And so you've got this steep pickup of gambling, and it's across the board.
It's sports gambling, it's lottery tickets, it's the Polly Market, it's Kalshi,
it's betting on, you know, whether we invade Iran.
Like, it seems like at some point, you simply can't afford your groceries,
and we're not far off from them not being able to get by.
Make no mistake, we're not paying down our debt. This is not going away.
The debt doubles every 10 years.
And they were sort of there at the ground level when home prices were still, you know, $10,000, $20,000, $50,000.
So those are the things I keep my finger on the pulse to.
And that gives me a clue of what I think is going to be happening with Bitcoin here and in the future.
Today on the show, I have Mr. James Lavish.
James is an awesome guest as always, and he writes the incredible informationist substack.
We get into some of the recent articles he wrote about speculation, gambling, the way that the world is changing, how desperate so many people are and how Bitcoin fixes us.
Of course, you are going to love this conversation.
James, welcome back to the Bitcoin Way podcast.
Michael, it's good to be here.
I've had a really interesting article you wrote about the casino in your pocket recently.
Could you maybe just sort of explain what the article was about?
And then I'd love to get into saving versus investing versus speculating versus gambling and see where that takes us.
You know, I started the newsletter kind of just as an insight to what what goes on behind the doors in Wall Street, because as I talk to friends and they're intelligent, obviously, executives or whatever in there, or just they're not executives.
They're just working in the working world.
And I realized pretty quickly that the whole world that we live in is opaque financially.
You know, Wall Street, everything that happens behind the doors on Wall Street, we got a
peek behind what happened in the big short.
You know, Michael Lewis gave us an idea.
But of course, it's dramatized and the real stuff that's going on, it's kind of crazy.
So I'm glad that the newsletter helps.
And it's been, it's kind of want to be people's guide through all of this noise and nonsense.
But yeah, the casino in the pocket.
So I saw this graphic or a stat or something that somebody came up with.
And I think it was in my, the tweet that kind of every single newsletter, as you know, I have an inspirational tweet.
And it was like just the sheer amount of betting that's going on.
Basically, I saw the stat and it was like people paid, they spent more money, $109 billion in 2025 on lottery tickets than they did on live music and concerts, books and movies at the box office alone.
Like those three added up, didn't add up the amount of money that they spent on lottery tickets.
And it was like, wow, that is symptomatic of a sick economy.
And why do I say that?
I say it because, you know, I've been talking about this for a while that the system that we're in forces people to go out on the risk curve, meaning they are they're struggling to catch up.
We live in what's called a K-shaped economy now where you've got super wealthy people, whether they're boomers or just wealthy Gen X or millennials that have done very well over the years are on this top leg of the K.
And then the bottom leg of the K is essentially it's the wage earners.
It's people who are just going to work nine to five, and they're struggling to keep up with the inflation.
They fell behind in 2020, 2023 in that period.
and they've been fighting to catch up ever since.
Though you see economists argue,
yeah, but their wages, they're caught up.
And it's like, yeah, but they're,
first of all, two problems.
The CPI that they're measuring against
is nonsense, as we know.
If you look at your bills, your grocery bills,
your insurance costs,
and they've risen far more than just 25% in five years.
And so that's one problem.
The second problem is they lag.
And so you're just behind this whole time.
And then the compounding effect of prices in that lag is it's, for some people, it's been
painful.
For others, it's been nearly catastrophic where they just literally can't keep up and
they're just charging things in their credit card.
And they're turning to quick wins, like possibility of a quick win, which would be a lottery ticket.
You know, maybe you can win the Powerball or maybe you win $10,000 or $20,000 on one of these scratch-offs because you need that.
You need it to catch up.
Anything to catch up and it's just $2.
What do I care?
I won't get the, you know, extra Starbucks this week or whatever it is.
And you're just like, let me just try to do something.
And so you've got this steep pickup of gambling.
And it's across the board.
It's sports gambling.
It's lottery tickets.
it's the the uh poly market it's calci it's betting on you know whether we invade iran or
whether we get a deal whether the whether congress passes a bill um you know you're you're betting on
on the different races for for governor or senate senators and it's just like there's no end to what
you can bet on and then the bets you can make within sports are just mind-boggling the number
of bets you can be making and you'd be making all day long now it used to be that you go to a window
you'd have to physically fly drive to to atlantic city if you're in the northeast or physically fly
to vegas to get to a betting floor you know you go to the sports book and you actually lay down a bet
but once the game started it was kind of like that's it the the doors closed you can't same
thing with horse racing right now it's like polymarket you've got people making bets on whether
the knicks are going to win or the celtics are going to win at the you know with with a minute
left it's just it's it's crazy it's like it's it's unending it's like constant and so you have
basically a casino right here in your pocket unless you live in a place like vegas where they
ban polymarket and calci because you know the casinos have yeah they have strong
it's okay i'm not a better anyways but here's the point the whole point of the whole article was
is why is this happening it's symptomatic of the of a broken system where we're forcing people to
move out on the risk curve and just try to do anything to catch up and it's almost like
hail mary desperation just hail mary after hail mary just just one one of these is going to hit
one of these is going to hit. And you know, the likelihood of that happening is so low that
mathematically it doesn't make sense, but it doesn't matter to them. They just need something.
They need hope that they can catch up somehow and have the American dream that they were,
they were kind of promised. Now we're in a situation, Michael, where, you know, people
younger than me are struggling to make enough money in their job just to pay rent, just to pay
the cost of gas to get to that job for the people who are not, you know, don't get to work from home.
And if you're a young parent, man, you're struggling to not only have that three bedroom
apartment or small house that you're renting, but now you've got to buy all the food for your kids
and the clothes for the school. And it's, God, every single activity costs so much money. It's
like, how do you keep, keep up? Well, you charge things. So you see the rise in credit and in,
in credit card debt. And at the same time as you're seeing the rise in the, the betting platforms,
it is correlated and it's for a reason. And that reason is because people are being left behind.
And unfortunately, so, and that's, that's, that's, that's the crux of the article.
Yeah. And it's, it's a great piece. I think the incentives at play make it obvious why this would
be the case. I don't remember in the article, were there, did you like pull apart demographics?
I would have to imagine like millennials, maybe a little bit Gen X, certainly younger people are
probably the ones most likely to be gambling in that capacity. Is that, is that your impression?
I mean, the younger kids, the younger kids who are, you know, Gen Z, Gen Alpha, not so much,
because they can't really, they, they, they're not old enough yet, but Gen Z they're, you know,
in their low twenties. Yeah. They're using the betting platforms all the time. They're loving
it. It's on their phone. They're, they're betting while they're at, you know, out to dinner,
they're betting on a sports game or, you know, like the final four or whatever. It's constant.
I didn't pull apart the demographic cause I don't have, I didn't have that kind of
data detail, but what I did do is I included a chart in there about, you know, the median age
of U.S. homebuyers. And that median age has gone from 39 back in 2010, 2011. The median age now,
Michael, is 59. It's the median age. It's now it is it has become catastrophic. And I'll here I'll
tell you what I'll share this so you can see it right here. So you can see that it used to be
like it kind of flatlined here because I think they, the data was, um, it was, it was probably
difficult to get during, because there's so many, um, people who were upside down short selling and
all that, but this is the average age, the median age of all home buyers just in 2010 or so was 39.
then just you know 15 years later it's now 59 what this this steep rise that is a that is not
just a red flag that is like a like defcon 2 here like what are we doing what are we doing that this
is the this is what we have now now you've got articles come out say oh you don't want to own a
home. You just want to rent, just rent because it's better for you. If you look back, I mean,
the boomers were buying houses. They were buying a house for, you know, half a box of grape nuts and,
you know, an old sweater. And it's like, and now those houses are worth millions of dollars and
they've made out from it. Now I'm not blaming the boomers. I'm blaming the system. But the issue
here is that you can see just how quickly, how rapidly the people who are in at least the
millennial, you know, demographic has fought, have fallen behind. Like it is that's, they just got
completely hosed and it's because of money printing. There's just no way around it.
And the reason the boomers have benefited from the Cantillon effect is because of the Nixon shock.
Like that was when obviously I think since 1913, you could trace back a lot of bad things in a century of war.
But the WTF happened in 1971.
There are enough of those charts that it feels to me like causation and not just correlation.
And they were sort of there at the ground level when when home prices were still, you know, 10, 20, $50,000 and they got to buy them as young people.
And so it wasn't that they elected the wrong people, although we could argue that probably a lot of people who've elected over the last 50 years have not been optimal.
But it really is just where it started and who happened to be in their 20s at the time.
Yeah, I mean, well, you nailed it.
It's the 1971 Nixon shock where he took us fully off the gold standard and suddenly you could print money and buy bonds and you could just print money endlessly.
And there was no there's no counterparty to it.
It's like you could take your money and it's not really worth anything, which comes back
to the argument that I have with normal people every day where they're like, well, Bitcoin's
not worth anything.
It's like, okay, well, what's the dollar worth?
Half the people, and I'm not joking, half the people say, well, you can get the right
amount of gold for it.
You can take your dollar and get that amount of gold for it.
It's like, no, you can't.
You think it because it would make sense for that.
But I'm not joking.
Like at least a third of the people I talked to really do believe like, oh, you can turn
in for gold.
No, you can't.
There's nothing you can turn it in for.
You can turn in for good and service as long as that other person believes that somebody
else will accept it for a good and service for them.
That's it.
That's all it's worth.
It's worth the confidence in it, which gets us to the point of the Fed.
And that's, you know, people are like, well, inflation and the problem with inflation and,
you know, it's killing people.
It is.
And the Fed cares about that.
but only so far as it means that people keep or lose confidence in the dollar,
which I try to explain this to people. They say, well, the Fed has two mandates. They're supposed
to keep stable pricing, which is 2% inflation. God only knows where they come. They have lots
of reasons where they come up with that number, but none of them make sense. There's only one
reason. It's what they can get away with. And then the second thing is full employment, which
is just who knows what that is it's like it feels like full employment at four percent i don't know
what the real job of the fed is to do like they're what they're supposed to do is keep confidence in
the currency system keep confidence in the us dollar and that allows the treasury to continue
to borrow money with the with the treasury debt and the treasury allows congress to keep spending
like mad so it all comes full circle and then go back to the cantaloupe effect which is
Well, if we don't have enough money and there's not enough money out there to buy all this stuff, we just got to create more.
And meaning we got to create more dollars chasing after all these goods, even if it does hurt the smaller, the lower demographic, because it enables us to continue this charade of debt.
Make no mistake.
We're not paying down our debt.
This is not going away.
The debt doubles every 10 years.
It's $39 trillion today.
it was half that in 2016 and it's going to be double that in 2035 2036 so that's just the reality
but that the cantillon effect to your point is you know the people who are in power and who are closest to the spigot the money spigot this comes from Richard Cantillon an economist in France from you
know, a long time ago.
And he realized that if you are close to the money spigot, you know, the spout of money,
then you benefit from money printing.
Small businesses that have good relationships with their banks, large banks, the higher
demographic individuals who have great ties to their bank, big companies, obviously,
congressmen and senators, people who are close to the money spigot that can benefit from it.
What we'll do is they'll get that money and they'll turn around and they'll buy assets.
The assets run in price before the money trickles down to lower demographics and the wage earners
that their wages finally get raised down the line. And then they try to catch up, but they can't
catch up because they don't own the assets. So everything just keeps getting more and more
expensive, which is the whole chart that I just showed you. It's sad. And it's one of these
conversations. I like this is an interview I'm going to send to friends and family who haven't
quite it hasn't quite clicked with yet. The thing that you said that I find interesting, though,
is that they they do these things, knowing the effect on the little guy. And so when I hear
Lynn and all of us say it too nothing stops this train and almost it makes me wonder is the thing
that does stop this train pitchforks and people taking to the streets out of desperation at some
point like it seems like at some point you simply can't afford your groceries you simply can't
afford especially like in the maybe at the bottom 50 but the bottom 20 or I don't know there's some
percentage of people who are scraping to get by right now and we're not far off from them not
being able to get by. What do you think about that and how that could play out? Does it get ugly?
Well, I sure hope that we get to a spot where we avoid that. I do. So a couple of things.
Let's unpack this. So first of all, I don't think that we lose confidence in the US dollar in the
next five years or 10 years. I think it takes a lot longer than that. I think it's going to take
at least two more of these massive prints to get people in the position that you're talking about.
The reality is people want dollars. And so that's the first reality. And they'll accept dollars for
a very long time. The confidence in the dollar is very high. Number two, you're going to have
other fiat currencies collapse and just fold into the dollar. We've seen it happen so many times with
emerging markets where they get out over their ski tips. They, they issue too much debt. They
spend too much money. They can't pay back the debt. They have a debt spiral and they have to
reset the debt. And then because of that, they can't issue debt in their own currency anymore.
They have to issue debt in something else. So they wind up using the dollar and Euro dollars.
And that's not Euro dollar doesn't mean that it's in Europe. It just means that it's a dollar
to nominate an instrument that's offered outside of the United States by a foreign bank. So,
you know, that's the first part is I think it takes a long time, but now let's talk about
what really does happen. The system is driven by incentives, right? And so the incentive for
congressmen and senators, their incentive is to get reelected, period. They'll go up to DC
with these bright ideas and like there's some, I do honestly believe I'm an optimist. And, you know,
I think people are good. Most people are good, Michael, but I think that some of the people who
are optimists themselves and, and, and idealists, they get up there and they're like, I'm going to
change the world. And then they get into the machine. The machine is like, no, you're not.
There are a few things you can't do. And one of them is vote against your party. You can't do that.
And if you do, we'll sanction you or we'll take you off committees or whatever, you know,
and they strong on them.
And so and the second thing is, look, we're all in this together is what they're basically
saying up there.
And we're going to put on a great show.
But the reality is we're all a uniparty.
And that's why I don't lean very hard right or very hard left, because they're all it's
all nonsense.
It's just a big joke up there.
They laugh about it.
They bump fist.
They don't pass bills.
They talk bluster.
They pretend to fight.
They call each other names.
And then at the end of the day, they're out, you know, counting the money they made together.
The fraud that's up in Minnesota, the fraud that's out in California, the fraud that's
happening in places like, you know, in New York.
And they just, nobody's ever prosecuted.
Nobody's ever put away.
You can commit mortgage fraud if you're, you know, on the Fed and it doesn't matter.
You're all in it together.
so that's a cynical way to look at it but it's just also just a realistic way and it tells you
what the rules are so the rules are there's this is going to continue that's the rule
so go to first principles they took away guns in the uk and what what happens well they have
they have autocratic power now the problem is that if you if you tweet something or you post
something on facebook that the government doesn't like they'll come arrest you so you know we have
the First Amendment and the Second Amendment. The Second Amendment is to protect the First
Amendment. Our founding fathers put the Second Amendment in there, the right to bear arms,
not against each other, but against a tyrannical government. And so we're in a different position
here in the United States. The point of all of it is, I sure hope that it doesn't devolve into
civil war. But unfortunately, the way that the system is set up, it's just grinding
towards the situation that we used to that we used to only find in emerging markets and like in
in latin america so at yale in 1993 what 1992 one of my classes was um the separation of wealth in
latin american countries in one of my political science classes and i studied and i was like
wow how does that happen where you have this small demographic i mean not a large sample
has like the vast majority of the wealth and everybody else is poor how does that even happen
and we studied it and we saw how you know policies and um you know um the exact we're talking about
excessive money printing uh the cantaloupe effect all that comes into play and then you suddenly
have the separation of wealth where you've got this tiny percentage of people who are controlling
the vast majority of the wealth and then everybody else is just struggling to keep up
well, we're headed that way.
Unfortunately, in America, we're becoming just like them.
And you can listen to people like Lynn Alden
and Luke Roman talk about it.
It's just the reality.
That leaves us to a spot where you say,
well, that's really scary.
And wow, that's a doomer kind of view.
I'm not a doomer.
I'm a realist.
And what I'm saying is, man, protect yourself by owning assets.
And I happen to like Bitcoin the best, but, you know, Bitcoin, gold, real estate, anything that's productive, a productive business that can't be wiped out with AI in the next five years. Own something that that is productive or has value that you can lean against when they're when they print money.
I think that's hopeful. And I agree. I like Bitcoin the best. So let's go back to something
you were talking about before that you think the dollar is here. There's going to be demand for
dollars for quite some time, a decade plus, at least. But you had this interesting article,
Break the Glass, talking about Henry Paulson, his former Treasury Secretary. What was the context of
the interview he was doing, what did he say? And why did alarm bells start going off in your head?
He literally said this in the interview. He said, we need an emergency break the glass plan,
which is targeted and short term on the shelf. So it's ready to go whenever we hit the wall.
And so that was like, whoa, what is he talking about? Well, the wall he's talking about the wall
of treasuries and the decrease in the number of buyers willing to buy those treasuries at the
current rates. And so when they asked him out, they pushed him out, they said, well,
what does it mean when you actually hit the wall? And he basically just said, when we hit it,
it's going to be vicious. Okay. So what was he talking about? He was talking about the demand
for US treasuries collapsing and how the Fed has to step in as the safety net, the emergency buyer.
And then basically as treasury prices fall, the interest rates just keep going up.
And that puts us in a really difficult position.
Why is that?
Well, we just talked about, we have $39 trillion of debt.
We run multi-trillion dollar deficits that are going, they're just getting bigger.
We have this unfunded liability of social security, Medicare, and Medicaid for everybody
who's alive, who has paid into this program, $100 trillion plus.
So we're nearing $200 trillion of liabilities, depending on the estimates you use.
But the basic premise is that, okay, we've got $39 trillion of debt.
12 trillion of that is coming due this year.
Meaning we have this wall of debt that's coming due this year.
Okay, now before people say, well, that's just, it's nonsense.
Of course, they're going to get bought.
you're right likely most of this money that 12 trillion dollars a 10 trillion dollars of of of
debt plus the two trillion dollars of interest most of that is in money markets because it's
short-term debt and so it's just going to get rolled right back into whatever t-bill they issue
the next week or or float the next week but the the issue is growing the problem is growing
because the treasury can't be issuing debt that's four and a half five percent right now
because it's just making our debt interest expense go higher every single year. We don't want that.
It's already over a trillion dollars. It's $1.2 trillion net. So we can't be paying more and more
interest. So that's why they keep issuing short-term debt, playing chicken with the Fed,
basically. The Treasury's like, okay, we'll just issue short-term debt, short-term debt while we're
waiting for the Fed to lower rates. But here's the problem. The problem is the Fed does not control
the long end of the curve. What I mean by that is the Fed sets the interest rate that's overnight,
which is the bank lending each other, like the bank lending rate that they lend to each other
overnight, short-term liquidity needs. The two-year reflects what the market, general market,
thinks the Fed should be at, what the Fed funds rate should be at, the one in the two-year. And
then you get out to the seven year, 10 year, 20 year, 30 year. Those are not set by the Fed.
Those are set by demand in the market. So what's Paulson talking about? He's talking about,
we get into a situation where they issue a slug of debt and they float it and there just are not
enough buyers out there and the banks are full up and they're like, we don't have the capital to
take this down, you know, meaning there are banks who just sit there that are supposed to be
swallowing up any of the excess debt of these auctions. Well, say that they're up at their limit.
There's a reason for that. And the foreign buyers walk away or we get into a situation where we get
a great unwind of some of this basis trade. We saw, you know, a couple of years ago, this basis
trade get unwind from japan from the japanese debt rising in uh yield so quickly and then the
yen spun fire um and so you saw unwinds of hedge funds who had this huge trade on that was borrowing
from japan and buying risk assets out here and so you saw the market sell down like they were
selling everything just to get clear of this trade now i'm not talking about that i'm talking about
just a general buy treasury sell futures and pick up this interest rate arbitrage between
them and just trade around it. But those trades are levered. Who buys treasuries? Well, your
general market, you can go in as a person, go on to treasury.gov and enter into an auction. You
don't get to pick your price. You just go along with whatever price they're going to give you,
but you could do that. Then you've got the local buyers, the domestic buyers, which are pension
funds, endowments, and whatever, institutional buyers who go into these auctions and they'll
bid for a certain amount of treasuries at a certain yield. Then you've got your international
buyers, which are foreign central banks, foreign buyers, true foreign buyers that are offshore,
and the Cayman Islands. Okay, so hold that for a second. Then the last buyer is domestic banks
who are the ones who are the agents who are basically taking down anything that doesn't
get sold in the market and the Fed doesn't step in to buy themselves. They put it on their books.
But who's in the Cayman Islands? Hedge funds. The amount of buyers that have come from the Cayman Islands now has grown by a trillion dollars. And so this is the scary part, is that at the same time that you've got central banks not buying treasuries and buying gold instead, we'll come to that,
You've got this $1.8 trillion hole that's being filled by hedge funds in the Caymans.
And what are those that's grown by a trillion dollars since 2022?
What are those investments?
They're buying treasuries and they're turning around and selling futures against them.
Not every single one of them.
I don't want to be hyperbolic because hedge funds use treasuries as collateral for borrowing
on their books.
And they use prime brokers and they do this.
We used to do it all the time.
You buy short term treasuries and you're able to borrow against them.
But this is what's happening.
Here's the issue is that one of them gets upside down.
They start to unwind and then suddenly you don have the central bank stepping in like they used to Why are they not stepping in because we made a tactical mistake in the biden administration when we froze russian assets and they basically told
the world that you know if you're not on our side we may just freeze the treasuries that you hold
which was just catastrophic it was possibly the stupidest financial mistake that any any
administration has ever made signaling to the world, the world by and large that we need to
buy our treasuries because we can't stop our fucking spending that we need them. Yet we just
told them, yeah, but if you don't do what we like, we might take them back. Right. How stupid was that?
So of course you've got Russia came out, Putin said it out loud. He said, I don't want to hold
U S treasuries. They might be seized. And besides they inflate them away because they, they print so
much money. They debase them every day. So I don't want to hold them. And guess who doesn't want to
hold them as well? Well, China doesn't, you know, India doesn't. So you've got countries out there
who are, you know, not our closest allies who are saying, do I really want to own treasuries? Maybe
I'll own gold instead. And so that's why you've seen this huge pickup in gold buying and you've
seen a drop off in the demand for treasuries. So when you hear people say, yeah, but look at the
international demand. It's the same. It's actually going up. That's hedge funds. It's not, it's not,
you know, the foreign central banks. And that's the issue. And so that gets us to the point.
What happens? Well, something happens where maybe one of these hedge funds blows up,
or you've got this serious need for liquidity. You go back to 2019. This has happened before,
before COVID it happened, where in the fall of 2019, you had what was called the repo crisis.
what's the repo crisis we had a confluence of events that came together at the same time
michael you had the dollar was moving against other other currencies and you had this demand
overseas for u.s dollars and uh and so they couldn't get enough they needed they needed
the dollars um and so they were holding on to them okay so that's number one number two
you had tax payments coming due because it was in the fall and so you had corporate tax payments
coming due. So corporations and companies were sitting on dollars because they were sending them
to the IRS. Okay. And that's number two. And then number three, you had the treasury came out,
Yellen came out and said, Oh, by the way, we're going to raise the amount of treasuries that we
need in this next quarterly refunding. So we're going to be floating more treasuries than we
expected. So what did that, what does that mean? So it means that banks were sitting on dollars,
the demand for treasuries went down and the demand for dollars went up if you were a bank who needed
dollars you couldn't get them you were like i just need 50 million dollars or 100 million i just need
i need a billion dollars i need three billion dollars because i've got this hole in my balance
i've got to close it tonight well that's going to cost you because i can't give my dollars up
and so you saw what happened was what we have is called in 2019 you had what was called the this
repo market, which was just, you know, it's basically, it's called the repo market because
it's a repossession of treasuries. Meaning if you had U.S. treasuries and you needed dollars,
you could say, here's my treasuries. If you give me dollars for that, I'll buy them back tomorrow
or the next day or in a few days. And I'll pay you an interest rate for that. And they're like,
yeah, because treasuries are worth worth dollars basically. So yeah, that's fine. And it's pretty
low risk for the lender. And so it's called a repo where you're going to repossess them and
give them back the dollars that you, that you borrow them for. Well, there was such a high need
and demand for dollars and a low demand for treasuries that the, the, the repo rate spiked
up intraday to like seven, eight, 9%. And I was like, Oh my God, like, this is like, this is insane.
The amount of money I've got to, I've got to pay just to borrow dollars overnight. And the fed
stepped in immediately because the treasury was like, oh my God, we're going to have a treasury
auction fail here if we're not careful. Meaning they're going to have to step in. The Fed's going
to have to step in and swoop up a bunch of treasuries if we're not careful here, because
this is a major problem. The repo market imploded. Okay. So immediately what was happening? The Fed
was doing QT. They were selling treasuries in the market and taking dollars out. And they're like,
stop don't do that anymore wait treasury's like don't do that anymore so the fed turns like oh
wait we didn't realize this was happening okay well we'll we'll turn it around and we're going
to do qe instead so they went out there and started buying treasures themselves and putting
dollars in the system so if you go back and look at the fed balance sheet in 2019 you see it go up
you see this little hump little hump going into the march of 2020 before it went parabolic but
that little hump is the fed panicking and saying we got to be out there buying buying treasuries
ourselves because the market's going to collapse on us and we're going to have a failed auction if
we're if we're not careful it was because the market was being dysfunctional so when paulson
is talking about we better have a break the glass uh function ready we better have a plan
so we don't get into another repo crisis we don't get into you know a a failed auction
problem or situation because of a blow up of hedge funds or something that causes contagion
in the credit market, a blow up of private credit, who knows what it is. But because the Fed has been
doing so much QT, trying to bring down that, you know, almost $6 trillion that they printed back in
2020, they're trying to bring that down. And they've been taking dollars out of the system.
well what happens to the bank balance sheets the banks balances the reserves go down and they get
to a level that they start getting nervous and that level is the level that they were in 2019
where they like well we cannot even come close to that level because we do not want to get in the
same situation before so what happened this last fall the fed said we're going to be out there
and we're going to be buying short-term treasuries t-bills but it's really just treasury management
It's not, this is bank reserve management.
It's not QE.
Of course it is.
It's QE Lite, but it's QE.
They're adding dollars to the system to raise the bank reserves in order to avoid this situation.
That's number one.
Then what they did is they instituted the federal, the Fed has a repo window now, and it's always open.
It's an open window where you can go, if you're a bank, you can go and you can borrow from the overnight Fed window.
But the problem here, Michael, is that that for so long was seen as a black mark on a bank or a financial institution because that was the lender of last resort.
And so it was like, oh, if you went to go borrow from the Fed, that is not good.
You must have some trouble with your balance sheet.
And so then people start backing away and say, I'm not going to lend to you.
There's something there that I don't like.
You don't even have to tell me.
So the negative stigma is so large that that hasn't been working.
Number two is it's only open to a handful of institutions.
It's not open to everybody.
So if you have a hedge fund that's going to blow up, they're going to blow up.
They can't just go to the Fed and say, hey, I need to borrow some money.
The only way we can do that is if they orchestrate a meeting like they did back in 1998 when
long-term capital management blew up and the head of Goldman walked in and said, Hey, we're going to
implode. He got an emergency meeting with the Fed, uh, New York Fed governor. And they're like,
he's like the president of New York Fed. And he said, we're going to implode. We need help.
And so they assembled help for him, but that was pretty extraneous circumstance. And so that's what
Paul is worried about. He's worried about that. We get into one of those situations that, Oh my
God, we need money now. We can't just turn around and say, okay, we're going to stop QE now or QT
now, or we're going to raise our QE light. No, we got to be out there like flooding the market.
Get ready, break the glass, get the fire hose ready because we need it. So that's what he's
talking about, which is a little bit alarming. Yeah, it seems like it. And it seems like a guy
who would know a thing or two about the subject. So extra concerning. It seems like a lot of the
world wants to de-dollarize, right? Like Russia becomes less interested. China, obviously,
I think you said India is up there. Iran probably can't and wouldn't want to use the dollar right
now anyway, even if they could. What is the strong demand that gets us past a decade for
dollars? Is it just existing dollar denominated debt? Is it small countries going through
hyperinflation who do have good relations with the US and the best thing they might be able to get
is a stable coin or get some sort of US debt instrument. And like, that's just, they can't
afford gold, they can't afford a cold card and, you know, taking their Bitcoin into self custody.
So that's sort of the alternative. What is it? Yeah, I mean, we're the largest economy in the
world. And we're going to continue to be for a while, I believe I don't I don't believe that
that's, that's changing. But, you know, the US market drives it all. We saw it in the great
financial crisis. When we started melting down, when Lehman went under, when Bear Stearns went
under, it shockwaves across the entire world. Like it was, oops, sorry, we took you all down.
But that was what happened. That was what came out of that. So why do they need dollars? Well,
because for so long, so much of the cross-border payments for things like energy and oil,
they've been executed in dollars we're seeing some of that uh be dialed down and this is where
people talk about bricks and like well bricks is going to come up with their own currency
i don't believe that i think what they're doing is they're just trying to come up with ways they
can avoid having to hold treasuries so think about all the currencies in the world if you
were going to have a bake-off and you're going to say okay you can own any currency in the world
any of them all of them are you know put on the table in front of you and you could choose one
to denominate yourself in, which one are you going to choose? Are you going to choose rubles?
No. Are you going to choose yuan? Maybe. Maybe you choose the Chinese yuan. Maybe.
But that means you got to trust their government more than you trust ours.
Are you going to trust the euro? What are you going to trust? Probably not. Because euro is
going to be a CBDC in about three minutes. You don't want that. So you're probably going to
choose dollars. So what I mean is the demand for dollars versus the other currencies is still
extraordinarily high. Okay. So let's talk about one of the things I wanted to get to was,
because I can't, I don't keep track of this or pay attention near as closely as you do. I imagine
the, it seemed like for a long time that we were talking about the fed, they're going to have to
start cutting rates. I mean, Trump's obviously been all over Jerome Powell about cutting rates.
and now we're going to have a new Fed chair.
And I'd love to hear your take on the new Fed chair.
But most recently, I feel like I've heard rate hikes seem on the table
because now we've got potential for an oil shock.
I mean, there's 20 other variables that have now arisen because of the war,
because of sticky inflation, all these things.
What do you anticipate happening?
And then, yeah, any assessment of the upcoming change in Fed chair?
Before we get to that, I just want to also clarify that just to make sure people don't think that we're talking in circles here about the dollar.
Eventually, the problem is, eventually, people lose money in all fiat currencies, including the US dollar, because there's so much printing, there's so much inflation.
And like you said, so many people get left behind that they just, you know, they wind up fighting the system rather than trying to exist in it anymore.
And I hope that that doesn't happen.
I hope that Bitcoin helps people out of it.
So we don't have that situation.
Yes.
About the, about the fed.
So yeah, we've got Warsh who's, who's being, you know, he's having his confirmation hearings
right now, getting absolutely drilled, obviously by the Senate.
People like Warren who were accusing him of being a sock puppet for, for Trump.
I mean, I'm not sure there's any more unlikable person or least likable person in the world
than Elizabeth Warren.
It could be Clinton, but at least she's off stage.
She's like accusing him of being a sock puppet and he's just going to do Trump's bidding.
He's going to come in and lower rates.
And I honestly do not believe that that's what's going to happen.
Don't believe it for a few reasons.
Well, first of all, he's got to get confirmed.
He's been known as a hawk, you know, because of his legacy.
He was at Morgan Stanley. He was doing M&A there. And he winds up on the Fed. Here's the thing,
though. When he was there, he was insisting that, look, Fed's got to stay independent,
and they've got to be careful about inflation. When Bernanke was the chair of the Fed,
he went to lower rates. Warsh was like, no, I'm still worried about inflation.
and eventually Bernanke was so frustrated with him.
So this is where all this talk about him being a hawk
is that he finally relented
and then he basically, he resigned after that.
And so now you've got him in the situation
that Trump has nominated him
and Trump obviously would not nominate someone
who he thinks is gonna be a hawk.
He's been hammering.
Powell for months and months and months now about how he's too late Powell.
He's he doesn't he should be lowering rates.
Rate should be lower.
Just think about that.
So Warsh is going to come in.
He been nominated by by Trump Do you think that he just going to walk in the first day and start lowering rates I don think so And the reason I don think so is because that just completely destroys not
only his credibility, but the credibility of the Fed. Because that basically says,
yep, whoever's in office now can strong arm the Fed to do whatever they want.
And if you want to, let's go back to the first principles. What is the most important thing
about the Fed. What is their job? Their job is to keep confidence in the U.S. dollar.
I mean, they have lots of smoke and mirrors with all the programs they have, but that's
essentially what they're trying to do, what they're tasked to do. And so if he just comes
in and starts lowering rates, that's probably not going to be good for the U.S. dollar.
And people are going to say, wow, the U.S. dollar is so political now that it's just a division of
the executive office now you know it's it's it's just a function of of whatever administration is
in there and god talk about um worries about inflation if you want to see the long end of
the curve the yield spike have him come in and just start lowering rates right away i think that
long end of the curve would spike pretty quickly because you would have what are called bond
vigilantes who we had back in the 80s who in the 90s who would say hell no you're not gonna you're
not going to start lowering rates now because we could have inflation on the back end of this,
which means that if you're going to be lowering rates here and there's the distinct possibility
of inflation, then I'm going to need to be paid more for my 30-year, my 10-year. I need more than
5% on this. I'm going to need more than like 6% or 7%. It could be really ugly. And then you see
mortgage rates are keyed off of what? The 10-year. They're not keyed off the 30-year. They're keyed
off the 10 year. The 30 years get off the 10 year. Everything's keyed off the 10 year. And so
if they, if, if he walks in, starts lowering rates, it could be really disrupted.
Yeah. He's in a position. He has to be somewhat tactful, at least in how he approaches it. Now,
I assume though, if there's, if there's some sort of, some alarm bell goes off where he really needs
to lower rates, then yes, but you have the political excuse. You've got the, you know,
the firepower to do that, where just walking in and taking Trump's order is a very different
problem to deal with. You definitely want to deal with inflation rather than a depression.
You know, if he holds rates and you see the economy start to roll over and he will hold
rates high for too long, well, that would be the opposite problem. So now you've got this situation
where you've got some sort of regression and you've got, you know, we fall into a recession
and that would be problematic.
So he doesn't want to do that.
But now you're in this strange spot
where we could be seeing,
which is going to get to your point
about where rate's going.
We could be seeing the economy rolling over here,
yet oil and energy prices are up.
And what's the largest component of prices
for goods and services?
Energy, oil.
When oil goes up and it's high,
it's priced high,
that means everything that you get from it is priced higher, which is essentially every single
thing in our life. So that is the textbook definition of stagflation, which I unfortunately
lived through back in the 80s. It was brutal. Back in the late 70s, early 80s, it was awful.
We had to wait in line for gas for our car, and we can only get it every other week.
Do we have a situation where energy prices spike and we get inflation from that, which is why,
to your point, we saw the Fed funds futures dance around at the start of the war out in Iran and the
conflict in the least. As soon as people realize that the Strait of Hormuz could be closed,
man, oil prices jumped. And then the Fed funds futures jumped. Why? Because people worried that,
oh my God, this is going to be crazy inflation. But here's the crazy thing. What are you going to
do? You're going to raise rates? You're going to raise rates to stop demand? It's not a supply
demand issue of goods. It's a supply issue of the main component of all the goods. And so just
raising rates, that's going to pull down demand. So it's the supply issue. And unfortunately,
like Lynn just said, which was pretty well put, she said, unfortunately, you can't print molecules.
You literally can't print oil.
You can print money, but you can't print oil.
So it gets you, this is the worst possible situation for a Fed to be in.
If you have high energy prices and low demand, absolutely abysmal.
Like there's really very little they can do.
So you saw the Fed funds futures rise, but then people realized, you know what?
That's not going to, it's not going to be that inflation is going to force the Fed to
raise rates.
inflation of all these goods is going to, it's going to eat into demand. So it's going to cause
demand destruction. And so the economy is probably going to roll over. So they're just going to leave
rates where they are until they figure out what's going on, which is the most likely situation.
That's why you see Fed funds futures just holding steady here. We don't have even have one full
rate cut baked into the end of the year here. So that's kind of where we stand now.
Okay. Interesting. Well, Hey, we need to head for home here, but are there any other trends or
events or anything that you're tracking closely that are worth noting before we jump off? Like
anything people should be looking for specifically? Yeah. You know, like, um, if you want clues about
what's going on in the market, I always tell people pay attention to what's going on in the
bond market. If you want to know what's going to happen in the stock market, cause that's really
that's like that's where most the money is the most tactful uh traders and investors are is in
the bond market that's just massive amounts of money and they drive the economy the the bond
market the stock market is the economy that you know meaning that it's such it's integral to our
every day now because of just the sheer amount of of uh wealth that's in there but if you want clues
about where everything's going, watch bonds, particularly the 10-year and the two-year.
And then, of course, I'm paying attention to AI. This is a whole other conversation,
Michael, but I am paying attention to AI and the impacts it's having to the individual businesses,
to different sectors within the market and the economy, and what it's doing to the wage earners
versus what it's doing to the middle management.
And so it's going to be interesting
to see where this goes
because we're living in a world here
where basically all these companies
are stuck in this game theory,
where if they don't implement AI
and cut some of their workforce
and cut some of their costs,
then they may not be able to keep up
with other companies that do do it.
But if they do it,
then they're likely cutting workers that's going to feed into the problem that there's not going to be enough demand out there for the services they're going to give because workers don't have the money.
They're unemployed.
And so if everybody does it, then, you know, we wind up in a situation where you have huge amounts of unemployed people that drives demand down.
But at the same time, it drives costs down of everything because AI is so inexpensive.
It just, it costs the data centers is what the cost is.
Not a doomer.
I don't think we're going to have 150 million people who are unemployed in three years.
But I do think that people ought to be out there being very deliberate and using it and
learning the AI and using it in their position because it's going to be essential.
So I'm watching that for clues in the market about what's going to happen there.
And of course, you know, I'm watching the treasuries very closely, like I said,
and what's happening there.
And that gives us clues to where all the money is going,
how much money printing there's going to be,
how much liquidity is coming into the market,
not just in the US, around the world.
Watch Michael Howell's calculations
because he does a really good calculation
from cross-border capital about not just M2,
but actual liquidity and debt in the world
and the function of liquidity and where it's going,
really important in my mind.
So those are the things I keep my finger on the pulse to.
And that gives me a clue of what I think is going to be happening with Bitcoin here and in the future.
Okay, fantastic.
Okay, last question for you.
I can't remember if I reminded you that I asked this question, but what is an unpopular opinion that you have?
You get bonus points if you offend Bitcoiners with it.
well one unpopular uh opinion i've had is that the four-year cycle was forced by
by people believing that there's a four-year cycle cycle there didn't have to be um it it
came true because you know we we're in it now um because it was self-fulfilling and you had
OGs who were selling out between 100 and $125,000 monetizing their wealth. God bless them. I'm not
angry about that at all. I mean, they're getting, wow. I mean, they did it. So, and they got to
their number and they sold off a certain amount and everything kind of followed from that. We had
a massive deleveraging and here we are. So I feel like Bitcoiners themselves, you know, they brought
the four-year cycle on themselves because they just all they all herded into it so but here we
are and uh you know i'm still as bullish as i could possibly be in bitcoin long term so and
and bitcoiners so i don't want to say that i'm because the bitcoiners are absolutely some of
the smartest people i've ever met in in investing they know their stuff they understand money better
than most people on even wall street do which is awesome so it's not this is not something against
Bitcoiners. I just think that we all cause it ourselves. So yeah, that's funny. So are you,
just curious, are you like a power law guy? Are you a, like, is there something where you think
there's like a general trend that's reasonable or is it just, we made up the four year cycle and it
was self-fulfilling? Is there something else that replaces it for you? Yeah. You know, um, no, I,
I actually have really, I've ascribed to the power law in that it's been, it's the best, I guess, indication from the power law that I've seen is that it doesn't fall below that deviation at the bottom.
And so it's been very strong, very strong to stay within those deviations.
And so the support level has been tremendous.
And so we're right up against it here.
And that's also positive to me.
But yeah, as far as all the laws go, look, it all has to do with the amount of liquidity that's out there, in my opinion.
And money flows in and out of these assets, especially when it's being adopted like Bitcoin is.
The hot ball of money went after gold and silver late last year.
Maybe it flows back into Bitcoin here.
Who knows?
but uh there's no one silver bullet for me you look you look to michael howell a bit more for
where is bitcoin headed than uh some of the other indicators that a lot of people are probably
watching i imagine just liquidity is is a big going to be a big player yeah global liquidity
is a really big deal to me and it it affects all the markets and bitcoin will will dance to its own
too. And, but yeah. Yeah. Okay. Well, James, Hey, thank you so much for coming on again. Why don't
you tell people where they can find you, follow you, read your newsletter, anything else you want
to send them to? Yeah. So as you, as you said, I write the informationist. It's a newsletter that
comes out every Sunday and there's a free version. You get a free issue every once in a while and a
paid version. But what I do is I try to give people insight into what what's really going on
on Wall Street and how it can apply to what the situation they're in, you know, from week to week.
And things change all the time. So having a better understanding of what's going on there,
I think it empowers people to take care of themselves. And then I'm the co-managing partner
of the Bitcoin Opportunity Fund. We didn't talk about Bitcoin all that much here, but like I said,
that fund, it invests in Bitcoin and Bitcoin adjacent companies. And we just launched a second
fund. So if it's something that you're interested in, we can jump on the phone with you and talk
about whether or not it would be appropriate for you. It's not appropriate for everybody,
but if you are an accredited investor, you can find us at bitcoinopportunity.fund.
And the newsletter is just at jameslavish.com.
And of course, I post on Twitter pretty regularly, just at James Lavish.
Well, thank you, James.
I really appreciate it.
And I hope we can do this again sometime in the future.
But appreciate your time today.
Yeah, of course, Michael.
I appreciate you having me on.
I look forward to the next time.
Cheers.
And that's a wrap again.
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