DeepSummary
Luke Groman, the founder and president of Forest for the Trees, believes the market is failing to recognize two key things: The deflationary impact of AI and robotics, which are incompatible with a debt-backed monetary system, and the rising costs of finding marginal sources of energy like oil and copper. He argues that these factors point to the unsustainability of the current sovereign debt-backed system and suggest that central banks will have to fully reserve consumer and sovereign debt by printing money, leading to higher inflation.
Groman explains that energy is the base layer of money because debt is a promise to expend energy in the future to pay back loans. As energy costs rise, it becomes harder to pay back debt, causing potential defaults and straining the monetary system. He sees the US dollar losing its status as an energy currency, with gold and bitcoin emerging as better stores of value tied to energy expenditure.
Groman is bullish on the US over the next two decades, as he expects the country to eventually do the "right thing" by restructuring debt, embracing industrial policy, and playing to its strengths after exhausting alternatives. He recommends investors ditch the traditional 60/40 portfolio and allocate a portion to gold, bitcoin, and industries that will benefit from reshoring and reindustrialization.
Key Episodes Takeaways
- Energy is the fundamental basis of money, as debt represents a promise to expend future energy (work) to pay it back.
- Rising energy costs combined with AI-driven deflation will force an unsustainable transition away from the current debt-backed monetary system.
- The US dollar is decoupling from oil as a stable denominator of value, unlike gold and bitcoin which can better preserve purchasing power against energy costs.
- Investors should ditch the traditional 60/40 portfolio and allocate more to gold, bitcoin, and industries that will benefit from US reindustrialization.
- Central banks are diversifying away from US Treasuries into gold as a reserve asset that can preserve value against rising energy costs.
- The Fed has already started engaging in financially repressive policies to prevent a run on Treasuries and support the bond market.
- The US will eventually be forced to restructure debt, embrace industrial policy, and play to its strengths after exhausting unsustainable policy alternatives.
- While facing headwinds, Groman is bullish on the US over the next two decades as it reindustrializes and transitions to a new monetary system.
Top Episodes Quotes
- “Most people are still assuming dollar equals oil. They're assuming the denominator is the same. And I think they're different. And not even I think I know they're different. I can show it to you on the charts. S and P 500 total return since January 1, 2020. In dollars, up 75%. In gold, up 15%. In bitcoin, down 81%. That's telling you the denominators are wildly different.“ by Luke Groman
- “The financial repression side, we're already ten plus years into that. The Fed regulated us banks into holding more treasuries as high quality liquid assets. And we saw how that worked out last spring, right? With BTFP, the banks started selling treasuries, or they couldn't sell treasuries because they were so underwater they would have to take the earnings hit. So the Fed came in and basically swapped them out at par so that they didn't create a run on treasuries.“ by Luke Groman
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Episode Information
Bankless
Bankless
6/10/24
“Energy is the base layer of money” - that’s how our guest Luke Gromen puts it in today’s episode.
Luke is an Author and Investor who gives us a completely new way to look at money, through the lens of energy costs.
The essential learning of today’s show is that you can’t understand money until you understand energy markets. Apart from that Luke explains why the price of oil is about to force a monetary system change, why the 60/40 portfolio is dead and much more.
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TIMESTAMPS
0:00 Intro
5:57 Luke’s Thesis
12:23 Energy lens
23:23 Arc of the Dollar
28:31 Why Oil?
31:31 Energy as a Denominator
38:12 Energy Price Changes
45:31 Energy Miracles
59:22 Monetary System Change
1:10:41 Capital Controls
1:18:12 Future of the US
1:24:56 How to Prepare
1:30:37 Closing & Disclaimers
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RESOURCES
Luke Gromen
https://x.com/LukeGromen
FTT, LLC
https://fftt-llc.com/
Luke Gromen Weekly Newsletter
https://fftt-treerings.com/
Visualizing the History of Energy Transitions
https://www.visualcapitalist.com/visualizing-the-history-of-energy-transitions/
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