Latest / TFTC: A Bitcoin Podcast / #747: Stablecoins Won’t Save the Treasury Market with Peruvian Bull

Transcript

#747: Stablecoins Won’t Save the Treasury Market with Peruvian Bull · TFTC: A Bitcoin Podcast

• 0:00
  You've had a dynamic where money has become freer than free.
• 0:10
  We talk about a Fed just gone nuts.
• 0:13
  All the central banks going nuts.
• 0:16
  So it's all acting like safe haven.
• 0:18
  I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins.
• 0:25
  In the world of fiat currencies, Bitcoin is the victor.
• 0:28
  I mean, that's part of the bull case for Bitcoin.
• 0:31
  If you're not paying attention, you probably should be.
• 0:36
  Roberto, it's been a while. How are you doing, sir?
• 0:39
  Doing good, doing good. How are you doing, Marty?
• 0:41
  Doing well, all things considered.
• 0:44
  I think the world's chaotic, but I'm finding the chaos is creating great opportunities.
• 0:52
  What about you?
• 0:54
  Absolutely. Yeah, I mean, we're in a weird spot right now
• 0:57
  with uh with macro but um bitcoin's been surprisingly resilient so um there's definitely
• 1:03
  some uh some silver lining to the clouds yeah where we at right now just below 80 000 popped
• 1:09
  above it a little bit earlier headed down from uh around 82 but yeah i mean i think that's a
• 1:17
  when i was excited to talk talk to you when you reached out because
• 1:21
  the state of macro, if you look at interest rates, obviously one of your main beats has been
• 1:29
  Japan, the yen, and the Japanese, the JGB curve. They seem to have lost control of that. But then
• 1:39
  you have all this AI infrastructure being built out, the geopolitical tectonic shifts going on
• 1:46
  with the war in Iran and supply chains being quickly reshuffled on the go here.
• 1:53
  And not going to lie, this is the most uncertain I've ever been as somebody's observing markets
• 1:59
  and just trying to get a grasp on where the world is going right now.
• 2:04
  And so I think starting with one of your main beats in Japan, we've always called that the
• 2:09
  canary in the coal mine.
• 2:11
  Do you still believe that?
• 2:13
  Absolutely.
• 2:13
  I mean, I think Japan is kind of like the bellwether for like the end game of global central banking, right?
• 2:21
  Like what can happen to a country if you just keep going down the road of fiscal profligacy and debt overhang, right?
• 2:29
  And what happens at the end of that road?
• 2:32
  And Japan is kind of an example of that.
• 2:36
  The problem that Japan faces, though, is really unique because not only does it obviously have its own domestic issues, but whatever happens in Japan, like I've said many times throughout my writings and my YouTube channel, matters for the rest of the world because they're the largest creditor globally and they're the largest holder of U.S. treasuries and of global sovereign debt in general.
• 2:58
  Those three, three and a half decades of 0% interest rates and QE and easy monetary policy
• 3:04
  basically force the modern Japanese investor to shove all of their savings into overseas
• 3:09
  investment vehicles.
• 3:11
  And so whenever there's problems in the Japanese financial system and they have to sell those
• 3:15
  assets, it immediately causes obviously retracements in Bitcoin, gold, U.S. equities, everything.
• 3:23
  and that is extremely, extremely damaging, obviously, to not only other financial systems,
• 3:30
  but Japan's own domestic financial system. So I want to come on because there's literally been
• 3:36
  two interventions in the last two weeks. One of them is more suspected, but it's pretty much
• 3:42
  guaranteed to have occurred. But the Bank of Japan is panicking again. And this is something
• 3:49
  that is kind of like an intermittent theme in markets.
• 3:52
  I feel like it goes into slumber for a few weeks, for a few months, and then they have
• 3:58
  a giant move in the FX markets and bond yields spike, and then everything quiets down a little
• 4:03
  bit, and then it tests the red line again at 160, and then the Bank of Japan does it
• 4:08
  again.
• 4:09
  And it's this continual attempt by the BOJ and by the finance minister, Katayama, and
• 4:17
  others in the administration to try to stop this slow motion train wreck.
• 4:22
  But unfortunately, they can't really do so.
• 4:25
  It's just dropping pebbles or throwing water at a fire that keeps raging hotter and hotter.
• 4:32
  So yeah, the situation continues to get worse.
• 4:35
  But I think the main issue that they face is that these interventions that they've been
• 4:40
  doing, one was on April 30th, shortly after, two days after Ueda had signaled that he wasn't
• 4:46
  planning on doing a further rate hike at the next BOJ meeting. And the other one was on May 6th.
• 4:52
  The first one was for around $35 billion roughly. And the second one is estimated to be around 30
• 4:58
  billion, bringing the total to 60 billion USD or around 8.5 trillion yen. And that amount,
• 5:05
  right, is very significant because it's almost the amount that was spent in all of the May and
• 5:09
  June interventions in 2024, just about two years ago. So just in two weeks, they've already blown
• 5:15
  through what they previously took two months to blow through. And the other compounding factor
• 5:22
  that makes this more difficult for DOJ is that the effectiveness of these interventions is getting
• 5:28
  weaker and weaker and weaker. Back in 2024, and even back in 2022, when they would do a yen
• 5:34
  intervention, it would shock the market enough that it would push dollar yen from 160 to 155 or
• 5:41
  to 150 with a single intervention and it would stay there for weeks. But unfortunately, we're
• 5:46
  seeing the retracement start to happen much, much sooner at this time. So for example, in May and
• 5:52
  June of 2024, they did two or three different interventions. And each of them, again, took about
• 5:59
  two or three weeks for the market digest and then for the yen to move back up, aka depreciate,
• 6:05
  and retest that red line before they were able to intervene again. Right now, we're only sitting
• 6:10
  at about a week after the last intervention. And dollar yen is already at 157.8. So it's already
• 6:17
  retraced over 50% of the move. And this time, it took two interventions to get from 160 to 155.
• 6:26
  B of A analysis previously indicated that for roughly each trillion yen that is spent,
• 6:34
  the dollar yen should move down by one. So just do rough numbers. If they spent 8.5 trillion yen
• 6:41
  on these last two interventions, dollar yen should have gone from 160 to 152, right? Or even a little
• 6:48
  lower than that. And instead it went to 155 and it's already back at 157.8 or almost 158. So all
• 6:56
  of these moves are proving to be more and more ineffective. And the walls are closing in tighter
• 7:04
  and tighter and tighter over time as the BOG starts to finally realize, which is something
• 7:08
  that we've already all figured out, right, which is that they're trapped and that there's
• 7:11
  absolutely no way to, you know, avert a fiscal and also a currency catastrophe for Japan.
• 7:19
  Anything they do just delays the inevitable.
• 7:22
  Yeah.
• 7:23
  Did you catch this?
• 7:24
  There was a headline, I think it was last week or the week before.
• 7:27
  there was, I believe, former head of JP Morgan in Japan was warning citizens to prepare for
• 7:37
  hyperinflation, or there was a headline in one of the Japanese newspapers that they're beginning
• 7:42
  to recognize this domestically that, hey, this seems like a runaway train that we're not going
• 7:48
  to be able to get back on the tracks. Yeah, no, he's absolutely right. And even just a few weeks
• 7:54
  before that, he had said that Japan's fiscal situation is worse than Greece's before the
• 7:58
  2010 Eurozone debt debacle. And he's right on both counts, right? Total debt to GDP is over 260%.
• 8:08
  Private debt to GDP is over 120%. Around 30% of the companies on the Nikkei are estimated to be
• 8:14
  zombie companies, aka firms that are just surviving via ultra low interest rate financing.
• 8:19
  And all of this just means that the Japanese domestic manufacturing story, the Japanese domestic economic story has essentially been weak and stymied for the better part of 30 years.
• 8:35
  And what's been propping up the yen is not so much the fact that BOJ had high rates or was aggressive in hiking or aggressive in their monetary policy.
• 8:45
  It was the fact that the rest of the world was easing so aggressively.
• 8:47
  And so that is what kind of supported the yen between, you know, 90 and 110 back three or four years ago. But ever since the Fed started their rate hike cycle in 2022, as you can see here in this chart, dollar yen just started to blow out extremely aggressively.
• 9:02
  from March to September of that year, dollar yen went from like 115 to like 140, 145 to the dollar,
• 9:10
  which is like a 35% devaluation in just the space of a matter of months.
• 9:15
  And obviously, as it tested the red line in September of that year, they intervened for
• 9:19
  the first time. But this has been like a continual story, right? It's almost the same
• 9:24
  thing that the Fed is playing, but it's just on an accelerated timeframe and it's farther out into
• 9:29
  the future because all they're doing is trying to find new ways to slow this train crash,
• 9:35
  right?
• 9:35
  To try to catch some luggage, to try to catch some people falling off the train.
• 9:40
  And all of it is successful in delaying it, but it's not successful in actually solving
• 9:44
  the problem.
• 9:45
  And so all it's doing is really buying time, which makes me worried because, again, if
• 9:50
  the Japanese bond market blows up and the Japanese rate complex blows up, then this
• 9:54
  affects the rest of the world.
• 9:56
  This affects US treasuries.
• 9:57
  This affects equities.
• 9:57
  This affects Bitcoin.
• 9:58
  this affects gold um and i think the japanese uh need to do something soon or else obviously
• 10:06
  there's going to be much worse currency pain ahead for them yeah sorry i was looking to pull
• 10:13
  up another chart here which is the us 10-year yield but if you look at all these things in
• 10:21
  the chart we just had the usd jpy it looks like it wants to break out to the upside if we pull up
• 10:26
  the 10-year yield here in the U.S. and the 30-year looks pretty similar.
• 10:31
  It's a similar-looking chart where it's consolidating here at the top,
• 10:36
  and it looks like it could break upwards.
• 10:38
  And so to your point, what are the next tools of mitigation
• 10:46
  or what happens once?
• 10:49
  I guess the first question being, what is the critical level
• 10:52
  that the yen needs to hold against the dollar,
• 10:54
  and what are the ramifications if it breaks up above that?
• 10:59
  And what do you think the solution to try to manage that is going to be?
• 11:04
  Sure.
• 11:04
  So the problem is, you know, psychologically and historically, right?
• 11:10
  160 to the dollar has been the red line.
• 11:13
  And the reason why that was chosen is kind of complex.
• 11:17
  It's roughly where the yen, dollar yen, ended up after the Plaza Accord in the 1980s.
• 11:23
  Um, before Plaza, the, uh, dollar yen was something around two 60, two 50 is extremely,
• 11:29
  extremely undervalued, which is what helped boost Japanese, uh, trade exports during the
• 11:34
  1980s.
• 11:34
  But after the Plaza cord in 85, um, in just the space of a matter of like 18 months, dollar
• 11:40
  yen weakened to one 60 and stayed there for a year or two.
• 11:43
  And then it continued to weaken, um, or strengthen, I should say, um, against the dollar all the
• 11:49
  way into like 100 against the dollar, which is where it traded for a large part of the last 20
• 11:53
  years, right? But recently, obviously, the 160 line has been kind of a red line, because that
• 11:59
  represents where Japan's foreign exchange bill starts to blow out, that represents where their
• 12:04
  energy costs start to rise. And that represents where, you know, this entire, you know, you could
• 12:08
  say Iran war slash global instability complex starts to really bring home the consequences for
• 12:14
  Japan. Something really important to note is that Japan imports 87% of their primary energy,
• 12:24
  and around 93% of their crude oil imports are also imported, along with over 80% of their LNG.
• 12:32
  So for a country that's extremely, extremely industrious, they're very, very energy dependent.
• 12:38
  And most of their oil imports, right, over 95 percent come from the Middle East, come from Qatar, from Bahrain, from UAE, from Saudi.
• 12:50
  And so every time that Trump is basically prognosticating about the prolonging of this Iran war and basically hinting that we're going to have more issues going down the road for energy security for the region, the Japanese yen pukes.
• 13:09
  And I noted that in one of my sub-tech articles.
• 13:11
  The correlation for the last 90 days between WTI crude and the Japanese yen is 0.75.
• 13:18
  So it's closing in on like almost a one-to-one correlation, very, very strong correlation.
• 13:24
  Because just because the nature of how of FX and how Japan has to manage its energy,
• 13:29
  every yen that Japan has, it needs to buy energy, right?
• 13:36
  And that energy is priced in USD.
• 13:38
  And so what they have to do is they have to go to the foreign exchange market, sell yen,
• 13:41
  buy USD, and then use that USD to buy oil imports or to buy LNG.
• 13:46
  that weakens the yen structurally. So higher US dollar-based or USD-denominated oil prices
• 13:54
  weakens the yen structurally. And so dollar-yen, especially with oil above 100 or $110 a barrel,
• 14:01
  start to see even more structural headwinds for it, right? More forces pushing it past the 160
• 14:07
  line. And that's why Ueda panicked and did these interventions, right? That's why they're like
• 14:13
  so afraid of what's going to happen is because they know now that the pressure is really on.
• 14:18
  Not only do we have the carry trade issue, but now we have the compounding factor of the oil issue
• 14:25
  also adding into the instability. And the really key part to note here is that the recent BOJ
• 14:34
  decisions and the recent actions by Sinei Takeichi, who's the new Japanese prime minister,
• 14:39
  have made the situation like immeasurably worse, right?
• 14:44
  There's that phrase like, you know,
• 14:46
  from the frying pan into the fire, right?
• 14:49
  And that's what I feel like the last 30 years
• 14:51
  of Japanese monetary policy has been.
• 14:53
  It's been slowly getting worse
• 14:54
  and getting worse and getting worse.
• 14:56
  And this recent administration, right?
• 15:00
  Sanai Takeichi took office back in October of 2025.
• 15:05
  First Japanese prime, you know, female prime minister.
• 15:08
  She's extremely conservative in terms of her overall politics, in terms of her views on immigration.
• 15:14
  But she's very liberal when it comes to fiscal spending.
• 15:18
  And one of her first proposals was a huge increase to the Japanese budget, including increases in infrastructure spending and military spending, and a cut on the consumption tax, which is one of the main ways that the Japanese government gets their revenue.
• 15:34
  For reference, Japan has about this universal 8% consumption tax on all food and beverages and a lot of clothing items as well throughout the country.
• 15:43
  And obviously, it's mostly the middle class that pays for this, right?
• 15:46
  They're the ones buying and transacting for most volume of most purchases.
• 15:53
  But getting rid of this consumption tax, although it's popular, means that the government loses a huge section of its revenue, right?
• 16:02
  We're talking 20, 30 trillion yen, which is essentially the amount of money that they would spend on the entire country's high school education, public education for the year.
• 16:13
  So she's planning to do that.
• 16:15
  She's already passed that through parliament and she redissolved parliament back in January and then called a snap election, which she won on February 8th.
• 16:24
  And so she's basically cemented her power and ensured that this new power base is going to follow her directive.
• 16:30
  And that directive means more spending, more fiscal profligacy, deeper deficits, and lower tax revenue for the government moving forward because of these populist reforms.
• 16:43
  So because of that, in mid-January, early January of 2026, we saw a huge bond market fiasco.
• 16:50
  On the 20th, there was basically a very tailed auction on the Japanese 20-year bonds.
• 16:57
  We saw Japanese long-end yields like 30-year and the 40-year yields jump 30, 40 basis points within a few hours.
• 17:06
  And then U.S. Treasuries followed suit very quickly after that.
• 17:08
  I'm sure you remember that.
• 17:11
  But the problem is much worse now after her snap election victory because now all of those changes that she had proposed are now basically set in stone, right?
• 17:21
  Which is why the dollar yen has been drifting up for the last two months, even despite all these warnings from the BOJ that they're going to intervene.
• 17:30
  And obviously, despite these actual interventions, they've blown, you know, what, $60 billion in just the last two weeks on these interventions.
• 17:38
  And the effectiveness is not there.
• 17:40
  I mean, they're already back almost at $160 again.
• 17:42
  And the issue that they face is not only that the energy and the fiscal side, but that their own governors don't want to hike.
• 17:50
  the most recent BOJ meeting in April was flat. They decided to hold rates steady. And the Fed
• 17:57
  didn't help either with their steady flat rate decision recently as well. So the dollar-yen
• 18:08
  rate complex still has a spread. There's still a huge spread between the Japanese 10-year and the
• 18:13
  Japanese or the US 10-year yields. That still drives carry traders. And then just thrown to
• 18:19
  the fire like you know sanai takechi's spending proposals and the oil crisis and in iran like
• 18:25
  problems are are bubbling up for the japanese right now which blows my mind because it like
• 18:33
  particularly for the new prime minister like you would think that she would understand the
• 18:37
  precarious nature that the japanese government bond market is under in the end is under as a
• 18:44
  product it seems like she's got very accelerationist policies like do you think there's like a hands
• 18:50
  up moment going on where it's like hey there's nothing we can do about this so we should try to
• 18:54
  accumulate as much or reshore as much industrial capacity as possible from a military perspective
• 18:59
  and rearrange supply chains for for energy i think there was a big deal with an lng producer
• 19:06
  out of Alaska to send LNG to Japan earlier this year or last year?
• 19:14
  And is it like, hey, there's no way we're going to solve this,
• 19:17
  so let's YOLO it and try to get as much in the homeland as possible
• 19:22
  between now and hyperinflation ultimately?
• 19:26
  Yeah, yeah, I think that's the goal.
• 19:29
  The problem is Japan's energy story has gotten even worse
• 19:34
  in the last 15 years because of the Fukushima nuclear disaster, right?
• 19:40
  I think it was April 2011 when that tsunami hit the power plant, wiped out all the backup
• 19:45
  generators.
• 19:46
  Obviously, it didn't explode like Chernobyl, but radiation leaked into the surrounding
• 19:50
  waters and it caused an international panic.
• 19:52
  And as a result, Japan closed most of their nuclear reactors.
• 19:57
  As of today, I think they have about 13 operational out of 55 total nuclear reactors.
• 20:03
  and they're trying to quickly restart an additional 20 or 25 reactors and refurbish the old ones so
• 20:11
  that they can be restarted at some point. But the problem is you can't just turn – it's not like
• 20:18
  flicking a switch where you can just turn a nuclear reactor back on to provide electricity.
• 20:23
  It takes a long time to go through all the safety checks and the verifications and to get the
• 20:28
  you know, the heating rods and the, and the, um, all the equipment set up for, uh, the nuclear
• 20:34
  reactor to run properly.
• 20:35
  And because of that, like, even though they're working on, you know, modernizing the nuclear
• 20:41
  reactors and restarting the, the other ones that they, you know, have at least somewhat
• 20:44
  ready we still three four years away from most of these nuclear reactors being on again And that doesn help when their primary energy source for electricity is LNG
• 20:55
  and they only have like four weeks to six weeks of LNG supply before they run out.
• 21:01
  And Japan has been basically like pounding the table, like you said, about finding more
• 21:06
  sources of LNG and crude so that they can provide enough electricity for their citizens.
• 21:12
  But I think the situation is extremely dire and they're going to have to start making some drastic moves.
• 21:18
  And that's obviously already started to happen because I don't know if you saw this headline, but it's just like a week ago in Bloomberg that Japan is considering intervening in the oil markets to prop up the yen as well and to also try to cheapen oil in yen terms.
• 21:35
  And the main way they do that is they would go in the market and they'd sell, short sell a bunch of futures in the front month contract to try to drive down the oil price in yen terms and just push out speculators.
• 21:49
  And the problem is, obviously, if people took delivery on those contracts, Japan would have to use their reserves to try to buttress those deliveries.
• 21:58
  So they essentially would be gambling their reserves on a short play on the oil price in yen terms so that they could try to mitigate the current problem.
• 22:09
  And I guess that can kind of work, right?
• 22:11
  Like Japan has around 250 days of oil reserves in both in crude oil and in nat gas.
• 22:20
  But again, the bigger problem or not nat gas, but in crude oil and like refined gasoline products.
• 22:27
  But the bigger problem is that their electricity generation is mostly NatGas and their NatGas imports are running out.
• 22:34
  So they need to find more deals like that.
• 22:37
  They need to get their hands on something quickly.
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  What are the knock-on
• 24:20
  ramifications? I know
• 24:22
  Secretary Besant has come out
• 24:24
  in recent months and mentioned like, hey, the
• 24:26
  U.S. swap line with Japan is open.
• 24:28
  We're here to help. I have to imagine
• 24:30
  that the U.S.
• 24:32
  is monitoring the situation
• 24:34
  pretty closely because, as we all know,
• 24:37
  the
• 24:37
  Japanese yen mark in the
• 24:40
  U.S. Treasury markets are tied at the hip
• 24:42
  to a certain degree.
• 24:45
  What are the biggest
• 24:46
  risk outside of Japan if this gets out of hand or when it gets out of hand?
• 24:51
  I would say, you know, obviously the most immediate risk is, for one, the U.S. Treasury
• 24:58
  market and the offlaying of U.S. Treasuries due to, you know, an offlaying of risk from
• 25:04
  domestic Japanese institutions.
• 25:07
  A large part of the flows for the last 20 years into U.S. Treasury markets has been
• 25:12
  from Japan.
• 25:13
  And like we said, they're the largest owner of U.S. Treasuries. They hold $1.2 trillion as of March of 2026. And especially if they use that for interventions directly, then they're going to be forced to sell those securities, which will just drive yields higher.
• 25:33
  And we're already at a point where the 10 years elevated, right? So like what, 4.6%. The 30 years also very elevated. Warsh has signaled that he wants rates lower, obviously, but he wants to do that without expanding the balance sheet.
• 25:48
  And being able to pull that off without Japan and without their basically steady constant bid that has been there for the last 20, 30 years is going to be very difficult.
• 25:59
  The other knock-on effects of this are within the Japanese domestic financial system itself.
• 26:06
  So I don't know if you've read Dario's articles, just Dario on Twitter, but he's been tracking
• 26:12
  the story of the Japanese life insurers and Japanese pension funds that have loaded up
• 26:18
  on ultra-long-end JGBs.
• 26:20
  currently, those funds are around like $8 trillion in the hole. So around $60 billion US
• 26:30
  in unrealized losses on their books for ultra long end JGBs. And that's mainly because of that
• 26:36
  chart you showed earlier, right? Like the rate complex in the last few years has just absolutely
• 26:40
  exploded. It's gone from the zero bound to three and a half, 4% on the ultra long end. And so that
• 26:48
  means that those insurers, at least, you know, especially the smaller and more, you know,
• 26:54
  lightly or less, less capitalized ones are potentially underwater, which would force
• 27:00
  BOJ if, if they want to save their domestic financial system, that would force them to
• 27:04
  do QE or some sort of bailout or ask for, you know, some sort of outside financing.
• 27:10
  And again, all of that just results in more yen weakness, more yen printing, and, you
• 27:16
  know, more currency interventions on the backend.
• 27:18
  So with regard to that, like the only thing the U.S. can really do at this point is just supply them with dollars and use that swap line to load up on yen.
• 27:28
  And again, that can solve the problem in the short term.
• 27:32
  That can blow out the shorts.
• 27:34
  That can basically flush out the speculators.
• 27:37
  But it doesn't solve the fundamental issue, which is that a large part of the Japanese financial system is now insolvent and the government itself is insolvent.
• 27:46
  And so the further you enable, it's a sick game, right?
• 27:51
  Because the more you enable it, the worse it gets.
• 27:55
  Rather than just taking the sick horse and letting it die, you just keep giving it like,
• 28:00
  you know, drugs to keep it sedated and keep it kind of moaning and whining and living
• 28:06
  kind of a sort of half zombie life.
• 28:09
  And so Descent and others are in a difficult situation because if they decide to help,
• 28:13
  open up these swap lines for real and actually provide Japan with enough liquidity, let's say,
• 28:20
  $300 billion to move the yen from 160 back to 140, a huge seven standard deviation move.
• 28:29
  Then the US has their hands on $300 billion worth of yen, which the structural problems
• 28:36
  with Japan haven't changed. And unless Japan makes some serious reforms and allows themselves
• 28:41
  to go through a serious deflationary cycle and reset all the debts from the 1990 or 1989 cycle
• 28:49
  high, the yen is just going to depreciate again, right? It's just a matter of time.
• 28:55
  And so the dollar yen USDJPY would just test 160 within a year or two, and then the US would be
• 29:00
  standing on basically a slowly sinking ship in terms of the yen that is swapped for their USD.
• 29:08
  So it's hard because from that Treasury perspective, you see a reason strategically and maybe militarily to intervene for Japan, but definitely not financially.
• 29:17
  It doesn't make sense for the U.S. to do that.
• 29:20
  I do think the U.S. would be open to doing a smaller swap, right, something that could help them save up for a few more interventions.
• 29:29
  But again, all of this is just delaying the inevitable.
• 29:32
  And so I think that's part of the reason why not only Powell, but his predecessor Yellen had been so adamant in finding new ways of financing for treasury bills and treasury bonds is because they knew that we can't rely on Japan forever, unfortunately.
• 29:48
  yeah and it would make sense why they're pushing stable coins so hard though i don't think
• 29:53
  stable coins will be able to fill the hole that could potentially be left by japan dumping their
• 29:59
  their treasuries as quickly as the government would like and you mentioned it earlier obviously
• 30:03
  it seems like chairman warsh is on his way in and he'd really like to lower interest rates or keep
• 30:10
  them relatively low without expanding the balance sheet as you are describing what's happening in
• 30:17
  japan it's like is that even possible yeah i don't think it is i mean just just off the top
• 30:24
  of my head like there's that that stablecoin funding is like they estimate estimate like
• 30:30
  what two trillion dollars like the most aggressive estimate is four trillion over the next 10 15 years
• 30:35
  that's nothing that's a drop in the bucket in a 40 trillion dollar treasury market that's expected
• 30:40
  to expand to, you know, 70 trillion, 80 trillion in just like 10 years. So like what they're going
• 30:49
  to have to do is something that I've been writing about in my Substack, which is find ways to do
• 30:53
  stealth QE. And, you know, unlike what most people think and what most Bitcoiners think,
• 30:58
  there's actually a lot of ways for them to do that, right? It's not just, they don't have to
• 31:02
  just do the typical asset purchases and QE and, you know, outright monetization of debt. They can
• 31:08
  change bank capital requirements like they did with the SLR. They can change liquidity ratios.
• 31:14
  They can force money market funds into buying US treasury bills as part of the regulations,
• 31:18
  which is what they already did in 2014. They can open up the BTFP again and basically offer
• 31:25
  loans at 100% par value. There's a lot of stuff they can do. And I'm sure that they'll come up
• 31:32
  with new ways to stuff balance sheets with these debts.
• 31:38
  There's even, I've heard, obviously not from official channels,
• 31:41
  but there's even been floated proposals from some people on Twitter
• 31:46
  who follow this stuff that they could have some sort of legislation
• 31:51
  to force all bank deposits to be held basically as money market funds
• 31:56
  or almost in like a USDC or USDT type of bank account
• 31:59
  so that all that additional depository funding would be basically stuck in ultra-short-term
• 32:07
  treasury bills.
• 32:09
  And that could provide additional funding.
• 32:11
  And that could be one of the reasons why CBDC was floated, right, is to basically streamline
• 32:16
  that process and make it easier for the banks to force everyone into owning ultra-short-term
• 32:22
  treasury bills as a liquidity hedge.
• 32:26
  Yeah.
• 32:27
  It makes you wonder.
• 32:28
  I mean, obviously one of the biggest narratives in the world right now is AI and the build out, the reindustrialization.
• 32:34
  And that's led to a bad dash for relatively hard assets and commodities world.
• 32:41
  And one wonder, I mean, it was probably a combination of the two, but obviously we saw gold and silver.
• 32:48
  You want a massive run at the end of last year.
• 32:50
  Gold still remaining relatively high at 4,687 right now.
• 32:56
  So 4,687.
• 32:58
  You could see that going back up and where those leading indicators of people looking at what's happening in Japanese yen and JGB markets and fleeing for the exits.
• 33:10
  I forget what I think. It's funny how the news cycle, how crazy it is, how crazy short it is these days.
• 33:18
  But I forget the justification when gold was screaming above 5,000.
• 33:22
  I think it was just war, war, war fears and all that.
• 33:27
  But I think there definitely is a fiscal crisis side to the narrative behind these hard asset runs that we've seen in the last year.
• 33:38
  Yeah, absolutely.
• 33:38
  And I think that this also is also going to explain some of Bitcoin's recent strength, right?
• 33:42
  Like Bitcoin always operates on a lag to gold just because of the ways that the flows work.
• 33:50
  You know, Bitcoin is institutional, but still very heavily retail focused.
• 33:54
  Because the gold market is so huge that even retail buying won't drive it primarily.
• 34:01
  It has to be a combination of central bank buying, of institutional buying, of hedge fund flows, and retail buying.
• 34:08
  But I really think that the story for the past few years with gold is more about a geopolitical struggle between the US and China.
• 34:16
  and this kind of juxtaposition of the East versus the West and a return to physical primacy
• 34:28
  than it is anything else. I wrote about this in a lot of my sub-sect pieces, but
• 34:34
  the Chinese have been going through this slow process of basically financializing gold and
• 34:40
  incorporating it into their economy for the last 70 years, really. From 1950 to 2003, gold ownership
• 34:48
  was outright banned, similar to how it was under Order 6102 in the US. And so individuals and
• 34:56
  institutions could not hold any gold, could not own it, could not transfer it. Basically, the only
• 35:01
  thing that was allowed was jewelry. But starting in 2003, the PVOC legalized ownership of gold.
• 35:06
  And then in early 2024, they opened up the Shanghai Gold Exchange, which obviously opened up its international branch in 2014.
• 35:15
  And that gold exchange was the largest and I believe one of the first in the modern era, right, physically settled gold exchanges in the world.
• 35:25
  So what that means is that when you compare their market to COMEX or LBMA, they're actually getting – traders who buy contracts through SGEI, the Shanghai, they actually get the physical metal at the end of the day.
• 35:40
  The COMEX and the LBMA traders, 99% of the time, just are getting a paper settlement in fiat.
• 35:46
  They get a wire to their bank account.
• 35:48
  And that's because, again, the process of custodial ownership in the West is much more convoluted, much more difficult than it is in Shanghai.
• 35:57
  In Shanghai, all you need is a corporate trading account and a monthly minimum of purchases, and you can take delivery.
• 36:04
  And there you go.
• 36:05
  Now, moving it out of the country, much more difficult.
• 36:08
  You can't do that.
• 36:08
  But because of this shift to gold, right, because of their increasing reliance on gold as a store of value, that's just drawn in more and more demand from around the world into China.
• 36:21
  Their central bank has been buying like 300 tons a year officially.
• 36:25
  And unofficially, according to Yan Nguyen-Haus, who writes The Gold Observer, which is a great sub stack if you don't already follow it.
• 36:31
  Um, according to him, they're, they're buying around the same amount in covert gold purchases
• 36:38
  the last 10 years as well. So they're, although their official holdings from the PBOC are around
• 36:43
  2,300 tons, their unofficial holdings are likely 5,000 tons or more. And that's just because the
• 36:49
  world gold council has, has tracked that, you know, there's about two, two to 300 tons a year
• 36:53
  that disappears off of, um, you know, off of miners, uh, balance sheets and off of bullion banks
• 37:00
  that isn't accounted for by other hedge funds or private entities or official central bank buying.
• 37:06
  And the only entity that could buy 300 tons of gold a year, which is hundreds of billions of
• 37:11
  dollars, would be a central bank, right? That's even more than what wealthy people could gobble
• 37:17
  up, especially for five, 10 years in a row. Yeah. Now my memory has been jogged. I remember
• 37:22
  exactly why. There are the narratives behind the gold run last year and bringing up the Shanghai
• 37:26
  exchange reminded me but the pboc or i forget who was whether it was the pboc of the ccp put a bunch
• 37:34
  of their gold that they've been accumulating on warrant which makes it um makes it easier
• 37:41
  to do cross-border settlement and that was the whole narrative is that we were beginning to see
• 37:46
  the monetary settlement layer uh optionality emerge particularly between the brux countries
• 37:54
  where China could buy oil from Saudi Arabia using the Shanghai exchange.
• 38:00
  Saudi Arabia could pay in yuan technically,
• 38:02
  but get the gold delivered if they wanted to do that in the oil trade realm.
• 38:10
  And so, yeah, it's funny how, again, going back to how fast these narratives come and go
• 38:14
  and everybody's focus shifts, whether it's AI or the war in Iran
• 38:20
  what's going on here politically in the U S at any given point in time,
• 38:25
  Hantavirus in the last couple of weeks. Uh,
• 38:28
  but I do think that is a narrative that has staying power or at least the,
• 38:35
  not even the narrative, I think it's just the reality of,
• 38:38
  of that happening behind the scenes having gone away, but people,
• 38:42
  people seem to have forgotten about it rather quickly.
• 38:44
  Yeah. Yeah. And I, I'll say this too. Like, um,
• 38:48
  I don't think the run-up in even from like November to January of this year,
• 38:56
  I don't think that was central bank gold buying, obviously.
• 38:59
  Central banks don't chase trends.
• 39:01
  They don't momentum trade.
• 39:03
  They don't do VAR signaling or anything like that.
• 39:07
  They don't run these Momo hedge funds.
• 39:10
  They are the floor underneath the market that has been slowly edging it up,
• 39:14
  But they are not the reason for the wild intraday swings and the volatility, right?
• 39:20
  That's all momentum traders and shorts being blown out and speculators taking huge positions and then getting liquidated.
• 39:29
  That's all almost like euphoria type behavior that occurred in January.
• 39:34
  There's a great quote I loved, which was the central banks, they don't put a cap on any price or they don't push the top of the price higher.
• 39:43
  but they make sure that the lows go higher.
• 39:46
  So they put a floor underneath,
• 39:48
  a stair-step floor that slowly edges
• 39:50
  the price higher and higher and higher and higher.
• 39:53
  And so the current level of what, 4,600,
• 39:55
  I think that's probably where the central banks
• 39:57
  feels like a good buying area.
• 39:58
  And so that's where they're buying
• 39:59
  and that's helping to keep the overall gold price steady.
• 40:04
  But all of that volatility, especially in the West,
• 40:07
  was a lot of just short squeeze-esque behavior.
• 40:10
  you know and the cme obviously responded with multiple changes to margin requirements they
• 40:17
  doubled the margin requirements in in december for silver futures they did the same with gold
• 40:22
  later that month um they did it again in january so and they helped the delivery of physical right
• 40:27
  wasn't there more calls for the physical than ever before yeah there were um i don't know if there was
• 40:33
  calls for an outright like stoppage of deliveries but i know that there were like huge delays
• 40:38
  and then there were what's what's very funny about cme is that they keep having these glitches
• 40:43
  every time that there's a huge run-up in the price of you know silver gold or even copper right um
• 40:49
  in november in november of last year if you remember like right after thanksgiving there
• 40:54
  was a huge spike in prices it went from like it was on friday right yeah yeah it went from like
• 41:00
  45 dollars like almost 60 within the space of like 48 hours and cme had a their longest outage
• 41:07
  of like 11 hours at one of their server farms in Aurora, Illinois, which is strange because
• 41:14
  that data center, which is run by, I'm forgetting the name of the company now, but it's run
• 41:20
  by this company that has about 22 other clients at the same massive data center.
• 41:24
  None of the other clients reported outages.
• 41:27
  And what CME was claiming was a failure of the cooling systems.
• 41:31
  And there are three backup cooling systems at the you know so there two redundancies a primary one and two redundancy backup cooling systems at the plant So for all three cooling systems in this data farm to fail and for only their servers to fail it seems like too much of a coincidence right
• 41:49
  It seems kind of odd.
• 41:51
  Like bullshit.
• 41:51
  Yeah, exactly.
• 41:53
  It smells like bullshit.
• 41:54
  And when I pointed that out, people called me crazy.
• 41:56
  And then it was funny because literally just a month later, it happened again.
• 41:59
  And then it happened again at the end of January.
• 42:01
  If you remember when the gold and silver price were in parabolic, gold briefly touched $5,500.
• 42:07
  Silver was past $115, $120.
• 42:10
  And CME had an outage again.
• 42:12
  The price dumped 20% in a day.
• 42:14
  And then they were back online after like 12 hours.
• 42:18
  So it's just the same playbook over and over again.
• 42:21
  What are they trying to prevent by doing that?
• 42:23
  What are they worried about when they're pulling the plugs?
• 42:26
  i think the problem is until recently the large bullion banks were structurally short
• 42:32
  both gold and silver in the paper markets and they're worried about one of the large
• 42:38
  dealers going under right on a on a paper short because that was one of the theories i remember i
• 42:43
  had josh fair on from scottsdale mint and he was saying that i think it was the thanksgiving
• 42:48
  uh outage that jp morgan was trying to get on sides specifically they're one of the big dealers
• 42:55
  Yeah.
• 42:56
  Yeah, exactly.
• 42:57
  I mean, the volumes with silver and gold are insane.
• 43:02
  Like if you look at – so for example, on that day of trading, I think it was January 30th of this year, there was something like – I think it was like 400 million paper ounces of silver traded.
• 43:16
  Now, the global silver mine production annually or daily is 2 million ounces a day.
• 43:25
  like 2.2 million ounces a day. And so in a single day, they were trading 200 times the global
• 43:31
  silver, you know, daily production. So that should put into scale how much bigger the paper market is
• 43:39
  than the physical and how out of whack it's gotten. Right. And the shorts on that day from,
• 43:45
  you know, driving silver from 120 to like 85 or wherever it ended up, the shorts on that day
• 43:51
  were amounting to about two and a half years of global annual silver production. Again, not the
• 43:58
  US, globally, everyone across all jurisdictions, all mines everywhere. So it's massively manipulated,
• 44:06
  it's massively over leveraged. And the way that these banks make money, obviously,
• 44:12
  is by taking on these mines as customers, and then by front running their own customers and
• 44:17
  short selling gold or silver before it gets to, you know, gets to the market. And they have an
• 44:23
  inline, you know, they have an inside ear on all these transactions because the, you know,
• 44:29
  the large mining companies, Newmont, you know, Barrick, all the big guys, they have to use the
• 44:35
  banks for all their financing. Mining is very capital intensive. They need huge loans. They
• 44:41
  need bridge financing, they need equity deals. And so when they get a good haul of gold and they
• 44:48
  need, let's say some collateral on it, they might say, hey, we have this amount of gold, we want
• 44:52
  X amount of collateral, we're going to sell this gold at market rate in three months once it's
• 44:57
  refined and shipped. And then boom, the bank has information on five tons of gold is going to be
• 45:03
  sold on this date. Now we know we can short, we can paper short, and we can basically distort the
• 45:09
  market in front of our own customer and not and they would be none the wiser yeah and it's like
• 45:15
  just looking at the silver chart now it's gone on a run last week that's pretty under the radar
• 45:21
  right now and i hear a lot of people talking about it yeah yeah silver silver's been really
• 45:27
  resilient recently um along with gold right um but uh again i think the implications of that uh
• 45:35
  of what's going to happen with a warship fed and with, you know, the energy crisis is finally
• 45:41
  coming into, into view, you know, silver around 80% of global silver refining capacity is in China.
• 45:50
  China is also the largest global gold producer. And I think that their second largest silver
• 45:55
  producer silver is obviously used in basically all electronics. It's a key component in most
• 46:03
  military technology, including Tomahawk missiles, modern Navy warships, F-22 fighter jets,
• 46:11
  because it's the most electrically conductive metal.
• 46:14
  And it also has a very low propensity to rust or varnish, right?
• 46:20
  So silver is a key component in not only manufacturing, but also obviously as a precious
• 46:25
  metal.
• 46:25
  And so that means that I think demand, especially as we try to re-industrialize America, demand
• 46:31
  is going to be there and there to stay. And the production story isn't going to catch up fast
• 46:37
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  subscription for the first three months we mentioned the re-industrial efforts here in the
• 48:45
  u.s and i mean we've essentially got like a wartime posturing yes they're i don't know if it's a
• 48:52
  ceasefire we're still in war but uh like a world war ii scale industrial push domestically like
• 49:02
  you've got the government taking stakes and intel uh rollers material companies uh energy companies
• 49:10
  You've got executive orders going out with the Defense Production Act sort of saying that they're going to support particular industries that are fostering the reindustrialization and the boosting of our energy grid specifically.
• 49:23
  And we were mentioning stealth QE routes and that's something that myself and John Arnold, we do a weekly show every Monday.
• 49:32
  We've been covering for a few months now, and this is just another way to inject liquidity into domestic markets at least.
• 49:41
  And it's interesting because I'm a big believer in the fact that we completely messed up our system when we embarked on globalization and exporting the dollar to every nook and cranny of the world at the expense of our domestic manufacturing base.
• 49:59
  And so I'm a big believer in we need to rebuild that base up.
• 50:04
  And I catch myself sometimes looking at the efforts of the Trump administration to do just that and be like, yes, this is a good thing.
• 50:09
  This is a good thing. But to the point of this conversation, is it is it a bad sign?
• 50:16
  Because it's just a recognition of how out of whack things are.
• 50:19
  And it's a desperate mad dash to try to build everything up as quickly as possible to try to jumpstart some sort of circular domestic economy that can sustain itself without having to be reliant on global counterparts.
• 50:37
  Yeah, I think, I mean, I think it's like what you said, it's kind of indicative of their level of concern with, you know, the speed by which they're going through trying to re-industrialize.
• 50:47
  The unfortunate truth is that, as I'm sure you know, like reindustrialization is not going to happen in like a year or two.
• 50:53
  It's going to take many years.
• 50:54
  Although I have seen some data recently that shows that they're making really good progress.
• 51:00
  For example, there's a capital flows ratio between the amount of the current account of the U.S. in terms of capital goods and consumer goods.
• 51:11
  So basically saying like, okay, the US is, let's say, earning $4 trillion a year in capital goods, meaning like just cash or securities moving into US financial markets.
• 51:23
  And it's earning, let's say, $3 trillion a year in consumer goods sales to countries that we export to.
• 51:30
  That ratio used to be about 1 to 1.
• 51:34
  So it used to be about evenly split.
• 51:36
  And now it's approaching 2 to 1.
• 51:38
  So it's like 1.8, meaning consumer goods as a ratio.
• 51:42
  Yeah, I think this is it.
• 51:43
  Yeah, yeah.
• 51:44
  Yeah, consumer goods as a ratio.
• 51:46
  I was tweeting about this a couple of weeks ago.
• 51:48
  Yeah, yeah.
• 51:50
  So yeah, exactly.
• 51:53
  Sorry, I thought I didn't know it was you.
• 51:54
  I just saw that and I was like, oh, that's awesome.
• 51:57
  But yeah, so there is obviously progress being made.
• 51:59
  But the bigger problem is that like for real industrialization and real, you know, pullback of foreign manufacturing, you have to rebuild all of the supply chains.
• 52:11
  So obviously the low hanging fruit, like, you know, making prefabricated, you know, high end consumer electronics.
• 52:19
  And that's not super easy, but like that's easier, you know, easier than other things is like the first step.
• 52:25
  But doing much more difficult things like, let's say, making chip manufacturer plants or even reshoring, let's say, industrial metal refineries like silver or palladium or platinum or whatever, of which we have very little refining capacity, is much more difficult.
• 52:49
  It's a lot of capex.
• 52:50
  It's a lot of time.
• 52:51
  You have to have a ton of engineers, a ton of sign-offs.
• 52:53
  It can be very pollution heavy, which can bring in the EPA and all sorts of environmental groups.
• 53:00
  And so to bring those kinds of things back and to bring raw iron ore manufacturing and almost raw materials is almost more difficult than some of the higher end stuff just because of the environmental and infrastructure implications of the scale of work that needs to be done.
• 53:23
  What are your views? Is AI throwing a wrench in all this, or is it actually a welcome tailwind to expedite this? Not only that, but throw some juice on the economy in the way if it doesn't lead to a catastrophe in job markets as quickly as Dario thinks it will happen.
• 53:44
  Yeah, I think, I mean, it's obviously like a mixed bag. I think, you know, the domestic consumers spending story is going to weaken considerably in the next three to five years, given the pace of AI development, and the speed by which is starting to take over basically all white collar jobs.
• 54:06
  Back in February, OpenAI released just in the space of like two weeks.
• 54:12
  They released a model that could do COBOL coding better than even huge teams of COBOL engineers can, which obviously IBM stock, which one of their main businesses is consulting legacy software companies by coding their backend with COBOL.
• 54:32
  Their stock tanked like 20% within like a week of that announcement. But also they announced the integration, Anthropic announced the integration of Claude into Google Sheets, Excel, PowerPoint, Word, like almost all the major, you know, we could say like work efficiency tools, productivity tools that almost all of corporate America uses.
• 54:57
  And so just those announcements mean that the average person is going to be much more efficient at their job because they can now utilize Claude and other tools like Claude much more rapidly and quickly within their work environment.
• 55:11
  So more work can be done with fewer people, right?
• 55:14
  Which is why you saw, was it Square laid off like 20% of the workforce?
• 55:18
  I think Meta is also planning on laying off the workforce.
• 55:21
  Amazon's already done some layoffs.
• 55:23
  But I think that it's going to basically force our economy to shift from that service-oriented white-collar work desk job back to some sort of manufacturing story.
• 55:38
  Because manufacturing jobs are one of the things that's much, much harder for AI to replace and also obviously much more marginally expensive.
• 55:46
  If you need someone to lift something or to move something physically or to look at a car on a manufacturing line and see if the wheels are bolted in properly before it goes out to a dealership, having an AI robot that has to physically move around and do those things is much more expensive and much more marginally pricey than having an AI that can code or having an AI that can write legal contracts without making errors or can proofread essays or something like that.
• 56:16
  Anything that has to do with just pure software is obviously much cheaper and much easier from a productivity point of view than anything that has to do in the real world.
• 56:24
  So, yeah, I think long term it shifts our economy.
• 56:27
  And unfortunately, I'm worried that even though there will be job growth in, let's say, manufacturing, I'm worried that it won't be enough.
• 56:37
  And that just like 2008, it'll be like a structural displacement of like five to 10 million workers that now permanently cannot find work and are just basically relegated to be, you know, the neat.
• 56:48
  Right. No, no employment, education or training people who just sit at home and play video games and contribute to that lost portion of economic productivity.
• 56:58
  Yeah.
• 56:58
  it's really scary to think about and then like because i've been going back and forth on this
• 57:06
  you watch analysis of it you have the whole jevin paradox side of things where i mean it has led to
• 57:12
  or it's being used as an excuse for some layoffs like whether it's block or coinbase or meta whoever
• 57:20
  amazon whoever it may be and i bet there's definitely some productivity gains i mean i
• 57:26
  I would strongly guarantee there's productivity gains being made with at least some of the teams in there.
• 57:32
  But I also think like a lot of these companies were overly bloated and just overhired during ZERP and the insanity of 2021 specifically.
• 57:42
  um but the jevons paradox like you hear stories of teams using it and they're actually wanting
• 57:48
  to hire more engineers because now they realize they can do 100x the work that they they previously
• 57:55
  could with with human labor alone um and then you think it's just the natural physical constraints
• 58:01
  like your point about the robots going around the factories i would say i'm highly confident that
• 58:08
  that'll eventually materialize, but the road from here to there is going to be paved with
• 58:13
  way more chips than exist today that can be produced today. We're going to need more fobs.
• 58:19
  We're going to need more electricity. All these things need to be charged and electrified and
• 58:25
  the grids are not where they need to be to make that happen. So I could also see the case for like
• 58:30
  a gradual transition to a world completely run on AI
• 58:38
  and the physical and digital spaces.
• 58:41
  And one would hope that between now and that end state
• 58:44
  that people could figure out how to produce jobs
• 58:48
  that can't be taken by AI.
• 58:50
  But who knows if that's possible because you hear,
• 58:53
  like, if the AI is smarter,
• 58:54
  like, why would you even try to start a company
• 58:57
  if the AI can come up with the idea in the first place?
• 58:59
  And so, I mean, all this is leading to, I think, a societal existential crisis, whether it's on the fiscal insanity side and the sovereign debt side of things where it's becoming abundantly clear that the train is off the rails and likely won't get on anytime soon.
• 59:18
  And then you pair that with the demand destruction that could be brought about via AI.
• 59:25
  but I want to be a doomer because I use it and it's made me more productive
• 59:29
  as an individual and as a company here at TFTC and at 1031.
• 59:34
  And so, yeah, there's just a bunch of, like I said at the beginning,
• 59:38
  there's never been more uncertainty in my mind in terms of where we go from
• 59:42
  here and what things look like and where the cards fall.
• 59:46
  Yeah, no, I agree. I agree. I mean,
• 59:49
  I tweeted this the other day that, you know,
• 59:51
  AI has ensured that the marginal cost of software is going toward,
• 59:55
  is trending towards zero.
• 59:57
  And I think obviously after these,
• 59:58
  especially these newest releases with Opus 4.6 and obviously just 4.7 in the
• 1:00:04
  last few weeks, that's more true now than ever.
• 1:00:07
  Within the space of a few days,
• 1:00:09
  I needed a tool to pull YouTube transcripts from a channel and co-lead them
• 1:00:14
  and put them in order by terms of use and then plug them into another model.
• 1:00:17
  And I wrote the entire Python code in a few hours.
• 1:00:20
  using Claude and ripped it and it worked perfectly. And so, um, you know, for me to do that,
• 1:00:27
  like five years ago would have taken, you know, six courses on Python, 20 debugging sessions,
• 1:00:36
  probably a month of, of coding. And I did it in literally a few hours, uh, of one afternoon and it
• 1:00:43
  is still functioning perfectly. And I can even send, even sent the code to a friend who needs,
• 1:00:47
  needs it for something else. And I think there's been this view that entrepreneurship is going to
• 1:00:54
  explode exponentially because of AI and because it's going to allow anyone and everyone to build
• 1:00:59
  products and solutions, especially software products and solutions to the problems.
• 1:01:05
  And I think that there will be an increase in entrepreneurship, but I don't think it'll be
• 1:01:08
  to the level that people think. And the reason why is because the moat is lowered so much
• 1:01:14
  that now most of the low-hanging fruit
• 1:01:17
  can easily be solved by anybody with,
• 1:01:19
  you know, a couple brain cells
• 1:01:22
  and a Claude subscription.
• 1:01:24
  So that means that like,
• 1:01:26
  let's say like for this tool,
• 1:01:27
  for example, that I created,
• 1:01:28
  if I wanted to commercialize this,
• 1:01:30
  if I tried to sell it,
• 1:01:32
  anyone else can just be like,
• 1:01:33
  oh, you just created a Python script
• 1:01:34
  to, you know, ping YouTube's API
• 1:01:37
  and all the transcripts
• 1:01:39
  via the captioning tool.
• 1:01:41
  Like I can do that.
• 1:01:42
  I'll just ask Claude how to do it
• 1:01:43
  and it'll do it immediately.
• 1:01:44
  So the barrier of entry is so low now that unless the product is sufficiently moded or sufficiently complex or plugs into things that most people cannot get public access to, it's not going to result in an actual business, right?
• 1:02:00
  Just like with old entrepreneurship, the main gate is the idea, right?
• 1:02:06
  Good ideas are hard to come by.
• 1:02:07
  There's plenty of people with bad ideas.
• 1:02:09
  There's plenty of people with subpar execution and subpar business plans.
• 1:02:15
  But to come up with a great idea that actually solves a real problem that people have that
• 1:02:20
  they're willing to pay for, that's hard.
• 1:02:23
  That's hard.
• 1:02:24
  And so I think that still be one of the main gates Although I do think again like the overall ease of achieving that is going to be exponentially better because of AI
• 1:02:35
  You know, if I want to eventually make a YouTube analytics platform and sell it, or if I want to make a macro analysis platform and sell it, it's exponentially easier for me to do that now than it was five years ago.
• 1:02:51
  And so that'll result in overall more founders being born.
• 1:02:57
  Yeah.
• 1:02:57
  No, I think both you and I, unbeknownst to us, stumbled into one of the last notes, which is audience and distribution.
• 1:03:08
  I think about that a lot.
• 1:03:11
  I feel very fortunate that I started this show nine years ago.
• 1:03:13
  because in a world of AI where anybody can do anything,
• 1:03:18
  I think trust is going to be one of the most valued aspects that you have.
• 1:03:22
  And if you've been writing content consistently, accurately,
• 1:03:26
  and from a place of goodwill and good intent,
• 1:03:31
  I think you've been on this show many times for a reason,
• 1:03:34
  because I trust your analysis and appreciate it.
• 1:03:36
  And I like to think that our audience has the same view towards us,
• 1:03:40
  at least most of them. I know there's haters out there, but, uh,
• 1:03:43
  uh i don't know it's a one it's like one of the last motes is like weird to say like brand and
• 1:03:50
  trust and distribution yeah no you're right absolutely it's it's the fact that people know
• 1:03:57
  who you and i were before ai before claude um and they know that we were making good content we were
• 1:04:05
  making good analysis we were doing the work right we actually had proof of work it wasn't all uh
• 1:04:10
  you know, all cheap, cheap labor from overseas that was writing our own scripts or writing our
• 1:04:16
  own analysis. It was us. And so I think that will not be taken away. And I also think that, you know,
• 1:04:23
  there's been a lot of postulating online that IRL events and IRL, you know, in real life, like
• 1:04:32
  activities and everything is going to make a huge resurgence, especially among young people,
• 1:04:37
  because with AI tools getting so good,
• 1:04:40
  the amount of slop that's going to be created online
• 1:04:44
  for both men and for women
• 1:04:46
  is going to be exponentially,
• 1:04:48
  is basically going to exponentially increase
• 1:04:50
  until you basically don't know anyone real online anymore.
• 1:04:54
  And at that point,
• 1:04:55
  then why would you engage with a bunch of bots online?
• 1:04:58
  Why would you follow a Instagram account
• 1:05:01
  of some dude who's giving you analysis
• 1:05:03
  who's not even real
• 1:05:04
  or some woman who you're in love with
• 1:05:06
  who's not even a real woman, then why wouldn't you just go hang out with people in real life and
• 1:05:11
  hang out with the one person you know is analog, which is another human being?
• 1:05:16
  So I think that can definitely make a resurgence. And we can see what one of our friends,
• 1:05:23
  Julian Figueroa, calls a Gen Z renaissance, a return to tradition and to meeting up in real
• 1:05:31
  life, in person, face-to-face, and creating community that way. And all these Bitcoin meetups
• 1:05:35
  and all these Bitcoin events are in the same vein, right?
• 1:05:38
  Like I think Bitcoin Twitter has been kind of slowly dying
• 1:05:40
  for the last year or two,
• 1:05:42
  partially because of AI
• 1:05:44
  and partially just because it's like,
• 1:05:46
  why do we need to be even beyond Twitter as much anymore?
• 1:05:49
  All we need to do is meet up with other Bitcoiners,
• 1:05:51
  continue to network, continue to grow and stack SaaS.
• 1:05:55
  Yeah.
• 1:05:55
  It's pretty simple.
• 1:05:56
  No, it's funny.
• 1:05:56
  There was a local news clip floating around
• 1:06:01
  of one of the local high schools.
• 1:06:03
  Apparently the kids were getting back into hacky-sacking
• 1:06:05
  in the interview of one of the seniors.
• 1:06:08
  And he was saying, yeah, we all put our phones down.
• 1:06:10
  We go outside and we talk to each other.
• 1:06:12
  And so like that Gen Z renaissance that you're describing
• 1:06:15
  seems to be happening at least anecdotally
• 1:06:17
  in this local high school that I caught this news clip of.
• 1:06:21
  And yeah, it is.
• 1:06:24
  That actually does make me encouraged too.
• 1:06:28
  Because you can see like everybody's like,
• 1:06:30
  what's the job going to be again?
• 1:06:33
  Physical world, plumbing.
• 1:06:35
  engineering, physical engineering, electricians, all that stuff.
• 1:06:40
  I think that's the top of mind professions that people are pretty confident are
• 1:06:45
  going to have some sense of job security, at least for the foreseeable future,
• 1:06:50
  or the short to medium term, at the very least.
• 1:06:53
  But then I think about sports and stuff like that.
• 1:06:55
  Are we going to get back to just a hyper-competitive world in the physical combat,
• 1:07:02
  for lack of a better term?
• 1:07:03
  I think your support is going to be a massive winner in the AI world as people, to your point, look to get back to the physical and real life connections.
• 1:07:13
  And if you can't compete with the computers and digital world, maybe people will get back to sculpting their bodies and being physical specimens to compete in the physical world.
• 1:07:24
  Yeah.
• 1:07:24
  Yeah.
• 1:07:25
  No, I think all of that is going to continue to drive forward exponentially.
• 1:07:30
  I think biohacking also is a new, a new area that I've been paying attention to, but one that's going to have a huge ton of upside in the next, you know, five or six years.
• 1:07:40
  I'm worried about them.
• 1:07:42
  I'm like, I'm worried about like the peptide first, first movers are going to wake up in like a decade and be like, oh shit, my balls are falling off.
• 1:07:48
  well hey i'll say this they just like bill burr uh mentioned with testosterone and with like hair
• 1:07:55
  hair implants like let the first people who are brave enough do it and 20 years later once they
• 1:08:01
  figure out all the kinks right once they stop it from you know yeah making your balls fall off or
• 1:08:06
  you know giving you huge warts on the back of your ear or whatever like once they get through
• 1:08:12
  all those kinks then they can distribute it to the public for mass distribution so yeah the
• 1:08:17
  peptides creatives. I watched that from arm's length. I'm like, what the hell are you people
• 1:08:21
  doing? Uh, we've seen it with like the hair loss thing. I saw a clip floating around this morning
• 1:08:27
  of some streamer. I think he's an ETH guy or was at least at one point talking about how he's
• 1:08:32
  taking him's finaster side and he can't get boners anymore. I was like, well,
• 1:08:36
  played yourself, join me in just letting yourself go bald.
• 1:08:39
  yeah i know it's it's crazy like all those fake hair products and uh there's a lot of obviously
• 1:08:49
  still big pharma um solutions to issues that people are trying to use but i've seen obviously
• 1:08:57
  the biohackers are going really far with trying to solve those problems i saw one tweet this was
• 1:09:02
  like months ago but he was saying that uh bee venom is has a compound in it that re-stimulates
• 1:09:09
  hair growth and so he had captured a bunch of bees and he had induced them to sting all over
• 1:09:15
  his head where his uh his hairline was receding and basically was showing results and pictures of
• 1:09:22
  his hair were growing back a little bit and he was really excited about that he said even though
• 1:09:25
  it's painful that it worked and so he was recommending other people do it too so i don't
• 1:09:31
  know how effective that would be though natural hair regeneration via beast i like it you know
• 1:09:35
  a little masochism to you got to earn the hair back by exactly these things yeah uh bringing
• 1:09:42
  us back on the rails though i mean we were talking about trust developed by putting content out there
• 1:09:48
  for years i think the the first thing we talked about the first time you're on this episode was
• 1:09:53
  the dollar endgame theory like on on the spectrum where are we are we are we are we
• 1:10:00
  cross the event horizon and getting sucked in the black hole and emulsified right now what's
• 1:10:05
  happening well again i've i've uh laid this out in a couple threads um but i think obviously
• 1:10:11
  there's multiple like there's multiple red lines to cross right and the first one i would say we've
• 1:10:17
  already crossed 120% debt to GDP. That's where Heisenberg research puts basically no country
• 1:10:23
  that has gone past that level has ever come back without devaluation, hyperinflation,
• 1:10:30
  financial repression, meaning like keep interest rates low and keep inflation high for decades
• 1:10:34
  or a depression. But obviously the way that it's been playing out has been kind of like complex
• 1:10:43
  and convoluted, especially for people who aren't paying attention. But the main things that I've
• 1:10:47
  been tracking are, you could say, not de-dollarization, but de-treasurization, if that's a word.
• 1:10:56
  Basically, the offlaying of especially long-term treasury bonds.
• 1:10:59
  If you look at the global central bank complex in August of 2025, for the first time in 27 years,
• 1:11:06
  the value of overall gold holdings surpassed the value of overall US treasury holdings.
• 1:11:11
  the bank of china uh you know basically you know bank of turkey reserve bank of india all these
• 1:11:19
  and poland as well they've all been offlaying especially long-end bonds but you know japan
• 1:11:24
  still been holding a large part of the reserves obviously as a key ally of the u.s and as a as a
• 1:11:30
  hedge against foreign exchange intervention um but globally like the the the move institutionally
• 1:11:36
  has been to get away from the long-end US Treasury bonds. And I think that is due to several factors.
• 1:11:43
  One is obviously the convexity, right? Longer-dated bonds have much more volatility in regards to
• 1:11:50
  interest rate moves than short-dated bonds. And even with worse signaling that inflation is going
• 1:11:56
  to go lower or that rates are going to go lower, I think with the doable energy shock in motion,
• 1:12:01
  People understand that PPI and core CPI are both going to stay elevated for the foreseeable future.
• 1:12:07
  And so holding on to those bonds, even if Warsh is somehow able to lower rates without increasing the balance sheet, means that you won't be making much of a return anyways.
• 1:12:16
  And you'll still be holding on to a huge amount of risk, which could blow up in your face if the Fed decides to reverse course and start hiking again in response to inflation.
• 1:12:26
  So globally, the central bank complex is laying off bonds. What I've seen on the institutional side, also appetite for long end bonds is diminished significantly.
• 1:12:38
  Now, a lot of banks and obviously brokers still buy them for collateral and liquidity needs.
• 1:12:43
  But most hedge funds that I've seen mostly trade on the short end because none of them want to be caught holding 30-year bonds or 40-year JGBs or whatever in case those countries respectively decide to hike.
• 1:12:57
  So I think that that's the first stage, right?
• 1:12:59
  Let's see not the US dollar lose its status as a reserve currency, but let's see the US Treasury bond lose its status as a reserve asset.
• 1:13:08
  And obviously, the further along the curve it is, the more it is like an asset or like a debt instrument, then it's like a form of money.
• 1:13:16
  The closer you go in on the maturity, the more money like it is, not only in terms of its liquidity, but in terms of its volatility as an instrument.
• 1:13:24
  So obviously, I think ultra long end bonds, those will be sold off first.
• 1:13:29
  Also, that's why obviously the Treasury has been shifting their issuance to the front end.
• 1:13:33
  And that's why Yellen was doing this and Powell was doing this.
• 1:13:37
  And now Warsh is going to have to continue doing the buybacks.
• 1:13:43
  Just last week, they bought like $7 billion of treasury bills back or treasury bonds.
• 1:13:48
  It was all, I think, 20 and 30 year bonds.
• 1:13:51
  But they're going to have to continue this kind of card game.
• 1:13:54
  But as we progress through this reserve currency crisis, I think other countries are going to lay off more and more long term debt.
• 1:14:03
  until they get to a point where they hold basically primarily treasury bills and ultra short-term
• 1:14:10
  corporate debt and let's say US dollar debt and just liquid cash. And once we get to that point,
• 1:14:17
  then we start to face the reckoning of now do we trust the dollar itself as a reserve currency?
• 1:14:22
  And long-term, obviously the system breaks, but it doesn't break like Brent Johnson says in the
• 1:14:28
  way that most people think. It breaks with the dollar moving higher because all the other
• 1:14:32
  currencies start to fail first and then finally with the dollar breaking uh at the very end but i
• 1:14:38
  mean i think that's that's a couple decades away i think a couple decades for the full like when
• 1:14:45
  we're talking about in you know complete dissimulation or you know dissolution of the
• 1:14:51
  u.s dollar i would say yeah two decades but for for the u.s treasury bond losing reserve status
• 1:14:58
  I think that's within the next 10 years because the signs are already on, you know, on the,
• 1:15:04
  on the doorstep, right? Yeah. I mean, it's losing status right now, objectively,
• 1:15:08
  as you mentioned, like gold, gold reserve holdings, surpassing treasury holdings and dollar amount
• 1:15:15
  earlier this year, obviously all of these, um, central banks dumping treasuries in favor of
• 1:15:23
  other reserve assets. So it's in the process of losing. It's not completely lost yet. The treasuries
• 1:15:28
  as a core balance sheet asset for other sovereigns.
• 1:15:32
  But it's in the process of it right now.
• 1:15:35
  And that's then, again,
• 1:15:37
  as an American citizen
• 1:15:40
  who's watched this and covered it
• 1:15:44
  for almost a decade now,
• 1:15:46
  I've watched it for over a decade,
• 1:15:47
  having worked at a fund out of school.
• 1:15:53
  When do we say, all right, we get it?
• 1:15:55
  You guys don't want to hold treasuries.
• 1:15:57
  It's a little tiresome.
• 1:15:58
  to keep the system going, like we should transition to another reserve asset.
• 1:16:02
  So like my biggest worry is like the sunk cost fallacy of just like the U.S.
• 1:16:05
  federal government clinging on to the treasury market as this reserve asset and trying to
• 1:16:10
  make it so, even though it's very obvious that it's becoming more and more out of favor
• 1:16:16
  with international sovereign investors.
• 1:16:19
  Like at what point are we able to flip and sort of own it?
• 1:16:22
  Be like, yeah, we don't like the treasury system either, even though it's afforded us
• 1:16:26
  all these incredible luxuries, or it did at least up until the early 2020s.
• 1:16:32
  The 40 years previous, it was a pretty banger.
• 1:16:34
  But now it's a long winded way of saying,
• 1:16:37
  when do we jump to the next thing and embrace it?
• 1:16:41
  And I think it should be Bitcoin.
• 1:16:43
  And there are signals that this administration at least seems amenable
• 1:16:47
  to embracing Bitcoin as a reserve asset.
• 1:16:50
  Whether or not it happens is another question.
• 1:16:54
  But I think the timing of the embrace and the integration of Bitcoin is key.
• 1:17:01
  If that is going to be successful as an American citizen, I hope it is.
• 1:17:06
  And just trying to figure out the best way to foster that, which is why I do what I do here and outside of what I do here on the podcast behind, not behind the scenes, but interfacing with people close to policy.
• 1:17:19
  Yeah, I mean, obviously, the trend has been accelerated in the last few decades.
• 1:17:27
  Something else I didn't mention, which is actually I wrote about this in my book.
• 1:17:31
  But if you look at total treasury issuance divided by total foreign treasury ownership, you see a very surprising trend, right?
• 1:17:40
  From 2008 to around 2015, the US issued around $9 trillion of additional treasury debt, and foreigners bought like 70% of it, so almost $7 trillion.
• 1:17:53
  And the main buyers were Bank of Japan and the PBOC.
• 1:17:57
  And from 2015 onward, there was a huge shift where not only Russia started to accumulate more gold, but also China and obviously other large central banks.
• 1:18:07
  And from 2015 to 2021, overall treasury debt increased by like $11 trillion.
• 1:18:16
  And the net buying of foreigners of that additional debt fell to 14%.
• 1:18:23
  So from 70% of net new issuance bought by foreigners to 14% within just like a decade or a little more than a decade.
• 1:18:32
  um so foreigners are not or no longer the marginal funder of of new debt um it has to be
• 1:18:39
  right like the you at the fed it has to be domestic institutions it has to be money market funds has
• 1:18:46
  to be hedge funds has to be sovereign wealth funds or it has to be japan and like we just
• 1:18:50
  covered for reasons earlier like japan is increasingly unable to do to fill that role
• 1:18:56
  as we move forward. Now, to move on to your question of what's going to happen,
• 1:19:03
  when are we going to give up the sunk cost fallacy? I think you can't solve that side
• 1:19:09
  of the equation unless you solve the political spending side. And as long as politicians and
• 1:19:14
  their constituents are addicted to easy money and to excessive spending and excessive stimulus,
• 1:19:21
  you're never going to fix the debt issue because one creates the other. The desire for spending and
• 1:19:29
  consistent free handouts and free goods is what's forcing us to go deeper and deeper into debt.
• 1:19:37
  And the brutal reality is that in order to balance this issue, in order to fix the problem,
• 1:19:43
  you have to make deep, deep cuts in areas that people are not going to want to see cuts.
• 1:19:47
  you know, both or all. So of Social Security and Medicare and Medicaid and defense spending
• 1:19:56
  and interest expense, all three of them are almost set up or around or almost at one trillion dollars.
• 1:20:02
  And since our federal deficit is around one point nine trillion, that means you have to get rid of
• 1:20:06
  two of the three of those items. So we're either going to choose to not pay the interest on the
• 1:20:12
  debt, which means default, or not have a US military, which is a geopolitical default,
• 1:20:17
  right on our allies, or we're going to choose to default on all the baby boomers and, you
• 1:20:23
  know, the Gen Xers and whoever else is using Social Security, and all the people on Medicare
• 1:20:27
  and Medicaid.
• 1:20:28
  And that is extremely politically unpopular, especially as the baby boomers are the largest
• 1:20:33
  generation in history and the most affluent and the most active in voting as a percent
• 1:20:37
  of their generation.
• 1:20:38
  so um yeah because of all that like i think it's going to be very hard to solve this problem without
• 1:20:45
  uh a severe course correction and in order for the u.s to come to that point i think there's
• 1:20:50
  going to be more pain needed the voter needs to see how severe the fiscal problem is and how
• 1:20:55
  much we need to do to uh you know to shift this issue this chart is a good example like you know
• 1:21:02
  we're now paying 1.2 trillion a year on interest expense that's more than defense and that's more
• 1:21:09
  than social security and it well i brought this chart up too it's just like the highlight to
• 1:21:15
  anybody who's watching and if you're listening and you're not watching we have the interest expense
• 1:21:20
  on u.s public debt outstanding charlie belillo great follow on x if you're not following yet um
• 1:21:26
  you tweet out this morning the interest expense on u.s public debt hit 1.27 trillion over the last
• 1:21:31
  12 months another record high if it continues to increase at the current pace it will assume
• 1:21:36
  be the largest line item in the federal budget surpassing social security and just like to
• 1:21:39
  highlight going back to 2019 right before cobit it was at 584 billion so you think
• 1:21:48
  the interest expense on the debt and it took uh more than 100 years arguably since the
• 1:21:55
  the onset of the Republic. So 245 years, 44 years to go from zero to 584. And it's more than doubled,
• 1:22:05
  almost tripled in a little less than six years. And so this is breakaway dollar end game type
• 1:22:13
  scenario where, I mean, the scale of the increase on this expense on the debt is insane.
• 1:22:21
  yeah yeah and without lower rates right like how does this how does this go lower it doesn't you
• 1:22:29
  know with every year um every that passes more and more of the old debt gets repriced at higher rates
• 1:22:35
  and um it's a dual issue because this is what i call the peruvian bull debt paradox one of my
• 1:22:41
  more viral tweets um the the way historically to solve an issue like this would be to lower rates
• 1:22:49
  But the problem is the only way to lower rates is essentially to do QE, right? It's to buy the 10-year, the 20-year, and the 30-year bonds. And doing so floods the system with new cash. And at a time where we're running $2 trillion deficits, that cash will find its way into the general economy, which will cause inflation, which by necessity pushes up federal spending.
• 1:23:12
  Because now suddenly everything the US government buys, whether it's helicopters or oil or,
• 1:23:18
  you know, burgers for the soldiers.
• 1:23:19
  whatever it is, it all goes up and salaries will have to go up to compensate as well for the
• 1:23:24
  inflation. And so that means that fiscal spending goes up and more debt issuance is needed. And the
• 1:23:31
  debt spiral just continues to accelerate. So it's either you die by interest expense or you die by
• 1:23:37
  inflation. And so there's not really any way out. And ironically, the phrase I had there was like,
• 1:23:45
  The higher they hike, the further they move behind the curve.
• 1:23:49
  So the worse the problem gets, essentially, even with rate increases, if you're trying
• 1:23:55
  to fight it on the inflation side and you're trying to stem that issue and lower the spending,
• 1:24:01
  you just increase the interest expense.
• 1:24:03
  And if you do the opposite, then obviously the inverse happens.
• 1:24:06
  So there's no solution other than massive fiscal austerity.
• 1:24:10
  And the problem is no politician, especially these weak-kneed ones that we have in Congress,
• 1:24:15
  that won't even arrest people for the Epstein files.
• 1:24:18
  They're not going to go and cut a trillion dollars in spending tomorrow
• 1:24:22
  and cut off the baby boomers from 20 years of having Social Security checks sent to them.
• 1:24:29
  That's too unpopular.
• 1:24:31
  They'll never do it.
• 1:24:32
  And so they're going to ride this wave until it crashes, unfortunately.
• 1:24:36
  Yeah.
• 1:24:38
  We need a politician to stand up, get behind the podium and say,
• 1:24:41
  American citizens, I come to you in some dire times.
• 1:24:43
  we're cutting all social security medicare and medicaid and uh you need to have your parents move
• 1:24:53
  in with you we're bringing back the generational housing uh you need to take care of your parents
• 1:24:57
  we need to need to repair this debt issue will never happen but um it is it is insane and like
• 1:25:05
  and bring this bring in bitcoin here that's why i think many people are being lulled into
• 1:25:10
  a false sense of bearishness right now when it comes to Bitcoin. Because if you look at what's
• 1:25:16
  going on in Japan, look at the interest expense on the debt here in the US, if you look at
• 1:25:20
  how global supply chains have either been destroyed or actively being reshuffled right now,
• 1:25:26
  you look at the demand for electricity that's being driven by an AI complex that has been deemed
• 1:25:31
  existential and ultimately necessary by all the geopolitical counterparts in the world,
• 1:25:37
  They will not stop until they have won, which means they will not stop until there are as many data centers and frontier models as necessary to officially win the game.
• 1:25:50
  All of these things are incredibly inflationary, whether anybody wants to admit them or not.
• 1:25:55
  Yes, the effects of the software that comes with the AI and the LLMs and what they can do may be deflationary in the digital world, but everything in the physical world, which is actually what you need at the end of the day, electricity, gas, food, all those things.
• 1:26:14
  I just see no way in which they don't go up pretty dramatically from here.
• 1:26:19
  And when you layer in the paradox of defaulting or inflating, I think everybody, if you understand the incentives of the system, knows that they're going to inflate their way out.
• 1:26:36
  So the real price inflation driven by the supply chain disruptions and the imbalance of supply and demand with demand skyrocketing right now it going to be a double whammy And in that world you going to want the most scarce asset that ever existed in human history which is Bitcoin
• 1:26:56
  Yeah, I totally agree.
• 1:26:58
  And, you know, the other component of that AI story, right, is imagine not only the demand destruction, but all of the all of the component or like correspondent, you know, destructions of tax revenue and sources of funding for the government.
• 1:27:15
  Right. Most forms of taxation are either a form of taxation on capital, aka like property tax or capital gains tax, or they're a form of taxation on time.
• 1:27:29
  So that's like, you know, hours worked, employment taxes, health care taxes because you're working.
• 1:27:35
  Right. And with fewer people working less hours, the overall taxable income of the government collapses.
• 1:27:44
  right if you have a software company that used to have 100 engineers and now you have 30 those 30
• 1:27:50
  can do what the 100 used to do well those 70 engineers are no longer getting paychecks which
• 1:27:55
  means they're not paying it's gonna be harder for them to pay their mortgages harder for them to
• 1:27:59
  send their kids to school or to buy food or whatever but it also means that the tax revenue
• 1:28:04
  so you know the federal income tax the state income tax the local sales tax right whatever it
• 1:28:11
  is, all of those things start to disappear from the government. And so they'll run into a more
• 1:28:18
  severe fiscal scenario, I think, in the next few years here as that accelerates as well. And that's
• 1:28:22
  something that's concerning because they're already in the hole. So what's going to happen
• 1:28:29
  when they just have to fall deeper, faster? Yeah. And you look at delinquency rates,
• 1:28:36
  I'm sure you saw the chart floating around this week of credit card, auto loan, student loan, delinquency rates.
• 1:28:44
  Not only 90-day, but super delinquent.
• 1:28:47
  I think beyond 90-day.
• 1:28:49
  Approaching 2009 levels.
• 1:28:53
  And we're being told that, I mean, GD, because that's the other discombobulating aspect of the AI thing,
• 1:29:00
  is that like you have this facade of the economy being stronger than it actually is because
• 1:29:08
  obviously all these um tech companies that are they're leading this and all the the the hardware
• 1:29:15
  companies that are enabling it their stock prices are are streaming higher and it makes it seem like
• 1:29:25
  oh yeah gdp is doing good the stock market these companies are doing other producing more they're
• 1:29:28
  more revenue than ever.
• 1:29:30
  Multiples are still in a range.
• 1:29:32
  It's nowhere near dot-com bubble, so it's pretty strong.
• 1:29:35
  But I think that is happening in sort of an isolated silo of one particular sector of
• 1:29:40
  the economy.
• 1:29:41
  It's dragging the numbers up outside of the rest of the economy, which if you look at
• 1:29:49
  the common man, average Joe, it seems like they're going into more and more debt and
• 1:29:54
  becoming more and more unable to pay that debt.
• 1:29:57
  Yeah.
• 1:29:57
  Yeah, no, that's totally true. I think GDP is at best a flawed measure and at worst a
• 1:30:05
  manipulation of the real economy, right, for Asian economists. I mean, I put this out like,
• 1:30:13
  again a couple maybe it was like a year ago or something but I hope most people realize that if they undercount inflation which has been very commonly attributed to the CPI changing the basket every 18 months on average for the last 20 years moving items around moving weights adding in new stipulations and hedonic adjustments so that an iPhone with three cameras now gets a discount because it has more value than the iPhone before with only two cameras on the back
• 1:30:45
  with all this stuff going on, it means that when they report the GDP figure, they report it nominally,
• 1:30:53
  right? And then they discount it by inflation. And so if real inflation is 5%, so nominally GDP
• 1:30:59
  goes up by 5%, but real inflation, let's say is 6%, but they report it as 3, then in real terms,
• 1:31:08
  the economy shrank by 1%, but they report an increase of 2%. And they do that over and over
• 1:31:14
  and over and over again. And so the economy slowly gets weaker and slowly gets more fragile and
• 1:31:19
  slowly gets less foundationally based, right? And all these people lose jobs and they get erased
• 1:31:24
  from the jobs numbers because once you stop looking for 12 months, you're no longer considered
• 1:31:28
  unemployed. And it just slowly eases our economy into this kind of like twilight zone where everyone
• 1:31:36
  thinks it's going good because GDP is up, government spending is up, therefore the economy
• 1:31:41
  must be strong. But in real terms, it's obviously been stagnant or even slightly declining for the
• 1:31:47
  last 10 years. And that was the subject of one of my pieces I wrote like three years ago. But
• 1:31:52
  I think that this manipulation, it's one of those things that you can't see in the numbers because
• 1:31:58
  the official numbers will never tell you, but you can see in just like daily observations, right?
• 1:32:05
  Just like personal anecdotes of seeing like, oh, this person used to earn this much in real
• 1:32:10
  purchasing power and now they earn a lot less or this person has to work less hours and this
• 1:32:14
  person has to work two jobs in order to afford their home now where they didn't used to have to
• 1:32:17
  do that um yeah i think gdp and again it's at best it's a very flawed measure and i think
• 1:32:25
  especially with the government spending being included in it just means that the government
• 1:32:30
  has more and more incentive to spend more so that gdp goes up and they can say the economy is doing
• 1:32:36
  well even though they're just getting further into debt yeah when do you think we hit 40 trillion
• 1:32:42
  this year dude i mean dude we hit 39 trillion what last month like it was like six weeks ago
• 1:32:49
  maybe it was like i think it was early march um we're at 39 and we're adding like 12 billion a
• 1:32:56
  day or whatever so i mean i think within this year yeah we're at uh 39 million 238 billion
• 1:33:03
  right now okay yeah so we're already 23 percent of the way towards the next trillion so
• 1:33:11
  well if since we're well maybe not this year since we're probably more than yeah we're more
• 1:33:16
  than 23 percent away through the year but early next year we'll hit 40 yeah um yeah which is way
• 1:33:22
  earlier than the cbo projected by the way the cbo was only saying that we'd hit 40 trillion by like
• 1:33:26
  you know mid to late 2027 just a few years ago and now it looks like it's going to be early 27
• 1:33:33
  right January, February, if those estimates are right.
• 1:33:37
  Yeah, it's always crazy looking at the U.S. debt clock.
• 1:33:42
  I think we should pull it up here because it's just fascinating to look at
• 1:33:46
  as bamboozlement of large numbers that nobody could ever comprehend That the other thing like trillion If you were to try to comprehend that you literally can
• 1:33:59
  There was some...
• 1:34:00
  I saw a viral tweet the other day that was saying that
• 1:34:03
  there are more...
• 1:34:05
  There's now more U.S. dollars
• 1:34:08
  held as debt
• 1:34:11
  by the U.S. Treasury than
• 1:34:12
  planets in our galaxy.
• 1:34:16
  They estimate that all planets
• 1:34:19
  less than there's less than 39 trillion of them in our entire galaxy yeah just insane yeah we got
• 1:34:26
  a u.s federal budget deficit of 1.6 trillion already going up um yeah so this is the state
• 1:34:36
  how are you preparing for all this buying bitcoin man buying bitcoin making content
• 1:34:42
  trying to get the word out there and uh stacking so sage advice stay humble stack sats
• 1:34:48
  Roberto, thank you for reaching out and catching up.
• 1:34:53
  I think this is timely considering everything that's happened since we last caught up.
• 1:34:58
  And I think more to talk about as the year progresses.
• 1:35:03
  Yeah, no, there's going to be the Bank of Japan is kind of a clusterfuck.
• 1:35:09
  So there's always, it's a fire within a fire with like 15 people trying to throw a gas on
• 1:35:16
  to throw it out.
• 1:35:16
  So there's inevitably going to be more stuff going on.
• 1:35:19
  And yeah, we'll catch up then.
• 1:35:23
  Yeah.
• 1:35:23
  Well, I mean, I'll add it on this.
• 1:35:25
  I mean, that's what would signal to me is that things are going on is that nobody's talking about it.
• 1:35:30
  But if you look at everything, like where the end is trading, I mean, obviously you're talking about in others, but you don't see the mainstream financial press right now.
• 1:35:37
  People worrying about this.
• 1:35:39
  Yeah, true, true.
• 1:35:41
  It's very, it's very niche.
• 1:35:42
  um but you know i think following is if you especially interested in macro following japan
• 1:35:49
  is one of the key things you have to do to tip to date on what's what's happening in the world and
• 1:35:53
  how markets are going to change moving forward yeah all right so if you enjoy this episode make
• 1:35:59
  sure you go to dollar endgame.substack.com and check out roberto's um youtube page as well
• 1:36:06
  doing analysis and all this and look out for another conversation at some point when uh
• 1:36:11
  and the canary comes out of the coal mine on fire.
• 1:36:14
  And we need to talk about it and figure out what's going on.
• 1:36:18
  Yep, absolutely.
• 1:36:19
  Thanks, Marty.
• 1:36:19
  I appreciate you having me on.
• 1:36:21
  Thank you.
• 1:36:22
  Peace and love, freaks.
• 1:36:23
  Thank you for listening to this episode of TFTC.
• 1:36:27
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• 1:36:28
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• 1:36:31
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• 1:36:35
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