Two People, One Transaction: The Naked Truth About Money

We're automating a huge amount of the stuff that we're doing. So it's following that pattern. AI has made it possible to more rapidly make this inversion that we've talked about in the past, which is that with artificial intelligence, you've got the economy, the human race has the ability to invert what has been a pyramid that has sat on top of transactions where you have layers and layers of people supposedly assisting you. in the exchange of goods and services where the seller and the buyer are really not seeing a great amount of the benefit of that transaction compared to the pyramid that sits on top but with artificial intelligence what that does is allows you to go back to the two people transaction which is the core of a viable economy There's no such thing as one hand clapping. It requires two people exchanging goods and services.

And AI allows for the capability of supporting that transaction so that sits on top of the pyramid, not at the bottom of the pyramid. And so rather than being exploited by the pyramid, it's being supported by the artificial intelligence.

Yes. It's been possible in the past. I mean, when I first got into the steel business, the steel mills back then had more people outside the plant than they had inside the plant. And we were able to take Birmingham steel and make it the low-cost producer in North America for a rebar and rod by, you know, having a superintendent, two superintendents, a plant manager and... a salesman or two and one admin and everybody else was on the line. So that basically turning into the beginning of an inversion, which allowed us to make rebar for about under $200 a ton, where at the time it was going for $600 a ton. So the technology or the desire to do it has been there, but there have been some big stumbling blocks. And one of them, has been just having the people content focused on the transaction rather than all the things that support it. And artificial intelligence is making that happen.

And then the big breakthrough also, in addition to AI, has been the crypto technology. Because now you're taking out what has been a foreign exchange problem, a time differential issue. So you've got local pricing wherever you're sourcing from, local pricing from where you're selling. You've got the exchange rate issue, interest rate issue for any time delay. And with crypto, like XRP or XLM, that all goes away. So you don't have to worry about all of those layers that are usually collecting anywhere from... In my experience, it's as much as 20 to 30 percent of every transaction is absorbed by them.

Yeah, the programmers are myopic. They aren't even looking at the big picture there. What do you want me to do? So AI is beginning to take care of that type of mentality. So you're going to be left with a very small percentage of people that have the knowledge and the background to achieve that.

They're trapped and also they get paid for doing the same thing right over and over again. So that causes many people to gravitate to these very mindless jobs where they're not thinking. They're just. This is what I do. And this is experience I had with this guy that was missing teeth. He had wild hair. And when I had this plant in West Virginia, and they had a problem unloading, we were making roofing materials, unloading the granules because the chute would get clogged up. So this guy would climb up into the rafters with a bunch of, you know, uninsulated. high voltage wires and pull on this chain as the granules are being unloaded. So I'm walking through this and this guy had been doing it for his whole career. That was his job. So he's up there pulling on it and we're looking at it. And I'm there with this guy that we're looking at and go, why do you have the chute bending at the end?

And no one ever asked that question because I said, you know, if you've got a flow, you're going to create a bottleneck. So we had him cut the end of the chute off so it just was a straight run. And for 40 years, this guy had been climbing up that ladder up into the ceiling, endangered life. pulling out this stupid chain in order to get the granules to move through because someone had put up an end tip on the screen.

Yes. And also, the problem that you've got, when I went to the University of Chicago, so I wrote a paper on this topic.

I wrote it in 1974.

So I've been working in Poland. I took a job as an assistant project manager because the Western work crew had walked off and found that we were buying stuff from Hungary, from East Germany, and we had official exchange rates, black market exchange rates. We're building this plant shipped to the U. S., but we're buying locally. It was complicated. And the challenge was, dealing with all this, I came back and wrote a paper by hand, since I couldn't type. I could barely read what I wrote. And just laid out what the problem was, which was... the challenge of local pricing, interest rates, and foreign exchange rates, and coming to identifying a, you know, how do you value this?

And how do you, if you put investment, which they were, the plant that I was a system manager on that we were building, was a hundred million dollar investment on the Russian border. So. What are they going to book that? Are they going to book that in U.S. dollars? Are they going to book it in, you know, Zawadis or with the official rate, the unofficial rate? Rubles?

God knows. So because of all that, you had, you know, there's bank issues. There's exchange rate interest. There's, because of the time delays, there's interest costs, carrying costs. And, but what I... Pelt was because at the time, floating exchange rates, interest rates were just emerging after the Britain Woods Agreement collapsed. So we were kind of unmoored at the time without gold. And we were just sitting on the fiat currency. So I wrote the paper and said that the LIBOR market, what became the LIBOR market in London, was setting the price because of the dollar overhang of of what the value was and the interest rates associated with the U.S. dollar.

It was the rate that was traded in London that people used as the primary interest rate for a lot of contracts. It was the largest...

Intermediable...

And so that was the center of the finance worldwide. So I wrote this paper and I got in some screen fest with some idiot professor. But then I got, you know, I got pulled in, you know, Milton Friedman and all these guys were teaching at that time there. So anyway, they grabbed me and actually had someone. translated it to something that was writable, you know, that they could read. And so anyway, I got a quiz on this because people hadn't really thought about it, that with a dollar overhang, the last transaction determines the underlying value of the assets. That's the key. That's the

And I said, you know, one little transaction can set the value on the world market of the underlying assets.

Yeah, he was great. His view was we just dump all the data in there and we just crunch it. Yeah.

That's 50 years ago. So he was, at that time, developing machine learning and then Black and Schultz. Those guys, we, you know. I really went to Poland to make enough money to buy a seat on the Chicago auction. Yeah, because it was beginning to trade, you know, exchange. And so anyway, I ended up not doing that. But I wrote this stupid paper, didn't think much of it. It got quizzed by a bunch of the professors just brainstorming this. And then kind of went on my merry way with a pissed off professor who didn't agree with anything that I said. So I have a bunch of job offers in Chicago. I have one job offer in New York. And Jim Bray, who was running BorgWarner at the time, goes, you know, Steve, if you could take a job in the Midwest, in Chicago here, it'll be worse in the military. But if you go to New York, They don't care how many, whether you have arms or legs or how old you are. It's all about talent. He goes, you need to go to New York.

You'll hate Chicago. So anyway, I took the job as Peter Grace's assistant at W.R. Grace. And because I...

Major, major corporation. So anyway, I find myself in the biggest office I've ever had. I'm up on the 46th floor of the Grace Building overlooking Manhattan. And they got all this crap on. There's a conference table. There's a big desk. And they gave me two secretaries. And I'm sitting there going, what am I supposed to do with all this stuff?

What are you thinking? But anyway, they had no idea what they're doing. They're actually, it turned out they're hedging their positions in the wrong direction. which seemed to be a common

Everybody. They didn't understand it. Yeah. So I built a model to manage that. So I took over their foreign lending and their foreign exchange. And you have to remember, I showed up with a plastic suit and cowboy boots, and they looked at me like I was a Martian. Drag me off to Brooks Brothers, too.

I mean, at the Air Force Academy, you really didn't need anything but jeans and a T-shirt other than your uniform.

So anyway, a couple of weeks into being there, I get a call from this guy named Arthur Burns. And I don't know who he is. He just says, you know, Mr. Clegg, I read your paper. I'm thinking, what paper did you read? I don't remember having a paper that anybody would read, but I didn't know who he was. And he goes, I want you to come to lunch at the Bull and Bear at the Waldorf, and I want to have a discussion about your paper with some of my associates. So no one had asked me to lunch. I'd been there a couple weeks, and I thought, well, okay. Great.

So anyway, I go down the hall and ask the economist, who in the hell is Arthur Burns? And he says he's chairman of the Fed.

So anyway, so I show up there. And he's got Paul Volcker. He's got a bunch of the other Fed presidents of the various banks, which I had no real appreciation for. And it ended up being like a four-hour lunch.

I was 24.

Yeah, it's wonderful. Absolutely. And what I found was that for the people that are actual thinkers, so anyway, I went through and explained to them. And at the end of this, Arthur Byrne says to me that the purpose of the Fed is to ensure that there's liquidity so the banks can open in the morning. That's what the Fed's purview was. At that time. at that time. And that is really an important thing because there have been financial collapses as a result of not being able to manage the liquidity in the market.

Yes, it was $34. People knew what it was. The dollar, even though they may have been printing the dollar, they could always be exchanged at the time. I think it was $35 or $34 or something. Right. But once Nixon went off of it, because Johnson had done two things. He got into the Vietnam War and printed money like there's no tomorrow. And then he started the Great Society and didn't realize he had turned a tiger loose that just ate up.

They kept on growing, ate up money. So they started printing it as fast as they could. And so that caused this massive amount of underlying inflation. And they couldn't support that with gold because Fort Knox was getting emptied out very quickly because people didn't believe that the dollar was worth $34, so they're arbitraging it. Yep. meant that they had to come up with a solution. And to the credit of, at the time, Arthur Burns and really Paul Volcker, what emerged was the dollar tied itself to a barrel of oil. And that lasted up until December of this year. But from that meeting for 15 years, people at the Fed...

contacting because i ran avis i ran wr graces foreign exchange and then um you know marshall who was running um avis at the time um contacted me they had a mess on their hands funding their fleets worldwide and pricing interest rates and all that so i took over that at at avis at again a very young age and running and funding their fleets worldwide um So I got a huge amount of experience in looking at sourcing automobiles from one country, investing in facilities to provide at the airport or whatever, rental both cars and also trucks at the ports and undercarriages. And it was a really great education, but a lot of people couldn't get their mind around kind of three problems. which was interest rates, exchange rates, and pricey. And it's...

It used to be they had to have assets and not necessarily liquid assets. Right. Yeah. $1 for every $10 that they had out in circulation.

That used to be the case. But because of leverage and forward contracts. Right. That leverage moved up to about 70 times, and that's what caused the collapse in 2008. Right, right.

What they had done was, it's a combination. People, you know, they think it was all real estate. But what they were doing was, They're using math to calculate portfolios, and they're taking it out and selling it to, you know.

People that were unsophisticated. Similar when interest rates started floating. This was pretty funny. That even when I was at W.R. Grace, the Swiss came and wanted to make loans. They would give us. I just remember this. I can't remember which Swiss bank it was, but these guys were quite sharp. He comes in and he says, well, you know, you need money. We will lend you, at the time, which was a lot of money, a $100 million line, and we're only going to charge you 1%. And so I did. The guy, it wasn't the brightest bulb. comes to me and says, yeah, this is a hell of a deal. And I said, you got to be out of your mind.

What they're going to do is, you know, I said, we won't be able to pay it back. We're in the midst of a massive inflation and they're betting that, you know, the dollar will depreciate and they're going to make a fortune relative to whatever their dollar holdings are. But, Because of that, they took that offer to pretty much every Fortune 500 company in the U.S. And I think every one of them fired their CFOs. It was within about two years. It was just like, I mean, yeah, America was total rubes.

The schools are so out of date. Exactly. It's really sad. And the education, just the tools to be educated, they're not being taught. It's like, learn this. And then they burned it with, you know, kind of worthless things that aren't really adding to their education or broadening their scope of understanding. So it's kind of sad that people are so out of touch with how these things are applied and how do they fit within a business or a community or developing an economic viable entity.

Yeah, but I'll lose my job if you take it.

It solved the whole problem. Crypto solves the pricing issue. It solves the time issue. It reduces the transaction costs. So you're not spending. anywhere from 20 to 30 percent of every dollar that you do overseas just to make the transaction happen. All that's gone. It's instantaneous. It's documented. You know the money's going to be there at the other end. So letters of credit and things of this nature are not necessary.

Well, they didn't want to have anything to do with it because you're going to destroy what people have been doing, arbitraging all this, and the politicians have been participating in this bullshit.

Big time. So anytime money, you know, this was interesting when George Bush,

Son. Right. Dug into this whole 9-11, and they discovered that the trades in the Chicago Exchange were being, I think it was shot over to Belgium or the Netherlands, and then shot back to the floor. So there's this delay. Yeah. bids in front of whatever the transactions were.

And so they've been doing it and Bush makes a mistake of announcing this and, you know, feeling like he's discovered something. And of course he quickly shut his mouth because a lot of people, this was a big gravy train for a lot of powerful people. Yes. And that's what I find, you know, having, you know, had operations in Poland, I bought a bunch of plants in Canada and elsewhere around the world, is that corruption is rampant everywhere. It's just part of every economy.

You're not at the table, but also people don't appreciate it. The mob, which everyone badmouths the mob, but the mob's role has been a facilitator to protect their group from the abuses of politicians and the police state. So this is, you know, you got checks and balances in the U.S. Constitution, but the economy has a check and balance also. But with crypto, a lot of these things will disappear except for movement. So the mob usually controls trucking, rail, you know, anything that has to be moved is an opportunity to, you know, put a toll on it and demand rent.

Yeah, my brother ran the home shopping network out of Taiwan into China. Oh, hello. And he spent half of his time with the triads in China and the triads in Japan. Otherwise, you couldn't get goods moved. You couldn't get them into port. You couldn't get them distributed.

Yes, it's two people exchanging goods and services on the line. And there will be some friction to the extent that there's movement, but it won't be from the pyramid that's been sitting on top of the poor consumer. and often the abused seller.

Right. They've been living off this. It's like, yeah, the world's been on welfare.

Yeah. So after World War II, what happened is they printed all this money to fund the war. Yep. So Marshall, to his credit, came up with... What a brilliant guy. Brilliant guy. He came up with an idea that we have this money, the rest of the world has to be redeveloped. We can continue producing and push this money out there as the world's currency to generate the growth that's necessary to replace everything that was destroyed during the war. And that worked up through Kennedy. It began to shake when JFK took position. He realized, to his demise, actually, that the Fed was contributing to, had lost sight of its true role, which was, as Arthur Burns described, It's just making liquidity available tomorrow morning. And you had a CIA that evolved from the military secret service that was no longer operating totally to the benefit of the United States. And so JFK started. threatening it. He wanted to get us out of the Vietnam War.

He wanted to disband the CIA. And he also wanted to disband the Fed. So once he announced that he was going to disband the Fed, he was assassinated down in Dallas two weeks later.

It doesn't matter. I mean, in Illinois, you know, the Democrats control it, but the Republicans and Democrats come together, decide who's more likely to win the whatever election. And it's really a division of contracts. Yeah. Who's going to get this? Who's going to get that? Might as well be in a mob meeting. Yeah.

It's Massachusetts. It's Connecticut. It's pretty much all the Northeast has zero Republican representation.

Yeah, and half the people are Republican. It doesn't make any sense. And so they're talking about Texas. I mean, they've opened up Panzura's box, Illinois. You've got more people voting. Once we actually get the real count, I live in Illinois, so I got 18 ballots at our house that I could have just walked in and dropped off without anyone asking for people that had lived here over the last 50 years. I'm sure some of them were dead, but in Illinois, it doesn't matter.

And they're shipping them in. I mean, all that was found. But that's been going on. If you read Carroll's book on LBJ books, I don't think he ever won a fair election. They always had boxes of ballots waiting in the wings to make sure. that if he didn't have enough votes, he could deliver them.

Now, and that's the reason, after they figured out that they could brainwash people with, yeah. move them in a direction with television programs. You had the CIA. I mean, the government was always present at all the news stations. But that was primarily because of World War II. They didn't want anything disclosed. So they had a good reason to start, but then they stayed there. And as that evolved, more recently, it kind of started with, you know, George W. Bush because of 9-11, but then Obama unleashed the CIA, giving them full reign to operate in the U.S. and do the same crap that they're doing overseas, taking down states. So they applied all that to the U.S. Just my background as one of my majors at the Air Force Academy was Soviet studies. And the head of the—Colonel Vassilov was head of the Russian house for the military. So anybody that was a defector or whatever coming across would come to the Air Force Academy, be put in base housing.

Oh, really?

Oh, this is in—I went there in 68. Oh,

So he would come, and these guys back then, they were kind of, yeah, his dad had been one of the white Russian generals. But he'd get in gunfights in Moscow and come back wounded and crap like that.

Yeah.

I think actually it depends on how this shakes out. But if you're going to have a job, this is why the economies that can be created with AI and also having the ability to generate your own energy in the local market efficiently, like a mini nuclear reactor. battery storage, or all the things that are available today. Once you do that, you've got hydroponics, you can manufacture all your building materials, and you can supply everything that you need. And if you look at the aircraft carriers today, or the Air Force, they're flying whole factories. onto bases around the world and aircraft carriers have a whole floor of printing machines. So any part that they need on an aircraft carrier can be printed.

Yeah.

That's all going to end. Of course. And also you have to look at Elon Musk. Everyone, you know, I'm a big fan of Elon Musk. But when you look at what he's done in factories, and also his speed of manufacturing, it used to be manufacturing, if you had a production line, you'd build it and you'd have to use it for like 20 years before you really got your money back. It was a fixed line. I'd say it started in the 80s where it began to move to variable manufacturing. So you could have rather than just one type of car, you could have multiple types of cars going down the production line.

And it's the same thing. I was involved with spring manufacturing wire form. So to solve that, it came up. I thought we could automate a machine, which we did. We ended up getting into some top secret projects where we're building airplane wings and doing stuff like that with basically a machine learning capability. And so that has progressed. Now you add AI to that and you can optimize. But just what we were doing by using different technology, we were able to sew a wing. using carbon fiber, making a stronger wing, more flexible.

Weighing about 40% of a regular wing. And it could do that with three people. It took about two days versus 21 people working. A month. Yes, it was actually 21 days. Yeah. So that's just for a wing section. So, I mean, the automation and the capabilities of this and the lights out opportunities that exist, both from running a factory to security to movement of goods, safety on the highways, safety in the air, all these things are going to be very beneficial, but you still have the economy revolves around two people exchanging goods and services. People are going to have to figure out what do they have that someone else wants? Advisors.

But the schools, unfortunately with what's happened with schools, it's turned into a job in layers and layers of mismanagement. Yeah. And fortunately, the young teachers that come in enthusiastic, I want to teach kids, they have to go through this gauntlet of seniority. And it's not based on talent. It's based on a bunch of bullshit. And you've got teachers, and having experienced this, I was fortunate that, like for... the air force academy i think i had 10 kids in my class oh

same thing at university chicago the classes were just a handful of kids the school was small and you can learn but these webinars there these big groups everyone's just sitting there um and if you can't you know track what the guy's saying you're out of luck

Not with kids. They have too much energy. And if they don't have the energy, you're going. You got a bigger problem.

Well, I think that's where Fosse and these guys, especially now that people are coming out about the comm trails that are covering. the u. s and other countries as they're dumping a bunch of this toxic stuff on top of the population but they have some expectation that somehow magically the population is going to be reduced and

luck so i feel as if that if you think in terms of um economic viability there are what i think will emerge is there'll be communities that materialize that are, you know, like the Amish or other groups. Yep. Materialize, this is a way of life and we can support each other where everyone has a meaningful job from teaching to growing food to animal husbandry to manufacturing and do that at the local level. And that local level could be a remote location up in Alaska, it could be on Mars, and it could be a two-block area in a city. But these economic systems will emerge because of energy and AI and optimizing the resources locally available to feed, house, and employ. a viable economic community.

The job opportunities are going to be huge. Exactly. as this all emerges. And it's not going to be done all by robots.

is. And it's not putting, humans have the ability to think. Yeah. And their life. I mean, the other important thing is that people, If you move in one direction, which it seems like the Canadians and Europeans are going back to that, which is life isn't valued. But societies that revolve around life build communities. But unfortunately, with communication, one of my sons did a documentary in India looking at remote villages and the introduction of cable vision. And how it just destroyed cultures that had been there for 5,000 years. Yeah. The kids ran to the cities because they saw much bigger opportunities. So you lost the pattern of as you got older, you took care of the children. And then you had your whole social system all structured and maintained. And that all got destroyed. a year or two at these villages as they acclimated to sitting in front of a television, transfexed, and then luring the kids away to jobs in the city.

There's some friends of one of my sons that there's these twin brothers that they were masters. At 12 years old, they're chess masters, and also they're being picked up. We were living in Manhattan at the time. They'd be picked up in a limo to go down to Wall Street to build the black boxes for trading. Yeah. And they're 12 years old. So just when you're talking about that, Ron, one of them said, oh, yeah, he's going to get into this whole space opportunity. And sure enough, he's one of the key guys on Elon Musk's space program.

They're wasting their time. They've lost their, it's just the day is being eaten up with this more addictive behavior.

Yes. All that's going to get, all that double handling, triple handling will be removed either with local manufacturing, you know, the last mile, or just efficiency. We had one company we work with, they shipped 250 jobs over to China to make, you know, cutting tools. And they built a plant. and brought the business back and replaced those 250 people with 20, producing four times the amount. Yeah.

And spoilage.

healthy without all the pesticides and all the chances for. Yep. Yep.

Yeah, and Ron, also, this is great about what we've done with Zentoro. We can forecast 12 months out, and we are off on equipment sales, unit sales. This last couple of years, we've been off maybe 1%.

Right. It's because nothing changes. Nothing changes. It's all predictable because whatever programs they put in or opportunities or things that they pick up statistically, it's almost foreordained. And it's foreordained because the real driver of this whole economy is customer retention. And that requires engagement. Engagement requires two people.

Right. And that's been true for as long as there's been an economy going back probably a million years.

I asked 150 of them. Does anyone in this room... know what their customer retention is. And nobody spoke up. Nobody knew. They said, does anybody know? And somebody in the front row goes, no.

We're down to a seven-month production cycle for manufacturing.

From start to finish, you can design a truck, a car, wherever you want, and go into production. and have it road ready. You may have to run through government tests or something, but actually performance capable, it can be done. And that's what's happening.