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The U.S. is the sole issuer of currency, and the rest of the world needs that currency.

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And so because of that demand imbalance, the U.S. has to decide whether they want to print

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more money or if they want to not do that, and the global system starves for liquidity

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and everything starts to seize up.

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That's an issue of a centralized issuer and a global demand.

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Bitcoin is a decentralized issued currency.

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Bitcoin doesn't suffer from this.

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If any country wants to earn Bitcoin, they can do it.

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And so that means that in the long run, not only is Bitcoin a better reserve currency, it's the perfect reserve currency.

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Again, you look at the numbers, you look at how Fed does QE, you look at the debt load and you say, OK, they're going to print the money.

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There's no way out. Everything's going to get inflated away.

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We're going to see 5% inflation, then 10, then 20, then 50, then 100.

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And then, you know, within five years, the dollar will be dead.

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A harsh lesson that a lot of people might have to learn.

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Like, I think if we're moving into this sort of multipolar world, Bitcoin is the best money.

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Like, it just is.

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all right let's get into it roberto good to see you man we've been talking about making this show

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for a very long time so it's good to have you here yeah thanks for having me so we're gonna get into

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uh the dollar end game the thing that's always funny about this is like people have been talking

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about this for a long time way before bitcoiners gold bugs have been talking about this forever

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um and then over time like with the 2007-8 financial crisis like money printing all this

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stuff happens and the dollar just seems like stronger than ever. So what is the dollar end

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game and is it actually coming? Well, I would say, you know, my idea of what the dollar end game is

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also has evolved in the last like eight years setting macro, because I definitely started off

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on that same path that you, you know, initially mentioned, right? You listen to Peter Schiff,

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you listen to Mike Maloney, you listen to basically all of the dollar doomers and the

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hyperinflation camp. And they give you this story of, you know, unsustainable U.S. fiscal deficits,

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insanely high debt to GDP ratios compounding to the future, right? Huge unfunded liabilities

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that are unsustainable, an overextended American empire and military state that is creating

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conflicts all around the world. And it makes you believe that the dollar, you know, is going to

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collapse tomorrow. And so you think, wow, gold, silver, you know, bullets, this is what I should

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be investing in because the U.S. is going to become a zombie wasteland and the rest of the

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world is going to be fine, right? But as I've dived down into the macro rabbit hole over the

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last eight years, I've found that the story is much more complex than it initially seems, right?

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And that dollar doomerism, while it's correct on certain bases, like we could say an absolute

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basis against scarce assets, it's not true on a relative basis. And this is what Brent Johnson's

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pointed out with the dollar milkshake theory. And that relative basis actually matters a lot.

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Because when you think about like where capital flows in a modern digitized, globalized world,

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relative strength really does matter. If you're a Chinese investor, if you're a Japanese investor,

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if you're a German investor, if you're a UK investor, and your stock market goes up 5% a

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year, and the US is doing 12% a year compounded. Well, over 20 years, that's more than double

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total capital growth, right? And so why would you even invest in your local stock market if

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the U.S. has much better growth? And so those capital flows, those investment flows, commodity

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flows will influence, obviously, the global economy, but also the U.S. economy and give us

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that, you could say, like a buoy, artificial boost, which allows us to maintain this

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exorbitant privilege of the world reserve currency. But yeah, we can get into it. But

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I think the dollar in game is still obviously in play, but I think it's going to play out much

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different than most people think. Yeah. I mean, it's funny that you say that if you're in another

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country, the US stock market performs so much better, so you may as well just invest there.

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And I live in Australia and that 100% happens here. I don't think very many people are investing

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in the Australian stock exchange. Instead, it's either real estate or the US stock exchange. So

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that money does end up in the U S. So how do you think this does play out then? Cause like you

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mentioned Brent Johnson then, and I've had him on the show a couple of times. I think he's really

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smart guy. Um, but he basically thinks that everything does fail, but the dollar is the

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last one to fail. Yeah, I think, I mean, I think that's broadly correct. Um, what I would say is

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that, you know, there are certain things even during that failing period, right? There are

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certain things that are going to outperform other things. And there are certain, you could say like

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signposts on the road towards that global monetary collapse that we need to be looking out for and

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will give us hints and clues on what's going to happen next and you know part of the reason why

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i study japan is because japan has been not only obviously the forerunner in in global monetary

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policy they've been the ones who created qe in march of 2001 they're the first ones who did qqe

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in september 2013 and they have first ones who did yield curve control in in 2016. um

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But not only are they the first ones to do it, they're also the most, you could say,

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you know, bleeding edge in terms of their creativity when it comes to monetary policy.

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And when I first started in the macro space, I thought, you know, again, you look at the numbers,

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you look how Fed does QE, you look at the debt load, and you say, okay, they're going to print

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the money. There's no way out. Everything's going to get inflated away. We're going to see 5%

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inflation, then 10, then 20, then 50, then 100. And then, you know, within five years, the dollar

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will be dead. But what that ignores is the ability of central bankers to create new forms of liquidity

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and funnel that into the economy and, you know, design new ways that that liquidity won't

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necessarily impact consumer price inflation, at least not immediately. And so it's basically like

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can kicks that they've invented. And you look at the last, you know, 10 years, or especially the

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last six years in the US, and you can see that happening, like, very, very clearly, right?

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Again, you ask Peter Schiff, you ask Mike Maloney in 2018, hey, we're going to have a global pandemic.

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We're going to have massive fiscal stimulus, right?

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The Fed's going to run up their balance sheet from $4.5 trillion to $9 trillion within 18 months.

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We're going to have 0% interest rates.

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And the Fed is going to cut reserve requirements on banks down to zero.

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What's going to happen?

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Well, they're going to tell you, okay, well, within two or three years after that, the dollar is going to be dead.

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Dixie is going to be at 60.

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And inflation is going to be at 40%.

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Well, you look at what actually happened and that's not how it played out at all, right?

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Which tells you obviously they're wrong.

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But why is that?

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Well, it's because the Fed not only did traditional QE, which is obviously the invention of the

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Bank of Japan, but they also used new monetary tools to create liquidity without creating

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the same side effects that traditional QE does.

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And so one great example would be the BTFP.

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If you remember in March 2023, a bunch of regional banks started to fail.

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obviously Silicon Valley Bank was the largest one of those,

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but First Republic was also on the chopping block.

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And as these regional banks began to fail,

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the Fed began to get worried about this duration issue

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that was probably isolated at these smaller regional commercial banks

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where they had overloaded themselves on treasury bonds.

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And the treasury bonds had now fallen 40%, 50%,

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especially with the long-end ones,

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ever since the Fed started hiking in March of 2022, a year earlier.

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and that had left a hole in their balance sheet.

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And so the Fed said, we're going to open up this program.

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It's going to value all your bonds at par

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and we're going to lend that money to you

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at OIS plus an interest rate spread

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of like 20 bips or whatever.

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And this will help you get liquidity

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as if the bonds were valued at face value

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even though they're 40% lower than that.

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So you can deal with any liquidity concerns you have

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and then once the liquidity issues blow over,

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you can worry about the solvency issues

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in the long term on your own. And guess what? It worked. But it didn't obviously have the same

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effect as QE because it wasn't stimulative in the same way that QE was, even though it was a

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liquidity creation. And the same thing is true, by the way, of the push to eliminate the treasury

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exemption from the SLR. In 2020, during COVID, the Fed issued this... The Fed has a bunch of

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regulatory rules that they can influence and also create, obviously, right? And one of them is the

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SLR, and that's called the supplementary leverage ratio. And it basically means a bank has to hold

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a certain amount of capital against its own assets. So it's a leverage ratio. So let's say a bank has

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$100 billion of treasury bonds. It has to hold, let's say, $5 billion of cash in case those treasury

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bonds fall in value. Now, treasuries are obviously a large part of a bank's assets.

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And if treasuries get exempted from the SLR, then that means that the bank doesn't have to hold

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capital against those treasuries falling in value. So it basically means that they get to hold the

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treasuries with infinite leverage, right? And during COVID, because again, all the banks are

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loaded up on treasury bonds, treasury market is collapsing. It's freaking out. The move index

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spikes to over 100, right? We see huge volatility, not only in stocks, but obviously in bonds as well.

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So they create this exemption. They say, okay, you don't have to hold capital against these

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treasury bonds anymore. And that lasted for like a year and a half. And then it ended in 2022.

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But by March 2023, the banks were starting to get nervous. And then they started a petition with

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the CFTC and ISDA, which is the International Securities and Derivatives Association,

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And in early 2024, they submitted a formal letter to the Fed asking for that exemption. And so far, the Fed looks like in November of last year, they made some moves to lower the SLR requirements. They haven't completely eliminated it. But the point is, like, that was another move that they made, right, that basically increases liquidity in the system without actually printing money.

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It frees up capital that's on bank balance sheets without traditional QE.

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And this will never show up in a press release.

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This will never show up on a Fed minutes meeting or meeting minutes.

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It'll never show up on their balance sheet on Fred, but it will have a real impact on

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the financial economy especially.

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And so all these different tools that they're creating are allowing them to have way more

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optionality than most people think.

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I mean, the question I would have on that is, if you explained everything that happened

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during COVID or even with the BTFP program, like a rational person might look at that

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before the event happened and be like, yes, that's going to be a massive hit to the dollar.

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Like maybe this is the end of this fiat system, but you can understand the rationale behind

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thinking that. And then in reality, it's like you say, it's very different. Why is that? Is it,

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is it people underestimating like the resiliency of the market or is it something else?

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I mean, I think it's obviously, like you said, it's, it's a couple of things. So for one, it's

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the amount of U.S. dollar debt that exists in the world, not only, you know, obviously in the U.S.,

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but internationally is massive, right? The euro dollar market, which essentially includes all

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dollar linked deposits globally, plus, you know, you can, if you expand it to derivatives, to FX

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futures, forward swaps, is somewhere north of $200 trillion, right? It dwarfs even the U.S.

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dollar market. And all that debt needs to be paid, right? What that debt represents is a

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demand for future dollars. And so just because there's a global shutdown doesn't mean all those

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debts are erased. And so all those foreign entities that need those dollars, well, what do they do?

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They have to sell their domestic currency. They have to sell whatever capital or cash they have,

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whatever equity they have in order to get dollars, and then use those dollars to finance their debt

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obligations. And so that means that, you know, that dollar demand is kind of embedded into the

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system globally on a scale that most people don't realize. And the other, you could say, like,

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worrying factor in all this, right, or like confounding factor in all this, is that the

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system continues to perpetuate itself, right? It's that old saying, like, that we have in Bitcoin,

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right, there can only be one currency. Well, that's true with the world reserve currency as

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well. So when we boil it down to like FX pairs, right, nine out of 10 of the top most liquid and

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most traded FX pairs are dollar linked. So it's, you know, USD JPY, USD EUR, USD GBP,

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right? USD CAD, the Canadian dollar, like the US dollar is basically the linchpin of the global

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economy. And it's the oil that greases the wheels and the cogs of the global engine,

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you know, the global market engine. And so whenever, you know, whenever that debt

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uh, rolls over and people pay it off, then the bank, the banks, those Eurodollar banks,

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those derivative banks, what they do obviously is once they get paid with dollars, they want to

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create more, they want to get paid on that, you know, those dollar reserves. So they lend them

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out again So they create new debt and the system perpetuates itself And this also has to do with obviously like you know interest rate risk derivative risk If you a Pakistani you know textile manufacturer

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or you're a Saudi oil manufacturer, oil producer, you can get a loan in your own currency and you'll

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pay 10%. If you get a dollar-based loan, you'll pay 7%. And for a company dealing in billions of

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of capex a three percent difference in interest rates is everything and so no basically you know

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not no but very few international large global conglomerates want to borrow in anything other

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than dollars just because the rates are lower the liquidity is higher and um you know the the

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ability to transact that dollar and to earn that dollar in global trade is is so much higher and

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and so with like the everything that's happening in the stable coin market now do you think that

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that's going to sort of just accelerate the timeline in terms of dollarization across the

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world. Yes, I think it will. I mean, so did you see Brent Johnson's most recent report on the

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stable coins? Yes, I did a podcast with him about this. Oh, you did? Okay, awesome. This was like a

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few months ago, right? Or has he done a new one again? He did do one. I think he did do one a few

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months ago, but I'm pretty sure he released one on a sub stack like two weeks ago. Okay, no,

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I've not covered that within that. Okay. Okay. Well, basically he lays out, right, like stable

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coins are essentially the crypto euro dollars, right? They are the same mechanism, but more,

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you know, more transactable and more native to the 21st century rails. And what that means is

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that the velocity of money for those stable coins and for those digital euro dollars is much higher

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than it is for traditional ones, right? You don't have to wait three days or five days for an

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international SWIFT transaction to come through, you can settle stablecoins within seconds.

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And what that means is that the dollar dominance can continue to expand globally at a much faster

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rate than was previously thought, right? And so in the short term, you know, that adds two to

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three trillion dollars worth of treasury demand on the front end from global stablecoin demand.

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But if the stablecoin, you know, industry continues to penetrate, especially the global south

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and emerging markets, you know, we could see significantly more demand than even that

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start to appear. And that demand is very important, right? Because this is the categorical difference

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between, you know, the old, you could say, dollar-based, debt-based system and this new kind of

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stablecoin asset-based system, which was pointed out to me by Matt Dines. I don't know if you've

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heard of him, but he's a CIO of Build Asset Management. The key difference there is the old

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system, right, was secured with bank reserves. And the only way you perpetuated it was by

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originating more debt, right? So you create more debt in order to, you know, create more dollars,

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and then those dollars flow out into the global economy, get paid back to you with interest,

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and then you do it again. This new system, this new stablecoin, you know, you could say

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paradigm that's being created, is more of an asset-backed system. And the asset is the U.S.

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treasury bond. And so if we are able to, you know, basically manufacture demand for U.S. treasury

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bonds, what does that do for the U.S.? That lowers domestic interest rates, that increases the

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government's spending power, that increases, you know, our ability to project power both militarily

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and economically globally. All in all, it's basically a way to, you know, turn this nothing

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stops this train meme from a doomerist meme, like a pessimist, oh no, we're all going to go down the

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hill to a more optimistic view of like, we can have the global economy help to drive treasury

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rates down even more than they already have, and then use that to hopefully get ourselves out of

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this fiscal situation. Because obviously the debt, you know, no one would argue that that's

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not unsustainable. It is. But there could be more ways to get out of it than we previously thought.

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It's funny, I struggle with the stablecoin thing, because like on one hand, I obviously think

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Bitcoin is the best money and I want the people in the global South to be adopting Bitcoin as

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quickly as possible. But in the same time, I understand that there is still volatility in

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Bitcoin and people just understand the dollar fundamentally differently. And so I would never

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say that someone who's living under a high inflation currency shouldn't move to the dollar

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because fair, I would do that in their situation as well, potentially. But the thing that I'm really

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interested in is if you look into the future, stable coins will usurp some foreign currency

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at some point. That's inevitable. I'm really curious what the timeline is for that. When do

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we start seeing the US dollar destroy other global currencies because of the stablecoin?

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Yeah, I think it all depends on institutional adoption. The main problem with stablecoins

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is that, yes, do retail investors, do retail users, a mom and pop living in Colombia or living in

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Argentina or some high inflation country, Venezuela, do they have a huge reason to use

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stablecoins and pick up a MetaMask wallet and like transact? Yes, absolutely. Right. But does

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a large global GSIB like JP Morgan or, you know, Bank of America or Wells Fargo, do they have a

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reason to adopt it? Not really because they're plugged into Fedwire. So they're literally sitting

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on the heartbeat of the global financial system. So their need to use these like, you know,

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tacked on appendages that are created by these crypto you know crazy crypto people is pretty low

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and so i do understand that like in america there's no reason to use a stable coin but if

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jp morgan can go out and address a huge audience that they otherwise can't and they can start

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selling dollars offshore like that that would make them do it yeah no i think that would create a new

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business line i mean and i mean um i don't know if you've seen this but i saw that just earlier

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in this month in june uh jp morgan and several other banks were putting forward proposals to

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create basically stablecoin versions of their own deposits yeah so you know digitizing their

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own deposits so that they're tradable on on a you know decentralized ledger but i don't think that's

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obviously that's obviously like them becoming the issue where they they're becoming their own circle

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of their own tether and trying to control it and not allowing you to you know necessarily move uh

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tokens outside of their own network um but it is still interesting i mean obviously it's a new

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opportunity new frontier for them but i'm also worried like as a bitcoiner i'm worried on the

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censorship and the, you know, you could say ideological side because stablecoins, although

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they're obviously not CBDCs, they have the same centralized control mechanisms that a CBDC would

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have. And since there's a centralized issuer and, you know, holder of reserves, you know,

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and those people are audited by regulators, like there's room for failure, there's room for risk.

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And that, to me, that's what's concerning there. Yeah. I mean, that was one of the coolest things

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that came out of the whole situation in the Strait of Hormuz is Iran started taking payment

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in stable coins and then had them frozen. And so their only option left was Bitcoin. And

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it's like a harsh lesson that a lot of people might have to learn. I think if we're moving

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into this sort of multipolar world, Bitcoin is the best money. It just is.

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Absolutely. Yeah. I mean, I don't know if you saw this, but there was probably 20 to $30 million

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a day, potential Bitcoin transactions happening for the Strait of Hormuz. And it was obviously

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like pointed out by, I think it was the Bitcoin Policy Institute and several others as one of the

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key, you know, inflection points in this whole Bitcoin narrative. And I think obviously now as

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the Iran war starts to wind down as announced last night and, you know, seems to be progressing today,

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you know, that immediate story may fade, but the broader picture of the U.S. using our hegemony

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over the global dollar and the global financial system to punish other nations and to whack them

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on the head whenever they act out from what we would like them to do. That would push more and

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more sovereigns to use some sort of non-censorable money, which obviously Bitcoin is the premier one.

255
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Should we talk a bit about Japan?

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Because you do a ton of work on Japan

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and I think I know the reason why.

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I imagine that you look at Japan as like the end game,

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the future point that every fiat system is going to come to. I don't know, start off by just

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00:24:18,215 --> 00:24:24,055
outlining why you concentrate so much on Japan. Sure. So, you know, I started researching Japan

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for macro back in like 2019, 2020. And then I really started realizing the importance of it in

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2021 as COVID started to grind on. And, you know, we saw the Bank of Japan continue to reaffirm

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the 0% interest rates, even though the rest of the world started to hint at hiking.

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But Japan is like one of the most interesting stories because this entire, you know, eight

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years, nine years I've spent in macro researching Keynesian economics, Austrian economics,

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Japan was the one outlier, right?

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And this was brought to my attention by a Heisenberg research report that was made in

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2018 that found there's, you know, 55 nations that have gone above 120% debt to GDP.

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and 54 of these 55 nations in the past 150 years have either hyperinflated, you know, inflated,

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or defaulted on their currency, right, in some way. 54 to 55. The one exception is Japan.

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And so I was asking, you know, why is that? What happened there? And the story is really,

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really fascinating. So in the 1980s, obviously, Japan had a huge, huge stock market and real

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estate bubble fueled by low credit and a strengthening yen that they had agreed to

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under the plaza court in 1985 and the low the low interest rates and the huge amounts of credit

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that was being funneled into the general economy was enabled by the bank of japan and their window

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guidance system that they were able to impose on the local commercial banks so basically they would

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call up commercial banks and tell them we need to make 100 billion dollar 100 billion yen loans

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this week in the auto sector, go make them. And it didn't matter about the credit of the borrower,

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it didn't matter about the actual demand, it didn't matter about, you know, any economic

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fundamental, they would just go make it make those loans. And so the amount of debt issuance,

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and the amount of obviously credit creation in the late 80s exploded. And then by December 1989,

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the bubble was starting to become apparent, you know, there's tons of stats we can point to, but

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you know, there's things like the Imperial Palace of Tokyo was worth more than all of California.

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00:26:24,695 --> 00:26:33,215
um there's obviously like um the u.s the japanese stock market was worth i think um more than yeah

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two times the american stock market at the time even though japan was you know a third of the

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population or half the population and had way less economic activity like there's all these

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00:26:41,895 --> 00:27:01,670
uh little point things you can point to but the bank japan hikes december 1989 1990 begins and the the nitgate starts to roll over And it keeps rolling over it keeps rolling over and begins this slow motion deflationary crash that lasts for basically an entire decade And everything

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00:27:01,670 --> 00:27:08,050
that Bank of Japan did basically was like giving morphine to a cancer patient, right? It didn't

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really solve the situation. The first thing they did was obviously like way too late in 1998,

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they finally got independence from the Ministry of Finance because the two had been linked

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previously under the post-war reconstruction government.

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And they decided to lower interest rates to zero, right?

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They'd already been cutting rates,

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but they hadn't had the ability to lower them

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all the way to zero and then to the negative bound.

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And so by February 1999, they were able to do that.

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And they thought that that would simulate growth.

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It didn't.

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And then March 2001 turns around.

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They say, we're going to try something else.

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Let's start QE.

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Let's create this new method of creating reserves

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and will buy government bonds off the balance sheets of these commercial banks.

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They start doing that.

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Nothing happens.

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2008 rolls around.

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And then they say, you know, growth is still very low.

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And by the way, the Nikkei is still less than half of the price it was at the peak in 1989.

361
00:28:03,210 --> 00:28:06,090
So we're still technically in a bear market.

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And the real economy in Japan has basically been, you know, zombified for the last, you

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know, 15 years, 18 years by 2008.

364
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And then they have the global financial crisis.

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They have another excuse.

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So they create even more QE.

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They print even more reserves.

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Nothing happens.

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And so the question becomes, what's going on here?

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All our MMT models, all our Neo-Keynesian models tell us that this bank reserve creation

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should, by default, buoy up stock prices, buoy up bond prices.

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and then that, you know, capital gain

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should flow as a wealth effect

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into the general economy, right?

375
00:28:45,590 --> 00:28:46,530
People start to feel richer.

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And the problem was the people kept,

377
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you know, falling back to this liquidity trap

378
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of believing that, you know,

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the growth was sucked out of the economy

380
00:28:55,690 --> 00:28:57,810
and that the only way to make money

381
00:28:57,810 --> 00:28:59,490
was to invest in bonds, right?

382
00:28:59,550 --> 00:29:01,690
And so that's why the Japanese retail investor became,

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00:29:01,690 --> 00:29:03,590
and the Japanese institutional investor

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became the world's biggest creditor.

385
00:29:06,070 --> 00:29:07,310
They started lending to the French,

386
00:29:07,610 --> 00:29:08,390
you know, the French government,

387
00:29:08,490 --> 00:29:09,750
the British government, the US,

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00:29:09,930 --> 00:29:19,510
They're obviously the largest holder of U.S. Treasuries, the largest holder of British Guilts, one of the largest holders of French GEBs like German Boons.

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00:29:20,090 --> 00:29:31,450
You look at the global sovereign debt market, Japan is basically the funder of first resort to all of it because they've been searching for a yield for all these decades.

390
00:29:31,450 --> 00:29:54,390
And as the years rolled on, again, more and more crises come up and the Japanese respond by creating more and more ways to print money. And they start doing by 2013 under Abe and his three arrows, Abenomics plan, they want to be even more, you could say, assertive, aggressive with their monetary policy.

391
00:29:54,390 --> 00:29:56,170
Let's not just buy government bonds.

392
00:29:56,370 --> 00:29:58,750
Let's buy stock ETFs.

393
00:29:58,810 --> 00:30:00,530
Let's buy real estate ETFs.

394
00:30:00,670 --> 00:30:02,570
Let's buy corporate bond ETFs, right?

395
00:30:02,950 --> 00:30:10,530
So they switched the regulations for the Bank of Japan that previously had excluded them from doing so.

396
00:30:11,150 --> 00:30:16,310
And by late 2013, they're buying wholesale equity ETFs.

397
00:30:16,910 --> 00:30:20,410
And again, that helps a little bit, doesn't fix the situation.

398
00:30:20,410 --> 00:30:24,210
And so all these years, and then the yield curve control comes on in 2016.

399
00:30:24,390 --> 00:30:29,130
And all these years pass and they've basically been unable to do anything to ignite growth.

400
00:30:29,650 --> 00:30:32,030
And it all comes down to the same fundamental problem.

401
00:30:32,550 --> 00:30:41,390
The issue that was created in 1989, which is over collateralization, over debt, over indebtedness,

402
00:30:41,690 --> 00:30:47,450
and inability to repay that debt with any productive economic growth, had never been resolved.

403
00:30:47,550 --> 00:30:51,550
All the companies that had become zombified, that had basically taken on way too much debt

404
00:30:51,550 --> 00:30:53,570
and then were allowed to survive

405
00:30:53,570 --> 00:30:55,350
by rolling forward on 0% interest rates,

406
00:30:55,590 --> 00:30:56,950
those companies were still running.

407
00:30:57,310 --> 00:30:58,870
The employees were still working there.

408
00:30:59,510 --> 00:31:02,410
And again, you can think about it like a hospital patient.

409
00:31:02,630 --> 00:31:04,910
It's like a comatose person, right?

410
00:31:04,950 --> 00:31:06,350
The lights are on, but nobody's home.

411
00:31:07,430 --> 00:31:09,750
There's entire companies and industries in Japan

412
00:31:09,750 --> 00:31:11,790
that don't really produce a profit,

413
00:31:11,910 --> 00:31:15,270
that just produce enough money to pay off the interest

414
00:31:15,270 --> 00:31:17,550
on the loans that all these companies have taken on.

415
00:31:17,690 --> 00:31:19,390
And the banks that issued those loans

416
00:31:19,390 --> 00:31:21,250
were too embarrassed to admit

417
00:31:21,250 --> 00:31:24,810
that the companies wouldn't be able to repay them.

418
00:31:24,890 --> 00:31:26,750
And so they changed their repayment schedules

419
00:31:26,750 --> 00:31:27,990
and changed their repayment terms

420
00:31:27,990 --> 00:31:30,330
so that the company could just kick the can indefinitely.

421
00:31:31,050 --> 00:31:32,670
And so that's created this unique situation

422
00:31:32,670 --> 00:31:36,910
where basically the debt is at 263% debt to GDP, right?

423
00:31:36,970 --> 00:31:38,290
The growth is basically at zero.

424
00:31:38,410 --> 00:31:39,310
The inflation has been at zero

425
00:31:39,310 --> 00:31:41,530
for two and a half decades up until recently.

426
00:31:42,690 --> 00:31:44,510
And the entire, you know,

427
00:31:44,890 --> 00:31:46,990
you could say entrepreneurial market is basically gone.

428
00:31:47,170 --> 00:31:48,730
There's no entrepreneurs in Japan.

429
00:31:48,730 --> 00:31:49,790
They have lower,

430
00:31:49,790 --> 00:31:58,110
to put this in reference of the 50 top GDP per capita countries, they have a lower GDP per capita

431
00:31:58,110 --> 00:32:06,210
than all of them, except for one. And the one is Croatia. And Japan is a first world country that's

432
00:32:06,210 --> 00:32:11,270
obviously extremely wealthy. And so for them to have a lower entrepreneurship rate than Croatia

433
00:32:11,270 --> 00:32:16,430
is insane. Or like being the lowest of all of them, except for Croatia is insane.

434
00:32:16,430 --> 00:32:29,050
So why would Japan, what were the demographic issues or whatever it was, why were they able to do so much QE and have zero or negative interest rates and not have any inflation? Because that seems like a huge outlier.

435
00:32:29,050 --> 00:32:48,350
Sure. So again, the fundamental issue was that there was so much credit created in the 1980s and the early 90s before the crash that even the QE that they did wasn't fundamentally resolving the real issue, which the real issue was the debt overhang.

436
00:32:48,350 --> 00:33:06,050
So, you know, they print yen, they buy JGBs off the, you know, Japanese bank balance sheets, right? Those banks were so conservative and so worried about, you know, running into issues that all they did is just invest those proceeds abroad.

437
00:33:06,050 --> 00:33:14,990
And so the two decades of Japanese QE essentially became a conduit for capital to move from Japan out into the rest of the world, especially the U.S.

438
00:33:15,190 --> 00:33:18,410
So the QE that they did didn't even stay in their own financial system.

439
00:33:18,730 --> 00:33:25,450
And the problem that needed to be solved was like those banks and those zombie companies needed to default, right?

440
00:33:25,530 --> 00:33:27,630
We saw a couple of defaults in the late 90s.

441
00:33:27,650 --> 00:33:34,710
In 1997, there was a famous string of defaults in October of that year that resulted in an actual bank run.

442
00:33:34,710 --> 00:33:43,270
And the Bank of Japan announced a bank holiday that month and closed like 15 banks and then reopened them in like, you know, a week later and recapitalized them.

443
00:33:44,030 --> 00:33:45,310
But it was pretty limited.

444
00:33:45,590 --> 00:33:51,490
And to kind of explain the situation even further, like there's a very strong cultural element here as well, right?

445
00:33:51,530 --> 00:33:54,610
The Japanese are very ethnically and culturally homogenous.

446
00:33:54,610 --> 00:34:13,730
So, for example, when the Nippon, which is their local CNBC financial news outlet reporter, was reporting on this in 1997, reporting on the bank runs, a Bank of Japan official ran out into the street in Tokyo and asked him, hey, can you not cover this? We don't want to spread panic.

447
00:34:13,730 --> 00:34:20,010
and he said okay they cut the broadcast the t the station destroyed all their tapes and decided not

448
00:34:20,010 --> 00:34:27,350
to air any of it and that that's like the perfect encapsulation of what japan is right it is all

449
00:34:27,350 --> 00:34:33,730
about saving face it's all about uh cultural honor and dignity and the idea that like you would you

450
00:34:33,730 --> 00:34:37,530
would oppose an authority that's telling you to do something different is completely completely

451
00:34:37,530 --> 00:34:42,730
ludicrous so um yeah no one ever questioned the bank japan doing qe and the bank japan never

452
00:34:42,730 --> 00:34:46,970
questioned why the commercial banks weren't re-loaning or trying to simulate growth. They

453
00:34:46,970 --> 00:34:50,930
said, okay, they're just doing what they're doing. And all the money just flowed into the banks and

454
00:34:50,930 --> 00:34:55,030
then into the retail investors. And those retail investors just lent it out into the world.

455
00:34:56,230 --> 00:35:00,350
At the very start of the show, you said Japan was doing QQE. What is that?

456
00:35:01,290 --> 00:35:08,390
QQE is qualitative quantitative easing. So it's another crazy word, but it basically means

457
00:35:08,390 --> 00:35:10,970
instead of doing general QE,

458
00:35:11,050 --> 00:35:12,590
which is basically like shooting a shotgun,

459
00:35:12,950 --> 00:35:14,630
you know, at a problem,

460
00:35:14,930 --> 00:35:16,210
like saying, oh, I'm just going to buy

461
00:35:16,210 --> 00:35:17,130
a bunch of treasury bonds.

462
00:35:17,210 --> 00:35:18,490
I'm going to buy a bunch of mortgage bonds.

463
00:35:19,230 --> 00:35:21,510
They decided we're going to like specialize it, right?

464
00:35:21,550 --> 00:35:23,190
So we're going to buy, you know,

465
00:35:23,290 --> 00:35:26,150
corporate ETFs, corporate stock ETFs.

466
00:35:26,190 --> 00:35:28,690
We're going to buy real estate investment trusts.

467
00:35:29,530 --> 00:35:33,190
We're going to buy, you know, individual equities.

468
00:35:33,330 --> 00:35:35,370
I mean, at one point the Bank of Japan owned like,

469
00:35:35,370 --> 00:35:42,650
you know uh of the top country of the because they have their uh nikki index of the top like

470
00:35:42,650 --> 00:35:48,810
500 companies in the nikki the bank of japan was the top shareholder in 70 of them and the bank of

471
00:35:48,810 --> 00:35:56,430
japan owns like 10 of the total uh stock market capitalization of the of japan so um yeah it's

472
00:35:56,430 --> 00:36:01,390
insane i mean they just went out and bought everything they could so i just looked up the uh

473
00:36:01,390 --> 00:36:07,290
the countries with the highest debt to GDP ratios, and the only country above Japan is Sudan,

474
00:36:07,510 --> 00:36:10,630
which is probably not a great company to keep in terms of this.

475
00:36:11,950 --> 00:36:15,950
Will they survive this? What's happening now? Will Japan get through this?

476
00:36:17,130 --> 00:36:21,290
Sure. So I guess I'll give you a little more update on what's happening right now.

477
00:36:21,290 --> 00:36:28,290
So obviously, they've been running this 0% interest rate, zero growth, zero inflation

478
00:36:28,290 --> 00:36:32,510
playbook for decades. And again, they didn't really understand why they were stuck in this

479
00:36:32,510 --> 00:36:37,030
trap, but they have been. And so they've just been running with it. Well, a huge problem emerged in

480
00:36:37,030 --> 00:36:44,170
2022 because a little institution called the Fed started to hike. And that hike resulted in a huge

481
00:36:44,170 --> 00:36:49,070
interest rate differential opening up between the US and Japan. So it's the yen carry trade.

482
00:36:49,070 --> 00:36:54,990
Yeah. And the yen carry trade blew out the yen from 110 to the dollar to 160 over the course of

483
00:36:54,990 --> 00:36:59,010
2022. Do you want to just explain the dynamics of the yen carry trade for anyone that's not aware?

484
00:36:59,870 --> 00:37:07,090
Sure, sure. So the yen carry trade is essentially, you know, borrowing in a cheaper interest rate

485
00:37:07,090 --> 00:37:12,870
currency in order to invest in a higher interest rate currency. So it's a rate arbitrage. But it

486
00:37:12,870 --> 00:37:17,830
can get obviously more complex than that because you have FX problems to deal with, right? And

487
00:37:17,830 --> 00:37:23,970
there's obviously different ways to play the yen carry trade, right? But the simplest one would go

488
00:37:23,970 --> 00:37:28,250
like this, you know, a Japanese investor or even an American investor goes to a Japanese bank,

489
00:37:28,930 --> 00:37:34,130
you know, opens up an account, they deposit some collateral, or they can even in some banks,

490
00:37:34,170 --> 00:37:38,470
they can get unsecured loans, they get it for, you know, 50 basis points, half a percent of

491
00:37:38,470 --> 00:37:46,930
interest or 0% interest, if you're talking prior to 2024. And then they loan, they take that,

492
00:37:47,130 --> 00:37:51,450
those yen, they take it to the foreign exchange market, they convert it into dollars or into,

493
00:37:51,450 --> 00:37:59,070
Australian dollars or into British pounds. Then they go invest in British gilts or US treasuries

494
00:37:59,070 --> 00:38:05,370
and they profit from the interest. And so for many years, it was literally 0% was where Japan was at

495
00:38:05,370 --> 00:38:12,270
and wherever the US was at, 4%, 5% was the yield you would make. And so that 5% may not sound like

496
00:38:12,270 --> 00:38:16,050
a lot, but when you multiply it by hundreds of millions or billions or trillions of dollars,

497
00:38:16,050 --> 00:38:22,850
that's a lot of money and hedge funds institutional traders uh retail traders right family offices

498
00:38:22,850 --> 00:38:28,350
banks all take advantage of this and it's estimated the yen carry trade is you know somewhere north of

499
00:38:28,350 --> 00:38:33,570
four to five trillion dollars um and if you include all the derivatives it's probably north of 10

500
00:38:33,570 --> 00:38:40,370
trillion so it's a huge huge trade and um it's one of the driving factors that's pushed the yen weaker

501
00:38:40,370 --> 00:38:42,650
for the last three or four years.

502
00:38:43,810 --> 00:38:45,370
And so what's the state of that?

503
00:38:45,430 --> 00:38:47,750
So what happened when the US started raising rates?

504
00:38:47,870 --> 00:38:48,990
Like have Japan followed suit?

505
00:38:50,030 --> 00:38:53,070
So, okay, so initially they decided to,

506
00:38:53,070 --> 00:38:56,610
you know, try to fight the fire with more fire, right?

507
00:38:56,610 --> 00:38:59,390
So let's go back to where we were talking,

508
00:38:59,630 --> 00:39:00,250
you know, earlier.

509
00:39:00,510 --> 00:39:02,990
The Fed starts hiking in March of 2022.

510
00:39:03,830 --> 00:39:06,650
The interest rate differential starts to explode, right?

511
00:39:07,170 --> 00:39:09,990
And not only does Japan have rates at 0%,

512
00:39:09,990 --> 00:39:19,190
in 2022, but they also haven't moved rates since 1999, February. So they've literally had 23 years

513
00:39:19,190 --> 00:39:24,230
of never changing their interest rate policy. It's been basically zero to slightly negative,

514
00:39:24,370 --> 00:39:30,010
to like negative 10 to 20 bps for two and a half decades. And so for interest rate traders,

515
00:39:30,010 --> 00:39:33,830
which have to also worry about interest rate risk, right? Like what if Japan hikes?

516
00:39:33,830 --> 00:39:39,190
This is the clearest signal. They borrow as much yen as they can, and they all convert it to USD.

517
00:39:39,190 --> 00:39:42,130
and they start buying US treasuries.

518
00:39:42,650 --> 00:39:44,750
The problem is what that functionally does

519
00:39:44,750 --> 00:39:46,470
is they're selling yen,

520
00:39:46,890 --> 00:39:48,370
which lowers the value of the yen

521
00:39:48,370 --> 00:39:49,770
and they're buying dollars,

522
00:39:49,870 --> 00:39:51,390
which inflates the value of the dollar.

523
00:39:51,890 --> 00:39:54,890
And so by doing that directionally all year,

524
00:39:55,070 --> 00:39:58,130
the yen goes from 110 to 160 by September of 2022.

525
00:39:58,690 --> 00:40:01,870
Now on September 18th of that year,

526
00:40:02,170 --> 00:40:03,830
the BOJ starts to panic

527
00:40:03,830 --> 00:40:06,690
because the yen starts to reach the 160 mark,

528
00:40:06,790 --> 00:40:08,070
which is one of the red lines of

529
00:40:08,070 --> 00:40:11,610
like, you know, very severe currency depreciation.

530
00:40:11,750 --> 00:40:15,110
So they decide to initiate a currency intervention

531
00:40:15,110 --> 00:40:17,110
to the tune of like $38 billion.

532
00:40:18,210 --> 00:40:27,265
And it whacks the yen down to 151 You know the yen slowly recovers In October they follow it up with more interventions more 30 billion billion clips

533
00:40:27,425 --> 00:40:28,625
firing ammo clips at the market,

534
00:40:28,805 --> 00:40:29,865
trying to blow out traders.

535
00:40:30,525 --> 00:40:33,165
And what it does is it just buys them time

536
00:40:33,165 --> 00:40:34,145
because they're using,

537
00:40:34,305 --> 00:40:36,525
they're burning their reserves to do that, right?

538
00:40:36,985 --> 00:40:39,045
And meanwhile, while they're doing all this stuff,

539
00:40:39,085 --> 00:40:40,425
and this just shows you the insanity

540
00:40:40,425 --> 00:40:41,845
of Japanese monetary policy,

541
00:40:42,065 --> 00:40:43,125
they're still doing QE.

542
00:40:43,605 --> 00:40:45,285
They're still running yield curve control.

543
00:40:45,965 --> 00:40:49,525
So they're burning literally $30 billion a month

544
00:40:49,525 --> 00:40:51,125
on the foreign exchange interventions.

545
00:40:51,405 --> 00:40:52,245
And on the other hand,

546
00:40:52,325 --> 00:40:55,245
they're printing like $20 billion USD a month

547
00:40:55,245 --> 00:40:56,965
for their yield curve control program.

548
00:40:57,345 --> 00:41:00,065
Because the more yen they print,

549
00:41:00,245 --> 00:41:02,045
the more JGB yields go up

550
00:41:02,045 --> 00:41:03,405
because obviously people get worried,

551
00:41:03,485 --> 00:41:05,245
oh no, JGB yields are going up.

552
00:41:05,745 --> 00:41:08,205
And so because they have this yield curve control,

553
00:41:08,285 --> 00:41:10,165
which is basically this cap on interest rates

554
00:41:10,165 --> 00:41:11,825
and at the time I was set at zero,

555
00:41:11,825 --> 00:41:24,005
So anytime the yield starts to threaten to trade out of the negative zone, they just print infinite yen and buy enough JGBs so that the yield goes back down to the negative bound.

556
00:41:24,385 --> 00:41:30,625
And so it just happens over and over again where in the same months, they're literally like, oh, let's go buy yen over here.

557
00:41:30,625 --> 00:41:32,925
And then let's go, oh, print yen over here.

558
00:41:32,985 --> 00:41:36,545
And they're just like doing the same thing, burning the kettlehead belt ends for months.

559
00:41:37,565 --> 00:41:41,245
And then, you know, obviously they start to panic because the interventions aren't doing enough.

560
00:41:41,245 --> 00:42:11,225
So December 2022, they do their first move, which is they change the band of yield curve control from the negative bound up to a range of zero to zero and a half percent. So they finally move it like kind of out of the zero bound. Not really, but like it's no longer pinned at exactly zero. Right. It can go up to half a percent for the 10 year. We're talking about the 10 year JGB. Right. This isn't their T-bills. This isn't their short term debt. This is their 10 year bond. They're like, OK, maybe we'll let people earn half a percent over 10 years.

561
00:42:11,245 --> 00:42:17,865
you know, a year on 10 years. And then, you know, that buys them a little bit of time that causes a

562
00:42:17,865 --> 00:42:22,685
margin call for the Japanese securities clearing corporation that in December of that year.

563
00:42:23,465 --> 00:42:29,965
By the next June, the yen is back at 150 again, and they start panicking. So they move the yield,

564
00:42:30,165 --> 00:42:35,305
the band again. And then that like, you know, causes a bunch of carry trade unwind and panic.

565
00:42:35,305 --> 00:42:48,725
And then their stock market, you know, falls 12% in a day. And then they, you know, the situation progresses over 2023, 2024. 2024 comes around, they do more interventions in May and June, and then they move the band again.

566
00:42:48,725 --> 00:42:54,185
and you know by you know there's a lot of obviously like i could list every single date and what they

567
00:42:54,185 --> 00:43:01,365
did at every single point but the long and short of it is by you know 2024 they had burned through

568
00:43:01,365 --> 00:43:06,485
120 billion dollars of interventions and they'd lifted the caps on yield curve control higher and

569
00:43:06,485 --> 00:43:14,325
then eventually um they had completely eliminated uh yield curve control altogether by 2025 um and

570
00:43:14,325 --> 00:43:20,025
then they also obviously hiked out of the zero bound uh starting in in um 2024 they'd gotten

571
00:43:20,025 --> 00:43:24,005
in march of that year they'd completely gotten out of the zero bound and then they did a half

572
00:43:24,005 --> 00:43:29,085
point hike uh or up to half a percent and right now they're actually having a meeting because

573
00:43:29,085 --> 00:43:37,945
they're they're considering hiking again to 0.75 percent um and so well actually i might have that

574
00:43:37,945 --> 00:43:41,625
wrong i think if they're at 0.75 they might hike to one percent so they might hike another 25 bits

575
00:43:41,625 --> 00:43:47,085
um and so the point is like they basically tried they threw everything but the kitchen sink at the

576
00:43:47,085 --> 00:43:53,145
yen uh carry trade they threw all they could at the at the weakness the yen weakness and none of

577
00:43:53,145 --> 00:43:57,705
it worked and so now they're finally trying their last bazooka which is actually hiking rates and

578
00:43:57,705 --> 00:44:02,825
trying to normalize with the u.s the problem is that long term that is completely unsustainable

579
00:44:02,825 --> 00:44:09,565
because their debt to gdp is so high yeah yeah so i mean it seems completely unsustainable i i

580
00:44:09,565 --> 00:44:11,345
none of this makes sense when you look at it.

581
00:44:11,465 --> 00:44:13,585
Like, will Japan be able to survive this?

582
00:44:14,605 --> 00:44:16,885
Well, not in its current state, right?

583
00:44:18,105 --> 00:44:22,965
Like, the Japanese economy is still, like we said,

584
00:44:23,025 --> 00:44:25,945
still dealing with the repercussions of what happened in 1989.

585
00:44:26,225 --> 00:44:27,625
And it hasn't fleshed that out.

586
00:44:28,245 --> 00:44:29,505
And unfortunately, as you know,

587
00:44:29,585 --> 00:44:32,105
like the only two ways to deal with a massive debt overhang

588
00:44:32,105 --> 00:44:37,285
is default slash deflation or hyperinflation

589
00:44:37,285 --> 00:44:39,405
or financial repression, right?

590
00:44:39,405 --> 00:44:46,025
if you don't want to cause hyperinflation, let's burn the debt off at 15% inflation a year and

591
00:44:46,025 --> 00:44:52,285
cap yields at 5% a year and just burn everyone out over 20 or 30 years. That's basically the

592
00:44:52,285 --> 00:44:57,665
sovereign playbook. That's what Japan will have to do. And that's not something they want to do,

593
00:44:58,225 --> 00:45:04,185
but it's unfortunately the grim reality that they're facing because with 260% debt to GDP,

594
00:45:04,185 --> 00:45:13,045
120% private debt to GDP with the oldest and most aged demographic in the world and the lowest

595
00:45:13,045 --> 00:45:19,245
birth rate in the world, they don't really have an option to grow their way out of this.

596
00:45:19,765 --> 00:45:26,025
That they could have maybe had an argument for that in the 60s and 70s. Their only option is to

597
00:45:26,025 --> 00:45:31,685
financially finagle their way out via inflation or deflation somehow. And so with the debt to GDP

598
00:45:31,685 --> 00:45:38,445
where it is. I mean, we're talking two to three decades of five to 10% inflation to really get

599
00:45:38,445 --> 00:45:45,265
this thing done, probably 10%, 10, 10, 15. And that just means that the average Japanese person

600
00:45:45,265 --> 00:45:50,105
who's invested in bonds is going to get absolutely destroyed. This is a bit of a tangent, but do you

601
00:45:50,105 --> 00:45:54,445
think the fact that they've got one of the lowest birth rates in the world is down to the lack of

602
00:45:54,445 --> 00:46:00,685
growth and sort of nihilism within the country? That's definitely part of it. You know, there's

603
00:46:00,685 --> 00:46:06,945
this really good subsec post i read a while back called no country for young men um which is

604
00:46:06,945 --> 00:46:10,405
obviously a play on the movie title no country for old men and it was about the bank of japan

605
00:46:10,405 --> 00:46:16,945
and how the bank of japan and central banking in general has kind of emasculated young men

606
00:46:16,945 --> 00:46:24,785
by eliminating uh risk taking but also obviously eliminating the you know the penalty for excessive

607
00:46:24,785 --> 00:46:30,205
risk taking and so um what they argued in that piece was that the average japanese young man

608
00:46:30,205 --> 00:46:41,225
And basically, instead of having, you know, a severe depression where everyone lost their job and, you know, young men are forced to go out on the street and find work or create work or create businesses or do something, right?

609
00:46:41,225 --> 00:46:50,365
Like we had our Great Depression and we, you know, enrolled hundreds of thousands of young men to rebuild our national parks and to build trails and the Hoover Dam.

610
00:46:50,485 --> 00:46:52,065
And we did all these public works projects.

611
00:46:52,225 --> 00:46:56,225
Instead of doing that, the Japanese took the comfortable way out, right?

612
00:46:56,305 --> 00:46:57,705
They just said, we'll lower rates to zero.

613
00:46:57,705 --> 00:47:00,425
we'll do enough QE so that the stock market stops falling

614
00:47:00,425 --> 00:47:03,205
and everyone can go home and play video games

615
00:47:03,205 --> 00:47:04,305
and we'll just relax

616
00:47:04,305 --> 00:47:08,105
and what that did is just completely emasculated

617
00:47:08,105 --> 00:47:12,505
and eviscerated the vital life force of that entire generation

618
00:47:12,505 --> 00:47:14,005
and so there's actually a word

619
00:47:14,005 --> 00:47:15,465
I can't say the word in Japanese

620
00:47:15,465 --> 00:47:17,125
because I don't speak Japanese well

621
00:47:17,125 --> 00:47:19,225
but there's a word for these people

622
00:47:19,225 --> 00:47:20,685
but it translates to the lost generation

623
00:47:20,685 --> 00:47:23,885
so anyone born in the 1970s

624
00:47:23,885 --> 00:47:26,385
who was basically graduating college by the early 90s

625
00:47:26,385 --> 00:47:30,825
uh, they basically stayed at home. They didn't get a job. They didn't get a career. They didn't

626
00:47:30,825 --> 00:47:36,205
get a girlfriend. They didn't get a wife. And obviously that, that kind of dominoes down,

627
00:47:36,385 --> 00:47:39,685
downstream the society, because when people don't get married, don't have kids,

628
00:47:39,685 --> 00:47:46,225
then their kids don't have kids. And that just means the demography rapidly, rapidly changes.

629
00:47:46,625 --> 00:47:52,825
And, uh, you know, it was, this was basically equivalent to almost a war, right? Um, if you

630
00:47:52,825 --> 00:47:59,045
look at the birth rates and their collapse in the 90s and 2000s it was basically just as bad as as a

631
00:47:59,045 --> 00:48:04,885
as the world war was initially um and the problem is you know until this financial situation economic

632
00:48:04,885 --> 00:48:09,705
situation is resolved we're not going to get that baby boom uh like we did after world war ii it's

633
00:48:09,705 --> 00:48:13,685
crazy it's like instead of facing sort of the harsh reality of life they've just been sedated

634
00:48:13,685 --> 00:48:18,945
through this period yeah the key word that kept coming back to me was zombified or like it's like

635
00:48:18,945 --> 00:48:23,245
that just very well encapsulates the entire Japanese economy.

636
00:48:24,025 --> 00:48:27,525
So people might be listening to this being like, why is Japan so important here?

637
00:48:27,565 --> 00:48:28,465
Why are you talking about Japan?

638
00:48:28,565 --> 00:48:29,425
This is a Bitcoin show.

639
00:48:29,685 --> 00:48:32,465
Most people listening are in America or the UK or in Australia.

640
00:48:33,345 --> 00:48:36,685
Do you see this sort of Japanese playbook coming to these other countries?

641
00:48:38,125 --> 00:48:39,605
I think, well, that's what I'm worried about.

642
00:48:39,685 --> 00:48:41,065
I think it could, right?

643
00:48:42,025 --> 00:48:46,545
You look at the zero interest rates, the QE, right?

644
00:48:46,545 --> 00:48:48,125
and then obviously the subsequent inflation

645
00:48:48,125 --> 00:48:49,285
and all this financial engineering

646
00:48:49,285 --> 00:48:50,425
that's gone on in the West.

647
00:48:50,605 --> 00:48:52,785
And it's basically a derivative

648
00:48:52,785 --> 00:48:54,025
of what's happened in Japan.

649
00:48:54,325 --> 00:48:56,645
So like we mentioned at the outset of the show

650
00:48:56,645 --> 00:48:57,785
or maybe right before the show,

651
00:48:58,225 --> 00:49:02,185
Japan is the monetary experiment lab of the world, right?

652
00:49:02,345 --> 00:49:03,445
QE was created there.

653
00:49:03,785 --> 00:49:05,185
Yield curve control was created there.

654
00:49:05,365 --> 00:49:07,465
0% interest rates and negative interest rates,

655
00:49:07,705 --> 00:49:08,765
that was created there.

656
00:49:09,265 --> 00:49:11,525
The Eurozone, the US, right?

657
00:49:11,845 --> 00:49:14,705
Canada, like the entire global monetary system

658
00:49:14,705 --> 00:49:17,905
was basically just copying what Japan had done 10 to 15 years earlier.

659
00:49:18,625 --> 00:49:22,785
And so whatever, you know, whatever playbook that Japan chose the world

660
00:49:22,785 --> 00:49:25,685
is a potential playbook that other central banks could try to implement.

661
00:49:26,185 --> 00:49:27,785
And it might sound, you know, harsh.

662
00:49:27,865 --> 00:49:29,045
It might sound cruel, right?

663
00:49:29,065 --> 00:49:31,185
Because especially if you look at the human cost,

664
00:49:31,665 --> 00:49:36,145
you know, suicide became the leading cause of death in Japan by 1993.

665
00:49:36,805 --> 00:49:39,825
And there were, you know, tens of thousands of suicides

666
00:49:39,825 --> 00:49:42,345
every single year in the country.

667
00:49:42,345 --> 00:50:03,325
It was obviously became one of the highest suicide countries globally because of the economic malaise, because young men suddenly weren't able to find a job, weren't able to find a girlfriend, weren't able to provide for themselves or anyone else. And especially as a young man, like when you lose that life purpose, when you lose that reason for being, it can be extremely debilitating and depressing. And for many people, it's just too much.

668
00:50:04,325 --> 00:50:08,865
But that cost, right, that cost on society, it may sound like it's too much.

669
00:50:08,885 --> 00:50:14,045
But when you look at it from a central banker's perspective, their worry is security and stability.

670
00:50:14,485 --> 00:50:31,505
And what they would say is, hey, if we allow a deflationary collapse, if we allow 40% of the banks to fail and M2 to shrink by 30%, 40%, and a huge Great Depression event to happen, there might be crowds coming with pitchforks for the central bankers.

671
00:50:31,505 --> 00:50:31,905
Yeah.

672
00:50:32,165 --> 00:50:32,345
Right?

673
00:50:32,445 --> 00:50:33,125
For the people in power.

674
00:50:33,125 --> 00:50:37,685
They don't want that. So what do they do? They say just same thing as like kind of more liberal

675
00:50:37,685 --> 00:50:42,225
socialists say, let's socialize the cost. Let's make everybody feel the pain. Let's sedate

676
00:50:42,225 --> 00:50:47,165
everybody. Instead of isolating the pain to the few people and the specific people who took on

677
00:50:47,165 --> 00:50:52,285
way too much debt and absolutely wiping them out, we're going to just make everyone hurt a bit and

678
00:50:52,285 --> 00:50:56,825
make them hurt for the rest of their lives. And so that's just the playbook. And unfortunately,

679
00:50:56,825 --> 00:51:02,465
I think that's what the West was doing for the 2010s and 2020s. If we're not careful,

680
00:51:02,465 --> 00:51:04,205
is what they'll try to do in the 2030s as well.

681
00:51:04,665 --> 00:51:06,065
The thing that keeps me up at night

682
00:51:06,065 --> 00:51:08,325
with Bitcoin cold storage isn't Bitcoin failing,

683
00:51:08,485 --> 00:51:09,465
it's my setup failing.

684
00:51:09,805 --> 00:51:11,345
And this is where AnchorWatch comes in.

685
00:51:11,785 --> 00:51:13,365
With AnchorWatch, your Bitcoin's insured

686
00:51:13,365 --> 00:51:14,725
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687
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688
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689
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690
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691
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692
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693
00:51:25,325 --> 00:51:26,905
wrench attacks, natural disasters,

694
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695
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696
00:51:30,405 --> 00:51:31,725
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697
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698
00:51:36,905 --> 00:51:40,845
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699
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700
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701
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702
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703
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704
00:52:05,345 --> 00:52:07,865
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705
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706
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707
00:52:12,845 --> 00:52:15,185
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708
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709
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710
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711
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712
00:52:23,805 --> 00:52:25,485
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713
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714
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715
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716
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717
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718
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719
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720
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721
00:52:46,105 --> 00:52:48,545
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722
00:52:48,665 --> 00:52:50,085
If you hold Bitcoin for long enough,

723
00:52:50,205 --> 00:52:51,245
there's probably gonna come a time

724
00:52:51,245 --> 00:52:52,065
when you need some dollars.

725
00:52:52,425 --> 00:52:53,745
Maybe it's for a business expense,

726
00:52:53,905 --> 00:52:55,605
a tax bill, a property purchase,

727
00:52:55,605 --> 00:52:56,565
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728
00:52:56,645 --> 00:52:58,065
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729
00:52:58,545 --> 00:52:59,865
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730
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731
00:53:01,805 --> 00:53:04,105
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732
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733
00:53:07,285 --> 00:53:09,565
and they've operated through multiple Bitcoin cycles.

734
00:53:10,385 --> 00:53:12,245
And Ledin has now introduced new tiered rates

735
00:53:12,245 --> 00:53:14,365
so there's no negotiation, no guesswork.

736
00:53:14,485 --> 00:53:16,425
It's just the larger the loan, the lower the rate

737
00:53:16,425 --> 00:53:18,805
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738
00:53:19,325 --> 00:53:21,085
The important part for me though is the custody.

739
00:53:21,565 --> 00:53:22,825
With Ledin's custodied loans,

740
00:53:22,825 --> 00:53:25,545
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741
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742
00:53:28,105 --> 00:53:30,545
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743
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744
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745
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746
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747
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748
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749
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750
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751
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752
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753
00:53:57,432 --> 00:54:02,132
So when you look at like the US situation now, obviously, like the very recent news is that it

754
00:54:02,132 --> 00:54:05,772
looks like everything in Iran is sort of coming to a close. Like we'll see if that actually happens.

755
00:54:05,772 --> 00:54:10,292
But like, what do you expect to happen in the economy there now? Do you think rates will continue

756
00:54:10,292 --> 00:54:14,392
to go up? Like I know there's been a lot of talk about that with Walsh. Do you think inflation is

757
00:54:14,392 --> 00:54:17,232
going to be sustained for a long period of time? What do you see happening?

758
00:54:18,192 --> 00:54:23,572
Well, I think obviously long-term, my view is similar to all the other macro analysts.

759
00:54:23,792 --> 00:54:24,532
It's undeniable.

760
00:54:24,812 --> 00:54:28,712
Inflation is going to have to creep up just because of the fiscal situation, right?

761
00:54:28,752 --> 00:54:30,492
And the Fed is going to eventually have to start QE.

762
00:54:30,952 --> 00:54:35,392
What Warsh wants to do, which is to lower rates and decrease the size of the balance

763
00:54:35,392 --> 00:54:38,472
sheet, is kind of a paradox, right?

764
00:54:38,472 --> 00:54:39,312
It's an oxymoron.

765
00:54:40,192 --> 00:54:45,752
There's been basically no central bank governor for the last 30, 40 years that's been able

766
00:54:45,752 --> 00:54:52,152
to do opposing monetary policies in the long term, right? For short term, sure. But, you know,

767
00:54:52,192 --> 00:54:57,012
Powell did the same thing. Yellen did the same thing. Yellen wanted a higher stock market and a

768
00:54:57,012 --> 00:55:02,052
lower Fed balance sheet in 2018. So they started laying off, you know, U.S. Treasuries started

769
00:55:02,052 --> 00:55:06,812
shrinking the balance sheet. By October 2018, the U.S. stock market was having, you know,

770
00:55:06,952 --> 00:55:12,212
four or five red days every single week. And by December, it was officially in a bear market. And

771
00:55:12,212 --> 00:55:17,832
we had the worst December Christmas since 1934 in December 19, 2018.

772
00:55:18,192 --> 00:55:20,192
So it was a horrendous crash.

773
00:55:20,312 --> 00:55:22,832
And then, of course, what happens in January of 2019,

774
00:55:23,552 --> 00:55:26,412
they reverse course, right?

775
00:55:27,072 --> 00:55:30,032
And by September 2019, COVID starts.

776
00:55:30,432 --> 00:55:31,312
We have the repo madness.

777
00:55:31,312 --> 00:55:34,652
And then QE comes in wholesale in early 2020.

778
00:55:35,312 --> 00:55:37,492
So we reverse that very quickly.

779
00:55:37,692 --> 00:55:39,852
And that's the same issue I see with Warsh

780
00:55:39,852 --> 00:55:41,592
with every other central bank governor

781
00:55:41,592 --> 00:55:42,972
that's gone before him.

782
00:55:43,612 --> 00:55:46,132
You know, they may want to lower inflation

783
00:55:46,132 --> 00:55:48,472
and lower rates and, you know,

784
00:55:48,552 --> 00:55:51,532
thread this needle any way they can.

785
00:55:51,612 --> 00:55:54,012
The problem is the numbers won't let them, right?

786
00:55:54,112 --> 00:55:57,952
The U.S. Treasury debt is growing way too rapidly.

787
00:55:58,232 --> 00:56:00,212
The interest expense is growing at 12% a year.

788
00:56:00,292 --> 00:56:01,612
The U.S. economy, you know,

789
00:56:01,652 --> 00:56:03,852
the last FedNow forecast was 1.6%.

790
00:56:04,712 --> 00:56:08,412
Federal tax receipts or interest expense

791
00:56:08,412 --> 00:56:13,132
as a percent of federal tax receipts is now 24%.

792
00:56:13,132 --> 00:56:14,932
So basically a quarter of all your tax dollars

793
00:56:14,932 --> 00:56:16,412
is just going to pay the interest on the debt.

794
00:56:17,432 --> 00:56:20,092
Interest is now the largest line item.

795
00:56:20,932 --> 00:56:22,752
And I think it's very close to defense.

796
00:56:22,892 --> 00:56:24,552
So some months it's less than defense,

797
00:56:24,672 --> 00:56:26,252
but a lot of months it's more than defense.

798
00:56:26,332 --> 00:56:27,552
It's at 1.2 trillion a year.

799
00:56:28,912 --> 00:56:31,072
And if you don't get rid of that, right,

800
00:56:31,292 --> 00:56:33,712
the US fiscal situation continues to worsen

801
00:56:33,712 --> 00:56:35,592
and more money needs to be created to pay that off.

802
00:56:35,692 --> 00:56:37,732
And so that just causes secular inflation.

803
00:56:37,732 --> 00:56:43,412
now for the for the iran war ending i think that's obviously a good thing short term that

804
00:56:43,412 --> 00:56:48,752
lets some of the pressure and the steam out of the bag um but the long-term issue still hasn't

805
00:56:48,752 --> 00:56:54,352
been resolved and uh the the money we've spent on this war right 300 billion dollar reconciliation

806
00:56:54,352 --> 00:56:58,312
deal which trump is saying that not all of that is going to be paid by us it's going to be paid

807
00:56:58,312 --> 00:57:02,992
by the gulf states which yeah i good luck convincing them and to pay for war that they

808
00:57:02,992 --> 00:57:08,012
didn't even fight in and didn't they didn't want want you know i i don't see how that that plays out

809
00:57:08,012 --> 00:57:12,572
i mean there must be something in that deal for them as well that probably comes from the u.s but

810
00:57:12,572 --> 00:57:17,772
um it's like it's funny because obviously people talk about the big print in bitcoin all the time

811
00:57:17,772 --> 00:57:22,432
and and it does seem inevitable that at some point that'll happen but is your take really that even

812
00:57:22,432 --> 00:57:29,032
if the big print happens it won't be just straight up qe like we've had in the past yeah yeah um i

813
00:57:29,032 --> 00:57:37,472
think it'll be a mix of liquidity measures, right? Capturing of retail deposits, the BTFP

814
00:57:37,472 --> 00:57:44,192
reimagined, right? Yield curve control. Yield curve control. And they'll even probably invent

815
00:57:44,192 --> 00:57:49,192
new things, right? Like these people, although we are Bitcoiners and we don't like central planning

816
00:57:49,192 --> 00:57:54,732
and Keynesian economics and people inflating our money away, I agree it is immoral. But it is

817
00:57:54,732 --> 00:58:00,152
important to understand like who your opponent is. Like these aren't stupid people. These are

818
00:58:00,152 --> 00:58:05,172
people with PhDs in economics. And if they're at the helm of the monetary system, they can probably

819
00:58:05,172 --> 00:58:10,192
figure out new ways to, you know, create liquidity or to kick the can down the road further than you

820
00:58:10,192 --> 00:58:15,052
think they can. You know, the prime example I think of is something I found very early in my

821
00:58:15,052 --> 00:58:21,792
macro research, which is in, you know, 2013 and 2014, after the, you know, huge fallout of the

822
00:58:21,792 --> 00:58:27,532
Great Recession and the global financial crisis, you know, banks were looking for new types of

823
00:58:27,532 --> 00:58:31,012
high-quality liquid assets to hold on to, and mortgage-backed securities were obviously not

824
00:58:31,012 --> 00:58:39,412
one of them. And the Fed and the CFTC and the OCC and other institutions decided, hey, why don't

825
00:58:39,412 --> 00:58:44,712
we create new laws that basically make money market funds invest, you know, have a section

826
00:58:44,712 --> 00:58:58,217
of them called government MMS invest 99 of their you know total fund AUM into government bonds Because before they were just optional but now let make it a regulatory requirement And then let also make it a regulatory requirement

827
00:58:58,217 --> 00:59:00,257
for banks to hold treasuries as well.

828
00:59:00,697 --> 00:59:03,517
So that forced, obviously, a lot of bank capital

829
00:59:03,517 --> 00:59:05,477
into treasuries that wouldn't have otherwise gone there.

830
00:59:05,937 --> 00:59:07,277
And who's to say that they're not going to do that

831
00:59:07,277 --> 00:59:08,457
in the future with deposits?

832
00:59:09,097 --> 00:59:09,717
That they're not going to say,

833
00:59:09,797 --> 00:59:11,057
oh, hey, every bank deposit,

834
00:59:11,157 --> 00:59:13,257
the $19 trillion of bank deposits in the US,

835
00:59:13,257 --> 00:59:14,837
they all have to be backed one-to-one

836
00:59:14,837 --> 00:59:16,537
by US treasury bills, four-week bills.

837
00:59:16,997 --> 00:59:20,717
So banks, you got to go out and buy all this treasury debt.

838
00:59:21,277 --> 00:59:22,237
They could do that.

839
00:59:22,577 --> 00:59:25,657
And that would be another way to increase demand for treasuries without necessarily,

840
00:59:25,897 --> 00:59:27,697
you know, printing more money immediately.

841
00:59:28,997 --> 00:59:31,957
I mean, the inevitable thing is the fuckery is going to continue.

842
00:59:32,137 --> 00:59:35,397
And like the good thing about Bitcoin is you can just buy Bitcoin and kind of ignore all

843
00:59:35,397 --> 00:59:35,857
this stuff.

844
00:59:36,417 --> 00:59:37,477
Yeah, absolutely.

845
00:59:37,857 --> 00:59:39,137
What is your take for Bitcoin?

846
00:59:39,277 --> 00:59:40,757
Like get over a long enough time frame.

847
00:59:40,877 --> 00:59:42,457
What do you think Bitcoin becomes?

848
00:59:42,457 --> 01:00:08,017
I think, you know, Bitcoin is such a fascinating topic because as you know, like when you look at it from different perspectives, it can go into so many different, you know, it can go and fit into so many different disciplines and applications from philosophy to, you know, cryptography and cyberpunk culture to, you know, future spacefaring energy money, right?

849
01:00:08,017 --> 01:00:22,357
But the main problem that I see, which is something that kind of Brent Johnson has pointed out to me and some others as well, is that the current system favors inflationary currency with a continually expanding supply.

850
01:00:23,197 --> 01:00:31,277
And Bitcoin, being a scarce asset with a finite supply, is going to suffer from what's called Gresham's Law, which is that bad money drives out good.

851
01:00:31,277 --> 01:00:37,757
right and Gresham's law applies up until basically complete monetary collapse at which point it flips

852
01:00:37,757 --> 01:00:42,537
into tier's law and tier's law is the opposite good money drives out bad so like in a hyperinflation

853
01:00:42,537 --> 01:00:47,757
in Weimar Germany what do people do they all by the very end they're all burning wheelbarrows of

854
01:00:47,757 --> 01:00:53,737
cash and they're all trying to get their hands on dollars and pounds and gold bars right but that

855
01:00:53,737 --> 01:00:59,257
doesn't happen till the very end because in the beginning the the slowly depreciating currency

856
01:00:59,257 --> 01:01:10,117
The currency dealing with 2% inflation a year, that is actually much more spendable in the real economy than the currency gaining 5% a year, like let's say gold would be or Bitcoin would be.

857
01:01:11,477 --> 01:01:16,737
And so that means that people, like the market generally, doesn't have much demand to spend it.

858
01:01:16,837 --> 01:01:21,737
And again, if you go around and ask Bitcoiners, you know, how much Bitcoin do you spend?

859
01:01:22,257 --> 01:01:24,837
Most of them are going to be like, why would I spend it?

860
01:01:25,217 --> 01:01:26,237
This is an investment.

861
01:01:26,337 --> 01:01:27,617
This is going to go up 10x.

862
01:01:27,617 --> 01:01:28,057
you know

863
01:01:28,057 --> 01:01:29,397
Taylor says it's going to go to a million

864
01:01:29,397 --> 01:01:30,197
right

865
01:01:30,197 --> 01:01:31,157
and whether or not you believe that

866
01:01:31,157 --> 01:01:32,117
I think all of Bitcoiners

867
01:01:32,117 --> 01:01:32,597
obviously believe

868
01:01:32,597 --> 01:01:33,537
it's going to go much higher

869
01:01:33,537 --> 01:01:34,677
you know my target's

870
01:01:34,677 --> 01:01:36,417
300k in the next two years

871
01:01:36,417 --> 01:01:37,877
but

872
01:01:37,877 --> 01:01:39,397
even if

873
01:01:39,397 --> 01:01:39,877
you know

874
01:01:39,877 --> 01:01:42,037
or especially if you believe that

875
01:01:42,037 --> 01:01:43,117
you'll want to hold on

876
01:01:43,117 --> 01:01:44,037
to every sat you can

877
01:01:44,037 --> 01:01:44,917
and so

878
01:01:44,917 --> 01:01:45,757
spending a little Bitcoin

879
01:01:45,757 --> 01:01:46,137
here and there

880
01:01:46,137 --> 01:01:46,797
might be optional

881
01:01:46,797 --> 01:01:47,757
but you would never want to

882
01:01:47,757 --> 01:01:48,577
spend your whole stack

883
01:01:48,577 --> 01:01:50,397
and so that's going to prevent

884
01:01:50,397 --> 01:01:51,837
Bitcoin from being

885
01:01:51,837 --> 01:01:53,117
truly adopted as a currency

886
01:01:53,117 --> 01:01:54,077
especially in the short

887
01:01:54,077 --> 01:01:54,797
to medium term

888
01:01:54,797 --> 01:01:55,957
up until we see

889
01:01:55,957 --> 01:01:57,217
very severe

890
01:01:57,217 --> 01:02:03,777
fiat collapse. Because Bitcoin, I think, to be adopted as a money and as a true, true medium of

891
01:02:03,777 --> 01:02:09,857
exchange, it's not only going to require the attractive force of it being superior, it's also

892
01:02:09,857 --> 01:02:16,177
going to require a repellent force of the old system dying. Which, by the way, this is exactly

893
01:02:16,177 --> 01:02:21,057
how every reserve currency has taken place. It wasn't just, you know, the US dollar didn't become

894
01:02:21,057 --> 01:02:24,697
the US dollar just because the US is a great country. Oh, it's amazing. It's such a good,

895
01:02:24,697 --> 01:02:31,117
you know, a good idea to buy U.S. dollars. It's also because the British were decimated by World

896
01:02:31,117 --> 01:02:36,457
War II, decimated by World War I, and they started losing all of their colonies within 15, 20 years.

897
01:02:37,037 --> 01:02:41,997
And so you look at the, you know, the rates of the British pound and the U.S. dollar and the amount

898
01:02:41,997 --> 01:02:46,777
of trade volumes they had, it started collapsing, not actually right after World War II, it started

899
01:02:46,777 --> 01:02:52,317
collapsing in the early 50s because that was the point where all of the British colonies started

900
01:02:52,317 --> 01:02:59,377
announcing independence from, you know, Great Britain and the endemic, you know, demand that

901
01:02:59,377 --> 01:03:03,217
they'd created, the structural demand they'd created started falling apart. And then obviously

902
01:03:03,217 --> 01:03:08,617
with that power vacuum, it all flowed to the US dollar. So until we have those two things happening,

903
01:03:08,897 --> 01:03:14,137
not only the attractive, you know, pulling force of Bitcoin being the superior money, but also the

904
01:03:14,137 --> 01:03:20,577
pushing force, the repelling force of the old fiat currency really falling apart. I think Bitcoin

905
01:03:20,577 --> 01:03:26,557
being a true currency is not going to happen. I mean, that's a very long road to getting to the

906
01:03:26,557 --> 01:03:29,437
point of being sort of the global reserve currency, but do you think it can become

907
01:03:29,437 --> 01:03:33,777
like one of a, maybe a basket of global reserve assets before that?

908
01:03:34,717 --> 01:03:39,097
Absolutely. Yes. And so this is where like, I have the caveat, right? And where I piss off

909
01:03:39,097 --> 01:03:45,297
both the Bitcoiners and the fiat MMTers and like everybody, oh dude, you should see my Twitter,

910
01:03:45,477 --> 01:03:49,337
dude. Anything I say, everybody gets pissed at me. I have Bitcoiners saying, oh, you're

911
01:03:49,337 --> 01:03:50,497
a total shill.

912
01:03:50,497 --> 01:04:01,282
And I like no guys I just think I more realistic and more level headed because I am a Bitcoiner and I do think obviously in the long run Bitcoin will win right The scarce assets will win The question is how do we get there

913
01:04:01,282 --> 01:04:14,842
And the idea that the dollar hyperinflates tomorrow and we all are using, you know, basically like relays and Moon Wallet to zap sass to each other tomorrow is not realistic.

914
01:04:15,762 --> 01:04:19,802
Now, a Bitcoin as a store of value is obviously it's proven its use case and it's going to

915
01:04:19,802 --> 01:04:21,642
continue to prove its use case over the next decade.

916
01:04:22,102 --> 01:04:28,162
And so for it to be a reserve asset is definitely valid.

917
01:04:28,362 --> 01:04:31,482
And that's something I pointed out in one of my recent subsec articles.

918
01:04:31,482 --> 01:04:36,682
I made the case that like, okay, you look at current reserve currencies, right?

919
01:04:36,862 --> 01:04:41,702
And you look at former reserve currencies and how they lost reserve currency status and

920
01:04:41,702 --> 01:04:42,382
how it changed.

921
01:04:42,382 --> 01:04:58,962
Well, where most people would look at like the trade data, right? Like how many dollar transactions are happening per month? You know, what's the total notional volume of British pound transactions happening in April 1951, right? That was like the last indicator of collapse.

922
01:04:58,962 --> 01:05:05,282
the first thing was that people started to divest from the bonds of the reserve currency.

923
01:05:05,682 --> 01:05:10,282
So the total rate of investment in British gilts, right,

924
01:05:10,542 --> 01:05:14,262
started to collapse in the 1930s and then more in the 40s, obviously,

925
01:05:14,342 --> 01:05:17,102
then increasingly in the late 40s and early 50s,

926
01:05:17,102 --> 01:05:18,962
even before the trade data started to show it.

927
01:05:19,562 --> 01:05:23,082
So I was looking for that in this, you know, for the U.S. dollar,

928
01:05:23,262 --> 01:05:26,322
for the U.S. treasury market, and we started to see that same thing play out.

929
01:05:26,402 --> 01:05:28,802
And this is something Grohman has pointed out many, many times.

930
01:05:28,962 --> 01:05:52,182
Um, you know, from 2008 to 2015, we had a net issuance of $8 trillion of total, uh, net new government debt, right? Foreigners bought 71% of that. They bought around 6 trillion of it. Um, from 2015 to 2022, we issued around $10 trillion and foreigners bought 15% of that.

931
01:05:52,182 --> 01:06:07,322
So we went from foreigners buying the majority of net new debt, so China, Japan, Russia, all these other countries, buying a ton of U.S. debt to basically finance our deficits to basically them not financing us on net at all.

932
01:06:07,682 --> 01:06:21,802
That's not to say they're all going to sell it all tomorrow, but you look at the trend, and in August of 2025, there's that famous chart that total value of global central bank gold holdings surpassed the value of their treasury holdings.

933
01:06:22,182 --> 01:06:27,822
And China, Russia, obviously, have been off-laying U.S. Treasuries for years.

934
01:06:27,922 --> 01:06:31,002
And they've been trying to divest from the U.S. Treasury market for years.

935
01:06:31,202 --> 01:06:33,902
And it makes sense because what are U.S. Treasuries?

936
01:06:35,042 --> 01:06:37,282
They're basically long-dated U.S. dollars.

937
01:06:37,862 --> 01:06:41,702
And so if you're going to get rid of, if you're looking at the entire U.S. dollar complex,

938
01:06:42,222 --> 01:06:43,262
what would you get rid of first?

939
01:06:43,762 --> 01:06:48,242
Your most liquid, easily tradable dollar that's like a cash deposit at a bank?

940
01:06:48,242 --> 01:06:48,602
No.

941
01:06:49,282 --> 01:06:51,902
You'll get rid of the thing that's locked up for 30 years, right?

942
01:06:51,902 --> 01:06:55,822
You'll sell your U.S. Treasury bonds, the long bonds, and then you'll move down the curve.

943
01:06:56,222 --> 01:07:00,562
Especially when you add what happened with the Russia's Treasuries and these assets getting frozen.

944
01:07:00,782 --> 01:07:03,002
That's another risk to add onto the top of that.

945
01:07:04,002 --> 01:07:04,762
Yeah, exactly.

946
01:07:05,202 --> 01:07:13,422
So it's much easier, ironically, obviously, it's much easier to freeze U.S. Treasury bonds than it is even to freeze dollar-linked deposits.

947
01:07:15,262 --> 01:07:20,502
Because there's only so many U.S. Treasury bonds, but there can be as many U.S. dollars as they want to lend into existence.

948
01:07:20,502 --> 01:07:27,982
And so the system kind of encourages this way of transitioning.

949
01:07:28,262 --> 01:07:31,902
So watch the 30-year bonds, watch the 20-year bonds on foreign central bank balance sheets.

950
01:07:32,082 --> 01:07:35,242
That will tell you if they're truly deciding to move away from the dollar.

951
01:07:35,362 --> 01:07:35,842
And they are.

952
01:07:36,062 --> 01:07:38,342
You know, they've been making those moves.

953
01:07:38,442 --> 01:07:44,102
But it is a slow process because, as Brent points out, like 55% of global trade still

954
01:07:44,102 --> 01:07:49,102
invoicing dollars, 80% of interregional trade invoicing dollars, 59% of global forex and

955
01:07:49,102 --> 01:07:50,322
reserves are still in dollars.

956
01:07:50,502 --> 01:07:56,482
It's basically been flat for the last five years, even despite all the de-dollarization talk.

957
01:07:56,822 --> 01:08:02,142
So the real movement has been happening in the treasury market, not in the actual FX trade data.

958
01:08:03,102 --> 01:08:07,622
I mean, it's no wonder that the current US admin are so keen on stablecoins,

959
01:08:07,762 --> 01:08:10,382
because that's like one last chance to save the bond market, I guess.

960
01:08:11,462 --> 01:08:12,702
Yeah, yeah, yeah.

961
01:08:12,702 --> 01:08:16,462
But my concern with that, obviously, is even though, obviously, like I said, it's better,

962
01:08:16,462 --> 01:08:18,262
because you can manufacture demand for treasuries

963
01:08:18,262 --> 01:08:21,822
rather than just allowing infinite debt growth,

964
01:08:22,122 --> 01:08:26,522
you know, better is still a relative term, right?

965
01:08:27,262 --> 01:08:31,162
That, even with the size of the stablecoin market

966
01:08:31,162 --> 01:08:32,902
where it is now and where it's projected to be,

967
01:08:33,002 --> 01:08:34,962
it still has to grow significantly more

968
01:08:34,962 --> 01:08:37,542
for it to actually make a big enough difference

969
01:08:37,542 --> 01:08:41,122
in the total rate path

970
01:08:41,122 --> 01:08:42,822
and the total debt path of the US government.

971
01:08:43,162 --> 01:08:45,442
And the bigger problem is like the real issues

972
01:08:45,442 --> 01:08:47,062
that need to be solved are the fiscal problems,

973
01:08:47,202 --> 01:08:49,142
which obviously no politician wants to touch.

974
01:08:49,522 --> 01:08:50,702
Oh man, it's going to be interesting.

975
01:08:51,442 --> 01:08:53,022
Just buy Bitcoin and sit on your hands

976
01:08:53,022 --> 01:09:05,387
and wait this thing out This has been really cool We should definitely do this again Is there anything else we not touched on though that you want to cover today um i mean i would just say like you know i think

977
01:09:05,387 --> 01:09:11,447
bitcoin what's so fascinating to me about it is that again most people view it as like this

978
01:09:11,447 --> 01:09:17,227
negative it's a negative thing that institutions and that global central banks that are you know

979
01:09:17,227 --> 01:09:26,067
Ron was accepting Bitcoin as payment for global trade. I view that as a massive positive. And the

980
01:09:26,067 --> 01:09:32,267
reason why is because the way that you will win with Bitcoin, the way that you'll take over the

981
01:09:32,267 --> 01:09:38,587
global financial system is not by creating an entirely separate one and forcing everyone at

982
01:09:38,587 --> 01:09:45,267
gunpoint to come to yours. It's by infiltrating and basically co-opting the existing mechanisms

983
01:09:45,267 --> 01:09:50,907
into yours, right? This is how the U.S. dollar gained permanence over the British pound is we

984
01:09:50,907 --> 01:09:56,447
basically copied the U.S. British or the British rails and we just did them with the dollar and we

985
01:09:56,447 --> 01:10:01,647
encouraged your dollar loans and encouraged your dollar deposits and just kind of proliferated

986
01:10:01,647 --> 01:10:09,027
their own system of, you know, gilt and British pound lending and improved upon it and did it

987
01:10:09,027 --> 01:10:16,927
again. And I believe that that is the way that this is going to play out. The main issue of macro,

988
01:10:17,047 --> 01:10:23,047
the main issue of especially US macro is that Triffin's dilemma, right? The US is forced to

989
01:10:23,047 --> 01:10:27,307
send out money to the global financial system to ensure that there's enough liquidity. Bitcoin

990
01:10:27,307 --> 01:10:33,307
solves that, right? Bitcoin actually obviates the need for that because Triffin's dilemma requires

991
01:10:33,307 --> 01:10:35,467
a centrally issued currency.

992
01:10:36,567 --> 01:10:37,587
Triffin's dilemma says,

993
01:10:37,727 --> 01:10:39,027
you know, oh, the U.S.

994
01:10:39,027 --> 01:10:40,647
is the sole issuer of currency

995
01:10:40,647 --> 01:10:42,007
and the rest of the world

996
01:10:42,007 --> 01:10:43,087
needs that currency.

997
01:10:43,827 --> 01:10:46,007
And so because of that demand imbalance,

998
01:10:46,127 --> 01:10:47,167
the U.S. has to decide

999
01:10:47,167 --> 01:10:48,847
whether they want to print more money

1000
01:10:48,847 --> 01:10:50,927
than would otherwise be justified

1001
01:10:50,927 --> 01:10:53,747
by their, you know, gold peg, right?

1002
01:10:53,827 --> 01:10:55,227
Their peg of dollars to gold.

1003
01:10:55,347 --> 01:10:56,707
Or if they want to not do that

1004
01:10:56,707 --> 01:10:57,567
and the global system

1005
01:10:57,567 --> 01:10:58,407
starves for liquidity

1006
01:10:58,407 --> 01:11:00,447
and everything starts to seize up, right?

1007
01:11:00,747 --> 01:11:03,167
That's an issue of a centralized issuer

1008
01:11:03,167 --> 01:11:04,687
and a global demand.

1009
01:11:05,387 --> 01:11:07,927
Bitcoin is a decentralized issued currency.

1010
01:11:08,347 --> 01:11:09,587
Bitcoin doesn't suffer from this.

1011
01:11:09,887 --> 01:11:12,807
If any country wants to earn Bitcoin, they can do it.

1012
01:11:13,027 --> 01:11:14,787
If any country wants to trade Bitcoin, they can do it.

1013
01:11:15,007 --> 01:11:17,947
There's no censorship rails that exist

1014
01:11:17,947 --> 01:11:19,827
like that do with fiat.

1015
01:11:20,467 --> 01:11:22,387
And so that means that in the long run,

1016
01:11:22,767 --> 01:11:25,427
not only is Bitcoin a better reserve currency,

1017
01:11:25,427 --> 01:11:27,847
it's the perfect reserve currency.

1018
01:11:28,527 --> 01:11:32,047
And so I don't see how that doesn't dawn on people

1019
01:11:32,047 --> 01:11:33,347
over a long enough time frame.

1020
01:11:33,427 --> 01:11:35,167
I don't see how that doesn't make people realize,

1021
01:11:35,307 --> 01:11:37,507
wow, like instead of buying gold,

1022
01:11:37,607 --> 01:11:40,847
which is a good store value that can hold in my bank vault,

1023
01:11:41,107 --> 01:11:44,467
I could buy Bitcoin and I can transact it digitally anywhere.

1024
01:11:44,747 --> 01:11:47,047
And then if the Reserve Bank of Russia

1025
01:11:47,047 --> 01:11:50,047
wants a payment from the Reserve Bank of China,

1026
01:11:50,047 --> 01:11:52,787
I can just send a Bitcoin payment on chain

1027
01:11:52,787 --> 01:11:55,127
and it can be verified by the entire global system

1028
01:11:55,127 --> 01:11:57,007
in two or three blocks.

1029
01:11:57,367 --> 01:11:58,787
And it's immutable and unchangeable.

1030
01:11:58,787 --> 01:12:05,227
wow this is like this is better than than gold this is digital gold um and so i think that that

1031
01:12:05,227 --> 01:12:09,027
once that starts to dawn on people especially people at the high level i think things will

1032
01:12:09,027 --> 01:12:13,987
really start to change but again we're thinking about central bankers we're thinking about people

1033
01:12:13,987 --> 01:12:18,107
who are boomers they're old they don't understand technology they don't understand bitcoin

1034
01:12:18,107 --> 01:12:22,667
unfortunately um so i think it's going to take a while but i do think that that's the future and

1035
01:12:22,667 --> 01:12:26,407
i'm obviously long run very bullish on bitcoin i do believe we're going to get to a million dollars

1036
01:12:26,407 --> 01:12:30,827
a coin. I just think it's a matter of how we get there. I mean, Bitcoin is going to win. It's crazy

1037
01:12:30,827 --> 01:12:35,067
that you can send billions of dollars for less than one sat per VBite. You spend fractions of

1038
01:12:35,067 --> 01:12:40,227
a dollar to send a billion dollars. We are going to win. I think Bitcoin is already winning. It's

1039
01:12:40,227 --> 01:12:45,547
just going to take some time. We're still so early, man. Absolutely. We are. We are. Roberto,

1040
01:12:45,627 --> 01:12:49,567
this has been very cool. We'll have to do it again at some point for sure. We've been talking about

1041
01:12:49,567 --> 01:12:53,207
making this show for a very long time, so I'm glad we finally did it. But tell everyone where

1042
01:12:53,207 --> 01:12:58,067
they can find your sub stack and everything like that before we close out sure so i have a sub stack

1043
01:12:58,067 --> 01:13:03,667
it's called dollar endgame and again that's where i kind of flesh out this like evolving theory of

1044
01:13:03,667 --> 01:13:10,327
macro that i have um you can just go to dollar endgame.substack.com or you can go to my twitter

1045
01:13:10,327 --> 01:13:16,167
profile which is at peruvian underscore bull i used to go by peruvian bull um and you'll find

1046
01:13:16,167 --> 01:13:20,827
everything there i'm the only verified roberto rios peruvian bull account so if you see a bunch

1047
01:13:20,827 --> 01:13:25,207
of clones, please don't pay attention to those. And I also have a brand new YouTube channel,

1048
01:13:25,447 --> 01:13:31,107
and that's called Peruvian Bull as well. We have new mid-length, 15, 20-minute

1049
01:13:31,107 --> 01:13:36,187
deep dive macro videos coming out. So go subscribe if you're interested.

1050
01:13:37,047 --> 01:13:40,387
Awesome. I'll put all of that in the show notes, but thank you so much, man. I will

1051
01:13:40,387 --> 01:13:43,447
definitely speak to you again soon. Awesome. Sounds good. Thanks for having me.

1052
01:13:43,827 --> 01:13:44,287
Thanks, man.

1053
01:13:50,827 --> 01:14:20,807
Thank you.