A new Fed report revealing $1.8T in hidden U.S. debt and China’s pivot to gold marks the beginning of the dollar’s decline.
A new Fed analysis reveals the Cayman Islands, home to many hedge funds running the 50–100x-levered Treasury basis trade, actually hold about $1.8T in U.S. debt (far above prior estimates), spotlighting how dependent the Treasury market has become on repo-funded arbitrage; with the reverse repo drained, bank reserves falling, and SOFR spiking above the Fed’s corridor, funding stress risks a basis-trade unwind that would dump cash Treasuries (yields up) and bid futures, tightening liquidity into a credit wobble. At the same time, de-dollarization is accelerating: foreign governments now hold more gold than Treasuries, China keeps trimming its U.S. holdings while ramping gold via the Shanghai Gold Exchange and pushing yuan-settled trade, shifts that imply a gradual revaluation of FX crosses and a structurally weaker dollar. Domestically, debt math corners policymakers into “run it hot,” negative real rates and recurring deficits to inflate liabilities, while any real AI productivity gains arrive unevenly and could be deflationary for labor, likely inviting even more monetary expansion. In this landscape, gold and especially Bitcoin are the clearest hedges: gold is signaling stress now, but Bitcoin’s perfectly inelastic supply and self-custody make it the stronger, censorship-resistant savings technology as populism rises and institutions lose credibility.
“People need to really abstract out what the move in gold is actually signifying, once you get it, it’s red alert.”
“Foreign governments now officially hold more gold in reserves than U.S. Treasuries.”
“The largest marginal buyer of our debt is a bunch of 100-to-1 levered hedge funds in the basis trade.”
“If you balanced the budget, it would result in a GDP contraction worse than 2008.”
“The only thing I have high conviction in is Bitcoin.”
“Come for number go up, stay for peer-to-peer digital cash that can’t be censored.”
The dollar’s 50-year run is fraying where it matters most: market plumbing and sovereign preference. Hidden leverage (basis trade), dwindling buffers (RRP, reserves), and funding spasms (SOFR) collide with an external pivot toward neutral reserves (gold) and yuan-linked settlement. Washington’s fiscal bind all but guarantees negative real rates and intermittent liquidity waves to keep the system afloat, policies that widen the K-shaped economy and erode purchasing power. Against that backdrop, gold’s breakout is the siren; Bitcoin is the lifeboat: a scarce, bearer, self-custodied asset outside the policy machine, built for a multipolar world where trust migrates from institutions to protocols.
0:00 - Intro
1:03 - Explaining the basis trade
10:55 - Liquidity crunch
17:44 - Bitkey & Obscura
19:28 - Debt ceiling and BRICS
31:09 - China has the leverage
36:51 - Generational gap
42:17 - SLNT & Unchained
43:46 - Trump’s domestic policy
48:18 - Melt up, gold safe haven
59:02 - AI miracle
1:06:53 - Bitcoin pulling back
1:16:16 - Freedom money & populism
(00:00) People need to really kind of abstract out how to think of what the move in gold is actually signifying because once you get it, it's red alert. If you bounce the budget, it would result in a GDP contraction worse than 2008. You have the reverse repo empty. Bank reserves are declining.
(00:17) The largest marginal buyer of our debt is a bunch of 100 to1 levered hedge funds in this basis trade. The Cayman Islands actually hold $1.8 trillion of our debt underount by $1.4 trillion. Foreign governments now officially hold more gold in reserves than US treasuries. China held about 784 billion. Just in 5 months from February to now that's down to 730 billion. That's significant.
(00:36) What you could get is a revaluation of some of these currency crosses. I don't understand how anyone could argue that China is not the one with the leverage. I mean, we lost effectively a proxy war to a country with 11 12th of our GDP. You end up talking about like a $5 trillion deficit in just a normal recession. They're trying to thread a needle here.
(00:54) I don't know if it's going to work. The only thing that I have high conviction in is Bitcoin. Robert, welcome back to the show, sir. Good to be back. Good to have you back. I've been uh binging your your YouTube channel the last two weeks. was telling you before that I was checking in once a week, but I think with all the madness going on in markets right now, uh you've been covering everything going on uh with great detail, it's astonishing the uh the amount of detail that you can go into and the the amount of data that
(01:32) you're able to surface. I reached out last week. I said, "Hey, would love to catch you up on the show. Last time you were on, we talked about silent depression and sort of the more secular headwinds, if you will, society in terms of the the effect that the economy is having on on individuals and society at large in aggregate.
(01:56) And I think we definitely touch on that later because I think things are certainly accelerating as AI becomes more prominent and people begin to worry about what the job market is going to look like moving forward. But I think just to stay timely and topical, you've you've been covering um a Fed report that was dropped I believe over the weekend that highlights the dynamics of the the Treasury market are are not what they were being reported and it all stems from activity going on in the Cayman Islands particularly around the basis trade. So what uh what did the Fed just let the markets know?
(02:36) Yeah. So apparently um we had suspected according to the tick data which is uh released by the treasury department it's basically the official data on who holds US government debt uh and general crossborder capital flows that tick data had reported that our holders the holders of our debt were Japan at about 1.
(03:06) 1 trillion UK at about 900 billion China at about 700 billion and that that that has been coming down pretty notably. Uh and then the Cayman Islands as our fourth largest holder at about 400 billion. Uh but because of this popular hedge fund trade known as the basis trade, the Cayman Islands, obviously a hot spot for uh hedge funds doiciled in the Cayman Islands. This has nothing to do with like the Cayman government.
(03:30) When we're talking about the Cayman Islands, uh we're talking really about the fact that there's so many hedge funds uh based there, doiciled there. The Cayman Islands actually hold $1.8 trillion of our debt. Um and so that makes them by far the largest holder of US government debt. And before it was being reported that they held what around 400 400. Yeah. 400.
(03:54) So So underount by $1.4 trillion. So, what what I'm trying to understand is why wasn't this reported correctly before the Fed released this report? Why did the Fed decide to let everybody know, oh well, actually here's what's going on.
(04:18) Yeah, that second question is one kind of the first one that popped into my head after I realized the implication of this. Uh, my first question is, okay, well, why now? Um so it has to do with like how they calculate uh the repo uh because this basis trade is financed in the repo market uh which makes sofur and what's going on there I think uh pretty important um but it has to do with just the way the methodology with which they use to measure um various crossber capital flows. Yeah.
(04:52) And so for anybody who's listening who may need a refresher on the basis trade here, what are hedge funds doing when they engage in this? Yeah. So the basis trade is treasury futures. Let's just use a 10-year Treasury. There's the cash 10-year Treasury, which most people are familiar with, but then there is a futures contract that represents a 10-year Treasury.
(05:15) That 10-year Treasury futures contract is obviously a contract for future delivery. Um, but there is this optionality that the seller has when you sell a 10-year Treasury futures contract. There's optionality there where you get to actually deliver. You don't have to deliver a 10-year Treasury at the end. You can deliver uh 6 and 1/2 year maturity, 7-year. There's a range.
(05:40) And so the seller gets to choose the cheapest option for them. Uh maybe at the time, you know, it's a 10 basis point difference uh between the seven and the 10. So they deliver the seven even though it's a 10-year Treasury contract. Um and that kind of optionality or uncertainty premium is baked into the futures contract. So uh it's very small. It's only about 10 basis points or 0.1%. So that trades at a premium, the future.
(06:07) And so what they do is they short the futures contract and then they buy they long the underlying US cash treasury. Um and the difference as expiration near uh treasury features ex you know kind of roll expire every 3 months as you near to expiration that uh that difference as the arbitrage kind of gets gets worked out uh goes to zero.
(06:36) And so you're basically just pocketing the spread between the futures contract and the 10-year Tre the actual 10-year Treasury. And so it's delta neutral cuz if uh if bond yields go up, well, you're you're covered because you're you're short the 10-year futures contract. Bond yields go down, you're okay because you're long the cash um the cash uh 10ear treasury.
(07:00) So it's delta neutral meaning um and also it's it's using probably I mean what at least what the market considers to be pristine collateral um we you know have different opinion on that but um but yeah that so so the fact that it is using US treasuries as the collateral for financing in the repo market makes it um less risky uh and of course you're you're delta neutral so it doesn't matter if bond yields go up or go down.
(07:31) Um you're just trying to pocket the tiny little difference between that futures contract and the actual 10ear treasury um as as it approaches expiration. And you lever it up. So if it's only 0.1% uh that's not worth anything. That's not worth uh anyone's time. So what they do is they lever it up 50 to one to as high as 100 to one.
(07:54) Um and that might sound crazy, but this is well doumented. um if uh yeah on Google and this has been an issue for years. This has been a risk that the Fed has known about. This has been a risk uh the SEC has been aware of, the CFTC, various organizations. You can find all sorts of academic papers talking about the risk that this basis trade has.
(08:19) It's blown up uh 2020 it blew up. It also sort of started to blow up in April um during the liberation day. So it's a known risk. Uh, and the leverage is well documented to be pretty insane. Yeah. And you cited it in one of your videos from the last couple of days, but the Brook Brookings Institute came out in June and wrote a paper, I believe, in reaction to the April blowout of this basis trade.
(08:46) I think a lot of people have been focused on the yen carry trade um, as well. And it it just seems like wherever you look, there's a ton of hidden leverage on the system. And again going back to the original question, why why did the Fed feel compelled to release this data particularly after we had the sofur spasm last week? Sofur spread to Fed fund rate spiked to what.19% which is pretty high.
(09:13) Highest point since 2020 I believe. Um yeah, it it does make you wonder um the timing of it and of course uh Jerome Powell came out and um you know mentioned basically the end of QT uh funding stresses in in the repo market. This was I think Wednesday. Um and then yeah we got um data on sofur for Wednesday and Thursday which was quite elevated for Wednesday and Thursday.
(09:44) sofur the secured overnight funding rate was actually above the discount window rate which is the Fed's attempt uh at setting a ceiling in the price of money. um they actually have a range. They don't set one interest rate. Uh they have this corridor or this range uh that they use to set um interest rates. And the lower bound being the reverse repo award rate.
(10:08) That is the Fed's attempt at basically saying no matter how overabundant dollars get, we will always buy them from you at 4%. And then the discount window rate is the upper bound. And that is the Fed trying to say no matter how scarce dollars get we will always uh sell them to you at 4.25. So by doing that um hopefully thinking of it that way makes it a little bit easier for people to understand.
(10:37) Uh but by by uh maintaining those two different interest rates they're able to try to keep sofur which is the actual funding rate determined by uh supply and demand of dollars um within the repo market. They try to keep sofur within that range by having those those two tools. Yeah.
(11:01) And typically when you see spasms in these markets, it means that a liquidity crunch is on the horizon. Like you said, drum pal implicitly seems to believe that may be the case with his comments around the end of quantitative tightening. Uh there was regional banks last week. had a had a pretty tough middle of the week with many um down more than 10% and you saw uh the sort of reemergence of a theme that that reared its head a couple months ago with the triricolor auto loan subprime auto loan uh collapse. It seems like there's there's other similar lenders that are out there uh under a
(11:38) lot of stress and you have banks as big as JP Morgan with exposure to them. I think JP Morgan had to write down $200 million in credit loss on one of these deals last week. And um that's the question like is there liquidity crunch? Well, yeah. I mean what what sofur? So, the first video I did on liquidity and repo market and sofur and I think it was back in like July um because I think that was about the time when they announced they were going to rebuild the Treasury general account or the TGA. This is the
(12:13) government's checking account just like you would like a buffer in your checking account. The government does too. Uh it was down to I think only 300 billion or so. So, they wanted to build that back up. Um, and basically when that was announced, I started to kind of uh warn that there would be incre that that in and of itself would cause uh, you know, a a shortage of liquidity, at least compared to what it was before. The reverse repo was dwindling down. Um, and so, you know, normally the reverse repo,
(12:46) it's not a primary method of managing liquidity. it it's more one of those uh I think of it as a a shock absorber um or a buffer uh and so as that buffer was drawing down meaning the amount of buffer $4 liquidity was getting smaller um kind of all of it was lining up and you were starting to see some uh elevation in sofur spreads uh so for minus reverse repo or fed funds um you're starting to see that kind of back in June even at the end of June and it's normal to see at end of at um the end of the month or end of the quarter or tax deadline which we saw a couple weeks ago I guess about about a month ago. It's
(13:28) normal to see sofur start to kind of blow out. Um but what has been happening recently like over the past couple days is we've seen sofur notably above um like I mentioned before discount window rate IB fed funds reverse repo award rate um and then you couple that with the credit issues and the fact that credit spreads uh have start started to widen they're still near kind of all-time tights almost uh historically tight credit spreads but uh so so we're starting from uh you know a a pretty uh stable or or decent position, but the
(14:05) fact that credit spreads have started to widen. You couple that with what's going on with Sofur, then you start to kind of factor in this basis trade and an unwind of the basis trade uh threat, I guess you could call it. Um and it's all, you know, it's like you we found out we we we know that sofur we know funding stress in the repo market from sofur. Uh we know the reverse repo is empty.
(14:29) the TGA rebuild is basically done. So that's not shouldn't have any further negative impact on liquidity, but it certainly did they they removed half a trillion dollars from the financial system. That's not nothing. Um but that that is done. But you know, you have the reverse repo emptied.
(14:49) The TGA rebuild removed 500 billion. Uh bank reserves are declining. They're right around 3 trillion uh last I checked. And so yeah, you kind of couple it all together and it's like okay, so the largest marginal buyer of our debt foreign at least is a bunch of 100 to1 levered hedge funds in this basis trade. It's extreme.
(15:09) That basis trade must be financed every night in the repo market. So you start to get, you know, widening of uh sofur spreads that could put funding stress on the basis trade causing an unwind of the basis trade which could cause and and what an unwind of the basis trade looks like remember you're you're long the cash treasury and you're short the future.
(15:32) So if you are forced to unwind that position uh it it puts upward pressure on the future and downward pressure on the bond. You're forced to do the exact opposite of how you got into the trade. So it involves selling of the bond which means yield sharply up and then buying buying of the future to close your short. Um and so we've seen this you know before in 2020.
(15:55) Um you can look at TLT relative to ZB which is the long bond futures contract. You can see this happen uh for example in March of 2020. It also started to happen again in April. Um with liberation day you get yields sharply higher. Um not good for liquidity either. No.
(16:20) And and on top of this, last week we had the um standing repo facility tapped for the first first time since co I believe and it was tapped not the Yeah. Not the first time, but what happened was if you think of the reverse repo, which is that uh storage tank for kind of excess liquidity you can think of. you take the reverse repo and you subtract out how much standing repo has been is being used that spread kind of gives you an idea are we in an abundant liquidity regime or a scarce liquidity regime it's kind of how I think about it so um you know previously we've been in an abundant uh liquidity
(16:55) regime where the reverse repo has been as high as $2.5 trillion uh and that storage tank of kind that shock absorber has been full of cash of dollars Um, and what we had recently was standing repo's been hit. I think it was hit back in um, I want to say August, might have been June. There have been a couple brief moments re in the past year or so where it's been hit.
(17:19) But what we had recently was uh, that standing repo, which again is the opposite of the reverse repo. The standing repo or SRF, that is for when there's a shortage of liquidity and hedge funds need emergency dollars. um that staining repo got tapped and you take that spread the difference between the reverse repo and the and the staining repo that went negative for the first time going all the way back to March of 2020.
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(19:27) Use the code TFTC25. Now, as you're explaining all this too, and you have the the government shutdown in the backdrop of all this too, like was the the Fed release of this Cayman data, sort of like a signal like, hey, uh, politicians, we've got a pretty massive exposure to this carry trade, um, by predominantly American hedge funds doiciled in the Cayman Islands.
(19:57) like it may be time to uh uh turn the government back on so that we can we can solve this crisis if it does emerge. It could be a lot worse if it was a debt sealing debacle uh like we had earlier. That I I think would be significantly worse. That's probably coming. You know, uh we go through those debt sealing debacles all the time, it seems. Uh it's like a constant thing in American politics.
(20:22) So, uh, whether it's a government shutdown or debt ceiling debate, there's always that kind of embedded stress that it seems like it happens every, you know, year or so. Yeah. Well, and then I was tell I just recorded with Luke Roman. Another variable in the backdrop here is this I want to call I don't know if it's an attack or it seems like China, the BRICS countries, many others are noticing what's going on with the US Treasury market and not only the Treasury market itself, but the US government um which is backing this market and they're saying, I don't know if you're a good
(21:00) counterparty um if if we're going to be buying your debt. And so we've seen massive transition towards this gold settlement network, which is many people are surmising what's happened with China um registering its gold on warrant at the Shanghai gold exchange.
(21:20) That chart became popular about a month or two ago, but I saw Jim Biano updated it and seems like that's only increasing at a rapid pace. It's almost doubled in the last month. The amount of gold on Ward at the Shanghai gold exchange. Yeah, it's vertical. Yeah. Right before we hopped on, I saw that Ethiopia uh made a deal with China to um settle their trades uh in yuan.
(21:39) What do they say exactly? Ethiopian talks with China on converting dollar loans to yuan loans. Um, and so it seems like the US Treasury, the Fed are in a very precarious situation where they're walking a tight rope 200 yards above above the earth um trying to make sure that they can manage any liquidity crisis that may be emerging.
(22:09) And then on top of that, they're getting attacked from another angle, which is one of the large superpowers in the world, China. basically opening up a a competing settlement network backed by gold um and trying to use that as a reserve sort of asset. And I think Luke said something that I've been thinking about um since we recorded last Monday. It's been a week now.
(22:32) Um posted the episode on Saturday though, but it's like foreign governments now officially holding more gold in reserves than US treasuries. like is that a signal that the sort of US dollar reserve system has been supplanted? Yeah, I mean going back to February, China held about 784 billion. Um now just in the past what 7 months or so uh or I guess it's 5 months. I'm looking at July data.
(23:02) Uh so just in 5 months from February to now uh that's down to 730 billion. So reduction of what was that 50 54 billion. Um that's significant. And then you couple it with what you mentioned about Shanghai and the what China is doing with gold. I think it's interesting because it kind of is what the US needs like to go back to the discussion we had um the first time kind of on on the silent depression and some of the kind of structural issues.
(23:31) It's actually, in my opinion, going to help that situation as countries move away from the US Treasury um and into something like gold, something neutral like gold. I think that it will actually improve a lot of the issues that we had talked about with a 4% of GDP current account deficit. um that th and and and of course the resulting capital inflows that disproportionately benefit the those that have capital, those that have financial assets that are buoied by about a trillion dollars of forced mandatory structural capital inflows uh into into financial markets in the US. I
(24:07) added up uh from the BEA the current account data uh I added up from I think it was 2011 or 2012 up through 2024 if you look at foreign purchases of real estate those get recorded under FDI foreign direct investment uh and then you add in the estimated portfolio investment into REITs and MBS um mortgage back securities you add that all together and going back to 2011 2012 I can't remember exactly which year was uh foreigners have purchased about 700,000 single family homes worth of real estate. Um that's significant and
(24:45) that's that you know these are price insensitive buyers. They are buying uh to balance that current account deficit. So uh the same thing is true of course with uh equities. We know foreigners uh that's one of their favorite places to recycle dollars into. Uh and of course treasuries that kept yields very low, artificially low.
(25:08) Um and so yeah, it a a move away from that recycling of the trillion dollars that we send out to the rest of the world in the form of our current account deficit. That trillion dollars is uh being recycled into dollar denominated assets less and less. And it's not happening, you know, it's not we're not talking about overnight changes of like 50%.
(25:32) This is around the margin. Um and it it would take years if not decades for this to fully play out. But if those foreign countries start to uh you know instead of buying u equities or treasuries or US real estate with those dollars that that trillion dollars we are running in our current account deficit every year if instead of dollar denominated assets like those they start to buy gold that'll bid up the price of gold in dollar terms.
(26:01) Uh and so gold can, and this is something Lou Groman's been um super outfront on, you know, going back like two years, maybe even more. Uh that gold as as there's a shift away from the the the US Treasury or other dollar denominated assets into some neutral reserve asset that freely floats in all currencies like gold.
(26:23) What you could get is a is a revaluation of some of these currency crosses. Um because again, China is not running a trillion dollar current account deficit with anyone. Uh they run a massive current account surplus. I think it's like 5% of GDP. So there is no country right on the other side from China going well yeah you know we used to recycle these into I don't know yuan denominated uh bonds government bonds but now we're going to buy gold. So, so you don't have that that the gold price in yuan terms at least from foreigners uh being bid up
(26:58) in yuan terms. Uh there's no there's no offsetting kind of bid in in yuan terms. Now, domestically, of course, we know they buy gold, but uh just kind of generally speaking, this is one of those kind of subtle forces that over a decade or two um would eventually lead to a higher gold price in dollar terms and a lower gold. Gold will still get bit up in yuan for sure.
(27:22) um but to a lesser degree. And so then what you have, you cancel out the two denominators because they're constant gold, you know, gold to gold. Cancel out the denominator, you've basically just set a new exchange rate. Uh and this is something Luke has been talking about uh for a long time now, the the need for uh a revaluation specifically of the dollar yuan cross rate.
(27:46) Um there's of course other currency issues. The dollar structurally overvalued. Uh in fact on a purchasing power parody basis in 2024 the dollar with the Dixie at like 105 was more overvalued than it was 1984 1985 when the Dixie was 163 and of course the Plaza Accord was just about you know couple months later.
(28:15) Uh we were even more overvalued on a purchasing power parody basis in 2024 than we were back then when the Dixie was 162 or three. And of course the Plaza accord happened right after and we know what happened to uh to the dollar. So I still think that whether it's kind of a gradual revaluation like you mentioned you know kind of the the adoption of gold it doesn't it it's happening more rapidly than I think some of us thought it would.
(28:39) Uh I expected it to happen around the margin but kind of more gradually. the the degree the rapidity the velocity uh with which it's happening uh kind of surprising to me but whether it happens gradually in the mechanism I just described where you get a weaker you know a a devaluation of the dollar versus gold uh to a greater degree than devaluation of uh yuan gold then that could take 10 20 years but eventually you get a new exchange rate where the dollar is weaker versus the yuan on.
(29:12) Um, and of course, you know, China has made it pretty clear in in various statements they've been making for five, six, seven years, top CCP officials that they are trying to number one, internationalize the yuan, and number two, reorient their economy much more in a US model toward domestic consumption rather than this subsidized overcapacity export dumping sort of approach that they've taken where it's just gain market share at any cost.
(29:44) Um there's a recognition in China just like there's a recognition here in the US you with the current administration at least that our structure of debtfueled overconumption and insane twin deficits that that has kind of run its course and the pendulum has has gone too far in our you know in that direction. Just on the other end, China has recognized that their model has gone too far.
(30:11) Um, and they, you know, you don't get uh public statements by top CCP officials like that unless it has the blessing of uh, you know, over there you disappear if you say something that, you know, over here we get to have leaks and right all this kind of public comments about about uh, about stuff over there not so much.
(30:31) So the fact that they have been pretty vocal about that, I think I think there's a recognition that both both of our economic models kind of went to their logical conclusion and we've seen peak globalization in my opinion. I think that's pretty clear. I don't think it's controversial anymore. Um and that there's likely to be a meeting in the middle.
(30:51) uh whether that happens by Mara Lago accord or the mechanism you mentioned where it's kind of a gradual gold adoption in place of the US Treasury I think either of them have the same end effect which is a weaker dollar stronger yuan yeah and it's very interesting to try to think through which happens I mean I'm looking at the price of gold right now it's approaching uh $4350 $50.
(31:20) So, it's cooling off a little bit after the run that went on last week and the week before, but that could certainly accelerate again. I think that's one question on many people's minds, like is this a blowoff top? Is gold about to correct? But I I do think we are in uncharted territory in the sense that I think this this bid seems very different than anything I've seen in my life.
(31:47) Um, not that there's been many material bids under gold outside of like what was it 2011 and 2012. Um obviously the last two years last year has been very good but it seems it seems like somebody's buying hand over fist or multiple people are buying handover fist sort of seeing the writing on the wall and then you pair this with the sort of geopolitical um saber rattling between US and China over the last two weeks specifically with with rare earth medals and are we just getting a sort of show between Trump and G where they both recognize like hey we need to get to the table but
(32:20) there's some showmanship ship or is the showmanship actually public sort of exertion of hey who who has the leverage at the end of the day and after my conversation with Luke he would say that China has all the leverage um particularly if you believe that we need to go into this um hyperindustrialized reshoring era of the United States they I I don't understand how anyone could argue that China is not the one with the leverage I mean, we lost effectively a proxy war to a country with 1112th of our GDP because we have so completely hollowed out our industrial base that we can't even make
(33:03) the shells and artillery and and Patriot missiles needed to to you know for for our own military to defend our own people. Um we rely on China for 65% of active pharmaceutical ingredients. So the actual drug that goes into the medication, uh those APIs about 65% come from China.
(33:29) Um you kind of go down the list, right? China has um everything that is actually needed. What do we have? We have a bunch of derivatives traders. We got a bunch of memecoin traders. We got um you know highfrequency trading firms that build the best highfrequency trading algorithms. We got the most deep and liquid treasury debt market in the world.
(33:48) sovereign debt market in the world. But like you compare those two, China's got commodities, they've got the chips, they have the active pharmaceutical ingredients, they got the rare earth. You go down the list of what they have versus what we have. And I don't know, I I the deepest most liquid capital market in the world doesn't seem very important when you're talking about, you know, what when you get down to it.
(34:18) Look, maybe in 1990 peace dividend sort of world that matters and that has value. Um but you know in in in a world that is like you mentioned more polarized with higher tensions geopolitically um more multipolarity I think that it matters much less how deep your sovereign debt market is uh how liquid your sovereign debt market is and matters much more who has the commodities.
(34:47) Now we necessarily have energy which that I think is one of the areas of leverage uh that we do have over China. They are so utterly reliant on imports uh energy imports uh much more so than we are. We have abundant uh oil, natural gas and you know energy resources here in America. And I think that this administration accurately identified that as being one of the strong suits, uh, one one of our, um, pros, you know, one of our, um, benefits here.
(35:16) But at the end of the day, I I I don't think that, you know, the most liquid capital market in the world is really that important. Uh, especially when you're talking about a world that looks a lot different than the world we might be used to, uh, in the kind of peace dividend era. Um, but maybe I'm crazy. I don't know. No, I mean I I've been I've had Luke on Bellagi had uh somebody who's been over in China advising Western companies of how to do business in China for 30 years on the show. And that's one of the main piece of feedback is like uh these guys are just like pro-China.
(35:50) Like uh I'm not just to make it super clear, I I am extremely patriotic. I love America more than anything. The I I I could not be I do not want to live in China. I would I would rather I don't know. I'd probably rather die than live in China. Is not out of a pro-China.
(36:14) There's such this like knee-jerk reaction nowadays to when it came to the war in Eastern Europe. It's the same thing. Uh and and with China, I I see that sometimes too. There's such this like effort to pigeon hole just because you make a criticism about your country.
(36:34) I think it was Mark Twain that said that there's no deeper patriotic duty than criticizing your own country. That's kind of how I look at it. It's not that I I'm saying these things because I hate America or that I love China. Couldn't be further from the truth. It's more that, you know, I I want to see America return to the strength that we all know it it has potential for. Yeah.
(36:54) And the reason I bring it up is because I I agree with you. I think there's people that are just denying objective reality when you look at it like you go through. Yes, we do have liquid capital markets and good high frequency traders and uh a great services economy at the end of the day.
(37:13) But if you do believe that we're moving into a more multipolar world, globalization uh has seen its peak and we're going towards a more delobalized world and you're trying to look at the objective facts, it's like yeah, the the leverage is going to be Yeah. How many how many lawyers do we need? We need less.
(37:30) We need probably 10% of the amount of lawyers that exist because I mean that gets to a whole whole another can of worms is like the problems they create by writing more laws and regulations and permitting requirements whatever it may be. But I digress the uh when it comes to China people saying you're your own patriot never bet against the United States. I completely agree with that.
(37:54) But I think before we even place chips on the table to make it bet, it's like, all right, let's acknowledge objective reality and try to figure out the best solution based off of that objective reality. You can't put your head in the sand and just say, "Ah, don't worry about China. Nothing's going to happen." I think the last two weeks have proven that they do have leverage as it pertains to rare earths specifically.
(38:11) And and that's one thing through these conversations that I've been trying to just sort of tease out is like what is like and ideally in my mind it's like China and the United States, Trump G, however you want to frame it, get to the table and get a deal done. And I think China just wants to be recognized as a legitimate economic power and political power on the planet.
(38:31) they don't want the US meddling in things in Southeast Asia and observing objective reality and um with that in mind saying hey we may need to make some concessions in terms of swallowing some pride and saying hey China yeah we agree you guys are doing some pretty miraculous stuff and let's try to work together and not get into some kinetic war um because in 2025 kinetic war um or even economic war is not is not good the the leverage in the system is too high and it's it's a a tinder box for a calamity. I I want to see the route where we figure out how to work together and just increase the quality of life
(39:14) for all humans. Yeah. Same goes with Russia in my opinion. I you know I my ideal world is global cooperation, not globalization, not this neoliberal approach that both parties had taken for decades, right? Not that but peace. I think I think hope well hopefully most people at least our age are of that mindset.
(39:42) There is certainly a camp uh that is not does not wish for peace does you know it's always yearning for conflict with you know some new country every every every week it's a new country but I would like to see tensions with Russia and China uh decreased but you know I I think that we have to be honest about the shortcomings um that that that the US economy that US society all again kind of goes back to our prior conversation like all of those criticisms.
(40:14) When I bring up deaths of despair and the suicide rate and all those various statistics, it's because I think the first step is admitting what the problem is. Most people don't even talk about that stuff. Although I will say that in the past, I don't know, 6 months, nine months, there's been a growing uh discourse, a a growing um conversation when it comes to the kind of silent depression stuff.
(40:40) Someone told me the other day, they're like, "Why do you call it that? It's not so it's not very silent anymore." And I said, "Well, when I started talking about it was, you know, um but I think that that's a first step is recognizing the areas." Look, I think that like, you know, uh, the average American would, if they were pulled, um, be able to tell you, especially average young American would be able to tell you, yeah, like I I don't know what world you live in, right? If you if you have $5 million in your 401k, you got two or three homes that are up, you know, 800%. And all the equity, you know, all the wealth created there. Yeah. Like the boomers are doing
(41:15) great. Of course, they're not going to see any of these issues. Um, so there's a there's a large amount of uh generational gap there as well. But I think that the first step is to and I think to some degree it's going to take some of the younger people starting to come into power politically.
(41:38) Um, and you already kind of see that um already on both sides. I would argue to some degree you're already seeing a bit more representation from the the younger crowd, the millennials and uh and to some degree the zoomers. And I think that that that's important because there's a huge generational component to it too. Boomers seem to live like every time, you know, I I I see one of these kind of head in the sand type type speeches or comments or or whatever.
(42:03) It's it's always a boomer that is living in like 1960s America in their head, 1970s American. It's not that way. Uh I think that the picture would be a lot different if you uh spoke to especially younger people. Sup freaks. This rep is brought to you by my good friends at Silent Silent Crates. Everyday Faraday gear that protects your hardware. We're in Bitcoin.
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(43:17) Layoffs are in the headlines and rate cuts aren't fixing the core problem. That core problem is that the fiat retirement system is taking on water. On October 28th, Mark Moss and Unchained Jeff Vandrew will explain why 401ks were built to serve the system, not you, and how fees and hidden risks create an illusion of wealth.
(43:36) You'll learn why Bitcoin security and growth curve make it a powerful long-term savings asset, and how a Bitcoin IRA can let you roll over an old 401k with tax advantages intact. If you want a retirement plan that prioritizes sovereignty and pursing power, this is the event. Register now at unchained.com/tc. unchained.com/TFTC. Yeah, with that in mind, obviously Trump has surrounded himself with some like JD Vance um most importantly as his vice president millennial.
(44:00) He seems to get what's going on at least domestically. I think he's he stood up against H1B visas and um really standing up for the American worker. Uh specifically with that in mind, like in terms of domestic policy to fix these problems, how how would you grade Trump's performance so far? Um, not as good as I was hoping. Uh, a little disappointed.
(44:25) Um, could have been a lot worse, you know, I'll say that. Um, but yeah, I I there's a lot of talk um on on a number of things that we haven't exactly seen follow through on. It's still early. Like the one thing I'll say, you know, I is it's still we he's still got some time. I'm not gonna, you know, totally condemn uh the performance because we still have time.
(44:52) Like you mentioned, JD Vance uh has been pretty vocal on some pretty important issues uh like the H-1B. Um, so you know, I'm cautiously optimistic, but unfortunately I think that due to the fiscal dynamic and due to what's going on kind of economically, I think that we're going to get into a situation where, for example, that K-shaped economy probably actually gets worse.
(45:16) Um, we know Trump wants negative real rates. We spoke about that in the prior conversation. Uh, that's not going to be good to fixing the K-shaped economy. Ironically, um, the back, you know, kind of go back to early April on Liberation Day chaos. Stock market is plummeting. Who was on CNN and kind of CNBC and these various kind of, you know, normie mainstream media outlets? It was a bunch of rich boomers that were upset, that were that were crying the the hardest that stock market decline. Now, we know Trump capitulated mainly due to what was going on in the Treasury market, not
(45:54) necessarily the stock market, but we know he ended up uh capitulating, but you know, something like that. I was starting to get pretty optimistic. Okay, Bessant, all of the talk about Main Street, you know, it's their time to win.
(46:13) Um, I was starting to get a little optimistic there uh in that first week of April because, you know, you talk to the average 25-year-old about their stock portfolio, they got like, you know, $200. They're living paycheck to paycheck. They're working three jobs. It's not exactly like they have millions of dollars in some stock portfolio. Um and and and if you look like the top the top 10% of income earners own 92% of US equities, right? So the the bottom 80% 90% they weren't really affected.
(46:41) That you know the average holding in a 401k is like $51,000. um which is not even it's maybe a year worth of expenses is nothing. It's basically a rounding error. Um so yeah, you know, I think that uh the the bottom 90% it was starting to look like okay, they're willing to break things. They're willing to cuz really what that would have been was a wealth redistribution.
(47:06) Um which is funny given the kind of like political implications of that. Um that's really what it was. you want to fix the K-shaped economy, okay, you have to be able to tolerate a significant equity market decline.
(47:26) The problem is that, as again, Luke has been outfront on this, uh, I've done my own I've done my own factchecking of it, uh, and found it to be correct, which is the government can't afford the stock market to decline in a meaningful pro uh, you know, uh, prolonged sort of sort of way or it so utterly hurts the wealth. the wealth effect starts going into reverse and you start to negatively impact uh you start to impair the capital gains tax revenue, blow out the deficit.
(47:50) As as Luke uh says, the the equity market de facto backs the US Treasury market. So, you know, they they were never probably going to tolerate a significant equity market decline, but that was one of those areas where I was like, okay, maybe they are willing to break things.
(48:10) But then as soon as Treasury yields started to go vertical, two days later it was capitulation. So I think that that's really the governing factor there is the Treasury market, not necessarily the equity market. Yeah. And this is um this is something I've been saying the last couple months too is I I think based off of the scenario or the the reality that you just described that the government sort of cannot afford this.
(48:35) So it looks like we're going the route of meltup probably melt up equity markets uh incredible debasement like individuals need to really take it upon themselves to protect themselves with assets like Bitcoin and I've been pointing at Square's release of the Bitcoin functionality in their point of sale terminals.
(48:55) It's like all right this is you're not going to go fix this at the polling booth. you need to take advantage of this tool that Square has afforded you as a as a small business owner and begin saving some of your revenue, your cash flows in Bitcoin over time because it seems clear to me that meltup is is the way forward and I think the gold price um is is screaming that as a leading indicator right now. Yeah.
(49:24) And just to like make it really clear, even a bunch of TRFI people don't really get this. They look at gold as just a thing like they don't they don't really actually understand what what you're actually looking at which you have to think of gold as a FX pair right so dollar yen dollar euro it's the same thing it's dollar gold or gold dollar is how people normally look at it which is how many dollars does it take to get one ounce of gold the gold price denominated in dollars you take the inverse of that gold chart which is just going vertical. Uh you take the inverse of that and that
(49:59) is the dollar denominated in gold terms. Gold has been money for thousands of years. It has its flaws for sure. Uh all the properties I think Bitcoin objectively does better um each of them. But but that being said, gold has been money for, you know, hundreds thousands of years.
(50:18) JP Morgan said, you know, go gold is money. Everything else is just credit. I think there's some truth to that even in today's day and age. So, what is that really telling you? Well, what it's telling you, the way that the gold price gets bid up in dollars, is that more people are willing to sell dollars to buy gold then are doing the opposite, which is selling gold to buy dollars.
(50:41) Um, that that's really what it's telling you. So what that reflects now that you have, you know, now that once you understand that way of looking at it, that lens to view it through, it's a pretty damning indictment of not only the dollar, but the but of course kind of the institutions that back the dollar and it's not just the dollar.
(51:07) I mean that's gold is getting bit up in every currency but um you know historically the dollar served as some sort of kind of safe haven u asset and we're not really seeing that too much. I do think that short to medium term the dollar could show some strength here uh just kind of generally speaking but we've been seeing the yen the euro and the uh Swiss frank replacing uh the the dollar in terms of when it comes to those riskoff sort of moments what is getting bid and this is true going all the way back I I noticed it in January February I'd wake up I wake up early here on the west coast I'd wake up and see equities would be down yields would be up a little bit and the
(51:44) dollar would be down. So, bonds down, stocks down, dollar down. Uh, and and I started looking at, okay, well, what's up? And it was gold, euro, yen, and Swiss frank. Um, and that's kind of that that theme is holding true, which look, I don't think that you have to replace the dollar with the yen or the euro.
(52:09) I think that we're moving into a world that is much more, you mentioned multipolarity earlier. I think that's accurate and I think that we should look at kind of global FX reserves and uh uh current you know not one global reserve currency but multiple diversification of these sovereign holdings um away from you know 65% I think it was at the peak in terms of dollar denominated assets mainly US treasuries uh and much more to you know maybe we hold 10 15% in US treasuries and 10% in yen and Right.
(52:44) I think that sort of world with gold and eventually I think Bitcoin um given enough time uh that sort of world right because people always push back so hard on like nothing can replace the dollar and it's like well gold kind of is number one. Number two nothing has to be the global reserve currency. There can be multiple reserve currencies.
(53:06) You could imagine a world where dollar, euro, yen, and the yuan are all, you know, 25% or call it 15% and then maybe the rest gold, something like that. Uh, which would take some time to get to. It's not going to happen overnight, but I think that that's much more where it's going.
(53:27) But what I think once people need to really kind of abstract out what the gold how to think of what the move in gold is actually signifying because once you get it it's red alert you know what's going on in the gold market and also it should be noted that the breakout like this is gold has been breaking out it's not just in this current administration this started before so yeah and that begs the question like How how underexposed are not only governments but institutions? I mean, how many of these hedge funds in the Cayman's just trying to leech off this this basis trade underexpose gold?
(54:06) I think there was a Bank of America report that came out a few weeks ago that something like 4% of hedge funds have any material exposure to gold. And are is there like a whole class of institutional capital that's just completely missing this wave when their fiduciary responsibility is supposed to see it before it comes and benefit from it when it actually does manifest? Yeah.
(54:31) I mean I I think institutions are at least in the west probably I've seen similar similar reports. I think institutions in the west, firms in the west are are u under underexposed but uh you know also individuals like you had made the comment before about the debasement and kind of the the run it hot sort of approach and like how badly that's going to crush. We're talking about the K-shaped economy getting worse.
(54:56) Um what I really worry about is the average American um getting crushed by a run hot sort of regime by negative real rates. We know Trump thinks that uh since our discussion we had mentioned negative real rates, how Trump thought that uh the Fed funds should be I think back then it was like 1% or something uh which would represent at the time a negative 200 basis point real rate.
(55:22) Um well now you have Steven Myron who Trump picked to be the chairman of the council of economic adviserss and now on the Federal Reserve. uh he came out, this was like month and a half, two months ago, and he said, "I believe the neutral interest rate is 2%." Which is notably below where we are now. And I thought, "Oh, well, that's interesting.
(55:41) " But then like a week or two later, he comes out and says, "No, the neutral interest rate is 0.5%." Which is just insane to me. Uh when you have inflation at 3%. Like solidly at 3%. um and assets at all-time highs. You know, it it I think that they're trying to tell you where which direction they want to go. And look, like it's not necessarily that they have a ton of optionality or choice in the matter.
(56:07) Um you know, this has kind of been starting to get baked in the cake as Luke says years ago. So, um it's not that they're choosing to do this, right? And and I I I wouldn't it it's unfortunately just where we are and just kind of what you have to do.
(56:29) Uh absent a productivity miracle, we're not going to cut spending because you cut spending. I've done the math and if you cut spending, if you bounce the budget, it would result in a GDP contraction worse than 2008 in the GFC. Um so you can't can't just bounce the budget especially given what's going on kind of with the dollar's reserve status and what that might do to other assets.
(56:52) Of course, uh, in in in the mid '9s to late 90s, we ran a surplus and that caused all sorts of problems, uh, in say the equity market and then that got kicked to the to the housing bubble, which by the way, even the economist uh, on on the Wikipedia article for 2008 and the causes of 2008, even the economist, which is a fairly pro- globalite pro globalism sort of outlet, even they admitted that the the five or 6% trade deficit as a share of GDP uh in the early 2000s led to the 2008 GFC, the bubble to the housing bubble.
(57:25) Uh so even they're admitting that. So you have all these other issues with balancing the fiscal budget. Um but yeah, you would you would plunge the US into a recession that would be catastrophic. It would be a margin call on the debt. So you can't do that.
(57:44) Like what other option outside of a productivity miracle um which could also bring about mass unemployment, right? and all these other issues like they don't really have a good option here. uh unfortunately run it hot, devalue the debt in real terms against scarce assets like gold and bitcoin. And that's kind of the only option that um they that they really have negative real rates to try to get the interest expense, which is uh one of the largest outlays. Uh try to get that under control, negative real real rates, but that's going to be stimulatory.
(58:13) It's going to be inflationary. Uh that'll make the K-shaped economy worse. That'll fuel the asset bubble even more. So yeah, it's unfortunate because I don't really think that they have much of a good option outside of a run it hot. And they started telling us back in what May or June uh that they were I mean it was Scott Bessant uh David Sachs and Elon Musk all within a week of each other all came out back in I think it was May uh and said yep like can't cut can't cut that's not how we're going to get out of this. We got to grow our way out of the debt. they all mention that nominal
(58:48) growth has to be above the cost of the debt. Um, and unfortunately that's just kind of where we are. That's what we did after World War II. Um, and you know, inflation was 18 19% at the peak uh, coming out of that. Yeah, I know we touched on this last time you were on, but the productivity miracle. It's right around the corner.
(59:07) Have you uh, have you seen everything going on with AI? all these data centers being built up, there's none a supply of GPUs to feed the insatiable hunger for for for tokens in the world. Do you do you believe that um there is any hope of an AI productivity miracle actually materializing? I mean I can say for myself um that it has notably improved my productivity.
(59:34) Um I use it in a very particular kind of way. Um, and I it has significant limitations, right? But it's kind of constantly improving and tends to be getting better. Like for example, you can tell it to write a Pine Script code for Trading View and it just spits out like I could never do that. I'm not coder. I I have no idea. So things like that um you know and it and it's very quick too.
(1:00:01) It certainly boosted my productivity uh when it comes to say the YouTube video research or um or you know uh preparing charts, it certainly helped me. How much and how quickly the real productivity gains actually appear is totally different story. So like I've looked for good highquality data on that very issue and not really been able to find a ton of data which is kind of surprising.
(1:00:28) Um I did put out uh that post job openings to the S&P kind of as a joke. Um it ended up going like giga viral. Um, it was kind of a joke, but uh, you know, there's probably some amount of I was hoping to spark some amount of conversation because I do think that there is some amount just from what it's doing personally for my productivity.
(1:00:54) I believe that there's got to be some amount of productivity gains coming from AI. Uh, productivity for Q2 did come in significantly higher than expected uh, by by a lot. I think it came in at 3.3 and the expectation was like 2.6 so it did come in notably hot. Um Q3 I haven't seen yet government shutdown.
(1:01:17) So yeah uh I would imagine that there's some amount of productivity coming but you know then you start creating other problems right which is okay say say it is going to be as transformative as as some people say okay well now you might be talking about an unemployment rate of 20%. Well, how do you just h how do you fund that? Um, and so I yeah, I think that that's why and I think Luke's correct on this.
(1:01:43) that the productivity miracle option has to come at just the right pace and it has to come at just the right intensity otherwise it actually makes the situation worse because we know government's so inefficient like for example Medicare outlays as a share of tax receipts uh when back in the early '7s it was like 2%. Now it's like 24 25 26%.
(1:02:08) So we know how inefficient uh and it's the same with social security as well. Uh the these government programs are incredibly inefficient allocators of capital and the number of administrators and the bureaucracy and all that. So it's not like a onetoone, right? Um there's probably for every dollar in unemployment benefits that someone actually makes uh there's probably another 50 cents that's getting paid to government bureaucrats along the way, you know.
(1:02:35) So yeah, I think that the problem is if it comes if if it does come, if the productivity miracle does come and it is transformative, it'll cause significant dislocations in the labor market. Those people have mortgages and car loans and they go to the local Starbucks to buy coffee and whatever. Um, and so AI being extremely deflationary, uh, I I I've kind of understood this concept.
(1:03:00) I've been talking about it for a year and a half. I don't I don't really know like how it ends up resolving but immediately I thought okay if AI is as transformative and and revolutionary as people say okay well that's massively deflationary and then I was like okay but you know the government debt to GDP is 125%. Now private household debt they have delevered after 2008.
(1:03:26) Um but but the on the sovereign side we are so highly levered 7% procyclical deficit 22% uh of tax revenue is going to interest you know kind of go down the list. So, okay, if it's super deflationary, we're in this highly levered debt-based monetary system. Like, I kept telling people, guys, like this is the story is how those two end up resolving.
(1:03:52) And the only conclusion that I've been able to come to uh I keep pointing it out and never really knowing like what it how it ends up resolving. The only thing I can kind of uh rely on, I guess, or or bet on is that they will have to overcome the deflation from AI and and robotics by printing even more money, right? So, I think that that's kind of where I've landed.
(1:04:13) I don't really see another option because it's incompatible with a highly levered debt based system. And my, you know, maybe someone can reach out and tell me another solution, but the only one I can think of is they print even more money to offset the deflation. Yeah. I mean, that's what they've done already for the last five decades.
(1:04:37) I'm sure you saw, but the the new head of product at X, Nikita Beer, whatever his name is, was um tweeting basically making fun of Bitcoiners and gold bugs saying, "I don't all the Bitcoiners and gold bugs are uh expecting hyperinflation when AI is going to be extremely deflationary." It's like, well, all tech is deflationary if applied the right way or most tech.
(1:04:55) People were nitpicking because I quote tweeted with Altech, but we've seen incredible deflation driven by technology advancements over the last five decades and the cost of living and the has gone up consistently. Quality of life for the bottom 90% has gone down consistently despite incredible leaps and bounds and advancements in uh technology that have led to overall deflation in that sector.
(1:05:20) But it is not enough to combat the money printer. they need to print to to keep it up. So despite all this tech deflation, until we pair that tech deflation with a reserve currency that is a sound money, um Bitcoin is what I think it ultimately will be, you're not going to reap the benefits society of that tech deflation. Yeah.
(1:05:43) Or until you've delevered the sovereign balance sheet. If we could get debt to GDP back down to 50, 60, maybe even 70% then it's a bit of a different story. The problem is the leverage is so high that uh a recession or or or bout of deflation, sustained deflation, uh basically acts as a margin call on the debt.
(1:06:08) Uh the in in in the past three recessions, if you take an average tax revenue in a recession falls by about 25%, spending goes up by about 15%. Oh, and GDP, the denominator in the deficit as a share of GDP is falling. So you end up talking about like a $5 trillion deficit in just a normal recession. Um and so yeah, it's uh it's a tough situation. It they're trying to thread a needle here and I don't know if it's going to work.
(1:06:35) Um maybe there's some secret technology they have that they've known about uh that could help, but I mean absent something like that, I think that it's just going to be even more inflation to offset the deflationary forces. Um unfortunately, yeah. Well, I guess to tie Bitcoin into this, obviously gold's been running.
(1:06:58) I think Bitcoin is a solution for individuals, institutions, governments alike to a certain extent to sort of protect yourself as it seems obvious that we're going to have these extreme bouts of inflation moving forward as the government needs to inject liquidity into the system to make sure that doesn't completely implode.
(1:07:19) But I think that's one question that's been on many people's minds, particularly Bitcoiners, over the last month, is why do something? Why aren't you doing it? gold's running to alltime highs. It's sucking the air out of the room and Bitcoin uh where it is in the having cycle, if you believe in having cycles, signals that the price should be running a lot hotter. Um people are very disappointed.
(1:07:44) How does Bitcoin play out into all this? What is what is your short, medium, long-term view on on Bitcoin and where it fits into this bigger picture that we've been describing? Yeah, shortterm is hard. um that the short term is really hard. Me medium to longterm though I'm I'm very bullish. Uh I look at it I my conviction in Bitcoin is so significant um that I like it.
(1:08:10) I like uh uh pullbacks. I I like when it is not ripping higher because when it's ripping higher, again going to the prior conversation about gold, like my wages or my earnings are getting devalued when gold and Bitcoin are ripping higher. So, I I actually like when it's not ripping higher. I I would like to accumulate more.
(1:08:34) Um because yeah, inevitably I know how this all ends up resolving. Uh and look, it could take longer than we think. You know, it could it keeps feeling like, okay, well, we're nearing this event horizon or or maybe even past it. Why isn't it feel like we are? Um, gold I would say indicates that we probably are the way gold is the price action on gold.
(1:09:02) I mean it was up like 3% on Friday um or Thursday I think it was had this like 3% monster date like you don't see that in gold especially routinely day after day after day it's uh every single day it's like up a percent or more. So I think gold is kind of signaling that we're nearing an an event horizon. I think that Bitcoin has too much of a NASDAQ high beta, you know, aspect to it, unfortunately.
(1:09:32) So, you know, there's been a bit of kind of volatility re recently, short-term at least, uh, in in spying QQQ. So, I think that that's probably not helping with Bitcoin, although today uh both are, uh, were up when we started to record. Um, and then you had the cascading crypto liquidation thing that happened a week or two ago.
(1:09:55) And, uh, there's probably some amount of residual, you know, deleveraging or um, you know, going on there. Uh, but medium to long-term, like I'm grateful for this pullback. I wish it would pull back more. I want it back at 70K, 80K. Uh, because yeah, it's like if you have enough conviction, you should be wanting, you should be enjoying pullbacks. you should be wanting it to pull back because you're looking out into the future.
(1:10:21) Um, and again, you have high conviction of that medium to long-term view. So, that's kind of how I look at it. Uh, the longer that it is not going parabolic, the more time I have to accumulate because inevitably, you know, whether it takes a month or a year or 10 years, like it's it's going much higher in my opinion. Yeah.
(1:10:44) And it it is hilarious, too, people pointing at gold's performance this year particularly and saying, "Oh, Bitcoin's not catching up." It's like if you zoom out the 5-year chart, Bitcoin's up like 900%. Gold's up like 130%. Since the ETF, uh, it's up like what, 250% since the ETF was announced. So, yeah, that was just two years ago or so. Yeah. But I I think it is a signal of the uh the high velocity trash economy.
(1:11:07) people that are in Bitcoin and they they I think they have visions of things they want to buy and things they want to do. Um, and sometimes let those visions and I think I think that illustrates the problem, right? which is like if if you look at Bitcoin as just a number go up sort of phenomenon or asset.
(1:11:26) Uh if you're just purely looking at it from that lens and you have a low tie low time preference, you have that kind of like fiat mindset of I want Bitcoin price to go up so I can sell my Bitcoin for dollars. I think that that is a different camp than a lot of um a lot of Bitcoiners who don't view it that way and and view it as the denominator of choice. Um I use gold and Bitcoin as denominators for a lot of things. And again, plot average hourly wage.
(1:11:57) Anyone with a trading view, plot average hourly wage divided by Bitcoin. Your wages are getting devalued when Bitcoin goes up. Like once you start to realize that, I think that you start to kind of see things in a different uh in a different lens. I guess the um what was I going to say? The uh not only the devaluing, but the um I lost my thought there when uh talking about the speed at which this happened. Oh, that's what I was going to ask.
(1:12:32) Then it's one thing we talk about a lot at 1031 is like there's an order of operations to Bitcoin's ultimate success. And I think again going back to the Square point of sales system, a lot of people are excited that you'll be able to pay uh in Bitcoin and merchants will be able to accept Bitcoin which is interesting.
(1:12:53) But the merchant adoption um memes been around since 2013 when Roger Ver was out basically trying to convince everybody to accept Bitcoin. And if I'm being honest with myself, like I feel like that part of the stack that they just released at Square will probably most likely be the least used out of all of it.
(1:13:13) But the tool to be able to sweep cash flows immediately um into Bitcoin and hold that on the balance sheet is probably going to be the most used feature and the most valuable feature not only for those individuals but for Bitcoin more broadly. And I I do think there has been um a degree of complacency in the broader Bitcoin sphere of people just focus on number go up number go up.
(1:13:34) It's like well we need uh to increase the or increase the utility of the tools around the Bitcoin stack to make it easier for people to adopt. And so I think people should be focused on that like where can we begin to fit Bitcoin into these different nooks and crannies and get people exposure to to it more easily. I would say even outside I I would agree but then I don't also even on the like number go up part I had someone who sits on a board of a publicly traded company ask me about this person knows I'm I've been following Bitcoin for a while and I'm into it asked me about it uh a couple days ago and I said well you know
(1:14:14) what makes you bring it up now they're a boomer and older and kind of was always very uh avoidant or you know dismissive of Bitcoin is you know what made you why are you asking and she said well um our accountant asked us if we had any Bitcoin holdings this is a publicly traded company so uh you know I I think that there's an element for of course we know it individually as a as a pretty amazing savings technology individually but even as you gain adoption of it just psychologically the once it becomes a
(1:14:51) more of a a valid on once people start looking at it more as a valid form of savings technology which is the primary method I look at it as uh I think even that is a step in the right direction for Bitcoin because then those people adopt it and then maybe they can start to play with a lightning wallet or whatever right so I think that I think the primary funnel for for most people whether it be corporations whether it be sovereigns even uh or whether it be individuals is the savings technology. It preserves your purchasing power because in dollar
(1:15:28) terms it goes up in price. Uh but then that once you're exposed to it, once you've used it, once you've bought some Bitcoin, once you've sent it to a wallet, maybe you have a self a cold, you know, a cold card or uh hold in self-custody and and once you understand the concept of like hold, you know, holding your own keys, once you start to like kind of play with it and go down the the rabbit hole, um I think that it leads to all of the other benefits, all of the kind of more peripheral sort of benefits that um you know whether it be like as a means of transaction um and
(1:16:03) that sort of thing. So I think it I think the primary funnel will continue to be the number go up component um but that's only because the denominator is is melting unfortunately. Yeah. And then in terms of the not the converse but the other side of the coin the number go up is distributed peer-to-peer cash um that nobody can control.
(1:16:30) I think governments are doing their best to to fun of people towards the point of recognition like oh maybe this this makes sense for this reason particularly in the UK where they're launching digital IDs and speech laws and I think come for number go up and then uh Trojan horse peer-to-peer digital cash that can't be censored by despotic governments um they're doing the job the governments are doing the job behind the scenes to make sure people understand that they need that as well when the time's right It's not a prettylook landscape out there politically, not just in the UK. And you know, I I worry
(1:17:05) sometimes about 3 years from now, what will the US look like? Um, you know, we might have bought a little bit of time. I mean some some people um would argue that you know some of what we're seeing even now is leaning in the kind of technocratic or you know techno dysisystopia right with certain companies and stuff.
(1:17:28) So you know you can make the arguments even happening now here in the US but at the very least you know if you reject that argument at the very least it could happen here in say 3 years. So, uh, right now it's the UK, but I think that that could make its way over here, unfortunately, with with the rise of populism.
(1:17:47) And look, if like the if the the average American, the average bluecollar American that's been on the lower leg of the K that's watched, you know, the capital class just get obscenely rich and so on and so forth. If that lower leg of the K that elected President Trump, if they don't feel like he has adequately fought for Main Street, as Besson always says, it could get pretty crazy.
(1:18:16) I think people dismiss a AOC presidency, but I think that they would be wise to to rethink that. Um because I think that populism is not just going to be on the right. We're seeing a rise in populism. I think if you look at like New York, I think I think New York's going to be uh we're going to luckily it looks like we're going to have a case study in left-leaning populism in New York and hopefully uh they can blow that uh what's the word I'm looking for? uh they're they can mess that city up to a certain extent in a quick enough amount of time that people are able to point out and say look this is what AOC wants to do to the country let's not go down
(1:18:57) this route but I mean look going back to 2016 this is not like a new phenomenon I remember um back in 2016 in the rust belt they would go you know CNN MSNBC they would go and interview just average people just average bluecollar middle of the road you know average people and they say, "Who are you voting for? Who is it between?" And they would say, "Well, kind of I like this Trump guy, but I also like Bernie.
(1:19:23) " And it like just completely broke their head. These these kind of, you know, partisan type uh uh that live in Manhattan or live in Washington DC. Like it just completely broke their head that you could be between Trump and Bernie. Um but I think that going back that that was a signpost that was back in 2016.
(1:19:47) So I think it's only going to kind of accelerate from here. Um unfortunately because populism, look, going back to what we were talking about debasement and and and that whole conversation, populism, the last time the US had populism really was 1965 through 1982. In dollar terms, denominated in dollars, the S&P 500 basically went sideways.
(1:20:07) Um in gold terms, the S&P 500 lost 90% of its value. We now have Bitcoin back then, but uh in gold terms, the S&P 500 lost 90% of its value. Populism is not good for financial assets. It's not good if you care about inflation. Um and so, you know, that'll uh eventually that'll come into conflict of course with the bond market uh which we kind of have an idea how they're going to resolve that conflict uh with QE or yield curve control or something. But populism is is a a period in time where you want to own
(1:20:44) scarce bearer assets. Um, and I think that, you know, Bitcoin is is the best because gold can always be confiscated. They could kick down your door and, you know, you have to physically hold it or it's held in a brokerage account, so it's not really your go. Number one, it's not real gold. Number two, it's not actually yours.
(1:21:04) Uh so yeah I think you know memorize 12 or 24 words you know makes it makes it the best asset to own in a in a period of time of increasing geopolitical tension a period of time of increasing political polarization ideological pol polarization even racial division here in in America. Um and of course you know the f the economic side of it as well.
(1:21:32) I think that it's pretty much the only thing when people ask me, they're like, "You you watch this stuff all the time. You this is all you do all day. Like, what what what should I do?" You know, I got 10,000 or 20,000 or whatever. And like I've thought about it a lot and at least for for for myself, the only option I keep coming back to is like the only thing that I'm really that I have high conviction in is Bitcoin and to some degree gold.
(1:21:58) Uh although the parabolic run in gold makes me wary of uh recommending that I I was buying some in 22 and 23 but you know after the run that gold's had it's like it's kind of hard to recommend gold and then so the only thing that you're left with is Bitcoin because we know cash cash had been good right money market fund you get four and a half% that's cool um but like that is a melting ice cube more and more uh with what they're doing with with the federal funds rate.
(1:22:26) So like that was kind of the last straightforward thing outside of Bitcoin. So now it's kind of like it's getting to a point where for me at least only thing that makes sense is Bitcoin. I'm not not going to buy, you know, the S&P 500 at a price to earnings of, you know, 3,000, whatever it is, price to sales uh at 3.3 uh times.
(1:22:49) I will say that's not to say the S&P or the NASDAQ stocks, equities can't go up. I looked at uh the price to sales of the Lebanese stock market during their currency collapse. People were making such a a big deal about the price to sales ratio of the S&P at 3.3 times. That is so historically overvalued. And so I looked in Lebanon and it reached 62 price to sales.
(1:23:14) So, you know, like it's not to say that the equities can't go up in dollar terms, but what you really need to what people really need to start doing, and I've been trying to bang this drum, is start changing the denominator. Whether you like gold, whether you like Bitcoin, gold is good because it's been around a long time. So, if you're a macro nerd like me trying to evaluate data, you have more price history.
(1:23:32) Uh, but, you know, use Bitcoin as a denominator. Denominate stocks in Bitcoin, whatever you're thinking about investing in, housing, right? denominate the average sales price in Bitcoin. It's looks a lot different than in US dollars. Yeah. I mean, just two points there. Like to your point on populism not being good going back to 65 to 82.
(1:23:54) to your point, if you if you price everything in Bitcoin, going back to 2016 when populism really became um as big of a thing as it is here in the United States today, like S&P is probably down 95% 99%. Um going back there in Bitcoin terms and gold, obviously, uh Luke and many others were sharing that chart a few weeks ago.
(1:24:19) If you price NDX, S&P um real estate prices in gold and Bitcoin, they're down significantly. So like this could be a conversation we're having where we're in the middle of the debasement of the populism whatever it may be and um people will look back retrospectively 50 years from now and be like oh yeah they they were in the middle of it as it was happening and then to your point on gold too like China just discovered what a mine with 83 and billion yeah the world's largest gold mine yeah and so supply of gold is not nearly as inelastic as Bitcoin. Bitcoin is
(1:24:54) perfectly inelastic no matter how much demand for Bitcoin there there ever is at any given point in time. You're not going to be able to create more of it. And um China just found the largest gold reserve in history. That that's a consequence of a higher gold price. Yeah. Right.
(1:25:10) Is you find more gold, it unlocks supply, whether it be through people willing to sell their gold to buy fiat currency or whether it be through new supply. So that's a consequence to the higher gold price like you mentioned with Bitcoin. Bitcoin could go to $10 million per Bitcoin tomorrow and there's no now sellers could be encouraged, right? Long-term holders that go, "Okay, well that I'll sell 10 million.
(1:25:33) " But there is no new Bitcoin supply-wise that can come in. So it's one of the reasons it's so much better, I think. Yeah. One of the many reasons, but fascinating times. Thank you for uh taking some time out of your Monday morning, early Monday morning to rip it. Um, this is great and uh I really value uh your consistency as we were talking be before we hit record.
(1:26:04) Uh it's admirable how consistent you are with the analysis and uh it's been a great Infernomics has been a great channel for me to check in once a day and just see what you're thinking, what you're looking at and trying to get a better well-rounded view of what's going on in the world of finance. I appreciate that. Yeah, I just uh again I you know my my prime goal is to help kind of the average person that I know everyone not very many people can watch all of my videos because I do release one every day. But hopefully, you know, those that you might find interesting, take a look. Uh because yeah, my only
(1:26:33) hope is to explain some of these very complicated uh macroeconomic concepts and phenomena to people, normal people that don't have the time to nerd out to the degree that I have. Uh because you shouldn't have to. You shouldn't have to be so obsessively devoted to uh you know I'm crazy so shouldn't have to be crazy to understand how your money works, how your economic system works, how the global trading system and global capital flow shouldn't have to shouldn't require that much energy. So, uh, that's kind of the first, uh, I think the first step is for
(1:27:10) the average American to understand the problem because once you understand the problem, then it makes the solution, I think, pretty straightforward. Um, so yeah, that that that that's the prime goal. Uh, if that sounds interesting, go check it out. Passionate is the word. I don't think it's crazy. I think you're you're extremely passionate about this.
(1:27:31) Uh yeah, maybe. Yeah, I always like puzzles from when I was a kid. I was a nerd. I didn't play with the kids. I played I did puzzles, puzzle books and stuff. And like when I when I kind of came to markets, it was like, well, this is basically the world's biggest puzzle with the most high stakes.
(1:27:48) So, it's kind of how I look at it. Fun puzzle to solve. Yeah. Um for me, it is at least. Yeah. Yeah. Well, hopefully we do this again. Let's catch up uh beginning of next year, maybe. Yeah. see uh see how everything's playing out in the world of Bitcoin, gold, debasement, polarization, deglobalization, all the buzzwords.
(1:28:12) It's uh interesting time to be alive and appreciate you joining us today. Yeah, thanks for having me on. All right, peace of love, freaks. Thank you for listening to this episode of TFTC. If you made it this far, I imagine you got some value out of the episode. If so, please share it far and wide with your friends and family. We're looking to get the word out there.
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