything about you. We know what you spend, we know how much money you’ve got, we know what you spend it on. And so we’ll only be able to give these credits to people who really need it.
And so please sign up to central bank and digital currency and we’ll make sure you get your welfare payment in this terrible situation that we’re going through at the minute, whether it’s a pandemic or whatever it is, whatever crisis it will be. The problem is with this, they’ll literally know everything about you. They’ll know more than they’ve ever known about you. They’ll know all your spending habits. They’ll be able to say, Hey, Jason, I’m sorry, you can’t buy that chocolate. You’re a bit overweight today. I’m just saying it to get the point across. We’ve already seen that in Canada, governments close people’s bank accounts down because they were protesting. We’ve seen in China, the first country in the world to adopt CBDCs, using it as a method of mass control. And of course, we’ve got social credit systems that mean that, I’m sorry, we’re not going to be able to lend you so much money, we’re going to choose which interest rate you get. The level of manipulation that’s possible with these things is off the charts. And so we do need to be able to free ourselves from the tyranny of central banks. I think we need to be able to have adopt private money.
It’s really important because of this. Listen, I hope that none of these things happen soon, but eventually, if it can be corrupted, it will be corrupted.
Benjamin Nadelstein:
Keith, I want to hear your take. I don’t know. These central bank digital currencies, they seem cool. I have Venmo on my phone, I can send someone a digital payment now. I can’t remember the last time I paid in cash. I’ve got an Apple Wallet. It just pays like this. This central bank digital currency, it’s just the new wave of technology. You don’t understand, Keith. Let’s hear your thoughts.
Keith Weiner:
Have you ever seen those old Soviet brutalist art where the camera was looking up and you’d see this chiseled Russian peasant with his hammer and his sickle and whatever? And you’d have a grim expression on his face. No doubt that in the 1950s, that was cool to the Russian people that it presented their idealized or stylized sense of life. Getting past the coolness, I certainly agree with you. I mean, how could anybody not agree with what Jason just said that this is just ratcheting up the level of control? Now, part of me is just cynical and just wants to say they already basically have the tools for that control anyway, given first of all, the surveillance state, USA Patriot Act and other things of the NSA has inserted Echelon and other servers and all the big Internet service providers that can sniff all your traffic, anything that touches the payment system, Swift, credit cards, bank accounts, they already can monitor it anyway, and they already can dole out, they call it EBT, the food stamp program here, the cards. But this ratchets it to a whole another level of Orwell. That’s really the only word that comes to my mind.
But in addition to that, I would add one other thing, which is I think what makes CBDC is necessary, and I use the word necessary. If you’re the power mad person running the system, if you’re the dictator, desperately clinging to power and events are spiraling out of your control, you’re desperately taking desperate measures. In the case when interest rate returns to its collapsing mode, which I predict that it will, when it eventually gets below zero, it gets efficiently below zero. It’s one basis point below zero, I don’t think that really motivates a lot of people to change their behavior. In Switzerland, I don’t know if it still is for quite a number of years, it was minus 75 basis points, minus 0.75 %. Not individual retail accounts, but for larger corporate institutional accounts. So I have a friend who’s in the fault business in Switzerland, and they have one of the old mountain vaults that the Swiss government used during World War II to hide gold and munitions and other things. Anyway, now it’s privately owned and they cut in obviously modern security systems and climate control. They have artwork in there and they have gold in there, and all kinds of things.
And they have corporate institutional clients who have offloaded 18 wheelers pallets full of frank banknotes to put in the vault because the cost of getting those bank notes from the bank and shipping them, obviously, that has to be highly secured carrier. Guys with guns have to be escorted that up and so forth. The cost of all that is less than the cost of just simply leaving the balance in the bank. Now, that effectively constitutes a run on the bank that everyone is saying, give me my cash back, which will destroy the banking system. So when the interest rate gets sufficiently negative, then the banking system is going to be a casualty that goes under the bus, or at least a retail deposit taking banks anyway, not necessarily the investment banks then what passes for banking nowadays, Juffling judge paper around. But when that happens, they’re going to be desperately looking for a solution for people to be able to have a deposit account so that they can hold a money balance, transfer money balance, but that isn’t subject to a run on the bank. So they’re going to say, Okay, we’re offering CBDC s, and by the way, your paper notes are no longer going to be legal tender.
Bring those in before this date. Otherwise, those are going to be demonetized and you’re going to be loose. And unlike the old silver coinage when they did that, there’s no, I hate to term intrinsic value, but there’s no intrinsic value to the paper. So when they say the paper is de monetized, that’s it. And then they’ll force everybody into there. It’s like herding all the animals into the pen. Everybody will be herded into the CBDCs. And then they can impose a negative interest rate on your savings account that corresponds to the same negative interest rate that they have on… Or that will be the deposit account. Or if there still are commercial deposit taking banks, the negative interest rates will match. And so CBDCs don’t offer… There’s no reason to pull cash out of the banks at the point I’m trying to make. Now, people are going to say, Well, they’re going to do about gold or crypto. They don’t care because remember, if you buy gold, that’s not a redemption event. That is not forcing a bank to sell assets and redeem you as it was before 1933. It’s simply a trade. The person who owns the gold gives up the gold and the person who has the dollars gives up the dollars.
The only thing that changes in the banking system is the name on the record of those dollars. What they’re trying to do is control the dollar system and make sure it’s not a run that destroys trillion dollar balance sheets. So I think, yeah, I think they’re going to come because I think negative interest rates are coming. I also agree it’s going to be too tempting. It’s a one ring. That was totally his analogy. It’s a one ring of power. And everyone says, oh, yeah, I’m going to be Frodo and I’m going to resist the ring. And the moment I see the ring, they all turn into Boromir.
Jason Cozens:
Good analogy.
Keith Weiner:
Give me the ring, Frodo. I will use this ring to do good. And what are they going to do with it? They’re going to control our lives. They’re going to tell them that we’re going to make people healthier by losing weight. And then in the end, it’s going to be an Orwellian nightmare. If we let it go that far, I think the jury’s still out. I don’t think it’s a foregone conclusion that this is going to happen. If people say, look, no, then that’s it. Just like they said no to masks at the end of the day.
Benjamin Nadelstein:
Keith, I find, maybe I can summarize what you said, both of you, for a little old me, 24 year old. So we’re already not really making much in interest payments on our savings. And if for some crazy reason, a crisis or what have you, the government needs to push interest rates actually below zero into the meaningfully negative territory, most people like me would say, Well, listen, why would I put my cash in a bank? I’ll just leave it at home. Zero is better than negative, right? But with the central bank digital currency, there is no, Well, I’ll just redeem what little returnability I have of my cash from the bank. It has a negative interest rate, regardless of whether you want to or not, because your money is in digital format, regardless of whether you want it or not. Is that right?
Jason Cozens:
Yeah, they’ve got you and they can force you. Yeah, I think that’s one problem, but there are lots of problems with it.
Benjamin Nadelstein:
Okay, so I’m going to mark you both down as against CBDCs and pro gold, you crazy little gold bugs. Okay, so, Jason, as we end here, I want to ask you a final question that I ask all the guests, which is, what’s the question that you think I should ask all the future guests? Okay, I mean.
Jason Cozens:
There’s a question I think that’s on everyone’s minds right now. A lot of people’s minds right now. We saw that the dollar used to be backed by gold. And when we came off the gold standard, we went on to an oil standard. The Petro dollar began when the US went to the Middle East and promised to protect them because with their weapons in return for them using only the dollar to allow purchases of oil. Now, of course, that seems to have been broken. And we have lots of people being able to buy oil now with other currencies. We see the problem since 1971 that all this has created a massive creation of debt and then money supply in the system and inherent inflation, all the distorted sides of the economy as a result. I suppose the question could be how long do you think the US dollar can maintain its status as a reserve currency of the world?
Benjamin Nadelstein:
That is a great question and a great way to end. Jason, where can people find more about you and Glint and your work if they’re interested? Well, it’s.
Jason Cozens:
A f you want to put yourself on your own personal gold standard, then I recommend that you go and have a look at Glint Pay. Com. That’s Glint Pay. Com. Or of course, go on to your favorite app store and download the app. It’s available in most countries. The cards that we issue are only available in the UK and the US at the moment, but coming to Europe soon.
Benjamin Nadelstein:
Jason, I want to thank you so much for coming on the Gold Exchange podcast and we’ll have to see you soon. Thanks so much.
Jason Cozens:
Thank you.
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