BITCOIN & THE END OF THE DOLLAR SYSTEM w/ Luke Gromen

Summary

In this episode of "What Bitcoin Did," economist and financial expert Luke Gromen discusses the complex dynamics of the global financial system, focusing on the U.S. dollar's current challenges and the potential role of Bitcoin as a financial safe haven. Gromen iterates the state of capital markets, interest rates, and inflation trends affecting the dollar system, hinting at a future where Bitcoin and gold might act as neutral reserve assets. The discussion touches upon geopolitical factors, fiscal policies, and the strategic shifts nations like China and Russia could potentially make to leverage Bitcoin. The analysis provides a sobering view of the financial landscape, hinting at a potential shift in global economic strategies.

Highlights

• Luke Gromen discusses how the U.S. dollar could face challenges similar to a financial crisis seen in emerging markets 🌍.
• Groman discusses the geopolitical maneuvers influencing financial policies, with a focus on Bitcoin and gold as strategic assets 💰.
• Concerns over U.S. fiscal health are highlighted, with interest expenses surpassing 100% of federal receipts 📊.
• The potential for Bitcoin and gold to serve as neutral reserve assets is a major theme, with implications for the global economy 🌐.
• Luke speculates on Bitcoin's future, diverging from NASDAQ equities as economic conditions evolve 🔄.

Key Takeaways

• The U.S. dollar system is under significant strain due to rising deficits and interest expenses, demanding a strategic rethink 🚨.
• Luke Gromen suggests Bitcoin could emerge as a crucial component of future financial systems as a neutral reserve asset 🌍.
• There are increasing capital outflows from the U.S., which could destabilize its financial markets and impact global economics 💱.
• The idea of repricing gold by the government is explored as a potential strategy to manage debt and fiscal pressures 🏦.
• Gromen points out a divergence between the NASDAQ and Bitcoin, suggesting a shift in how Bitcoin is perceived and valued 📉.

Overview

Luke Gromen, in his insightful discourse with "What Bitcoin Did", illuminates the financial precipice on which the U.S. dollar system teeters. With capital outflows and interest rates no longer favorable, the discussion delves into alternative strategies, including the intriguing role Bitcoin and gold might play in stabilizing an imbalanced global economic landscape.

Highlighting geopolitical factors, Gromen explains the growing interest in Bitcoin and gold among emerging markets and U.S. adversaries like China and Russia. His analysis suggests these countries could be stacking Bitcoin as a hedge against U.S. fiscal policies and to potentially shift global power dynamics.

The conversation moves into practical fiscal theories, examining such possibilities as repricing gold and utilizing monetary policy creatively to circumvent economic pitfalls. Gromen suggests that without bold moves, including embracing Bitcoin, the U.S. and other nations might face intensified economic crises, setting the stage for potential shifts in international monetary systems.

Chapters

• 00:00 - 03:00: Introduction and Market Overview The chapter 'Introduction and Market Overview' discusses the current economic climate, highlighting fear in the market due to capital outflows, interest rate changes, and rising inflation. The speaker notes that tariffs are impacting the economy, and suggests that Bitcoin may become a refuge for some capital as these economic conditions unfold.
• 03:01 - 10:00: Discussion on Federal Policies and Economic Impact The chapter begins with a discussion on economic divergence following significant policy actions referred to metaphorically as 'crossing the Rubicon', suggesting a point of no return in federal economic decisions. The narrative highlights Bitcoin's role in this new economic landscape, particularly emphasizing Iron, a major NASDAQ listed Bitcoin miner that operates on 100% renewable energy. Iron is not only pivotal in supporting the Bitcoin network but also provides advanced computing resources for AI, showcasing their dual focus on sustainable energy and technological advancement. This illustrates the interconnectedness of federal policies, economic strategies, and advancements in technology.
• 10:01 - 20:00: Strategic Financial Moves and Market Predictions In this chapter titled 'Strategic Financial Moves and Market Predictions,' the speaker, identified as Luke Groman, is introduced in a conversational setting. The participants discuss Groman's outlook on financial markets, noting that his current stance is one of considerable bearishness. This suggests a cautious or pessimistic view of market trends and economic conditions as analyzed in recent interviews. The conversation indicates that this is the most bearish Groman has been in recent times.
• 20:01 - 25:00: Sponsored Advertisements The chapter discusses the initial reactions and developments around a decision to hike rates around April 2022. The narrator expresses skepticism about the hike due to insufficient debt inflation. However, they pivoted as the hike proceeded and turned out disastrous, aligning somewhat with their initial expectations. While the action did temporarily lower inflation, it led to a worsened fiscal situation, leaving the economic state more precarious.
• 25:01 - 40:00: Mid-Episode Market Analysis and Predictions The chapter discusses the importance of economic efficiency, particularly in terms of GDP reduction, before taking significant financial actions. The speaker warns that failing to do so could result in a severe economic or financial crisis, potentially the worst since 2022.
• 40:01 - 50:00: Potential Financial Restructuring and Its Consequences The chapter titled 'Potential Financial Restructuring and Its Consequences' discusses the cautious approach of 'being low over my skis' taken during the initial months of 2008 due to the uncertainties in the financial markets. The speaker describes a strategy of maintaining a cautious stance for the imminent months, citing problems arising from a failure to adhere to proper operational procedures. These issues have started affecting the real economy and the stock market, with a fiscal situation that remains problematic, if not worsening.
• 50:01 - 62:00: Bitcoin's Role and Strategic Reserves The chapter discusses the current state of the economy, particularly focusing on the stock market and the real economy. The conversation suggests that it may not be a good time to take risks, implying a cautious approach to investments.
• 62:01 - 75:00: Speculation on Future Financial Trends The chapter discusses the pressing financial issue that the combined amount of US interest and entitlements exceeds 100% of government receipts, even as these receipts are at historic highs. The speaker highlights the urgent need to address this situation by either reducing the national debt or cutting down on entitlements. However, entitlements are described as politically sensitive and challenging to decrease, leaving policymakers with difficult decisions about managing the country's finances.
• 75:01 - 76:00: Conclusion and Guest Sign-Off In this conclusion, the discussion focuses on the surprising actions of notable figures like Scott Bent and Howard Lutnick amid the downturn in GDP. Despite the economic challenges, these accomplished individuals adopt unconventional strategies, leaving observers puzzled about their intentions and insights. The conversation hints at deeper issues causing these economic problems, inviting further analysis and understanding.

BITCOIN & THE END OF THE DOLLAR SYSTEM w/ Luke Gromen Transcription

• 00:00 - 00:30 [Music] like a moment is coming of like like sheer terror like people are going to be like "Oh like ho holy cow." Like so capital's leaving rates have stopped going down inflation's picking up because oh by the way the tariffs are they're not being absorbed by China where's that money going to go you know some of it will go to you know what we see but I think I think it starts some starts going into Bitcoin i think that'll be a really interesting moment when you start seeing you know not just
• 00:30 - 01:00 some outperformance but a literal divergence and that makes perfect sense because once you go once you cross the Rubicon and we did you don't come back what Bitcoin did is brought to you by our lead sponsor and massive legend iron the largest NASDAQ listed Bitcoin miner using 100% renewable energy iron are not just powering the Bitcoin network they also provide cuttingedge computing resources for AI all backed by renewable energy so whether you're interested in mining Bitcoin or harnessing AI compute power Iron is
• 01:00 - 01:30 setting the standard visit iron.com to learn more which is iren.com luke Groman great to see you again great to be here thanks for having me on how's everything been going i've been I've been watching a lot of the uh of your interviews i I tend to watch pretty much everything you do and it it seems like you're about as bearish as ever I've ever heard you yeah it's been a while uh probably most so since uh in the near
• 01:30 - 02:00 term at least since right around call it uh April of 2022 uh when I came into 22 thinking nh there's no way they're going to hike because they haven't inflated away enough of the debt yet and it was like oh they're going to hike this is going to be a disaster and so I pivoted and uh it was a disaster and it didn't you know a lot of how I thought it would play out sort of did it basically got inflation down for a bit with the trade-off of getting us to where we are now which is sort of in even worse fiscal shape um in a more acute manner
• 02:00 - 02:30 and and in the same kind of way I've been pretty vocal over the last 3 4 months look if you want to Doge great big supporter of of efficiency and if you're going to Doge you better get that the GDP down significantly first or else you're going to create um the arguably pos the worst financial crisis the worst economic crisis problem since 2022 and and arguably since since
• 02:30 - 03:00 2008 and uh came into the year thing you know just saying look I want to be low over my skis uh for the first two three months of the year kind of see how it plays out and as we sit here today at the end of that 3-month period I want to continue to be low over my skis for the next 2 to 3 months because they didn't follow the order of operations uh it is creating problems in the real economy it has started to create a problem in the stock market uh the fiscal situation is at least as bad as it's been and we can touch on that if not getting uh possibly
• 03:00 - 03:30 worse we'll see um you know given what we're seeing in stocks in the real economy uh you would expect that it will uh so yeah it's um I don't think it's a time to be brave so and what is like your big does it all kind of come back to the sovereign debt issue and and we just way too f way too extended on that ultimately yes uh and in particular as it relates to the um uh what I call true interest expense uh relative to receipts
• 03:30 - 04:00 right so it's the the the debt is what it is uh but the real issue is is US interest plus entitlements is more than 100% of receipts and receipts are at all-time highs literally uh and it's still over 100% of receipts uh and growing at a multiple of GDP and so the the elephant in the room is you got to get you got to get debt down or you got to get entitle entitlements down and the entitlements are politically toxic and so you you you got to get that
• 04:00 - 04:30 the G GDP down fast um and uh so they haven't and that's really that's really the issue that creates that creates the problems so I want to get into all of that but one thing that really confuses me that I'd like you your take on is obviously Scott Bent's come in Howard Lutnick's come in they're both very smart they've had really good careers um and they must see this and like the way they're acting is a little bit unusual and it kind of has
• 04:30 - 05:00 brought up these theories that are a bit further out there but I don't know if this you can put any credence in it like are they potentially doing things that will drive the equity market down to save the bond market are they just letting things get so out of control they can step in and do something really drastic like what's your take on all those kind of more out there theories um I' I've seen both of those i mean I I said to someone recently I said "Look you know if if the plan here is
• 05:00 - 05:30 to trigger a worse financial crisis than than what we saw in 2008 as a means of creating the political cover to do to do what you know some of the more extreme types of things from an economic standpoint that you need to do in terms of devaluing debt and kind of resetting the system then keep doing what you're doing because that's you know you know that they need to keep doing what they're doing because that will that But we'll get them there uh now yesterday on the All-In podcast Besson said you know we we can't go too
• 05:30 - 06:00 fast because we want to land the plane and the inference I took from that is if we go too fast we're going to crash the plane and that is a bad thing and so that would suggest a that he knows that going too fast will crash the plane and b crashing the plane's a bad thing and I think he he he is far too not only is he far too smart but he said his mentor is Stan Ducken Miller he said that on the All-In podcast and I think that's common knowledge yeah
• 06:00 - 06:30 ducken Miller gave an interview with Kier Sakalov in 2019 in which he pointed out the countercyclical dynamic where if you try to cut you're going to put have start a recession if you have a recession your deficit will actually rise because your counter payments will rise so he has to know that as well so I don't I don't know if the plan is is you know drive it into the ditch to sort of you know kitchen sink the numbers and and and and blame it all on
• 06:30 - 07:00 Biden um because I think they understand that that is you know with the with the amounts of leverage involved that isn't sort of a bumpy landing that is into the ground at 400 miles an hour nose down um and then you scaring the equities into the bond market i think there is probably some element of that at work i understand why that's a popular theory i think it can work in the very short run um you know something that has really grabbed my attention in the last 3 weeks is look we've had this downtick in
• 07:00 - 07:30 equities we've seen since whatever late February uh mid not even midFebruary uh and for the first 10 days or so of it hey it worked great equities down big yield's down big on the 10-year after after Bessant and said "Hey we're we're focusing on the 10-year yield." That's that's the number we got to focus on and then something interesting happened starting around February 25th which is 10ear yield stopped going down like we had the equity market go down another 5 6 7% as measured by the S&P
• 07:30 - 08:00 500 on high volatility and the 10 years gone from 424 to 432 today back to 424 even though the Fed yesterday promised we're going to stop selling an extra 20 billion of treasuries uh beginning on April 1 and that's a problem that's a huge problem so why do you think that's happened i think it's a couple things i think mechanically it goes back to something we've talked about before something we've written a lot about in our in our
• 08:00 - 08:30 research which is one of the biggest marginal buyers of treasuries over the last 2 three years maybe even a little longer but certainly the last 2 three years have been these relative value hedge funds who you know borrow a bunch of money you know they basically are buying you know levered treasuries which is fine as long as volatility is low and as long as volatility is low everywhere so if equity picks up it's not like these relative value hedge funds because
• 08:30 - 09:00 they're multi strategy they don't say "Well that's just equity vault we don't have to worry about over here in our treasury book that's levered five times 10 times in some cases according to according to some reports in the FT and elsewhere." they get a tap on the shoulder from compliance and and like that's it degross equity is spiking we're not going to wait around for it to spike in treasuries and so uh we've seen repeatedly over the last 5 years very tight correlations between equity and treasury vault and so I think that's part of it mechanically
• 09:00 - 09:30 i also think part of it is when you look US equities essentially back the Treasury market in a roundabout way in that the key marginal driver to tax receipts are um US equity prices as intellectually offensive as that is uh they've created this system and now they're getting what they wanted good and hard and so to the extent equities fall and stay down uh you can say with extremely high degree
• 09:30 - 10:00 of of confidence within 3 to 6 months your tax receipts are going to start are going to start weakening we saw this in 2022 and 2023 and that means your issuance is going to start to rise on the treasury side and so I think there's some element of that and then I I think there's also probably um you know we haven't had the strong dollar or the high oil prices you know that we've seen in 2020 through call it 2024 early 2024 uh historically over the last 5 years
• 10:00 - 10:30 when dollar gets too high or oil gets too high treasuries get sold and we've not seen either of those so those have sort of been well contained but we have seen a new wrinkle um which is significant capital outflows out of the United States uh in a way we haven't seen in a long time um ever since you know basically mid I date it to around the the the uh third week of of or fourth week of of February uh middle of you know I think it was
• 10:30 - 11:00 1:00 a.m friday night to Saturday February 21st to to 22nd the America First investment policy memo was put out by the Trump administration and it essentially says "China you've got trillions of capital here we don't want it anymore take it and go home." And and what are they doing with that capital uh well the flows would tell you it's going to Europe it's going to Asia it's going to gold uh it's going into Chinese stocks um Hong Kong um you know so somebody pinged me recently they're like I was in Hong Kong and they said "Hey
• 11:00 - 11:30 tell Trump thanks for making Hong Kong great again because all this you know when they told China take their money and get out of here like some of it's going to Hong Kong." So you can see it in the charts you just run you know sort of you know the hang sang over NASDAQ and and hang sang over S&P um you know the German DAX over NASDAQ and over S&P gold over NASDAQ and S&P French CAC over like all of these different indices um are significantly outperforming and gold is significantly outperforming so I think you're seeing this capital outflow
• 11:30 - 12:00 out of the United States that has weakened the dollar and that has helped kind of keep things in the treasury market on one hand more well-contained because too strong a dollar drives yields up but on the other hand you're also having capital outflows which um if it goes too far will also drive yields up you know sort of prevents yields from you know you say I want to scare money out of equities into 10 years so I can refinance the debt great well you're scaring money out of equities but you're also promising to tariff it and tax it
• 12:00 - 12:30 and and maybe sanction it and what have you and so some of it's just leaving and going somewhere else and so do you think that was a strategic error making making that announcement it depends on the timeline in in in the context of what they are hoping to achieve as of 2028 no look the US has basically been the world's bank/world's laundromat right we run deficits and then the world's wealthy recycle their capital into
• 12:30 - 13:00 American markets and it's great for for their countries and it's great for our you know Washington and Wall Street and it's not as good for uh the rest of America um if we want to change that then that flow has to reverse and so that secularly reverses that flow ideally it will come back or stay here in the form of a uh investment in a in a in a hard asset productive asset factory something
• 13:00 - 13:30 that drives American jobs now in the shorter run you know strategically if you look out 2028 that has to happen at some point so I don't think that's a mistake where I think there is a it's a mistake i don't know why hey I think a lot of it is just political realities it's executional mistake the reality is is doing this with debt to GDP at 120% is the wrong order of operations number one uh number two you don't have the facilities set up to say
• 13:30 - 14:00 "Listen hey get your money out of stocks but we will continue your tax break or we will give you this huge tax break if you if you bring the money into you know XYZ and oh by the way we're going to offer an incentive to retrain the American workforce so look if you want to study welding or other skilled trades in America it's free and when you come out we're going to guarantee that you're going to make $100,000 a year starting minimum with no with no debt uh these
• 14:00 - 14:30 there needs to be sort of this whole of government approach to this kind of restructuring that has not happened and I think that's leading to sort of executional risk/mistakes because we look we have had some headlines some flashy headlines of Apple and others saying we're bringing money back and those are great things and if you compare it to the money that has left I don't know that any money on net has come in if anything we've probably lost you know given what the dollar's done we've probably lost it so that's it i I don't think it's a mistake but it's it's
• 14:30 - 15:00 the executional it's not being executed in a manner um that is conducive to not having a very severe crisis in 2025 this episode is brought to you by Anchoratch the thing that keeps me up at night is the idea of a critical error with my Bitcoin cold storage this is where Anchorwatch comes in with Anchorwatch you're protected by their timelocked multisig vault and with your own A+ rated Lloyds of London backed insurance policy you get to hold your keys anchorwatch holds the risk whether
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• 16:00 - 16:30 Bitcoin when you buy that's r.com/wbd okay so if we get back to Bent's analogy he wants to land the plane not crash the plane um first of all like is that possible and let's say like you woke up tomorrow Luke and you have like unilateral control you can do whatever you you want to do what is the best path here like what should they be doing and then can they do that what they need to do and what they can do I think are are too far apart
• 16:30 - 17:00 unfortunately is kind of what I'm coming to what they need to do is significantly devalue the debt you know write gold up to $20,000 put $5 trillion into the TGA buy back a quarter or more of the of the Treasury market um that's going to be highly inflationary uh that the GDP will be down reinvest that money into some of the things we just talked about and away we go that's effectively sort of a one-time write down on a real basis of
• 17:00 - 17:30 the treasury market of the debt against gold which is I bring up not as Bitcoin because gold's on the books they they can do that right now right in theory Bitcoin could serve that role but there's simply it's not on the books um anywhere uh or in the rule books as as they apply those rule books so uh I would do something like that and then again whole of government approach Fed you're going to do yield curve control for the next two years uh we're going to cut rates to you know 50 basis
• 17:30 - 18:00 points at the front end and and and two and a half two and a half% at 10 year and uh we're also going to run big deficits to retrain the workforce and you know these types of you know you're basically talking about you know kind of laying out a 2-year Manhattan project/wartime initiative and that's what needs to happen and it's not happening and and and by the way part of that's because you need to have capital controls uh
• 18:00 - 18:30 within this you know you basically hey if you own treasuries you're going to have cash on 30% of this as we buy back whatever we buy back and then you can invest here but you can't do And the reality is is any source of capital controls of that magnitude amount to a de facto end of the dollar's reserve status as it has been structured since 1971 doesn't mean it's no longer the dollar reserve status it means the structure is changing back to something pre71 with some with some wrinkles where gold is actually the the de facto
• 18:30 - 19:00 reserve asset not treasuries so that's what needs to happen and and the reason why it has to be that drastic is you know like I I you know we we've seen Scott Besson say "Well we're just we need a detox." And and Wall Street has grabbed this detox and they love this detox idea and you know it's it's so funny to me because like everybody forgets why we toxed in the first place right like you know why why do we need to detox now well in ' 87 we could have
• 19:00 - 19:30 detoxed but it would have collapsed the system in ' 94 but it would have collapsed the system 98 long-term capital would have collapsed the system 02 could have done it would have collapsed the system 08 could have detox would have collapsed the system um you know 2018 2019 repo rate spike we could have left repo at 8 to 10% let treasuries repric at 112 mortgages repric at 1314 collapse the system co we could have detoxed would have crashed the system signature Valley could have
• 19:30 - 20:00 rep would have collapsed the system so like it is fascinating to me this whole well we can just detox and it'll be fine like come on like if all of those other small you know some of them are smaller some of them were bigger than what we're trying to do here would have collapsed the system and debt is higher and deficits are higher and the demographics are worse and the geopolitical situation is far worse we're no longer a unipolar power in fact we just lost a war a proxy war
• 20:00 - 20:30 uh how do you think detoxing is not going to be catastrophic like it you know it just doesn't make intuitive sense let alone when you actually sit down and run through the math and go "Oh my god." So that's what I would do i don't think it's politically possible and and so I I I think Besson's comments yesterday um talking about how there there was that was the first acknowledgement of like yeah we just can't you know if we dozege too fast we'll crash the plane i think it's an
• 20:30 - 21:00 important acknowledgement in both directions it's like okay well we're not going to crash the plane but like okay then sort of the whole political impetus of the first three months of this administration are kind of like what like where are we yeah the the Doge thing is interesting to me because like it's a nice rapper on essentially just austerity um and are we in a position now where austerity just can't work like even if we take that simple part of everything you've just said are
• 21:00 - 21:30 we in a situation where austerity on its own won't even work no it won't work no it absolutely won't work because the debt's too high you know to do austerity the sovereign balance sheet has to be in a position where a recession will not credibly threaten the solvency of the sovereign itself vulkar could be vulkar and Reagan could frontload pain because there was no world in which rates would go to a high enough number where the Treasury market would would dysfunction where Treasury
• 21:30 - 22:00 auctions would fail where the US government's interest expense would be more than its receipts and and it's goes into a debt spiral uh we're already in a spot where the interest and interest like obligations are greater than receipts with receipts at all-time high and austerity will absolutely take receipts down so you'll be even further below 100% of of or further above 100% in terms of your interest and interest like obligations so the political
• 22:00 - 22:30 cost is too high and then the math simply won't work i mean you just you've got to get that debt down first you know there's you know we used in in in our our recent in a recent report and we've highlighted this before you know the last he he h hegeimon that had the reserve currency that tried to Doge after it lost a war had run up its debt and had been de-industrialized and suffered a series of financial crises over multiple decades was the UK after World War
• 22:30 - 23:00 I and they said you know what we're going to go back to pre-war parody on the pound relative to the dollar and we're going to take the austerity pain that's what we're going to do and horribly horrifyingly the UK lost 6% of its adult age men working force in World War I 6% and so taking that 6% away out of the workforce the UK doing austerity after World War I to try
• 23:00 - 23:30 to sort of deflate UK unemployment was never below 7% from 1921 to 1940 and that was without you know that was on a a gold standard for the first half of that and what and with 6% of the working force killed in in this horrible war in the decade prior so really the number was unemployment never went below 13% for 20 years there's and and you know politically you started to have some of the fallout from that as you got into
• 23:30 - 24:00 the late 20s around um I forget the guy's name but he was in Pey Blinders as as sort of a a plot for one season but it was it was you know the fascist party and the communist party were starting to make real inroads in the UK as a result of the unemployment situation and the economic situation so politically it's not possible but more importantly like they didn't have a debt-based system they didn't have a debt based banking system like the mathematically it wouldn't take 20 years it wouldn't take
• 24:00 - 24:30 10 years it probably wouldn't take a year in terms of just the fallout um and so it keeps taking back to the same point which is I don't understand the game at foot either they're trying to drive it into the ground to to clear the decks which again I I don't think that's the plan or just politically they can't do what they need to do because it's so complex that's probably the better base assumption so are we kind of at a crossroads here where the US dollar
• 24:30 - 25:00 system as we know it like can't really carry on and they're going to have to move to kind of a neutral reserve asset whether that's gold or obviously in like these circles people talk about Bitcoin or do you think they'll be able to just keep kicking this can things will progressively get worse and the dollar system will remain relatively similar to what it is today i don't think it's going to remain similar um and I think that's sort of the whole point of the Trump administration right when you're that's the other you know another fascinating thing about sort of
• 25:00 - 25:30 what what Bethon had to say which is like well you know we're not everyone kind of came right to me hey Luke they he said we're not going to revalue the gold i said well they're not he said today we're not going to revalue the gold you know 6 weeks ago he said Trump wasn't going to harass the Fed anymore about rates either and that lasted a whole six weeks so let's you know let's take that with a grain of salt but setting that aside he echoed what Trump and Vance and and Bess and and Mirren um have all discussed which is a 180°ree reversal of
• 25:30 - 26:00 the flows of capital and trade that have defined the dollar system you know we're you know what are we telling people defense- wise we're not defending you anymore defend yourselves okay that's gone we want to put tariffs up we want to drive most of our revenue out of tariffs that's not the dollar system um you know take your capital and go home we don't want China recycling its surpluses and trade with us into our capital markets anymore go home that's a reversal um so I I think we are moving
• 26:00 - 26:30 towards a neutral reserve asset system um gold is certainly acting like it bitcoin for the moment is being dragged down by um you know the historical the short-term correlations with the NASDAQ i get it i fully expect NASDAQ and Bitcoin to separate to diverge or Bitcoin to diverge from the NASDAQ later this year um in a more pronounced manner i mean you if you look at sort of long Bitcoin short NASDAQ on a two-year chart you can see it's like uh uh it's you
• 26:30 - 27:00 know kind of diver but I think it you'll see a pronounced divergence later this year but I I think it's in everybody's interest to do that i think that's what we're moving toward mhm and so like can we get into repricing the gold because you said before they could write it up to $20,000 an ounce how does that actually work like what has to happen for something like that to to occur they would probably have to make a marketing um you know people have I think correctly said that look like you know they would have to sit there and buy it you know basically you're
• 27:00 - 27:30 printing you're creating M2 money supply you know could the US do it sure they they have a printing press you know they can print dollars everyone's like "Oh we we we can always pay all of our debt in dollars because we have a printing press." Well the same's true of gold you know in theory they could buy all the freaking gold by printing dollars so it's literally as simple as them saying like "Come to us we'll buy it for $20,000 an ounce." Yeah same thing they've been saying with the bonds right it's yield it's yield curve control i don't think that's a base case i think
• 27:30 - 28:00 that's a very extreme example i I I still do think they will ultimately uh write up the gold to market you know if I was going to be Makavelian about it I would take steps to get the price of gold as high as I could get it by the market um you know let the market do the work for me and then repric it to that so what you're talking about here is the gold that's priced at $42 an ounce or whatever it is on their balance sheet okay so they they write that up to 3,000 or wherever it's at right now um and and
• 28:00 - 28:30 so then what would they do with that gold once it's written up to that price nothing it's it's a gimmicky exchange of paper that deposits $800,000 or 800,000 $800 billion of money roughly at current prices into the Treasury General account with which Bessant can do any number of things uh but for a sovereign facing issuance issues and somebody wishing to term out debt and keep keep issuance at the long end as low as possible $800 billion is a lot of
• 28:30 - 29:00 money right that's uh 40% of the deficit on a trailing 12-month basis 35% there's so much in there that I want to ask you about because obviously this has kind of ties to the Bitcoin strategic reserve that's now been signed um but before we do that you said then that um you talked about percent wanting to offer like the longer duration bonds um he he came out and said that and then he actually started issuing T bills again um I this I'm like a layman in this but my read on that was I guess he's
• 29:00 - 29:30 assuming that rates go down so issue bills now and then roll them over into long duration when um the interest rates drop is that is that what you're thinking or is it something different to that uh I think if he would have tried the 10-year yield would be a lot higher than it is today if he tried to issue in any size like I think so I think a really important piece of context in all of this two two important pieces of context first is is that Yelen obviously moved to the front end didn't term out the
• 29:30 - 30:00 debt took a lot of criticism including from Bessant over the last year year and a half for not doing so that's context one context two is that the Fed has not sold on net a single 10 plus year Treasury bond on net so they've probably sold some but on a net basis their holdings of of 10 plus year treasuries has not fallen since 2010 h so if that market is so star spangled awesome and liquid and deep why can't the Fed sell
• 30:00 - 30:30 any and so if the Fed can't sell any and Yellen moved it all to the front end you have to come to one of two conclusions either Yellen is stupid and didn't term it out when it was low because she's a complete and total [ __ ] and we know she's not and we may not agree with you know people may not agree with her politics the woman is clearly very bright i think she did a very good job of dealing with the reality she was dealt with um as a result of sort of stupid decisions our government has made over the last the prior 20 years
• 30:30 - 31:00 so either she's stupid or 10-year Treasury E market is nowhere near as deep and liquid as advertised and any attempt to try to issue at the size that they would have wanted to to term it out would have quickly blown out 10-year yields to levels that create a problem and now we can look on the chart every time 10ear yield over the last 5 years four years has gotten near 4.8% to 5% the wheels start coming off the cart equity markets start selling off so now
• 31:00 - 31:30 go back to what we talked about before equity markets sell off treasury markets start selling off more because again our biggest buyers been these levered hedge funds so they're going to sell treasuries into a market selloff and you would quickly get into this sort of de death spiral that we started to see occur in 3Q23 and 1Q23 and 3Q22 so what my view of why Bessant got into office and didn't start terming out the debt immediately is I think he got read in i was like oh you know so you know he's
• 31:30 - 32:00 kind of played it cool of like well I just stayed with her plan because you know the cost cuts haven't come through yet and I think that's fair and if I was in his seat I'd say the same thing but like behind the scenes he's probably I think that's what happened is he just goes "Oh my god." Like what am I supposed to do with this and that's why I think he's ultimately going to revalue the gold to create balance sheet room for himself because like if he had so much room that he didn't need to do it start turning it out go ahead like knock yourself out and
• 32:00 - 32:30 that hasn't happened yet and so if we just assume that like I I agree with you wholeheartedly that he's he's saying that he's not going to repric the gold today i think that doesn't mean he's not going to do it in 6 weeks time but let's just assume that reality for now like how can he drive a market for longer duration bonds if he without repricing gold or is that impossible in the short run it's not impossible but it's a very self-limiting
• 32:30 - 33:00 strategy for multiple reasons right so so the if you look at his public pronouncements over the last 12 to 18 months around this topic it's more recently sort of hey we're going to detox and slow the economy and and private and right we're we're going to knock stocks down to drive a bid for bonds great you did that and you got 10 trading days out of it and then the 10 years stopped going down now what okay well the Fed just said we're
• 33:00 - 33:30 going to stop selling as many okay great that was good for another what two basis points we went four basis points we went from 428 to 424 great now what well we're going to go to Europe and say "Hey you're we're going to pull our defense umbrella if you don't term out your debt 50 years." Hey Japan same thing and like I think a very underappreciated plot twist of the last week or two has been Europe going like you know bugger off like fine give us
• 33:30 - 34:00 our money back we'll buy it ourselves and the J was an article last week in FT or earlier this week in the FT like Asian defense makers stocks are soaring because the Europeans are showing up and being like "Hey you know the stuff you make for the Americans anyway make it for us because it reminds I don't if you've seen the Bruce Willis movie Armageddon of you know there's a the Russian cosminaut stranded in space right?" And he's like you know Russian components American components all made in Taiwan and it's like it's kind of the same thing
• 34:00 - 34:30 it's so like pl you know the next strategy was well we're going to term out the debt for 50 years based under this defense umbrella well like number one the Europeans are saying give us our money back we'll do our own defense thing that's not helping drive yields down if anything you know German boot yields are are up and actually looking like they're going to pull 10ear Treasury yields up same thing with 10ear JGP yields in Japan and I think it's another one of the sort of these under reportported
• 34:30 - 35:00 stories like Mark Rudy the secretary general of NATO two months ago not even said "Look you Russia's out producing all of NATO 4 to one." Eric Prince who runs Blackwater came out in the last week or two and said "Listen two years ago three years ago if you took a shot at the Russians in Ukraine it would be about with a with a artillery shell it would take him an hour and a half to shoot back at you now when you shoot you better have your ass in a car running because they're going to have something on you in 2 minutes
• 35:00 - 35:30 like there is the defense umbrella i don't think looks as attractive after the last 3 years the American defense umbrella and the performance of conventional weapons certain conventional weapons systems on a relative basis I don't think look as attractive um or they carry as much leverage in terms of terming out our debt as they did 2 three years ago and I don't think
• 35:30 - 36:00 that has been digested by Wall Street at all um but it will be it will be and so the point for our purposes here is okay well knocking stocks down had a very short shelf And the longer you go with that the more it's not going to work because you're going to hit receipts you're going to have to increase issuance economy is going to slow god forbid if you drive yourself into a recession because now your issuance is going to blow up by one and a half to two trillion maybe more just based on a run-of-the-mill plain vanilla recession
• 36:00 - 36:30 uh and sort of what deficits do in those uh the sort of defense umbrella thing is starting to kind of look a little eh the whole Europeans paying for it you know they're taking their money and going home on the margin and so if I'm sitting there in their shoes you know again it goes back to sort of this executional thing i think I think their target their strategic goal makes perfect sense i think it's great for America i think
• 36:30 - 37:00 it's great for all Americans at both sides of the party but the risk was always going to be the execution and the political ability to do some of the things they needed to do to execute and that is quickly you know getting bogged down in the mud so to kind of like left side of the bell curve this is is this really like the US trying to find its place in a changing world order and was kind of the start of that the sanctions on Russian treasuries i do think it's us trying to find our
• 37:00 - 37:30 place in a new world order i think some of it is is the recognition by Washington corporate America and Wall Street circa I don't know 2017 2018 something around there a a sort of oh my god moment where they started to realize that they were falling behind China in a lot of key ways that was where I think it started to hit home and and then I think co reinforced that with
• 37:30 - 38:00 the inability to get supplies and then I think the Russia you know number one that we were outproduced by the Russians as badly as we've been out produced and then the performance of some of these weapons systems like I've I've been told like look the we've got the best weapons in the world and they've underperformed the good enough weapons you know and you know in wartime you quantity has equality all its own so uh I think it's that
• 38:00 - 38:30 recognition that the sort of benefits of globalization of lower costs and lower labor costs and this have gone too far on a number of different fronts and they're trying to kind of reverse that but the problem is is it's like you know it's like fixing one of the fins on Elon's rockets you know while it's like leaving orbit right like it's you know and you're hanging out there holding on trying to tighten us up like hold on let me bolt this thing on and move it over a
• 38:30 - 39:00 couple inches like it's it's very difficult to do it's it the executional risk is very very high so if they've now like realized or at least some people in in the administration have realized that maybe a move to kind of like a neutral reserve asset is the right move um do they have a bigger kind of geopolitical advantage of making that gold or Bitcoin cuz like if you tried to follow the incentives presumably they're going to go for whichever one gives them the biggest
• 39:00 - 39:30 advantage uh the short answer is yes um the short answer is yes longer answer is um I think some of our adversaries have front run us on this i I think both Bitcoin mhm mhm i would be shocked and I've I've had people that I respect say "Luke you should be shocked if China hasn't been stacking Bitcoin on an official capacity on the QT for multiple
• 39:30 - 40:00 years." I totally ditto Russia mhm so I'm I'm the theory of it is yes we would have an advantage and I think ultimately you know in theory yes practically right now no going for may maybe not maybe not right if they've already stacked it then maybe there isn't maybe there isn't one I don't know uh ultimately you could make the case that you know we can produce that you're
• 40:00 - 40:30 better that that something like a bitcoin where there is a hard cap on the supply and a shrinking stock to or a rising stock to flow over time uh gives you a better incentive and and ultimately uh drives a um it drives it in a in a competition in a pure sense of where is your best rule of law where is your best productivity because the guy who's got best
• 40:30 - 41:00 productivity and and forget about rule of law i mean within reason best productivity is going to win right he's going to be the guy earning Bitcoin net some of that's a you know well the currency against Bitcoin will fix all that right like you'll it should balance over time so you could make that case then that gets us back to another area of executional risk right of of internationally you know the real
• 41:00 - 41:30 politic is is you know who's got the best weapons and the nukes and and who's the creditor and who's willing to go all the way to the mattresses and can credibly threaten others and you know you get into sort of the Game of Thrones from sort of a you know you know blackmail slash intrigue slash you know black ops slash thermonuclear war all the way up the scale like trying to figure that out so I I I can see the theory of it i can see
• 41:30 - 42:00 but I you know who knows okay cuz like if if everything is kind of leading back to repricing the gold maybe actually first of all why is the gold at $42 that's that was the price it was when we closed the gold window and but why have they never repriced it before is it is it down to like it's politically unfavorable to do that like what's the reason it's still there so I have heard two reasons uh the first is that if they repriced it and they
• 42:00 - 42:30 basically would put it back on the table and that would be eligible to be claimed by primarily European creditors as having been defaulted on under Bretton Woods i don't know the the the varity of that uh if those treaties are still in place what have you i' I've heard that uh I think it's the more plausible or or the cleaner explanation and maybe they're both true I don't know is just the dogma of it that basically once we took it out of the system you know we just didn't want to talk about it right it's sort of like the the the dirty
• 42:30 - 43:00 secret in the closet you know you just shove you know shove shove them away and and never talk about him again and you know I think I think it's you know that's that's part of it if not most of it yeah that makes sense and but that also seems like something Trump and Elon and the rest of them maybe wouldn't actually care about which probably makes it more likely that they're going to repric it um so in Bitcoin circles like with this executive order um obviously they the caveat is they can acquire Bitcoin as long as it's in a budget
• 43:00 - 43:30 neutral way and one of the ways that they can potentially unlock a lot of money and do that is by repricing their gold um maybe like start with I'd like your take on the strategic reserve and what you think of it and then um do you think that that's even like a potential outcome or do you think they're not likely to repric it and buy Bitcoin i I don't think they would use the whole proceeds um simply because like you know when your house is
• 43:30 - 44:00 on fire and someone gives you a fire truck you know full of water like you don't take it out back and fill the swimming pool in case you you know in case the weather's warm right or in case you need it for the future right you you spray it and put out the fire and you know $800 billion would my operating room for the better part of a year maybe a year and a half well into the you know very close to the next midterms so you
• 44:00 - 44:30 know maybe they would do some on the margin maybe they you know if they did it you know 20 billion 50 billion you know sort of a nod and then they can sort of tweet you know promises kept kind of a thing i don't think it's going to be a big number simply because again to go back to that initial point like true interest expense is over 100% of receipts with receipts at all-time highs and with all these other things happen the Europeans taking their money back Chinese taking their money back like the it's a very tricky situation and so taking the 800 billion
• 44:30 - 45:00 and taking half of it and throw it into Bitcoin you know I don't see how that but I think that that in the long run it might it it probably is very very much the smart thing to do but again it's like you know it's like filling up your pool with with your house on fire uh it just they don't have the operating room right now this episode is also brought to you by Ledger if you're serious about protecting your Bitcoin Ledger has the solution you need their hardware wallets give you complete control over your
• 45:00 - 45:30 private keys ensuring that your Bitcoin stays safe from hacks fishing and malware with Ledger's easy to use devices and the Ledger Live app managing your Bitcoin has never been more convenient whether you're a longtime holder or new to the world of Bitcoin Ledger makes it simple to keep your assets protected if you want to find out more visit ledger.com and secure your Bitcoin today that's ledge ge.com this episode is brought to you by Cassa the leading Bitcoin self-custody solution i've been using Cassa since 2019 and I can't recommend them enough
• 45:30 - 46:00 casa have options for all Bitcoiners from a two of three multisig to a three of five and a private client option for absolute best-in-class security casa also do inheritance which I very recently set up and it really couldn't be easier my inheritance plan has gone from a vague treasure map for my wife to a rockolid security plan that I have total confidence in to find out more about Cassa go to casa.io which is casa.io okay um one other bit on Bitcoin
• 46:00 - 46:30 that I wanted to ask you about is I I heard you on another show recently saying you were not bearish on Bitcoin but a little more bearish on Bitcoin mainly because of how it's trading kind of just like the NASDAQ um do you want to expand on that point i'd be interested to hear that yeah that's just straight capital flows that's you know you know February 21st CH you know Trump came out and said "Take your money home China we don't want we don't want it here anymore." And you know it's fascinating to me that People don't realize the biggest China belt and road
• 46:30 - 47:00 hub in the world is the NASDAQ there's trillions in Chinese capital sitting in there and if it's leaving I think you're going to see a lot sort of a dragged down period especially given the valuations we're talking about right it's not like the NASDAQ's trading at you know low valuations multi-year lows like like it's in sort of la land and like you literally just told trillions in capital go somewhere else and so I think I think the NASDAQ will be sort of in this draw down period that
• 47:00 - 47:30 we've seen over the last I mean we're only a month into this it's crazy and so I think it's going to continue for a while you know and it doesn't necessarily need to be a crash but I just think it's going to kind of like dick dick dick dick dick like like it like it's done over the last month and look every trader on the planet is like look it trades like a tech stock it trades like a tech stock trades like a tech stock it trades like a bank stock too by the way you know they they leave that part out the BKX the NDX the NASDA and and Bitcoin like are all right together right
• 47:30 - 48:00 but my my expectation my view my hope maybe because you know it is a big position for me is I do it's a neutral reserve asset it isn't a tech stock it isn't a bank stock um and as the factors that I see that we talked about earlier developing where I think a moment is coming if they don't really sort of do something big in terms of devaluation which oh by the way will be really good for Bitcoin in my opinion uh if they don't do that pretty quickly to get that the GDP down like a moment is coming of
• 48:00 - 48:30 like like sheer terror like people are going to be like oh like ho holy cow like so capital's leaving rates have stopped going down inflation's picking up because oh by the way the tariffs are they're not being absorbed by China's telling American retailers to you know bugger off and so those are Oh my god where's that money going to go you know some of it will go to you know
• 48:30 - 49:00 what we see but I think I think it starts some of it starts going into Bitcoin i think that'll be a really interesting moment when you start seeing you know not just some outperformance but a literal divergence because look like we saw that with gold forever hey gold's just a play on real rates real rates real rates real rates and then 2022 they went like that and they've never come back together and that makes perfect sense because once you go once you cross the Rubicon and we did you don't come back and I I so I think we're going to cross a Rubicon with the NASDAQ and Bitcoin that's all it is for me is it's just you
• 49:00 - 49:30 know I've got clients that are are sort of all across the board in terms of like time horizons and so I try to be I tell them what I'm doing i've got a longer term time horizon but I want to you know I always reflect like hey if you got a short-term time horizon like I think NASDAQ's going down and maybe relatively rapidly and in the short run that's probably not going to be good for Bitcoin and that's what that's a reflection of that has nothing to do with anything other than that so it's just it's long-term bullish still short-term a little bit more bearish but
• 49:30 - 50:00 when it comes to like the world understanding what Bitcoin is like I don't see Bitcoin as a risk-on asset or or or even like a riskoff asset it's just like a forever asset for me um do you think it's going to take a moment of this like crisis to convince the world that that's what Bitcoin is i think it's going to take that to convince Western paper traders Western traders right western short-term traders um because I think if you go to the average I don't know emerging market
• 50:00 - 50:30 participant who's you know lived through a high inflated money that can't be confiscated you can move anywhere globally and it hedges your you know inflation and they're like "Yes please." And twice on Sundays right like and and like what I'm discussing here really you know and this is blasphemy to say blasphemous to say we're talking about the United States of America heading towards an emerging market sudden stop crisis right like that is capital leaving rates up
• 50:30 - 51:00 inflation picking up it's terrifying it's It's terrifying i've never lived through one but but my understanding and reading about them in emerging markets is like yeah you get your money out of dollars if you can you get your money into gold if you can you get your money into Bitcoin if you can and I think that's kind of like the you know sort of you know I jokingly said this the other day to someone on X so like like over the last 20 or 25 or 30 years
• 51:00 - 51:30 like sort of you know it's you know a good way a good theme or narrative to fade you know to bet against and make money is the narrative of well it's different this time cuz we're America so all the history won't matter and then like oh wait you know so you know you know I know you know home prices have never fallen nationally oh oh you know printing a bunch of money won't be inflationary oh you know Afghanistan is
• 51:30 - 52:00 the graveyard of empires i know but oh you know hey fighting Russia in their backyard is a bad idea but we're Oh like and so you sort of have you yes these are all the makings of a sudden stop capital's leaving inflation's bottoming you know tariff you know tariffs are being absorbed by us rates are bottoming like but we're America it won't matter and like I on current course in track unless something really changed I think a moment's coming in the next 36 months it's like oh that's why all of the
• 52:00 - 52:30 people in Argentina and Turkey and you know these Latin America and Brazil like like Bitcoin so much oh okay now I get it i mean that is terrifying because like I obviously want Bitcoin to do really well like I'm couldn't be more all in Bitcoin so this is like something like that would be great for me but at the same time I don't want to see Bitcoin do really well while everyone else is getting absolutely crushed but that that's kind of like the picture you're painting which is pretty bleak um
• 52:30 - 53:00 everything we've kind of spoken about there has been very like big picture um on if we brought that back to like a more individual basis what do you think the next like year five years is going to look like are we going to see inflation rip again yeah I think so uh my only question is is it is it do we get like a a brief whoosh down first and then ripping inflation or you know they're trying to land the plane you know but you know they're sort of reaching stall speed and
• 53:00 - 53:30 once they reach stall speed it's not like you just go down like this you hit stall speed and you go and so I can't tell if it's w and then they hit the jets and go or if it's just and then you know pick back up in the end you know that's a matter of position positioning that's a matter of leverage if you're on leverage you don't care um if you're not reporting monthly or quarterly numbers you don't care uh I think it's going to be higher uh and it has to be like this there's only two
• 53:30 - 54:00 ways three ways really um there's three ways i don't want to sell short the other there's only three ways you get out of these debt situations historically i mean we are in a once in aundred year debt cycle and you either default And again default is a nominal write down of some description and unlike any other time in history this is one way it definitely is different this time is is the entire system you know the sovereign debt is
• 54:00 - 54:30 the collateral backing the banking system so if you write down the debt the entire banking system is under capitalized and so if they do that then all of a sudden you're going to have two choices print the money to bail out all the banking system inflationary or hey everybody with a deposit over 250 and 250,000 in any bank in America congratulations everything over 250 goes poof in every individual account what do you think's going to happen then they showed during the Silicon
• 54:30 - 55:00 Valley bank thing that they're not or they at least weren't willing to let that happen whether this is different they can't let that happen they can't and and to be clear like I'm being hyperbolic to for the example for the illustrative purposes it would be much more like you know Silicon Valley okay they were they could have kept selling treasuries to pay out their depositors and that would have put more upward pressure in treasury yields which would have caused losses elsewhere in treasury and duration across the banking system and started raising questions elsewhere and then you it feeds on
• 55:00 - 55:30 itself and once it again these things are nonlinear and yeah they showed you they just preempted that so I def nominal default isn't going to happen let's just take that one and move that over here so then you're left with inflation or productivity miracle right you've got to have a significant period of negative real interest rates and you know it's fascinating to me it's it's it's you it's kind of like the detox intox thing right well we're detoxing well why are we detoxing when you know look at all the other Intoxing things we did right same kind of thing
• 55:30 - 56:00 where we compared COVID to World War II we compared you know we we compared Putin to Hitler and you know you know all you know oh it's it's it's like you know 1938 again blah blah blah blah great then why in 2020 didn't you do what we did from 1945 to 51 which is yield curve control capital controls bond holders get killed real rates in the US were -3% at their lowest in Japan they were at 6060% at their lowest
• 56:00 - 56:30 uh Australia they were negative -30 Italy you know basically the losers they were really bad and you know they were only in the teens or 20s or 30s and the winners and you for example US debt to GDP went from 110% in 1946 to 55 in 1951 and that's the thing they don't like to talk about and there's a reason why they don't like to right is like it's uncomfortable and politically probably very difficult if not impossible to do without a huge crisis
• 56:30 - 57:00 But like like don't give me like half of the World War II oh we need to do Worlds like a war well finish the analog so that's inflationary like we're going to get to that point at some point one way or another like that's that's coming that's on the cuff cuz that's the only way out of this the last one is productivity miracle you can in theory do that uh the UK did that after the Napoleonic Wars in the 1800s in a wildly different time
• 57:00 - 57:30 um the challenge is you know with productivity miracles especially now as fat you know it would have to be a productivity miracle where people don't lose their jobs and people don't have their wages not grow because you know after the Napoleonic wars it was not a debt based system there was not this proliferation of consumer loans everywhere right so like we get a productivity miracle where robots and AI you know replace 20% of the workforce and they promptly start pay stop paying their mortgages and
• 57:30 - 58:00 their car loans and the banks have trouble and they start right we're right back there which then gets back to like all roads lead to inflation all roads lead to the basically u some sort of crisis driving the full reserving of the debt market right you know ultimately that's where AI and robotics go is they're going to have to fully reserve the debt market to prevent the banks from collapsing because of the productivity from AI and robotics And to me that's a big part of the reason I own
• 58:00 - 58:30 Bitcoin and gold but like if they're going to have to fully reserve the banking system because of productivity and technology and and all credit to this line of thinking goes to Jeff Booth um like Bitcoin's actually to me the cleanest AI play yet by far and and there's a there's an interesting element there where like if we do get this world where we have a million a billion AI agents and they they need money like Bitcoin also fits into that perfectly absolutely but so you probably it was
• 58:30 - 59:00 probably a little over a year ago you were on the show and you were talking about there being like a nonzero chance that we get like high double digit even triple digit inflation for a short period of time to try and wipe out this jet debt GDP do you still think that's like on the cards yeah I think it's the like when I say like if you when you ask me like what would you do that's that's what I would do that's the only you know the longer you delay this the
• 59:00 - 59:30 more compressed and high right so you you've got to basically go through a period you know we'll say it's a shape of of you know 5 years of -2% rates we'll say right or you can do one year of negative 150% rates and just rip the band-aid off right something like that i don't think you can do you know I don't even know if you can do five at 12 anymore i think you could
• 59:30 - 60:00 have gotten away with it i think you started to do it after 20 and then they chickenened out when when it got to you know 8% CPI officially and probably higher than that unofficially and and midterms came they they whiffed out bottom line like paradoxically if Powell wanted to be brave like Vulkar he would have done nothing he would have sat there and taken the heat and let inflation get to 15 like get the he got that the GDP from 130 down to 117 116 he should have let it run hot let it get down to 80 and then cranked then done
• 60:00 - 60:30 the the old time vulkar you know that was the brave thing what he did was the politically expedient thing and I don't blame him it just is what it is so I don't think sort of 5 years at 12 is even on the table anymore for the reasons we talked about without capital controls And I definitely don't think you know 10 years atg5 org3% real rates because it just the number it you know you're too
• 60:30 - 61:00 far gone in terms of the demographics on the entitlements and stuff but what if no one is brave enough to do this what what happens then like what does the market actually do if no one's brave enough to make a decision like that it's a good question uh like is the money printer just the easy option like the easy way out of for this always I think you're just going to see more and more of what we've gotten which at faster and faster intervals which is you have you know in
• 61:00 - 61:30 theory right now we're seeing a change in behavior of the dollar because the capital outflows are overshadowing the the what had been dominating dollar performance which was crowding out effect of dollar markets right and every other time this is like the dollar is falling with true interest expense above 100% because so much capital is flowing out over the last month month and a half uh I think you're going to you know you're going to continue to get these periods of of treasury market
• 61:30 - 62:00 dysfunction uh you're going to need more and more you know you'll see what we saw yesterday which is Powell coming out and being like well we're going to take you know we're going to QT 25 billion a month down to five for treasuries beginning on April 1 and you know he someone pointed out to me yesterday right at the end of that uh press conference he uh um he laid out that you know they have talked about at least he said we're not there yet but it's conceivable we could continue to run off
• 62:00 - 62:30 the MBS because we want those gone but stop growing our balance sheet overall or stop sh stop shrinking our balance sheet keeping it stable which implies buying treasuries while they're selling with the proceeds of selling NB rolling off NBS which is you know not QE QE i mean the purists will be like oh it's not QE it's but I don't care yeah it's QE it's QE um and how many mortgage back securities do they have on the balance sheet now like how big is that oh boy uh
• 62:30 - 63:00 I don't know the balance sheet is what a little under seven uh I don't know i should know it off the top of my head i don't but is it is it like a a quite a lot of money oh yeah yeah i mean it's it's it's if I had to guess it's probably a third of it okay i would I would I would guess but again it's I should know that number i don't okay but really what you're saying is all roads lead back to QE I guess and are you thinking this year like is this in the short
• 63:00 - 63:30 term yeah I do ultimately because again we keep going back to this you know the the true interest expense number the fiscal situation is just so problematic you know receipts are at all-time highs markets are just barely rolled over the economy is softening um foreigners are are are repatriating their capital um you know somebody say to me today made me laugh out loud trump
• 63:30 - 64:00 has done the impossible he's gotten Europe to act together like they these guys can't agree on what to have the lunch but they all want to build an army now it's incredible um yeah I I think ultimately if we don't do that sort of period we just go from rolling crisis rolling crisis of and now ultimately they will you know crisis better crisis better and it keeps getting kind of what we've seen right which is 19 20 22 23 it and pretty
• 64:00 - 64:30 soon at some point they just kind of lose the market and it doesn't form right at some point and some of it could be like what we're seeing in gold right now where just like you come in you know you know gold goes up on trading days that end in Y like that could be sort of the early you know that that that would be one of the symptoms of what you'd expect to see um Bitcoin separating from the NASDAQ would be another such symptom um where Kapples just
• 64:30 - 65:00 goes they're going to look at this go listen I don't know when they're going to sort of yield curve control or or you know what but the writing's on the wall and and so you know we we'll see and so I've spoken to Lyn Alden uh relatively recently and she's been on this kind of fiscal dominance thing for a long time um and again like my layman perspective of that is it basically just means the Fed's what the Fed's policy makes little difference um if the Fed started doing
• 65:00 - 65:30 like a major QE event again does that take us out of that fiscal dominance era i think it's more a nod to it than anything else i think it's just sort of giving into it right because think about the environment in which that would be happening right you a dollar that is down from 109 to 103 inflation bottoming tariffs coming into place um wow that could be you know that that'd be pretty powerful um you know
• 65:30 - 66:00 now if they ultimately the way you get out of fiscal dominance is you shrink there's two ways you raise rates and you do the vulkar right you just fire in brimstone and again my long-term view on this and I think the math is bearing this out you can't do it with debt to GDP at 120% when your receipts are dependent on stocks that you need to kill to find like it doesn't doesn't work it it's a snake eating its own tail so fire and
• 66:00 - 66:30 brimstone can't be done so the you the other only other way to do it is you got to get debt to GDP down significantly to get out of that because that's really the key marginal you know the key marginal driver you could do it with entitlement reform as well um we're not really seeing anything there but if you can get the all-in debt to GDP number down with a period of high inflation which I think
• 66:30 - 67:00 the Fed sort of doing QE into you know tariffs etc etc and and capital outflows that would do it right i mean that would that would do the trick i mean it's they're equally unpleasant in opposite directions okay um the last thing I'd want to talk to you about is Bitcoin backed bonds um so we spoke about this in Nashville with Preston on the show um and that was the first time I'd really kind of heard of this idea um and since then I don't know if you've
• 67:00 - 67:30 been kind of keeping tracks on the Bitcoin side of things but it's become a a much bigger narrative so like Brian Estair wrote a sort of two paper two-page white paper on this um I was in DC last week at the Bitcoin Policy Institute summit and Andrew Hones did a presentation on that in front of like some key policy makers which is really cool to see um do you think that a has like a realistic chance of actually happening and b has like a a big impact in the bond market if they do do that
• 67:30 - 68:00 i don't know on the chances i hope so you know Judy Shelton has talked about this on the gold side um and and you know I interacted a bit with Brian and Preston a bit on the Bitbonds thing if you look at if you look at the chart showing that thing there's an FFTT thing down at the bottom of the chart I think but uh um I I I I I absolutely think it could make a big a big difference right and this is one of these things where it doesn't have the inflation necessarily
• 68:00 - 68:30 doesn't have to be sort of this systemwide sort of collapse of bonds against everything this is you know you basically you write up Bitcoin you write you know you write up Bitcoin you put a little Bitcoin kicker you know would I buy you know would I buy a 10-year Treasury with a 2% 2 and a half% yield let's say two for easy math would I buy a 10-year US Treasury 2% yield with whatever 5% of the face in
• 68:30 - 69:00 Bitcoin yeah I'd buy that and that means you got to go out and buy the Bitcoin right to back it basically right which means like the dollar is going to collapse against Bitcoin same thing with gold a little bit i don't know what the right number is on gold to do it it's it ain't 3,000 you know it might be five or six or 10 but again you know someone asked me the same question it's sort of a different version of the same question it's like when would you be at what yield would you be bullish on 10-year Treasury yield it's not about the yield of the bond the
• 69:00 - 69:30 price of the bond it's about the price of the dollar in other words relative to gold you know historically you know if you if you look at the value of the dollar relative to gold the value of our debt relative to our gold it's it's dirt cheap you know gold is dirt cheap you know at $10,000 gold repric my gold to 10,000 I'll I'll buy some I'll buy some 10-year paper at two two and a half% i'll do that right and you there's different ways you can structure that and the same thing is true I think with
• 69:30 - 70:00 the Bitcoin of like the risk is the inflation like I what every everything that I have said here today everything we've talked about is there is no way out even a productivity miracle creates a crisis that makes the debt unpayable so there's really no conceivable range of likely outcomes in which me holding long-term US Treasury paper and by the way it's true for British paper it's probably true for German paper etc etc I'm going to lose money on a real
• 70:00 - 70:30 basis and I don't like that but if you ameliate that risk for me by giving me 5% of the face in Bitcoin and and there's obviously Bitcoin makes it very easy much easier than gold to sort of say like right like you can put that in in under sort of lock and key and and have confidence that that is there versus you know hey trust us you know
• 70:30 - 71:00 um yeah that absolutely could be huge um in terms of bond market implications I really haven't thought through the competitive implications but I would have to think it would drive capital flows here i think it would drive spreads higher of it would basically force all the sovereigns to do it because I think if you weren't doing it and competing with the Americans who were your spreads are going to blow out
• 71:00 - 71:30 you're going to have a crisis so it would it would be a very I think it would be a potentially a very big deal so I I hope they're successful and I I want I think it makes a lot of sense and it like look I've said all along like this ends with a change in the dollar in the in the structure of US dollar reserve status and that would absolutely 150% be a change in the dollar reserve status right the dollar would collapse against Bitcoin great
• 71:30 - 72:00 like perfect and oh by the way what's as Bitcoin rises what's going to get backfilled stable coins te bills like this this it literally it's sitting right there at the at the at the 2 yard line going in they just have to hike the ball and but it's there's there's a lot of dogma what have you and some of it might be they need a crisis to do it i don't know but I think it it makes a ton of sense i'm a big fan of the idea uh I think it would work let's hope let's hope uh our policy makers can see the
• 72:00 - 72:30 wisdom and prudence in it yeah I'm a big fan of the idea as well the the thing that I'm not sure of um is what it means for the dollar like if they did that does that basically signify the end of the dollar as like the world reserve currency i don't think it's the end of it i think it's the end of the post $71 which is that's already dead anyway like it's ironic the last people to get that that was dead were the people in Washington and Wall Street yeah right like like the the and they're finally like "Oh we
• 72:30 - 73:00 can't get masks oh we can't make weapons maybe this is not a good system for us like nice job guys congratulations come on in the water's warm welcome to the party um so like that system's already dead like this would just be marking it to market and so it really would be I find Besson's comments that he made last year that I want to strengthen the dollar system but weaken the dollar fascinating because 90 plus% of people
• 73:00 - 73:30 on Wall Street think those two concepts are mutually exclusive and the way you sort of split that baby is bit bonds gold bonds these type like that's one of the ways you can sort of split that baby the dollar collapses against Bitcoin but the dollar system strengthens meaningfully and now you're you will be talking about a system where Bitcoin is a de facto neutral reserve asset of sorts um if not
• 73:30 - 74:00 you know explicitly so u being added to other sovereign uh FX reserve piles etc perhaps um and if not if they're buying American bonds that has a Bitcoin attached to it guess what bitcoin's a freaking deacto reserve asset just like gold was pre71 and so it would really be much more like that pre71 reserve status where yes the dollar is a reserve currency but guess what really is bitcoin right bit bonds right yet you're
• 74:00 - 74:30 buying those bond you ain't buying those bonds for the freaking dollars you're buying those bonds because the dollars plus the Bitcoin same thing with gold you weren't buying the bonds from 45 to 71 because of the frigin dollars you're buying them because those dollars were good for gold where they were supposed to be as good as gold so that would be the change and I think that's part of the reason the political dynamic of that change like that's that's a big um that's probably a big hurdle in a lot
• 74:30 - 75:00 of minds but again like a that's already like it's over like that whole old system is no longer it's already collapsing it's not in our interest it's killing us and if it's ever going to happen it's now right like JD Vance was just talking about this this week like how bad the old system was for us trump's talked about it besson's talking about it m or Myin it's all there so it makes a lot of sense it would just be a different dollar reserve system and just to clarify when you say it
• 75:00 - 75:30 strengthens the system you mean that's because it actually brings demand back for US-based debt yeah yeah interesting well I hope it happens i mean it'd be great for us Bitcoiners um but Luke you've you've kind of black killed me on the economy there um but I really appreciate the time it's been a really good chat um thank you so much for coming on the show again where do you want to send anyone before we close out yeah if they're interested in hearing more about what we have to say it's ftt-lc.com for more information about our uh institutional and mass market
• 75:30 - 76:00 products and uh obviously on X as well Luke Groman all one word perfect well thank you very much Luke likewise thanks for having me on Danny it was great talking with you my friend