Everybody can feel that things have changed and are changing rapidly, especially after the COVID lockdowns. They have the sense that something is not the same as it used to be. The FIT is trying to fight inflation, yet it's not really working. It's coming down the inflation rate. And really what it all has to do with, and it all comes down to, is the manipulation of money.
My bond is paying me five and it's costing me three, Like, all right, man, that's two percent spread, Like I'm doing pretty good. Or if the S and P five hundred is making me eight or ten percent and inflation is at three or four, like I'm doing pretty good.
Right.
But if you're a consumer, go home and do the work and add up all your expenses and compare them to last year and the year before and the year before that. It's a lot of work. It's easier just to listen to what the pundits tell you.
And then if we think about the dollar, we also have to think about it and measured against other things. So if I'm looking at only in dollars, like my house is worth, you know it's three hundred and eighty thousand dollars. A couple years ago. Now it's four hundred and eighty thousand for like a media in US home. But it went down in oil barrels per oil, or it went down in ounces per ounces of gold, and
it went down in bitcoin terms as well. And if you think about it again, back to the Bology's point, measured in bitcoin, we are seeing hyper inflation.
And a dollar bitcoin is seen as a risk asset. We talked before about how we're kind of in a gambler's economy like there, we have a lot of people out there we just feel like they're getting behind and they're gambling to try to catch back up or get ahead and taking a lot of risk. And so bitcoin is seen that way in a lot of ways. And eyes are the mean coins, and we see the mean coins take off. It's because people are just risking money.
They're like, come on, I hope that I can I can catch up the inflation.
All right, So James, welcome back to the show.
By the way, thank you for having me.
Glad we can do this in person. I love doing it in person, so you know for the audience. You're my partner. We have the Bitcoin Opportunity Fund. You're a hedge fun guy, you write the newsletter The Informationist, which is amazing information on the macro space. But you're sort of known, or maybe in my mind, you talk a lot about like the debt doom loop that we're in.
Sort of how not just the US government and the Federal Reserve, but really all the nations and central banks of the world are sort of in this proverbial rock in the hard place that keeps getting closer and closer and closer, right, And so we're in this like debt doom loop. I want to frame that up and what does that mean? How does that progress? Like over what time frame? But then I want to bring it down into like more practical terms, So like if I'm a
business owner, like what does that mean to me? Right, if I'm an if I'm trying to manage money for my family or like make sure I don't go broke, what does that mean to me? So then like how do we think about measuring that looking at cycles and what do we do about that? So let's start up with the frame up the debt doom loop for us?
Sure, Well, first of all, thank you for having me again, Mark.
Always good to be here.
I'm on vacation and even my son and the audience.
Yeah, we got we have someone in the audience, all right, But.
It's always good to have people on vacation in your hometown. Yeah, so I know that coming from Vegas. But the debt doom lop, well, you know, I mean, I do talk about this a lot, and the reason is because everybody can feel that things have changed and are changing rapidly, especially after the COVID lockdowns and uh, and they they have the sense that something is not the same as it used to be. And they you've seen the price of skyrocket, You've seen homes skyrocket and price and then
get really I liquid, So they're not moving. Interest rates are up. The FED is trying to fight inflation, yet it's not really working. It's coming down the inflation rate, meaning prices are still going up and and it's confusing a lot of people.
And really what it all has to do with, and it.
All comes down to, which you and I talk about extensively, is the manipulation of money. And that manipulation of money has been necessary because we've gotten ourselves in this situation where and this has all developed central banks, like we're talking about, they've all gotten themselves in a situation where they're borrowing and borrowing and borrowing so much money that they wind up having to manipulate their interest rates and their currencies in order.
To keep up with that borrowing.
And just before the show, you were talking about how you know, debt is kind of stealing from the future, and I think about it much in a similar way. I think of it more of like it's borrowing from the future and you can use it properly. And you know, so if you're an individual and you want to have a business, but you don't, you know, you're kind of stuck in your job. You don't really have enough money.
Maybe you've got you want to start a restaurant. It's going to cost you one hundred thousand dollars to start it, but you only have ten thousand dollars in the bank. And you're like, well, I can continue to work and grind away and keep putting money away, or I can use that ten thousand dollars as a leverage for a loan that I can then pull that money into the now, borrow it from a bank, and start the business right away.
Start buying the materials I need, and the cookware and and the ovens, and all and hiring people, start paying salaries, and then you open up the restaurant and suddenly you're generating income right away, you're generating productivity. Well, that's borrowing from the future. And if you do it responsibly.
Restaurants.
I use this example because it's really easy for people to visualize not maybe not the best.
Yeah, don't do the restaurant, but don't do the restaurant.
But but if you do it responsibly, that's great. You you you've built a business, you're producing, You're you're adding productivity into the into the national GDP. Right, but we've gotten ourselves in a situation now. Mark that the entire nation, all of the western nations and developed nations, they're all using debt ad nauseum to paper up inefficiencies, whether it's it's energy and efficiencies or it's just capital and efficiencies,
and they're using that borrowing to close that gap. So, for instance, right now, are our federal government is borrowing just about two trillion dollars a year, meaning they're above and beyond what they have to borrow to pay down past debt. So we're running two trillion dollar deficits at a time that we're not even in a recession. So
the irresponsibility that's coming out of Washington is monumental. It's absolutely incredible, and it's it's mind numbing for people like you and me who have been in business, running businesses, and you look at that, it's just it's not only is it irresponsible, it's it's putting us on.
A path that's irreversible.
And so why is that, Well, because we're running these deficits at a time that we're not even officially in World War arguable, but we're not in hot conflict right now somewhere, and so we're borrowing those two trillion dollars from who.
So we just have to keep borrowing and borrowing and borrowing and add to that national debt.
And so what happens, Well, we've seen the debt grow from just when we talk about the debt spiral.
You and I talked about.
This almost almost two years ago on this and I wrote a piece on it two years ago August about how we are entering a debt spiral where we just can't get out of it, and meaning the US government.
So what is that?
To frame it up, Well, the debt spiral means that we have accumulated so much debt that it requires more debt to pay down that old debt and eventually to pay that interest on that debt.
And we're there.
So of those two trillion dollar deficits, we're running one trillion dollars that we're spending a year is on interest on our past debt. So we're bumping up against when I wrote that piece, where we had thirty one point four trillion dollars of debt, and now we're just below thirty five trillion in just two years and not even. And so we're now at the point where we're spending a trillion dollars on interest alone on that debt, and we're spending so much money that we can't close that gap.
So what do I mean by that?
Well, if the.
US government was a company on the New York Stock Exchange, which it's not, I understand because we have the money printer, but just put that aside for a second, we would consider it a zombie company.
And why is that? Well, if you look at.
The national debt and how much we spend, so are the amount of money we take in each year in revenues. You know the in fact, I can pull it up here. The CBO just updated their estimates for twenty twenty four, so and their estimates are that we're going to take in twenty eight point five trillion dollars in GDP. Okay, so that's the national productivity. And off of that, we have a tax base, as you will know, that is
going to be four point nine trillion dollars estimate. Okay, so we're going to the US government has four point nine trillion dollars of revenue. We of course the government is not creating anything, they're just taking from our productivity. But they're on the other side of that. The flip side of that is they're spending six point nine trillion dollars and there's your two trillion dollar deficit, which is
now seven percent of GDP. That's a bad number. Okay, So why is it a zombie Why would it be considered.
A zombie company?
Well, the most important to frame up how to think about those deficits. You have to think about all those expenses that you may be able to cut in order to fix it. But the issue here is that our mandatory expenses, which are Social Security, Medicare, and Medicaid, add up to about four point one trillion dollars. Remember these
are not numbers for me. This is from the Congressional Budget Office that puts out this estimate every single year, and they do that kind of as a wake up call the Congress and say, hey, this is we need to fix some of our policies here because we're we're on a bad path. But anyway, so we're spending four point one trillion. Remember remember we're taking four point nine, so you've got eight hundred trillion dollars left. Well, our defense spending is nine hundred and fifty billion this year
that we know of. It could be there, could have a lot of other expenses tucked in other places.
And to put that number in relation, not to cut you off, but the US spends more on its military than the next ten nations combined. So it's not just military spending. It's like our military spending is more than the next ten nations all put together. So it's an astronomical, astronomical number.
Right.
So now you've got so you've got four point one plus nine hundred and fifty, you're already over five trillion dollars of spending. Then you've got your the net interest because the net interest on your debt. You've got your debt that's over a trillion dollars of interest expenses. You get some back from inter government agencies, let's call it nine hundred billion dollars. Well, your total mandatory expenses now are over six trillion dollars. And that doesn't even take
into account the disgustioning expenses. So your deficit's two trillion dollars. So now you've got to borrow money. You have to issue more debt to pay down debt that's maturing because you don't have the money to pay it down, so you're borrowing more, which means that when you're running these deficits, mark this this is inflationary. This is money that they're basically just printing and putting into the economy and continuing
to grind the economy on a nominal basis. And so all we're watching inflation just continue to rise and so and as that's occurring, the FED is raising interest rates, which is making the interest payments on that past debt more expensive, which means that they that the government has to issue more debt, which means that they have to pay more interest on more debt. And so you get into what's called a debt spiral, and there's really no
way out. It's like, you know, if you're you're you're trying to meet your expenses, you're using credit cards, and sooner or later you those credit cards max out because you're you're not.
Making enough money, you're borrowing it, but.
You're paying interest on that, and then sooner or later you're going to have to take on another credit card just to pay the interest on the last credit card. And that's the debt spiral. And so we saw it happen with Greece and a number of other nations in the last twenty years, and that's where we're at.
So basically, the debt can't be paid down because of the situation that you framed up. Another reason why, though, is because of the nature of the monetary system in nineteen seventy one, going from like maybe arguably before nine seventy one, but going from like an equity based system, a gold system, to a debt based system. So the debt also has to grow from that perspective as well. So we have sort of two reasons why it can't
go down. We're spiraling out of control. The deficit, the amount of debt they're taking on is growing at an alarming rate. I think it's about a trillion dollars per quarter.
Almost the last check, it's about a trillion dollars every hundred days.
Yeah, which is just about a quarter. I mean, it's just an insane amount. And that is what's causing all this to happen. Okay, so that's the debt doom loop. Now, there's a lot of people who have been calling for this to all come to an end for a long time. I'm Peter Schiff, Harry Dents written a number of books
about it. You know, we can go on and on and on, but it seems like they never see, they fail to take into account how many more tricks up the sleeve that you know, these central bankers can come up with. But at the same time, it does seem like the walls are closing in the rock and the hard place is getting closer and closer together. I mean, how do you think about that? How do you project that out?
Well, I mean you hear a lot of people. You hear people say, well, why don't they just cut expenses? Right, I mean, clearly, if we're.
Spending too much, just stop spending so much.
Well, you just heard.
Where are we going to cut Well, in twenty twenty, we were spending about what four point six I think it was four point six trillions. We've gone from four point six to almost seven trillion in just a couple of years. And like, the world wasn't catastrophic in twenty twenty, Like, why couldn't we just go back to like spending in twenty twenty.
There's a number of reasons, but a lot of it has to do with when we had the lockdowns that pulled the a string that caused disruptions in a lot of areas that they didn't expect. And one of the areas that it caused disruption is well, they printed so much money because there's so much to dig into in the treasury market. But just for suffice to say that the treasury market got it was dysfunctional, and so the whole reason we print money is to keep the treasure
market going right. So the Fed printed money, it expanded the m to the money supply. That caused that, Plus the problems with the supply chains caused inflation, and so that caused the need to adjust some of the benefits for retirees, so security, and that's a whole nother problem that we can talk about, but so security that those benefits were adjusted higher from the cost of living at the same time that boomers were retiring en mass because they were like, you know what, I don't need to
be in the workforce anymore. My house is worth so much money. Now I've got these retirement benefits, I've got my pension, I've got the Social Security and Medicare Medicaid.
I'm set. I'm going to retire. So now they're paying out at a.
Much higher rate than they expected, and so this has caused a massive gap in those in that line item. Yeah, that exactly, So that line item jumped higher. So so what do they do if they you heard what we said, the mandatory expenses signed into legislation or defense or interest on your debt, you're not going to You're not going to default on your debt if you if.
You issue in your own currency.
But where are they going to cut? So that's not really possible. And number one, there's there's really no incentive to do it. We can talk about Republicans or Democrats or which parties were that's spending, it doesn't matter. They're all in the same game. They spend to get re elected. It's just we hear Jeff Booth talk about it all the time. If you want to, if you want to find where the problem is, look at the incentives, and the incentive.
Is to get re elected.
So if the incentive is to get re elected, the incentives to then spend money, make sure you take care of your constituents, those who are donating to your campaigns, make regulations good for those companies and those constituents, and then just work it around so you can get re elected. And that all points to spending more money. So we don't like right now, Mark, we don't even have a debt ceiling.
We paused it.
There's no debt ceiling, so we could just keep spending and Congress has no limit and that's not going to come up again until January. So we go right through this election just spending ad nauseum.
So in the last debt ceiling debate, Biden himself, when he was still able to talk to someone coherently, had said, we have to raise the debt because the US can't default. The US is never defaulted, so we need to get more debt to pay the existing debt. I mean, he basically said it.
Right there.
But it's not I mean, it's it's certainly not a political thing. That's a math thing, right, And so it's like we owe the money, the money's got to be paid, and we've got to print the money. Now, there's certainly a lot of pork, as we call it, right, that's that's certainly getting funded as well. But at the same time, it's a math problem that we're in. And unless the government wants the default, then this is the path that
we're on. And so when I say default, default to the old people that are owed entitlements, right, lou Gramman talks about you know, other nations they can't print dollars, so they aren't a tough problem. But the US doesn't
owe dollars either. The USO's like medical services for example. Right, Although we do know that the homeless, homeless population half of the population are now baby boomers, so we do know that those entitlements are being cut somewhat skeeping up, they're not keeping up for sure, and so those entitlements, those promises that were made to the VA, the veterans, and to those old people, they're not being met, which is why the homeless population is sort of being grown
from that. Okay, so that's sort of the that sort of sums up the problem. Now, correct me if I'm wrong, But I mean the US is the cleanest shirt in the dirty laundry, so to speak. So we can basically take this sort of problem and extrapolate it to.
The rest of the world.
I mean, Japan, the ECB, Europe, I mean, they're in worse situations than the US.
Yeah, I mean we'll go into what you said when Biden the last time you talked about the debt, uh, the debt spiral. Well, just this last debate, he was talking about how well he's got a solution for you know, fixing social Security and his solutions to raise taxes, raise taxes on the rich.
Oh, they don't pay their fair share.
Now of course, if you but even if you took if you raise taxes on the on the seventy one trillionaires we have in the United States or billionaires you have in the United States, you know you would get it like.
A that was like a Biden moment there, right, A thousand.
Trillions, a million trillionaires. So but if you raise tax on our billionaires, the seventy one of them that last count, you would be able to tax. What if you tax them one hundred percent, you have five trillion dollars. The problem is where we have a social security hold that's one hundred and seventy two trillion dollars. What's so important about that is that you're talking about unfunded liabilities on
top of debt. We're talking about something that's approaching a quarter of a quarter of quadrillion dollars two hundred and fifty trillion dollars of owing. So debt and unfunded liabilities things that we owe in the future. So taxes, I mean, that's clearly it's just not going to work to fix this whole And also if you, as you well know, the more you tax, the less you incentivize productivity, so product research and development, investing into productive product lines, hiring people,
all that. So you wind up getting higher tax on lower productivity and actually declining productivity.
So that's not good.
So, but just to make to make it clear that taxes aren't going to work either, So what do you do? You just issue more debt. But if you issue more debt, then the only way you can keep that going, that whole charade going, is by exporting your inflation on the world. So all we're doing is we we are creating a situation where we have no choice but to have high inflation in order to have taxes on larger excuse me nominal GDP to pay down past debt.
And so that's what we're doing. Excuse me.
So sounds sounds pretty bleik, James, sounds pretty bleak. So what I'd like to do is, you know, people hear from me all the time, and so I kind of give my projection of what I think happens over the rest of this decade, but I'd like for you to kind of tell us what you think is the base case. Obviously, anything is possible. Let's talk in probabilities. What do you think is the most probable outcome over the next what do we have, you know, six years at this point.
Then we're going to talk about, like I said, if we're a business owner, like what does this mean for you? How do you think about that? And then I want to talk about the safety valve that we all have, which is bitcoin and stuff that we see happening over there. But let's just talk about what is your sort of base case for how this continues for the rest of the decade.
Well, I mean, look, we've got a lot of uncertainty right now politically, so we're not You're watching people try to sort of figure out in the markets who's going to win, whether it's gonna be Trump or what's gonna buy.
But you said, regardless of the political party, it's more of the same.
But you're watching Wall Street kind of position themselves. And the reality is is that because of what we're talking about, because of them, just the sheer amount of debt that we have, it's so great and those liability are so great that there is no choice but to have that inflation. And so you can think about it in this way. We were talking about it before the show, how the sixty to forty portfolio.
Is kind of dead, and the.
Reason for that is that who wants to invest in a thirty year treasury that they know is going to be worth less on real terms the money they get back from that thirty year treasury in thirty years than when they put in, Like.
Who wants to do that? You're going to have.
So in the next five, six, seven, eight years, I expect us to get into a period of very high inflation. We could see a downturn we're starting to see now data that's showing that the economy is kind of rolling
in a lot of areas. It's confusing because you've got the government spending so much money that we've created a situation where this fiscal dominance, and so that fiscal dominance is the government is spending and spending and spending like mad and it's creating pockets of expansion at the same time that you've got pockets of contraction in private areas.
Uh So, any any.
Business that is that is beholden to or is affected by interest rates, especially these high interest rates, they're starting to feel the pinch.
The margins are compressing.
Uh they're having to pay more on debt when they when they go out to get a new line of credit or their line of credit resets and it's a higher rate, they're starting to have to pay more interest on that. You're you're not seeing as much hiring and so the job numbers that the job claims, the unemployment is ticking up, and so you're seeing this economy that looks like it's it's turning over, especially because we got numbers this morning in the services industry, really important part
of the US economy. And that that feels like it's turning over, but we can't have that. We can't We could have kind of a soft landing and continuation on. That will happen if we keep spending money, we keep issuing debt, and we keep creating more inflation. But the reality is if we get into a deep recession, we're going to have to print so much money it's going to make your eyes bleed.
And so how much do we print.
In twenty twenty eleven trillion and.
The FED bought six trillion of that, So really, the Fed we're going to have to print multiples of that this time because just the sheer amount of debt.
So why does that matter?
What matters is I see a period where, whether or not it's because it's blatantly obvious or they admit it, we're going to have high inflation. And the reason is that we have to keep printing money in order to make sure that the treasury market remains functional. We've heard we've heard Powell talk about it recently, not this last meeting, but the meeting before where he was talking about where does he feel comfortable.
With bank reserves?
And as bank reserves get down to ten percent, of GDP. Well, then he starts getting nervous, and we're right about that level right now. At well, actually, bank reserves are up over three trillion. I apologize that's not quite right, but
we're getting towards that level. And when the reverse repo where all the excess slashes from that, all that money printing, where it's parked, when that's gone, then they're really watching that number because when that treasury market gets dysfunctional, then they're going to have to print money and make sure that that it stays liquid. So we're seeing, Okay, this all matters, because the big picture is we're seeing little hints that they're getting ready or already injecting liquidity into
the market. So you saw and the money supply him too is ticked back up in the last six or eight weeks, right, and so how.
Is that happening?
Well, the central banks are finding ways to get money into the system because they know that we can't have this hard landing because they don't want to print another ten twenty trillion dollars that would be that would make inflation rip higher again.
But what's the choice?
Right, So we're seeing things like is the the the international swaps and Derivatives Association come out with a letter that advised that implored the central banks and other authorities here to get rid of the limit of treasuries that banks can own. Basically, what it said was remove them from the risk calculations.
They could own as many.
As they want, arguing that treasuries are riskless. We know they're not riskless. Yeah, but well why would they if they do that? Well, that just creates the ability just to keep liquidity going into the system. You don't have to have those checks and balance of just how much the how how much liquidity the banks have available for their capital base. Right, So that's one thing, and then you're watching Janet Yellen do something called this regular treasury buyback.
Is it really QY quantitative easing? No, but they're buying off them, They're buying the off the run treasuries that are not as liquid, just to make sure that there's more liquidity. You know, there's more liquidity, there's hints of
more liquidity, more liquidity more. So I expect this to continue and possibly accelerate, especially as we see you know, some commercial real estate, not all commercial real estate is bad, but there are pockets of of difficult spots, and we're going to see some bank rescues or whatnot in the next six to nine.
Months, which means more liquidity.
More liquidity and all points to what more more inflation, which goes back to your, uh, your point of Okay, what what can individuals do and what can and entrepreneurs do to make sure that they're on the right side of this, right So, and that's really the big question. And so for me, I'm seeing that if if you're an investor and you're investing in bonds, well, I mean, God help you, right, I mean like they may be a trade, but I would not be investing in bonds
long term personally. And if on the flip side, if you're an entrepreneur, you know, and you're borrowing, if you can borrow at a rate that's fixed and that meets your requirement for your capital requirement, then that's an intelligent thing to do for me. But what I wouldn't do is I wouldn't be beholden to rates that could adjust much higher, because that to me in the in the near future could be a problem.
So to kind of recite this and sort of recap it back because of the debt based montary system and the debt dooom loop that we have that you set up in the beginning. The system has to continue as long as the governments to continue to pay the things that they're obligated to pay, then they're gonna have to continue to borrow and continue to print money. Of course, well theoretically, philosophically, why would you default when you can
print money? Right, So there's there's number one, number two more emperiically, we can see that pretty much every nation right now today in the world does that. So you know, Lebanon, Turkey, Venezuela, Argentina, Peru. I mean, go down the list. They're all printing and
using debt to offset this. So there is no historical context for a nation just going, well, there's a good run, boys, let's fold up shop like there's just no historical context, and we see it happening in real time all around the world where this is exactly what they do and you just print, tell you can't print anymore. And I didn't want to kind of go I'm not going to go through my whole thesis, but you know, I think
things end more in a whimper than a bang. Everybody's thinking that there's going to be this final days where the system is going to crash and the dollar is going to die and the FED losers. But it's a whimper and we know that just because that's what Zimbabwe does, and they obviously inflate a lot faster than in other countries. But it's a wimper, not a bang, and so I think it continues. So that's sort of my base case
as well. Now you sort of use like an Austrian economics kind of term on inflation, it sounds like because you're talking about more inflation ahead in terms of money printing and not really consumer prices, and maybe you're using
those interchangeably. I recently talked about on a different video how Ledg von Misis in nineteen fifty gave a talk of how they were changing the definition of the word inflation from monetary inflation to prices, and in nineteen fifty he called them out on this and he said, you know the reason why is because then they can lie to you and hide the true inflation, which is the
money supply increasing. And so you sort of set up why the money supply would increase and say there's more inflation, there's more price inflation for a lot of other things like having to re onshore near shore, you know, less global cooperation and things like that. Okay, so but I want to hit on that monetary inflation for a minute. Because you talked about why bonds are bad you wouldn't buy them, or why entrepreneurs or business owners should think
about fixing in debt. So if we think about and this is where I think most people are completely caught off sides by this. So they're looking at the government given numbers, the CPI consumer price inflation, which is a false number for any number of reasons we can talk about. But that number today is in the threes.
Highly manipulated of course.
Right, So if you know my bond is paying me five and it's costing me three, like all right, man, that's a two percent spread, Like I'm doing pretty good. Or if the S and P five hundred is making me eight or ten percent and inflation's at three or four, like I'm doing pretty good.
And if you're a consumer, go home and do the work and add up all your expenses and compare them to.
Last year and the year before, right, and the year before that.
It's a lot of work it's easier just to listen to what the pundits tell you, right.
But so the problem why I think most people are caught off sides by this is they see their paycheck going into this index fund and the S and P five hundred is going up at nine ten percent to whatever it is. But and like I said, inflation's at three four percent, like, hey, I'm doing pretty good. To your point, if they would do the math, they'd find out that it's not. But back to sort of that monetary or that Austrian view of monetary inflation, which is
the money supply increasing the debasement rate. And so the money supply since twenty nineteen through twenty twenty three has been increasing in the US by ten percent. So that's what we call the hurdle rate.
So and since since seventy one, it's it's about seven point one percent on average, Like.
Yeah, but when you if you look at a chart of you know, M two or FED balance sheet or whatever, you can see that the trend line keeps getting steeper steeper, steeper, steeper steeper. I think, you know, I don't want to go into it. You and I've talked about it, but really pretty much most of the financial data pre two thousand and eight, doesn't you have to look at it with an asterisk. We're in a different environment that we are in today, so that trend line has changed. So
since twenty nineteen, we're at about ten percent. So we have the monetary supply, the rate of debasement is moving up ten percent, plus we have the inflation, plus we probably have to adjust for risk. So I don't know, does that bring the hurdle rate up to twelve or fifteen percent? Could be, and so then we get four or five percent on bonds. And how are you going to get four five percent of bonds when we have this ten twelve percent hurdle.
Rate right where you buy a bond at that's that's yielding four and a half percent now. And yeah, you might get a trade here between now and the time that the Fed lowers rates and make a couple percent off of that. Mean you could make you know, multiples of that. But the problem is if we get into
a downturn and that money supply is expanded. Like you said, that structural change happened when we printed for the first time, So if you go back, it was really nineteen eighty seven that when that crash, I was in high school, but that the Black Monday occurred and green Span came out and said, don't worry Wall Street, We've got your backs. We're not going to let you collapse. We're not called the banks collapse. We're going to make sure that the
market is okay. And that was just a signal to them, but they didn't really do anything. Flash forward to nineteen ninety eight, just eleven years later, and you had the Long Term Capital Management Debacle. This is a firm that was there was a hedge fund that was run by two Nobel laureates and they were these geniuses and they actually there's a book called When Genius Failed, great book by Lowenstein about what happened there. But what occurred was these guys had so much leverage.
They had a.
Billion dollars of investment of AUM in their hedge fund, and they had about one hundred billion dollars that we know of in trades, so they were at least levered one hundred and one on these spreads that were they were basically shorting volatility the way they were doing interest interest rate arbitrage. But they had those trades levered weight
up way up. Well, the street got wind of it, and you know what happens when the when the sharks smell the blood, then they they blew up these trades on them.
So this this fund, this.
Fund was going to collapse long term capital management and so but Goldman had massive exposure to them. So Goldman Goldman Sachs CEO went into the New York Fed and begged. They're like, hey, we're going to collapse tomorrow unless you rescue us. And so they didn't print money the first time.
The second time, the New York Fed led a bailout with the other banks for Goldman Sachs basically made sure they shored up their balance sheet and so they didn't print money, but they assured that there was nothing that there was no way they were going to collapse. Right then you had the tech bubble and that kind of that that deflated.
A lot of things.
It was a little bit healthy. And then you had the housing crisis. So now you flash forward to nineteen ninety eight, From nineteen ninety eight to two thousand and eight, ten more years, so you see a pattern here, right, ten more years, two thousand and eight, and we have the housing crisis. Well, the housing crisis. Then when that happened, it was so great and there was so much contagion with those banks that the FED felt like they had no choice and all the central banks, and so what
did they do. They printed all that money, which back then a trillion dollars. And so they printed that money and I don't remember exactly what the figure is, so we may have to yank that from the show, so we don't. I don't want to give people the wrong information. But they print that money and that's the first time they really printed money two thousand and eight, which is what you're talking about, q QI, And that's where the structure changed, right, So the structure changed when oh, the
FED put is here. They're going to save us, and there are no consequences. CEO's got their bonuses and payouts. Nobody went under. Well, they let a few go under. They let Liman go under and bear Stearns go under, but they it wasn't the the enmass slaughter of banks that should have been. And so we created an expectation from the market that the FED will be there. Flash forward from two thousand and eight to twenty twenty, and you've got the lockdowns and you've got the danger of
collapsing again, banks collapsing and treasury market freezing up. And what do they do They print again, and you know, multiples of the last time they printed. And so that's kind of where we're at. And that's what you're talking about, where that changeover. Now, what do we do because we're so indebted? And this isn't just this isn't just the sovereigns. This goes from sovereigns to the banks, to the companies
and corporations down to the individuals and consumers. Everybody's got you know, not everybody, but by and large, the average of indebtedness is at all time highs.
Yeah, so back to the hurdle rate. So people see their s and P five hundred going up about eighty nine percent, but they're losing money, so they have to kind of understand this monetary inflation piece. And that's kind of one reason why I think it's it's important to focus on that, and that's the real number that you're trying to beat. There's not a lot of places that
you can do that today. I'm not sure if you know, I don't want to put you on the spot, but like the definition of hyperinflation is I think fifty percent inflation month over month over month.
Yeah, right, it's an economic economic that's the technical, technical definition.
I did an interview with Parker Lewis. It's on the channel. Did it really good? He said, that's the technical definition. He said, I would say that hyper inflation is when you can really see the price changes in real time. It's not like when I was a kid, this bottle of water was five cents. It's like, no, last year, this bottle was right. So he talks about it more
like that. Not a hard definition. I'm just curious if you know, because I don't inflation month over month compared to what so, Like if I'm in Argentina in hyper inflation, so my currency is inflating. Argentine peso is inflating fifty percent to the dollar.
Now it's the it's their inflation rate, it's inflation.
So whatever there, they're their own CPI calculation. Okay, So the US could never have high inflation as long as the US doesn't report high inflation.
That what you're saying.
Uh. The reason why I asked that is because I saw Bilojie and uh. Another one of my good friends, Brent Johnson mister Dollar Milkshake, kind of going back and forth on Twitter, and of course Brent is the Dollar Bowl. He's much more reasonable if you talked to him in person. But you know, Bolagi said, well, the US dollar has been in hyperinflation measured in bitcoin.
Yeah, that's that's absolutely.
And that's why I was curious measured against one. And so the key piece I wanted to kind of transition into is that we have to understand that we have to measure these things in different ways, otherwise we don't have a real number. So if you think you're making five percent on the treasuries, and that's good because inflation's three, or you think you're making eight percent in the index, which is good because inflation's three, that the true number
is much higher. It's ten twelve percent at least. So you have to think about how you're measuring these things. And then if we think about the dollar, we also have to think about it and measured against other things. So if I'm looking at only in dollars, like my house is worth, you know it was three hundred and eighty thousand dollars a couple years ago. Now it's four
hundred and eighty thousand for like a median home. But it went down in oil barrels per oil, or it went down in ounces per ounces of gold, and it went down in bitcoin terms as well. And if you think about it again, back to the Bology's point, measured in bitcoin, we are seeing hyperinflation in the dollar.
Yeah, because bitcoin is something can't be that has a very very very.
Low inflation rate and it's going it's approaching zero, and so the half life of it, so of the of the bitcoin inflation, but just like you said, it's a great way to measure just how quickly the dollar is expanding. And if you look at bitcoin, it does follow the expanse of the money.
Supply pretty well.
I mean, it's got it's definitely volatile, but the overall trajectory is very similar.
And so per Michael Howell, who's a mister Global Liquidity, had him on the show a few weeks ago, so you should go check out that interview. But he says that the S and P five hundred is ninety percent correlated to S and P five hundred, and bitcoin is about ninety percent core or I'm sorry, eighty percent correlated. So it has an eight point nine to five time sensitivity ratio. So for every ten percent increase in global liquidity,
bitcoin goes up by ninety percent. Gold has a one point five time sensitivity, So every ten percent rise in global liquidity, gold goes up by about fifteen percent.
Right, Well, and then but that also has to do with the fact that bitcoin's in the middle of its adoption phase, right, So that's also occurring.
So what does that mean that the sensitivity ratio goes down as bitcoin gets bigger?
That I would expect that the that the beta to risk assets would go would come down for sure.
Okay, so I agree with that, right, So as the asset gets bigger, as the daily volume gets more, it's harder for the price wings to move up and down. So when there's you know, ten dollars of trading volume per day and I buy eight dollars worth, I move the market. When there's one hundred billion or where we have hundreds of billions of dollars of trading volume today, it's very hard to move the market when it's trillions
of dollars per day. It's impossible, right, So it's kind of like that, But it's also the downside is dampened. But the upside is dampened as well, so the sensitivity is just dropping. I did this video and I was talking about ways to project bitcoin's future valuation. And you know most most of your old brothers on Wall Street can't seem to value bitcoin because you know, there's no intrinsic value, there's no cash flows, blah blah blah. And I said, well, there's three ways that we could do it.
So number one we use like Jery and timmor from Fidelity. He uses like Metcalf's law to sort of measure it. The second way we can do it is like a venture capital firm would do it, So what are the markets we're disrupting? If we pull x amount of five percent from each of those markets, how much would be worth? And the third way would be based off of inflation.
So if we look at bitcoin moving on liquidity on a sensitivity ratio of like a nine time sensitivity ratio, then to you referenced earlier, like the CBO is projecting how much they're going to print. So we sort of have an idea which I'm guessing is undershooting the target, but we have an idea of how much global equity is going to increase and we can look at sort of this way bitcoin moves to that increase of liquidity today. Do you think that would be a good way to sort of measure.
It as a starting point, for sure? But then you also have to think about the fact that most people don't really truly understand what bitcoin is. Yet we're in our little bubble and we understand it. We talked with people who understand it inherently. And the issue here is that, you know, there's a lot of different ways you can measure how many assets are in the world, but let's just talk Let's just pretend that today there's seven hundred
million dollars of investable assets. Well, bitcoin at this point is a fraction of that. It's it's exactly so and and so it's not even a percent and of that.
So why is that important?
It's important because right now, as you said, bitcoin is seen as a risk asset.
We talked before about how.
We're kind of in a gambler's economy like there we have a lot of people out there who just feel like they're they're getting behind and they're gambling to try to catch back up or get ahead and taking a lot of risk. And so bitcoin is seen that way in a lot of ways. And as are the mean coins, and we see the mean coins take off, it's because people are just risking money. They're like, come on, I hope that I can I can catch up to this inflation.
And so with the broad broadening and deepening understanding of bitcoin, especially because now that we have the ETFs and you're and you're seeing institutions dip in, dip into it, they're dipping their toe in, and they're starting to understand it. When institutions really do understand it and understand how bitcoin is different than every other.
Of those.
The digital currencies, they'll understand how it can be a true store value, how it's digital gold two or three point zero for so many reasons, the immutability, the transfer, the ease to create commerce with it, to move it. You can move a trillion dollars a bitcoin within ten
minutes basically. So, but once they understand that and they get to that true understanding of how bitcoin is different, then they'll begin to not just allocate it allocate to it in their investments as a risk asset, but they're going to allocate to it as a risk off asset.
Like they'll start taking money not just from stock portfolio, but from bond portfolios, and saying, why am I investing in this long term treasury bond fund or vehicle when I should be protecting my capital with this thing that it's called bitcoin that will rise in price exponentially as
a dollar false in value exponentially. Why wouldn't I make that investment instead of hoping that I get a real rate of return, which is your hurdle rate again that beats that rate of inflation or that expansion of the money supply. And so the question is what is that? What is that hurdle rate expansive money supply? If you could argue that that's really what it is, and then bitcoin the price will match both that expansion of the money supply and that adoption as a way to protect
that money supply. And so you are me, We have a lot more of our personal liquidity tied up with bitcoin invested in bitcoin, invested protected by bitcoin.
Whereas saved in bitcoin saved in bitcoin.
Where there's a lot of investors out there who have way more money than you and me that haven't even thought about it.
And so.
The way that bitcoin price moves is not really directly correlated to just the.
Amount of money comes in.
It has to do with the liquidity too, and so there's friction getting in and out of this asset right now, and so it's going to get to a point where it doesn't have that friction, and that means it's going to expand quite a bit more in price and an asset value, which to me would be approaching the asset value of gold. And that's where you're getting. Then you're getting a lot, well thirteen trillion, yeah, twelve or thirty years more now yeah, yeah, so yeah, okay.
Yeah, So people haven't caught on yet. They seem to be kind of coming on one on one on one, and you know, once everybody agrees with you, then the alpha is gone. So the idea is to obviously get
in before everybody agrees with you on that. On that standpoint, So then if to kind of recap this whole conversation, the debt doom loop tells us, the debt based monitary system tells us, and the debt doom loop tells us that the monetary system has to continue to expand unless the government says, like I said, pack it up.
It was a good run.
Let's shut it down. Otherwise it continues to expand. So that's almost all but certain. There's no certaintieson in life, but it's almost all but certain. We know that as they print money, it's debasing, so prices are going up as the rate of money is going or the value of the money is going down. But not all assets
go up at the same rate. Some go up faster than others, and so the S and P five hundred is basically keeping up with it, and some assets like gold go up a little bit faster, and some assets like bitcoin go up way faster. So Bitcoin is benefiting and during timmer from finality makes this case, not only is it the network effects, but also the scarcity and the inflation that are all three driving those And so
we know scarce SATs move up a much faster. So then I guess what you're saying, if I'm paraphrasing, is then bitcoin is sort of like this life raft that you could go to protect yourself from the incoming tide of the money printing liquidity that's coming into system.
I certainly see it that way, yeah, And I believe that that more and more people as they as they gain understanding, are going to as well, and so you know, I feel like I got into got into understanding bitcoin late, having just discovered it in twenty twenty, after my son actually had said, hey, Dad, you should look at these digital currencies or something here, and so, you know, being an old Wall Street guy, I ignored it, just like virtually every single one of my peers.
Had done and continues to do.
And so they're slowly coming around saying is there something is this something we ought to be checking out? And they're still doing from that perspective of hey, is there a lot of money be made here? Instead of hey, is this a place where we can safe card our capital. It's a different mentality. It's going to take a while
to get there, but yeah, I believe so. And so there's a whole lot more capital that's going to come into the protocol, which means that it will be worth a lot more in my opinion in the future.
Yeah. One thing I've done is I talk about but I've shifted my mentality and I don't think about investing my money. I think about saving my money, so mostly bitcoin, mostly real estate, and I don't invest in real estate or invest in bitcoin. I save my money into those places. I'll do some speculative bets here and there, and some early round companies a little bit that might be investing or speculating whatever you want to call it. But yeah,
real estate bitcoin, that's where I save it. So, James, you're the managing partner, one of the manague partners of the Bitcoin Opportunity Fund, and you're sort of taking this Wall Street knowledge and history and brought it into the Big One Opportunity Fund, which is closed right now, might be opening up again here in the near future. Tell us about what else you're working on and what people could be paying attention to that you're working on.
Yeah.
So, and you're a partner in the Bigcoin Opportunity Fund, and that I mean to us. David Foley and I are doing the day to day being the institutional.
Investors for a long time.
We see this as a way to not just help make money for investors and generate profits for them, but to help grow the ecosystem, and the bitcoin ecosystem. You think about bitcoin, it's just that base layer. There's so many other things that are going on in bitcoin, and the opportunities are in our mind are tremendous, and we're super excited about every single day we wake up and say what are we looking at to like, how are
we thinking about? How we and we're inundated with opportunities and so but the best thing about is that we've got our hurdle rate, which is, hey, what's the risk reward of this opportunity versus what the risk reward of bitcoin is? And that's where we see everything. So being on the bitcoin standard for us makes it very simple for us to look at things that way. And so
that's what higher bar, Yeah, very high bar. And you know, I write the Informationist newsletter which I put out every single week, and it just takes one complex topic on financial topic and sympathies it for people. And we talk about things like the Treasury, treasury auctions, the FED, inflation, how to look at inflation, how to understand it, how to understand the debt problem, how to understand the treasury problem, what's going on with social security? Those things, just making
it simple and for anybody. And we have, like we were talking about, we have I have doctors, lawyers, firemen, nurses, We've got chemical engineers, we've got aeronautical engineers. We've got all kinds of people in there that they're intelligent people, but just may not have that experience and that knowledge that they should have been taught in school, but they aren't.
And so that's what that's what I'm trying to do, is trying to give them that knowledge so they are armed with that to understand what to do in their own investing in their own portfolios.
Yeah, all right, cool, Well we're gonna wrap it up. I'm gonna go ahead and we'll link to the informationist in the show notes. We'll link to the Big one Opportunity fund. It's closed right now, but put your name in the pot because we're going to open up second fund number two here pretty quickly. Any closing words, Oh, that's it. Good to be here and I'm looking forward to go hanging out in San Clemente Beach. All right, thanks Jam