And once you understand this, you’ll understand why my entire investment thesis for the next decade looks the way it does, and why the biggest risk isn’t market crashes. It’s being positioned outside the system that’s doing the inflating. So let’s go. Alright, so jumping right in, let’s get right into this. And this all matters because what you’re seeing right now, it’s not just fraud. It’s a funding problem. And funding problems don’t get solved quietly. They get solved through taxes, through debt, and inflation. Let me give you a sense of the scale of this.

Now during COVID, California paid out unemployment benefits so loosely that fraud estimates now range from $20 billion to over $32 billion. This is the largest unemployment fraud total of any state in US history. $32 billion. That’s not a rounding error. That’s a structural failure. And it wasn’t just unemployment. California spent another $24 to $30 billion on homelessness programs in just the last five years. And audits found that the state, they can’t even track where most of the money went. And on top of that, homelessness increased by as much as 50% over the last decade.

Now at the same time, the state poured 18 billion into a high speed rail project that hasn’t even done anything. They don’t even even have a functioning rail line. That’s after more than a decade of spending. And then just recently, California scrapped a $650 million next generation 911 system because it didn’t work. If we zoom out here, this isn’t just California, Minnesota. It’s dealing with what federal prosecutors have described as quote, industrial scale fraud, with losses potentially reaching $9 billion across food assistance, housing, Medicaid programs. Now, federal investigators have described Minnesota as a magnet for fraud with programs so lightly controlled that criminals traveled there specifically because it was easy to steal from.

Here’s why you should care about this. None of this money, it disappears, right? It doesn’t get absorbed by the state. It gets replaced and it gets replaced through higher taxes, through larger deficits, through money creation that quietly reduces purchasing power. So when people ask why taxes keep going up, why inflation never really goes away. And why do assets keep rising in nominal terms? This is part of the answer. And if you misunderstand this, if you think this is just about bad leadership, or it’s about one off scandals, you’ll position your money for a world that just no longer exists.

Now look, to be fair, this isn’t how officials explain what happened, right? The official story sounds something more like, you know, we were in a crisis, you know, COVID shut the, you know, the economy down, millions of people needed help immediately. So of course, the government’s just moved fast, right? Verification was relaxed, guardrails were loosened and you know, money just was sent out really quickly, right? Speed mattered more than precision, I guess, right? Now, sure, maybe some bad actors took advantage of that criminal networks, identity theft rings, organized fraud groups, whatever, right? That’s that’s true.

Federal investigators have said that pandemic programs were intentionally designed to prioritize speed over scrutiny. And that fraud risk was just considered acceptable trade off in the moment in California’s unemployment system. Now officials have openly acknowledged that identity verification was minimal. In some cases, a name and a social security number were enough to trigger payments. In Minnesota, state agencies have argued that they were overwhelmed by volume, they were understaffed, operating under unprecedented pressure, right? Relief programs expanded really quickly. But the official narrative goes like this. This was a once in a century emergency, right? Mistakes were inevitable, fraud was unfortunate, but temporary.

And now that the crisis has passed, oversight is tightening, right? Controls are improving. Lessons have been learned is what sounds reasonable. It allows everyone involved to move on without assigning too much blame. And this is why a lot of smart people accept it. But if this really were just about speed and chaos and one off mistakes, then this would be a closed chapter. But of course, it isn’t. So if the official story were true, and if this were just truly about speed and emergency chaos, then three things should have happened. And of course, none of them did.

So number one, crack number one, the scale didn’t stabilize, right? It expanded. Fraud wasn’t limited to the early months of the pandemic. In California, unemployment fraud continued well into 2021, even into 2022, long after emergency conditions had passed. By then, officials already knew the system was being exploited. Yet, of course, payments kept flowing. In Minnesota, fraud wasn’t just discovered after programs ended, it grew as programs expanded across food aid, housing assistance, and Medicaid. It grew so much to the point that federal prosecutors described it as quote, industrial scale fraud, right, not isolated abuse.

Now, if this were just crisis chaos, the curve should have been down. But instead, it bent up. Now, crack number two is that oversight failed, and nothing stopped, right? In the private sector, failed audits trigger consequences, right? Budgets are frozen, capital access gets tightened, executives get fired. But in these cases, audits didn’t stop anything. California’s state auditor flagged eight major state agencies as quote, high risk, citing waste, fraud, abuse or mismanagement. And yet funding continued. In Minnesota, auditors warned state agencies repeatedly that programs had low barriers to entry, poor documentation and weak verification, yet reimbursements kept being approved.

And whistle blowers and investigators have said enforcement failed because the political cost of cracking down was considered too high. Now look, warnings didn’t shut programs down, they were noted, and then ignored. Alright, and crack number three, failure was rewarded, it wasn’t punished. And this is the most important crack. Despite documented losses, with 10s of billions, no system was forced to prove it could manage money before received more. Budgets weren’t reduced. Taxes weren’t rolled back. Programs, they weren’t halted pending reform. Instead, governments responded the same way they always do. They filled the gap.

They filled it with higher spending, with larger deficits, with more borrowing. That’s not how accidental failure behaves. That’s how a system behaves when there’s no penalty for losing money. And look, this is where the story really changes here. Because once you see these cracks all together, when you see the scale increasing, when you see over oversight ignored, right, when you see failure being rewarded, it becomes impossible to argue that this is just about bad luck or bad timing. What you’re looking at is a pattern. And patterns don’t come from accidents, they come from incentives.

And so if we take a look at that, and we zoom out, because once you step back far enough, this stops looking like a series of scandals, it starts looking like a system behaving exactly as designed. And this isn’t a new idea. There’s system diagnostic books, they’re both really short, you can read each one in about an hour, and they explain more about how the world actually works than most macro commentary ever will. The first book is The Law by Frederick Bastiat. Now in this book, The Law Bastiat explains how extraction doesn’t require corruption, it only requires legality.

He said, quote, when the law itself commits the act that is supposed to suppress, I call it legal plunder, end quote. In other words, when the system designed to protect property becomes the mechanism that redistributes it, plunder doesn’t disappear, plunder becomes policy. Now the second book that I highly recommend, again, it’s like a booklet, you can read about an hour, it’s called Anatomy of the State by Murray Rothbard. Now in this Rothbard explains why the system never shrinks. He writes, quote, the state is the organization of the political means, end quote.

Basically, what he’s saying is that the state doesn’t grow by producing value, it grows by organizing extraction. So when programs fail, when money’s lost, when audits flag problems, the system doesn’t contract, it expands because failure becomes justification for more funding, for more authority, and more extraction, right? That’s not corruption, that’s incentives. And if you want to build a real investment thesis, not a trade, like not a headline reaction, you need to understand this layer. Because once extraction is built into the system, then money printing isn’t optional, higher taxes are in a debate, and asset inflation isn’t a surprise.

It’s the only way the system can keep going. If we slow this down, once you see this pattern, right, the explanation isn’t complicated. So we start with this. There is no profit and loss here. There’s no balance sheet that forces discipline. There’s no insolvency event that shuts things down. There’s no moment where the system is forced to stop and say, well, shoot, I guess this didn’t work. So when money’s lost, and of course, it’s going to be lost, nothing changes, the system just keeps moving. Now think about what that means. If tens of billions of dollars disappear, that money doesn’t get absorbed, right? It has to be replaced.

There’s only three ways to replace it, taxes, debt, or money creation, right? There’s no fourth option. So when programs fail, the question isn’t, should we keep funding this, the question becomes, where does the replacement funding come from? That’s why audits don’t stop spending. They document losses, sure. And those losses become justification. Justification for larger budgets, justification for emergency measures, justification for the urgency, right? The urgency is how the money gets approved. But if we again, zoom out, we can see that replacement funding becomes routine. Cost discipline completely disappears. So the programs, they’re not meant to succeed.

They only need to continue. That’s all. Reform becomes cosmetic. The pressure doesn’t stay inside the system. It gets pushed outward onto you and I, the taxpayer onto the debt markets, onto the currency itself. That’s why deficits don’t close. That’s why taxes trend higher over time. And that’s why inflation, it never goes away. That’s why asset prices keep rising in normal terms, even when growth feels weak, even when things feel unstable. And again, this isn’t chaos. It’s the constraint logic. A system that can’t stop spending has to fund itself somehow. And it does that by transferring pressure from the system to everyone operating inside of it.

Alright, so once you see it this way, then you stop waiting for restraint, right? You stop expecting reversal and you stop being surprised by outcomes that are actually completely predictable. Okay, so now here’s where this framework starts explaining things that people argue about all the time. Like first markets, people ask why asset prices keep rising even when growth feels weak, even when confidence is low, even when everything feels unstable. Well, this is why when pressure gets pushed outward, it doesn’t show up evenly. It starts to concentrate. Assets that can absorb inflation, they rise.

Assets that can’t, they fall behind. That’s why real estate inflates. That’s why equities trend higher in nominal terms. That’s why anything scarce, liquid, financialized, it keeps re-pricing. Not because fundamentals are perfect, but because the system needs places to park that pressure. Second is inflation. People keep waiting for inflation to go back to normal. But normal assumes, again, going back to restraint. The system doesn’t operate on restraint, it operates on replacement funding. So again, the losses get replaced, deficits get rolled, debt gets extended. So inflation doesn’t disappear, it pulses a little bit. You know, maybe a pause, a reprice, but then a repeat.

That’s why inflation feels sticky, because it’s not a policy mistake, it’s a funding mechanism. And then finally, third, Bitcoin. Bitcoin doesn’t make sense until you understand this layer, right? It’s not just a tech trade. It’s not a hedge narrative. It’s a response to a system that can’t stop extracting, right? It can’t stop printing and inflating. Bitcoin exists because people need an asset that sits outside this pressure cycle. So, you know, you don’t have to like it. You don’t even have to own it. But once you understand the system, its existence becomes pretty obvious.

And then finally, policy debates. Now, this framework explains why reforms never seem to work, why scandals don’t shrink government, and why taxes always seem to ratchet higher over time. Not because nobody notices, but because the system can’t behave differently without breaking itself. So when you apply this framework, the world stops looking chaotic, it starts looking directional, and direction matters more than headlines when you’re positioning capital. What does all this mean for me or for you personally? It means that the biggest risk right now isn’t the volatility. Volatility, we can see that, right? It’s visible, it’s loud, it gets headlines.

The real risk is being positioned for a world that just no longer exists. A world where, I don’t know, restraint returns, a world where budgets could tighten and taxes could stop rising. But that world assumes a system that has breaks, right? This system, it doesn’t have them. So the mistake most people make is trying to time the outcome instead of structuring around the constraints, right? They wait for inflation to end. They wait for policy to reverse. They wait for things to normalize. But meanwhile, the system keeps transferring the pressure. And if you’re not positioned to absorb that pressure, you feel it as stress, rising costs, failing purchasing power, more work for the same outcome.

This is why nominal gains, they’re misleading. Your account balance might be up on paper, but your position might be weaker. So what matters now isn’t about prediction. It’s about the architecture that we use, how your assets respond to this inflation, how your income responds to the taxes that go up, how your balance sheet responds to the instability in the system, right? That’s the shift. So we want to stop asking, where’s the market going next? And instead, we want to start asking, how does my structure behave in this system, while it keeps doing what it’s doing? Because again, volatility isn’t the enemy, the fragility is.

So the goal here isn’t to escape the system, the goal is to engineer your life and your wealth. So the system’s pressure works for you, and not against you. Now, once you understand that, then you stop chasing opinions, and you start building something durable. So here’s the real dividing line. You see, most people, they’re still arguing about whether this system should work this way or should work that way. But while they do that, serious investors, they accept the constraint. They ask a different question, not, you know, will this reverse? But what does this lead to? What does this lead to over time? Because once you understand the fraud, that waste, the loss, they don’t stop the system, they increase the need for the funding, then the next question just becomes unavoidable.

How big does this get? How much money has to be created to keep the structure running? And then more importantly, what does that mean for asset prices five, 10, 20 years from now? That’s why the real risk isn’t being early or being late. It’s being positioned for a world that no longer exists. So if this framework made sense, if it changed how you see taxes, inflation, asset prices, the next thing I’d recommend you watch is a breakdown I did on where money printing is actually projected to go. And what that implies for asset prices in 2030, 2040, and 2050.

You can watch that here, because once you connect this video to that projection for your long term investment thesis, it stops being emotional and it starts being structural. I’ll see you over there. [tr:trw].

See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.