Most people just don’t get it: There are now 2 financial systems

The thing I hate most about finance is its complexity. Complexity stops normal people from building any wealth (by design).

Assets are what you use to store your value and build wealth. Assets are part of the financial system. There used to be one financial system, and now there are two — many people don’t know this (again, it’s by design).

I spent a large part of my career working in the old, broken financial system. It’s only recently that finance people like Raoul Pal have begun explaining the two financial worlds we’re living in. Your money and investing choices start to make sense when you can clearly see the two financial worlds.

“You can step out of one [financial world] and into the other.”

Financial world #1 (based on pessimism)

These are the questions that get asked.

How will the banks break? Is my money even save in the bank?

Good question. A bank takes your money and then invests it in the derivative casino. They’re not evil. They have no choice. Shareholders need their hit in the arm of money. If they don’t get their jab, then they can ruin a bank.

If the bank breaks and has your money, they don’t have to give you anything. The structure of a bank is a sad reality in this world.

Where is this going to go wrong?

We’re on a knife’s edge. Even everyday investors are suspicious something is up. Businesses are shut for a year and everything is fine. Come on, really? In this world we just wait for chaos.

Global events move markets and risky behavior has a huge cost. We spend years taking risks fuelled by debt, only to face a recession reset roughly every 5–7 years. Things going wrong is a feature, not a bug in this financial world. Things going wrong for normal people is how you make money.

What is the Federal Reserve going to screw up next?

The words of a few men and women in suits are supposed to help us sleep comfortably at night. They move interest rates.

They create a little money to paper over the cracks. They use big words like ‘quantitive easing’ to keep the smoke and mirrors of this world hidden.

No big deal. Nothing to see here. Go back to work, pal. You’ll be fine.

Hedge funds front-run retail investors and have an unfair advantage. Agh! Is that fair?

When you buy stocks, you are competing against the bots owned by hedge funds. Humans vs bots is the game of stocks.

The bots can trade faster and use better data than you. Sounds fair. Nothing can go wrong with that, surely.

IPOs are unfair for retail investors, don’t you think?

The retail investor gets the scraps of the financial carcass after the rich folks have made money pre-IPO.

Many financial experts laugh at IPOs. You can be a company and IPO and make no money.

Take a look at the disaster that was WeWork. SPACs are the new trend replacing IPOs. They’re an inside joke to Wall Street too.

Stocks are a casino. Help!

Is it investing or gambling? That’s the main question of this financial world. It’s upside down. It’s hard to predict.

Complexity makes the truth hard to see. So, everyday investors accidentally take up the position of a gambler sitting at the roulette table, hoping everything keeps going up so they can cover their loans and feed their family.

Those running the casinos are easily able to take that wealth — from blood, sweat and tears — and piss the money up against the wall. Money is something they don’t need any more of, but it’s too much fun to stop.

Can we break a stock like Gamestop? Let’s try.

Let’s get together. Let’s wage war against the hedge funds using stocks. They can’t do this to us. We’ll show them. This financial world is now at war. Let’s weaponize social media and take them down. March forward with your stock buying weapons.

How are taxes going to go up?

Crap. We made money. Now we have to pay taxes. What are taxes going to be? Will billionaires pay taxes?

How come they pay more tax than me? It’s not fair. I’m moving from San Fran to Miami to escape this tax BS. See ya later Cali.

How bad can this get?

Recessions are seasonal. Nobody knows how bad the damage is going to be. The word bailout is thrown around in boardrooms.

“I need a bailout. No, I need a bailout.” Being a billion-dollar company, fighting for handouts, like a baby, is normal.

Are stocks in a bubble?

How about bonds? What other bubbles are there? I know … The Everything Bubble. 

A bubble is where you wait for it to pop and then assess who the winners and losers are. Losers are required to keep the winners smiling.

Bubbles are unpredictable. But seeing when investors will exit a bubble is even more unpredictable.

Inflation is a mystery. Did it happen?

Measuring inflation is tough on purpose. You’re told inflation is low. Then you learn there are two types of inflation: (1) The Consumer Price Index kind (2) Asset inflation.

Those who can understand real inflation shield, themselves with assets. They alternate measuring value in different things — US dollars, gold, The Fed Balance-sheet, crypto, etc.

Still, world leaders try to mystify inflation. Inflation is the tax you pay without knowing in this world. Inflation is hidden by design. If you knew you were paying it heavily in 2020, you’d be pissed. You wouldn’t be roaring that your stocks went up 20%.

Inequality is unfair. Why do the rich get richer and the poor get poorer?

In this financial world, there is huge inequality. People get frustrated. They demand a raise in the minimum wage they are given by a centralized organization, which pretends to care about them while exploiting their precious time on earth for profit. Inequality makes society sad.

You can see inequality but the financial system doesn’t allow you to fix it.

Can I get some stimmy? Here you go sir.

Free money is handed out by governments. They look like the heroes in the war against poverty. But actually, the few thousand dollars in handouts is created out of thin air, causing the current money in circulation through the global economy to be diluted in purchasing power.

Stimulus means that the money everyone else has, has been diluted.

Can they just create more money out of thin air?

In this world, money can be created out of thin air. There is no price to pay. The central bank of a country can log onto a computer and add more zeroes to the end of any bank account they want.

The currency of this financial world isn’t scarce (the biggest bug of all).

Without scarcity, you have “fake abundance.” People think they’re getting richer, when the financial system is making them poorer.

How do you feel reading about this financial world we’ve had for decades? Do you feel exhausted and pessimistic yet? I bet you do. All the questions of this first financial world are negative.

Lies, deceit, and misdirection run this financial world. Nobody trusts anybody. Cheating is part of the game.

You have to be a pessimist in this financial world. Winning in this financial world feels terrible because you know somebody has to lose for you to bring home the bacon.

Financial world #2 (Based on optimism)

A second world sprung up in 2009. Here are the questions people in this world ask.

What can I build?

This is the driving question in the new decentralized world of blockchain. It’s not about ripping anything down or rebuilding. It’s about building the whole system from scratch. Everybody is a learner in this financial world.

Curiosity runs the show. Nobody is trying the old way of doing things because everything is brand new. It’s like going back in time and watching America being built from scratch.

That’s so cool!

You build stuff in this financial world. The crazier and more innovative you are, the better. The goal is to break paradigms. You’re rewarded for going big, not thinking small.

Where will this lead to?

It’s similar to the early days of the internet. Nobody knows where this new world is heading. Will the structure of ownership change? Will it matter what country you live in anymore?

This world is based on daring to dream of a virtual future. In fact, this world is based on the crazy idea we may not solely occupy earth. Living on other planets is a perfectly rational idea technology and blockchain could enable.

What developments are happening?

Iteration is at the core. Nobody is romantic about a product, project or community. You’re excited about developments, and they’re happening at a rapid pace. Developing a new world is exciting. DUH.

What is the rate of adoption?

As the migration happens from one financial world to another, it’s exciting. Measuring the adoption of new ideas is easy with a public blockchain.

You don’t need a VC-backed, IPO-listed, PR-driven tech company to fudge the numbers and delude you into thinking every company is the next Uber.

Blockchain shows you the truth, which is verifiable and backed by code.

What will bitcoin and ethereum do?

This is the giant question. These were the first two big ideas to unite this new world.

• Bitcoin became a pristine asset you could secure a loan with (collateralization).
• Ethereum became the platform everything in this decentralized world is built on — the plumbing. Smart contracts brought back trust (again) to the financial system.

Can we fix money transfer in third-world countries?

Why not? One of the highest rates of adoption for bitcoin is in Nigeria. Adopters of blockchain technology love the idea of allowing third-world countries to have the same access to money that first-world countries have.

As long as there are cellphones, the idea that blockchain could fix money in third-world countries is entirely possible. In fact, you could argue, things have already changed.

This new world uses the optimism that technology enables to fix problems that have existed for far too long, instead of the pessimism of traditional politics.

See the difference in thinking between the two financial worlds? One world stays the same. The other world progresses quickly.

Can we stream money in return for a person’s attention?

Streaming money is a thing in the blockchain world. Getting paid once every 30 days, after a middleman takes out their fees, is a reality of the past in this new world.

Removing middlemen and making services faster is the only way to build anything in this new world.

Can the 80% cut the music industry takes from artists be disrupted?

NFTs that sit on top of ethereum are showing early signs of the music business being led by artists, not record label captors.

Is that project going to succeed or fail? Who cares. Let’s see what they can do.

This is the saying that dominates this financial world. Experimenting is key.

Success or failure is part of the process — both are encouraged, because both success and failure teach humans more than a Harvard education, that pushes you into an enormous debt hole, ever did.

“Let’s see what they can do” is backing the human race. It’s optimism at its core — something that has been lost in the old financial world.

“They’ve discovered America over here,” says Raoul Pal. That’s what being part of this second financial world feels like. A wall of money is being thrown at this new financial world.

People are cashing out their devaluing currency to be a part of it. The constructs of work are charging. How you get paid is evolving. The setup of an organization looks nothing like a skyscraper with a boardroom and men/women in striped suits drinking cafe lattes.

In this new financial world, Californian real estate over here is cheap. You can even buy Manhattan for a steal.

Paradigm Shift: the transfer of power is going from the institution to the individual.

The entire digital value system is being created in front of your eyes. The system of money means that it is a land grab of epic proportions, where huge money is going to be made.

Because you’re transferring the ownership of the monetary system, from one group of hands to another group of hands. And then creating new monetary systems [financial worlds] that never existed before. — Raoul Pal

Bringing it all together

Meanwhile, professional social media critics are saying:

It’s a bubble.
It has no value.
It can be stolen from your digital wallet.
NFTs are stupid. I don’t need a high-priced Jpeg.

*Shakes head*

Blockchain/crypto bashing will make you the horse pulling the cart for a few pennies and, working harder than you need to, doing factory worker labor tasks for the rest of your life.

This is all micro thinking. It causes you to miss the macro picture — that can change how you see money, use money, and earn money — when you fall for the traps of the old financial world’s thinking. Get your head out of the gutter. The current financial system of walking into a building made of bricks, to give the teller your cash, is the horse and cart.

In the new financial system, everything is virtual. You need VR goggles to see this new world, while working at your virtual office in Decentraland and taking a virtual train to work, so you can force yourself to get time to listen to a podcast you’re streamed money to listen to, while doubling as your learning for the day.

The migration from one financial world to another has already begun. The reason is the pessimism of the old world is exhausting. Optimism feels better — it’s a state of being that brings about real change.

Don’t be the horse pulling the cart. Trade your horse suit for a set of VR goggles, and dare to dream about humanity’s potential again.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.