Regulation was good, now it is bad

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Ideas

I had, just a few weeks ago, promised you the resumption of bitcoin obituaries. Fair to say I didn’t quite anticipate the violent eruption of the last two weeks, but the responses did not disappoint. 

The journalist in this particular case pointed out that they have ‘followed bitcoin since 2015’ and so are qualified to opine. Indeed, they have been intensely critical of it since then, specifically delighting at each correction. Corrections which have occurred all the way from the 2015 price of $800 to today. 

It makes me wonder. Nothing seems to make people angry like bitcoin does. It seems to elicit extremely emotional responses from people that I cannot really explain. Surely, if you don’t like it, don’t buy it and move on. Add all the usual tropes thrown in ‘based on thin air’ etc. They are all recurring now. 

I would have thought that more and more people would understand proof of work at the very least. To create bitcoin you need to burn an awful lot of energy. It sits right at the intersection of energy and GPU computing, it is absolutely going to meld itself into every data centre so that when they aren’t using all their available capacity to draw pelicans riding bicycles, they will be mining bitcoin. The ‘thin air’ argument is so weak when you consider that specific weakness is absolutely the basis of fiat currency. 

If you don’t like bitcoin, then it is $70,000 too high for you. In the same way, a $15,000 Louis Vuitton handbag is too high for me, because I don’t see the value. For the rest of us, money that cannot be printed, money that does not rely on the government but relies on energy is starting to look like it always did. 

A brilliant idea.

The thing with good ideas, they only perpetuate if they can withstand sustained criticism. Once again I recommend David Deutsch’s Beginning of Infinity which deals with this and much more. An idea, in our case Bitcoin, must be capable of being disproved. People must continually attack it for it to perpetuate at all. Those attacks have been technical, they have been political and they have been journalistic. They have all failed but they do perpetuate bitcoin.

That so many people absolutely loathe it is a source of strength. I don’t republish the criticisms to mock or diminish the authors, I read them and I think ‘is there something new here I did not know’. I do that, others do it too. Consequently, the idea perpetuates, because it is a good one. 

Trueflation

You are all now familiar with the argument that prices should always be falling because of the deployment of technology. You should expect, on balance, at least a 5% reduction in the price of everything, every year. As we know, that doesn’t happen because those technological gains are taxed away by stealth. The official 2% inflation that everyone inexplicably agrees is good plus another 5% of magic money to soak up tech gains. 

What would happen if the technological gains really started accelerating though, could the money printer keep up? TrueFlation is a US site designed to capture the actual cost of inflation in America without all the adjustments that governments tend to make to the official statistics. 

In short, inflation is absolutely collapsing in America because everything that isn’t household goods is falling quickly in price. Of course it is! Things that took 20 developers a year ago now require zero developers. Things that would be useful but not cost effective to build are now trivial one hour jobs. Productivity is absolutely rocketing in some parts of the economy, the most productive parts. 

Why then does that not show up in the productivity stats? First people hid the gains and had an easy life while letting AI do their work. Now though, that game is up. To realise the gains, business (and governments) will have to sack people. You have to remove the non-productive element you no longer require to actually realise the gain and until now everyone has been afraid. Everyone looks at the floor and sees the line is flat, but at a moment in time, even exponents are flat.

A case in point this week, where KPMG allegedly insisted that their own auditor, Grant Thornton, drop their fees because of ‘AI efficiencies’. The accounts reveal that the audit fee dropped by 17%. Arguably it’s a fee nightmare in professional services right now for this reason. Except, it probably isn’t because the savings are likely wildly in excess of 17%. It would on balance have been rather more elegant and profitable for KPMG if they had negotiated a 20% increase in their fee. No better indicator of belief than what you are doing with your own pocket after all. As this year's round of fee negotiations begins, what do the Partners say as clients throw this at them?

The US employment figures show signs of this change, it will certainly happen in the US first and fast. Software job postings are now at 1999 recession levels. This is quickly shifting to other professions too. I suspect though that the US is not in recession, just that the allocation from labour to capital dramatically shifted. 

It will be a recession for labour, but as we will shortly see, not for capital.

100 years of Google 

At their results announcement last week, Google announced 2026 Capex of just short of $200 billion. That is double what the Australian Federal Government will spend, including on AUKUS, all defence capability and whatever else you can dream up. It is just an extraordinary sum.

Of course Google’s cash hoard is well known. At $126 billion, even they don’t have enough. Enter then, the 100 year Google Bond. It forms part of Google’s $20 billion debt raise, the 100 year element (admittedly a small portion of it) will be raised in Sterling because longer bonds have greater demand in the UK than in the US.

I have to say, lending to anyone for 100 years seems a little ambitious, certainly in the tech sector. I mean, I can’t imagine still redeeming a coupon on Carnegie Steel? One of the last issuers of a 100 year bond in the US was JC Penney. In 1997 they issued $500 million in 100-year bonds ("century bonds") with a 7.625% coupon. Intended to mature in 2097, they went to zero in 26 years. 

Overall what are known as the AI Hyper-Scalers are expected to issue $400 billion in debt in 2026 to fund expansion plans. Massive amounts of AI capital being deployed everywhere. In total though the spend will be higher as existing cash balances are also deployed. 

People say “they are building data centres”, I would characterise it as they are building workforces. Me and you.

As an interesting experiment to make the point. Let’s mark 13th February as the point where we measure the relative success of Google Stock (as a proxy for AI exposed capital) versus employment income. My challenge to the labour market is this:

Labour: work for five years in Australia on $150k per year

Capital: Borrow $750k (5 years of gross income) buy Google and do nothing. We will accrue interest compound on the debt and deduct it at the end. 

Bitcoin is $66,500 as I write. 

5 years then. Labour v Capital v Bitcoin.

Obviously the better strategy is to do all of the above but for the purposes of the experiment, let's assume not. 

Incidentally, Google’s headcount on 31 December 2025 was 190,000, 3 years earlier it was …..190,000. Their revenue increased more than 50% in that time and their CAPEX is now 7x higher. 

The returns to labour have stopped. Let’s check in five years. 

Frenchman Quits

The Governor of the Banque de France is quitting. Doing so 18 months early will allow “adequate time for a peaceful replacement”. His term officially ends in October 2027. Had he served the full term the new French President, to be elected in April 2027, would have chosen his successor. Not so now, Macron will choose.

Both men attended the elite university for civil servants ENA (École Nationale d'Administration). Both men then went to Sciences Po. French politics is a club, you see. Christine, one of his other besties, had this to say (she didn’t go to ENA because she failed the entrance exam. Twice). 

Reading that, it’s clear he was important for Europe and for the ECB. Much as I don’t like Central Bankers, he was a good one. He quit early before his term ended for political reasons. Depending on your read, that is either honorable or dishonorable. 

A similar situation arose under Barack Obama where Supreme Court Judge Ruth Bader Ginsburg was urged to resign so that Obama could appoint a friendly. She resisted, to her eternal credit. Jerome Powell too, immensely pressured by the President to quit. Threatened with legal action, called an a**hole and has stuck it out in the most unpleasant of environments. Again, credit to him. 

It's a bit like the ideas piece earlier. If you need to rig the game to win, your idea maybe isn't that good and will eventually fail. 

Euro-Trash

Suddenly, regulation is bad. Beloved of the European Union for so long, the German Chancellor now demands that red tape be “slashed”. How many times have politicians promised this? ‘I will make the economy grow by slashing red tape’. 

"minor corrections to laws are insufficient".

"We need to systematically review the whole set of existing EU legislation."

“While China has grown by around eight per cent each year over the past two decades, the EU has only grown by one per year.”

Germany is obviously a powerful player in Europe. I suspect his intervention will make it a little bit harder to get new regulations approved, but removing old ones in Europe is incredibly hard. 

The European Union bureaucracy itself employs 80,000 people. Those people all have a vested interest in regulation, in monitoring regulation. The monster feeds on itself. How many people that work there want less? How many people will work hard to bring the German Chancellor’s vision to fruition? I suspect none. 

One thing I will say, I was in Europe recently. I bought a Coca Cola, it came in a beautiful glass bottle and was made with real sugar, not the American corn syrup. I rejoiced at the 25 years of effort it must have taken to make that happen. So, I accept that not all regulation is bad but it is possible to have too much of a good thing.  

Further Information

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