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Circle of Competence Issue #110


"Indeed, in the seven weeks since the March 23 announcement of various lending and asset purchase programs, Fed purchases have accounted for 85% of Treasurys net debt issuance." - Adam Grant



My favorite part of Circle of Competence is always the emails I receive in response to the newsletter - especially from people I've never met before. This week I had the pleasure of connecting with a fellow Tar Heel, Sean Delaney, on what he's been up to with his podcast 'What Got You There' among other ventures. He's had guests on the show ranging from venture capitalists to New York Times best-selling authors to crossfit athletes. I'd also highly recommend checking out his resources page for book notes and more! Finally, Sean was kind enough to introduce me to Blas Moros, better known for his work summarizing and taking notes on nearly 500(!) books over the past 5+ years. You'll want to take a look at his work here. If you're looking for a great summary on a well-known book, Blas has probably already read it.

Inflation or Deflation?

I've been reading and thinking about the debate between two camps recently: the larger camp who believes that (hyper)inflation is inevitable given the large-scale monetary and fiscal stimulus that is ongoing, and the smaller camp that believes we will see deflation due to the economic demand collapse that has been forced upon the nation due to the coronavirus outbreak. I'd like to point you to two pieces espousing opposite views that are worth your time.

Ray Dalio's latest thinking shows historical examples of fiat currency devaluations and the underlying currency's value against hard assets such as gold and silver. He has put out multiple pieces lately on how he views the world economic order and what he believes will change going forward.

"While people tend to think that a currency is pretty much a permanent thing and believe that “cash” is the safe asset to hold, that’s not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out. That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens."

This is true over the long run for virtually all fiat currencies.

Trevor Jackson's latest piece in Foreign Policy argues that we will see deflation rather than inflation due to the fact that hyperinflation scenarios in the 20th century were due to political responses to post-war debt reparations (Weimar Republic in 1923, Hungary in 1946):

"The Great Depression was the most significant historical example of this vicious downward spiral. Prices in the United States fell by about one-third from 1929 to 1933. The German price level fell by about one quarter from 1928 to 1932. It was this deflation in Germany, in part deliberately caused by the austerity policies of the Heinrich Brüning government, that brought the Nazis to power, not the 1923 hyperinflation. Agricultural prices collapsed, trade collapsed, wages collapsed, and thousands of banks failed."

This also is true. General price levels fell for three years in a row from 1930-1932 during the Great Depression. But over the long term, inflation (and depreciation) continued as the international monetary system was slowly losing its gold-standard ties and moving closer to a fiat currency based system.

My take on both of these articles is that they can both be right, in their own time frame.

Jackson is pointing out a factual claim that most people are observing at this very moment - namely, that there are real deflationary pressures in certain sectors of the economy because of an absolute lack of demand relative to supply. Oil markets have been crushed due to a lack of demand. Theaters. Hotels. Restaurants. Airline ticket prices. Ag prices. Where demand has fallen off a cliff, prices have tended to follow. But this period of economic lockdown will end at some point and demand will pick up, leading to price normalization. Whether that is higher, the same, or lower relative to pre-COVID-19 remains to be seen and will depend on the industry.

Dalio, on the other hand, tends to explain his views about macroeconomic events unfolding over decades rather than small periods of 1-3 years. In his piece, he is painting a picture about the virtually iron-clad law of fiat currencies: over time they tend to depreciate in value. It is hard to see a situation over the next decade or more in which the dollar (and other fiat currencies) are not worth less in real terms than they are today, given the unprecedented fiscal and monetary stimulus that has been and will continue to be pumped into the economy going forward.

So tell me - what camp do you fall into?

Industry Primers

I'm looking for solid industry primers to add to The Business Vault. If you have a great PDF you can share on a specific industry you've read recently, please send it my way! A few industries I'm interested in at the moment include:

Renewable energy (solar, wind, hydro)


Software (Enterprise & Consumer)




Coronavirus shakes commodity markets (World Bank)

Stanley Druckenmiller speaks at Economic Club of New York (ECNY)

Howard Marks' latest memo on 'Uncertainty' (Howard Marks)


Terminal deflation is coming (Trevor Jackson)

The class politics of the US Dollar system (Phenomenal World)

The long decline of higher education has begun (

The coming disruption of college (Intelligencer)

Peter Zeihan explains the geopolitical landscape (Anthony Pompliano)


Statistical basis for predicting technological progress (Santa Fe Institute)


Naval interviews Kapil Gupta on meditation, desires, and the mind (

50 ideas worth studying (David Perrell)

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