Bankless - Arthur Hayes Says, “Get your Bitcoin, and Get Out!”

Episode Date: March 22, 2023

You might know Arthur Hayes as perhaps THE dominant financial creative writer in crypto. When Arthur Hayes drops an article, it commands the attention of basically everyone in the industry.  And he��s done it again with his new piece, “Kaiseki,” which outlines one of the most chaotic and critical times in the macro and monetary landscape that we’ve seen, at least since 2008.  In today’s episode, Arthur walks us through his essay, why he believes Balaji’s $1M Bitcoin bet is wrong, how he’s navigating these tumultuous times, and so much more.  ------ 🚀 JOIN BANKLESS PREMIUM:  https://www.bankless.com/join  ------ BANKLESS SPONSOR TOOLS:  ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken  🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap  👻 PHANTOM | FRIENDLY MULTICHAIN WALLET https://bankless.cc/phantom-waitlist  🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask  🚁 EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi   ------ Timestamps: 0:00 Intro 6:27 Arthur’s Recent, “Kaiseki” Essay 13:09 Bank Term Funding Program (BTFP)  18:08 Effect on the Banking Sector 24:30 Current State of the Banking Sector  30:44 Should We Support BTFP? 39:11  What’s Going to Happen to Crypto?  46:56 Sending Bitcoin to $1M  55:05 Effects on Expanding Variables  57:35 Who Takes the Loss?  1:00:00 Rampant Inflation Worldwide & Fiat 1:03:36 Swap Lines  1:06:07 Punchlines & Endgame  1:09:25 Everyone is a Speculator 1:10:49 What Will Arthur Hayes Do? 1:13:36 Closing & Disclaimers   ------ Resources:  Arthur Hayes https://twitter.com/CryptoHayes   Arthur’s Recent, “Kaiseki” Essay https://entrepreneurshandbook.co/kaiseki-b15230bdd09e   ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

There's all these things that the average person needs that the government can't print. And if they're just going to not allocate the losses for all this debt, which is essentially, that is, I'm going to take the future and I'm going to spend it today. Right. So we spent the future. There's no more future, right? We have to pay for it. And so if you have money inside of the system, you will pay for it.

And it's an implicit tax in anyone who saves in things that don't go up as fast as the amount of money printed. And so that's the game. It creates a financial speculator out of everyone. Even if you don't think you're a speculator, you are a speculator. Bankless Nation, we got Arthur Hayes on the podcast because it is one of those times where there is a bunch of chaos in the macro world. Our banking sector is apparently completely underwater. Bologi Eastern of Austin is claiming that Bitcoin is going to $1 million inside of 90 days. And it's not a bet on Bitcoin. It's actually a bet on the hyperinflation of the U.S. dollar.

And that is a very similar subject to what we are talking to Arthur Hayes today on the show. Recently, Arthur, a prolific writer, has written another article, Kai Seki. We'll get into why he titled that. But a little preview for this, Arthur runs through the last 15 years of monetary and fiscal policy to get up to COVID. And then he runs through COVID up to now. And the Fed rugpole of rising interest rates faster than they've ever had before to create a mass insolvency in the banking sector. and Arthur walks us through this brand new thing, this brand new credit facility out of the Federal Reserve, the bank term funding program, and really unpacks the significance of this. Arthur's big claim here is that the bank term funding program, the BTFP, is constrained in two ways.

Only certain eligible assets are available to access this new credit facility out of the Federal Reserve, and this new facility is only alive for one more year. Arthur's big claim is that both of those two variables are about to increase in scope, and that is what is going to ultimately allow for Bitcoin to reach $1 million. And so Arthur is divergent from Bologi, and that he doesn't think it's going to happen in 90 days, but he does think it's going to get here pretty damn soon. So that is the preview of this content. I am here without our fearless leader, Ryan, is just me today on the episode. So bear with me as I navigate this one solo.

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AirDrop. Arthur Hayes is a man that needs no introduction, but I will introduce him anyways. Arthur co-founded Bitmex in 2014, one of the original leverage trading platforms that dominated the space during the previous bull cycle. Bitmex got in trouble with the powers that beat, and now Hayes has moved on to be the chief investment officer of a family office maelstrom. But you might know Arthur as perhaps the dominant financial creative writer in crypto when Arthur Hayes drops an article. It commands the intention of basically everyone in the industry. And not only is this one of those times in which we say, babe, wake up, a new Hayes piece just dropped, but it's also one of the most chaotic and critical times in macro and monetary

landscape that we've ever seen, at least since 2008. So Arthur is going to hopefully walk us through how he is navigating these stormy waters as a banking crisis seems on the brink of creating a monetary crisis and what we all need to do about it. Arthur, welcome back to the podcast. Thank you for having me. Cheers, my man. This is, like I said, stormy times, creative, and your creative writing, I think has led people along and navigate, help people navigate this path.

And I think that is what we want to do here today. And you start off this piece in good fashion with some really interesting literary elements, starting with this line. When you sit down for a Kaseki meal, the destination is known, but the path is not. And that really is the way that you guide us through this. article. Can you talk about how this relates to the money printer? Because I think what you were really referring to is a lot of these crypto people, myself included, we've all said, eventually, the money printer is coming back on. We don't know how. We don't know when. But this is how you

start off this article. Can you just unpack this metaphor? Because I think it's going to help us got us along as we go. Well, I think a lot of people in crypto and just financial markets in general have gotten into the habit of studying past cycles to get informed on how the policy makers are react to another disturbance in the baking industry. And if we go back, you know, hundreds of years when central banks were first created, and obviously the most important one today, Federal Reserve, created in 1913, and we look at what they do every time there is a flare-up or some sort of financial risk, we find that they resort to printing money. And the most poignant example of what happens in their minds when they don't print money is the 1930s depression in the U.S.

And if you remember, the Fed was not as happy with the money printer go burr button back in the day, and they actually allowed baking credit to get liquidated. I think, I forget if you had Secretary of the Treasury or not, but Andrew Mellon, you know, we got remarked that they need to let the leverage get cleansed out of the system. and people need to go bankrupt. And this was sort of the ethos back then a little bit more hewed to the free market capitalism versus modern-day corporate socialism that is in most countries around the world. And so the U.S. authorities essentially let the vacant crisis unfold.

They let the system get cleansed of the leverage. And one can argue that the U.S. actually put itself in a better position vis-a-vis Europe who didn't do the same thing faced with the same sort of deflationary impulses. and ultimately that led the way for the U.S. essentially to bail out the Western world when they decided to blow themselves up in World War II. But after that, everyone learned this lesson. They thought they learned this lesson that anytime there is the threat of deflation, any time there is a threat of a baking panic,

for whatever reason, the response must be to print money. And every single cycle, they come up with a new term for it. You know, the most recent one was quantitative easing, which I believe was a phrase coined by, Professor Werner when he was talking about the Bank of Japan after the 1989 crisis. And essentially it just means that the central bank, in some way, shape, or form is printing money. Now, technically speaking, it's not like the Federal Reserve has a money printer and there's a bunch of dollars coming out. In the prior circumstance, the Fed was printing bank reserves.

And so you see this balance on the Fed's balance sheet of how much excess money the banking system has, and it's something like $3 trillion last time I checked. But that's essentially what they respond to. And so as crypto people are like, okay, well, 2009, right after the global financial crisis, Lehman Brothers, went bankrupt. That December, Ben Bernanke had basically announced that he is going to embark on this thing called quantitative easing, purchasing these assets to sort of bring financial conditions more fluid so that people can make loans and businesses can expand, at least in his theory. And starting in March 2009 is when the Fed made its first purchase, and that pretty much marks the bottom of the S&P, about 666. And obviously, we know that the Bitcoin Genesis Block was, you know, in January of 2009. And some could say that it was in part of direct response to, you know, the biggest financial crisis since the 1930s and the response to the authorities, which different from then was to, okay, we're going to print money and bail everybody out.

So we went through that cycle from 2009, basically up until 2020, when prior to COVID, the Fed was toying with this idea that they were going to, in Janet Zillen words, watch paint dry as their balance sheet declined. And Jay Powell, who was the Fed chairman at the time, was in the beginning of trying to tighten monetary policy. And then all of a sudden, COVID-19 happened. And, you know, there were this specter of lockdowns. America and the financial conditions started a tighten everybody was worried about all these

different companies going out of business the corporate credit market froze and you know there's just basically a tailspin and the s&P 10-year treasury touch to low interday low i think 33 basis points and then the fed responded with an immediate emergency meeting and they said essentially we're going to nationalize the entire u.s corporate bond market by um gary tinkle b and above you can sell to us and we're going to provide infinite liquidity to make sure that financial conditions can stomach this pandemic. And then obviously in response, the U.S. federal government, out of any government in the entire world, develop and developing, printed the most money by basically handing out checks to people. You know, the Stimmy checks, right? Everybody got a check. Some people bought, you know,

went on Robin Hood and punted crypto and Doge and stocks, whatever. Some people bought, you know, got to put down payment on a new car, whatever. Everybody got everybody got to. money and everybody did whatever they wanted to do with it. Right. And so that was in the tune of a few trillion dollars. And guess what? People are like, oh, that's kind of inflationary. We don't actually want to own U.S. treasuries if the government is just going to be handing out money to people. So what happened? The Federal Reserves did their job and they bought almost half of the issuance of this debt and underpinned this massive amount of money printing the most since World War II for the U.S. And obviously crypto went from about, you know, three and a half, four thousand to

69,000 at the peak. And then obviously they throw us, oh, my fucking God, we overdid it. So we need to go the other direction. And then, you know, Jerome Powell raised rates the fastest of any Fed chairman in modern day history. And now we are what we are today. The consequence of super easy monetary policy on one direction really quick, super tight monetary policy. And the other direction really, really quick. And now we essentially bankrupt the entire U.S. banking system. So the punchline that I think really we need to get to is this thing called the BETFP, the bank term funding program.

And thank you for walking us through what was the setup to this. But I want to really just drive this to the setup home. And so a bunch of money gets printed in this crazy bull market that happened both inside and outside of crypto. And as a result of that, a bunch of new money gets deposited into a bunch of new banks. And this kind of sets up a lot of these commercial banks, the commercial banking sector, into kind of a trap. Because once the Fed raised all the interest rates, all of a sudden the paradigm shifts. Can you walk us through that last bit of context to set us up for this bank term funding program?

Sure. So obviously, you know, post the global financial crisis, essentially the U.S. banking systems is bifurcated into the super large, too big to fail. They call them globally systemic important banks. like the J.B. Morgan, the cities, Wells Fargoes, Bank of America, those type of banks. And then you have everybody else, right? And there's a lot of the new regulations passed on how to do banking in the U.S. and around the world. That's dot Frank in the U.S. and Basel III internationally. And basically what it meant was only the really large players could really make money

because it's just so expensive to be a bank. But, you know, America is very, you know, there's obviously high income disparities between people and businesses, but there is a big tale of people at the middle and the low end, right? And all these people got checks from the government. And what do they do? They went to their local bank.

It might not be a JP Morgan or a city, might be a community bank, a regional bank, and they deposited all this money. And then, you know, let's take the one case that everybody's really focusing on the Silicon Valley Bank. Okay, and you have this history of startups raising a lot of money. You have 2020, 2020, 2021, this massive money. printing, tech is just going bananas, people are raising massive rounds, and what do they do?

They stick all their money right back into the bank that was supporting them, Silicon Valley Bank, right? Another, you know, no-name small bank that sort of rose a prominence. I don't know who published this chart, but there is a great chart that shows percentage rise of deposits over the last three years, and you see Silicon Valley Bank is like one of the biggest beneficiaries of just deposits in general. And so as a bank, what do you do when you get a lot of money, right? The job of a bank is to take money from depositors and to lend it out, right? And, you know, as we know, banks will actually like to take real risk. If there's a way that the bank can earn money without taking a lot of risk and the risk in this sense is more like a credit risk,

right? Lending to an individual person or a small business is way riskier than lending to, say, an arm of the United States government. So the bank says, okay, well, I'm getting all these deposits essentially for free. I'm paying 0%. I can go lend to the U.S. government in Treasuries, 1 to 2% I can help originate mortgages or buy mortgage-backed securities and those yield 3 to 4% and then on billions and billions of dollars

I just get to sit here and take money pay nothing, lend money to this government and I make 1% net interest margins. That's a fucking great business and as I pointed out in the article the shares of the small banks soared, right? Something like over one and a half times

from 2019 to 2000 and 21 at the peak because these banks had never had so much deposit, never had so much raw net income from just lending to the U.S. government. And then as a maker, how can you lose your job? It's not like I'm going out and lending to like sketchy individuals. I'm literally lending to the U.S. government who essentially regulates me. So what's wrong with this? I don't see, you know, if I'm thinking of a bank manager, this is like, this is the best trade ever.

My stock price goes up. I make a lot of money. I'm taking little to no credit risk. because I'm lending to the government. And also, importantly, they're buying very long-term bonds, correct? That's also like a super important part of the story? Yeah, so they couldn't just lend to the U.S. government on like an overnight basis or a one-year basis because that was basically zero because that was where the Fed plays in that,

you know, zero to one, the two-year mark. That's where they really control the short end of the curve and that was at zero percent as per Fed policy. So it said, okay, we need to take more duration or time risk. Let's lend to the government for long. longer periods of time so we can earn more income, right? So that's, you know, 10-year treasuries, third-year mortgage bonds. And essentially what that means from a risk perspective is the longer the bond, the riskier it is as interest rates change. And so a small change

of interest rates can change the price of a 10-year or 30-year bond much more than a small change in interest rates can change the price of a bond that's going to mature in the next year. And so the banks, instead of having credit risk, they had derrick. risk. If interest rates rose, they stand to lose a lot of money. And so from 2008, the banking sector probably loses their appetite for credit risk. I think that's one of the important pieces of set up here. And so what you're saying is they go into the most solvent entity that exists, which is the Fed, because they can print money. But in order to have any sort of margin whatsoever, they have to buy the longest term bonds because we were existing inside of a paradigm of zero

interest rates for so long. That was the equilibrium that has been established almost, almost completely since 2008. And so that's the setup for like what I'm modeling out as like the Fed rug pull because they inject a bunch of liquidity and then they jack up interest rates faster than they've ever jacked them up before. And so Arthur, what does this do to the banking sector? And like this is the setup for this current crisis that we're inside of, correct? Yeah, absolutely. So the banking center has all these US government bonds, long-dated bonds. And then the Fed goes, okay, us and the fiscal politicians have created all this inflation. We need to, we need to rein this in. And so we're going to raise rates really, really fast. And, you know,

Jerome Powell thinks he's the modern day Paul Volker, who, you know, starting in 1979, rose short-term rates, something almost like 20 percent to sort of break the back of inflation. And Powell says, okay, we're going to raise rates too, really, really fast to get to, in his mind's neutral. And so the Fed is targeting core personal consumption expenditures, core PCD, is their measure. And so he needs to raise rates really, really fast. And obviously, every month, there's a new high in your inflation as measured by the consumer price index. And the politicians are all over him. You know, the Democrats are looking like they're going to get their asses kicked in the midterm elections because everybody's worried that the price of gas and the price of milk is going up.

So there's all this pressure on the Fed beat inflation, beat inflation, beat inflation. that goes, okay, well, we stuff the banking system full of reserves, right? So they're very, very solid. There's a trillion of dollars sitting over here that I see from the banks that I regulate. Okay, they can handle it. So they start jacking right. And so what happens? The prices of bonds in 2022.

So Fed communicates starting in December 2021, hey, we're going to start this thing called quantitative tightening, which means we're going to allow the bonds that are maturing on our balance sheet. We're not going to reinvest them into the bond market. So our balance is going to shrink solely at the tune of about $100 billion a month, starting in, they ramped up starting in September of 2022. And we're going to raise a short-term policy rate starting in March. So they started raising policy rate in March. Quantitative tightening kicks in.

So you have this dual effect. It only is the price of money going up, but the quantity of money is going down as well. And so it's really, really tightening financial conditions. And as a result, 2022 was one of the worst years for the bond market on record, right? because when you move from essentially 0 to 1% interest rates to even 2, 3, 4%, like to us it is, oh yeah, it's only a few percentage points difference in the rate of interest. But that's a 2, 3, 4x change in the nominal level of interest rates. And on a highly nonlinear bond that has a lot of what we call gamma convexity at the zero bound,

it causes ridiculously bad losses for anybody who's long bonds. And as we saw bond funds got their asses kicked, Bloomberg, Gagher, at bond index was down something like 15 or 20% in the year, which is the worst showing since probably late, early 19th century, at least in the U.S. context in terms of the bond market. And the banks are basically sitting on all these losses. And so the bank's balance sheet has broken up into two things. They have what we call available for sale bonds, which are the bonds that they mark to market. And so those will fluctuate. And you can see, you know, gains and losses. And then they have held to maturity securities, which is this essentially slight of hand that they

get the play. They say, oh, I have a 30-year bond. I'm not going to sell it for 30 years. Therefore, even if the price goes down 50%, because I'm waiting for maturity and I'll get back all my money plus interest, I don't need to mark that to market. And so if I have a lot of health and maturity securities and the prices start tanking, hey, regulator, don't come after me for breaching regulatory deposit requirements. These are held in maturity. You can hold these at par. And the regulators, So, oh, sure, because we don't want to actually, like, do our jobs and, you know, look at what the banks actually hold. And so then we get to play this game that the banks have all these unrealized losses on held to maturity securities, but from an accounting standpoint, they're solvent and they meet all the requirements. And so these two things.

And for some reason, this is legal, which is insane, right? Because we're basically pricing in the future of what a bond will be priced at in the future and saying that you can account for that today. do you have any intuition as to why this is allowed? Well, from a logical standpoint, if the bank says, I'm never going to sell this and with the U.S. government, then I should not be penalized in terms of a capital charge. So if you think U.S. treasuries don't require any additional capital against them

as per, I think, Basel-free banking regulation. So what is the bank versus if they elect to you and me, they need to reserve against losses, right? Because we could default. So from a capital perspective, lending to the government means I don't have to put up additional equity or capital against these loans or reserve for losses versus lending to real people and real businesses. That's considered riskier. Therefore, I need to put up additional capital. So am I going to make those loans?

Fuck no. I'm going to lend to the government. I'm getting two or three percent risk-free, essentially, for doing that versus taking real risk to underwriting a loan and then getting charged more capital. and possibly I can be in breach of my requirements and have to go to the equity markets and raise more funds and just not a lot of fun. I like to do the easy thing and still get paid, right? And so that's what banks did.

And importantly, regardless of how you measure the value of the bond, whether the government allows you to measure it at the full term maturity, it still doesn't change the fact that there's only so much cash that's available for withdrawal by all of these banks. And so that kind of brings us to where we are today. The market doesn't lie. The treasury is down on 30%. Okay, cool.

You can ignore it for 30 years, or if you have to sell it today, then you're realizing a 30% loss. And that was the issue. And this is kind of where we are in the current state of affairs in the last week or so, where bank stocks are, like, read across the board.

And so can you just, like, give us an audit, a sit rep of the current state of the United States banking sector. Like, everything from my knowledge is, like, deeply red. How bad is it? Again, it's a bifurcated market. I think the U.S. is sort of at this ideological turning point. They don't know what to do, right? Do we want to be like China, which has essentially four state banks. All credit is going through those banks and that's Bank of China, ICBC, Baked Communications

and CCB, China Construction Bank. you could now this would be like jp morgan city waltz fargo big of america right is that with the u is that what the u.s regulators want the banking system to be let's have four really really big banks they do all the credit creation they're super sound but there's you know they ossify there's little to know financial innovation blah blah blah but you know they're essentially actors of the state or do we want to have a more freewheeling market where you have thousands of small banks catering to the different um you know how a different location might do banking or different conditions, right? It's kind of the reason why you have either like a one central bank,

which is like, let's say the ECB, right? There's one central bank for all of Europe versus the Fed system where there's, I forgot how many regional banks there are, and they feed up into the board of governors, right? Because it's a little bit more to centralize structure because the U.S. is coming from this agrarian perspective of, okay, there's different regions in the U.S., the different industries, therefore there's going to be different rates of interest that it would apply. Which one do you want to choose? It's sort of a philosophical question. And so essentially in the U.S. you have this sort of schizophrenia. You have on the one hand all these rules that are supposed to make banks safer, but all they do is increase the cost of compliance and mean that there's only really a few handful of players that can afford to do it.

They're really, really big banks. And then you have all these long tail of smaller banks that essentially serve all the things that the big banks don't want to do. Because the big banks don't need to serve Silicon Valley startups, the crypto industry, legal marijuana, like all these different things that. that people, that other banks might cater to that the big banks don't need to because they have so much business. They have the biggest companies in the world, stashing billions of dollars of deposits. They can lend the money. It's very safe. Like, those are the kind of clients that these smaller banks will never ever have. And so you have this sort of this different banking system. Because the big banks are fine. They've got $200 of excess of liquidity with the Fed. They have essentially an explicit government guarantee because they're deemed too big to fail.

but then the smaller banks don't have this guarantee. They're supposed to be these free market actors responding to, you know, supply and demand and the market. And so that was a setup for where we are today. Everybody did the same trade. It's just a smaller bank stated in much bigger size relative to their equity capital. We got a lot of deposits that they never had before. They made a lot of loans to the U.S. government, right?

And not only the U.S. government, they were responsible for a lot of the, you know, construction loans, a lot of the commercial real estate. state loans, which is now in focus, right? So they were doing all the things that generate the economic activity of the United States. And in most countries in the world, it's the small businesses, the single operators, they're responsible for the majority of all economic activity. Those people can't get accounts at a GP Morgan or a city, but they can get an account at First National, at a Silicon Valley Bank, at some of these smaller banks. And so they were the ones making all these riskier loans. They were the ones who had much more exposure to

a rise in interest rates based on the government bond portfolios. And that's where we are today. Now, obviously, all banking stocks are down across the board, but no one's worried that J.P. Morgan is going out of business. But they're worried about these smaller banks that aren't too big to fail. The question mark of what is the government going to do? Are they going to extend, can they access a discount window? Are they able to do the things that a J.P. or a city can do vis-à-vis their interactions

with the government? And this uncertainty is what's driving people out of the system. I'm like, well, okay, do I leave my money at this smaller bank and take any risk that for whatever reason, the politicians decide this one, we're going to let this one fail. We're going to do free market over here, socialism over here. And so then I'm going to go with socialism because then I get my money back. And then that's the problem. So all the deposits are like, fuck this, I'm out. And then as the deposits leave, the small bank's like, okay, well, what do we have to do to give back the money? We have to sell these bonds. And then that is why. this is where this bank term funding program come about is like, okay, the Fed doesn't want us to sell the bonds because if they sell these treasuries, not only do they realize a loss and technically go bankrupt, they create a disorderly market in the treasury market, right, because liquidity has declined since 2008 when essentially the government made it very hard for banks to make markets and treasuries profitably. So they said, you know, okay, we're going to step back. Now the majority of

liquidity are these non-bank financial actors. But, you know, they're not going to provide liquidity when it's needed. They'll provide it when it's not needed, the fair weather friends of the market. And so the last thing the Fed and the Treasury want is everyone dumping bonds to get deposits, to just go to stuff them and JP Morgan. It's kind of this like, it's this vicious cycle, right?

Okay, we need to bail out of small banks because everyone is worried that we're not going to extend the same preferences to them that are extended to these big guys over here, so everyone's going to the big guys, and then the small banks go under, and it causes all this, you know, this knock on effects. And so that was what the bank term from program is there to solve.

It says, don't worry. You don't need to sell your bonds. If deposit is leave, just give us the bonds. We'll give you the full value of the bond in cash. And then you give your deposit of cash. And now you've done your duty as a bank. No issue. No bank failures. You might not make any money. But management, you're not looking like guys of some SB Silver Gade signature who don't have a job anymore because they've been taken over. you know, you there, right? So that's essentially the program in essence. I actually haven't heard it articulated in this particular way

that I actually find this really, really useful. My mental model for like all the shenanigans that have happened in the banking sector is that there's been a flight upstream to the big banks. The long tail of banks is more or less getting cut off because of the fastest rising interest rates that we've ever had. That I think is more or less what most people understand.

That's true. The fact that this long tail of, banks are also serving the long tail of the economy is actually a new insight for me that I haven't heard before. And so this is perhaps why you started this conversation saying, well, what do we want out of our banking sector? Do we want it to be like China where everything does centralize in the four biggest banks inside of the country? Or do we want to actually promote the long tail of banks that promotes the long tail of the United States economy? And I think what you're saying is this new institution, this new bank term funding program, is that you're saying, is that

a political statement that we do want to support that long tail. Is this, this is my interpretation? It's kind of halfway house. It's not there yet. It's solved the first problem. The first problem was, I'm not going to get my deposit back. So after, you know, it was Silvergate first. Now, unfortunately, they were the runt of the litter.

No one's getting their money back. And then you had Silicon Valley Bank and signature bank. Depositors are getting their money back, but management's been kicked out equity's been zeroed, right? And then the third iteration was, okay, we have bank term funding program. Nobody's going bankrupt. Nobody's losing their jobs. Deposities get your money back. But the cost is it's not free.

So the problem is that my deposits are, we're at 0%. The Fed via the reverse repo and short-term treasury yields is 4% to 5%. And so depositors are like, okay, I can leave my money here, take risk at this bank goes bust. and I get zero. Or I can go give my money to the Fed overnight via a money market fund. They can print money. They'll always pay me back.

And I get 4%. What the fuck am I sitting in this deposit? And so I'm just going to keep funneling money up to the Fed, right? Funnaling money to the U.S. government in short-term treasury bills. And what does the Fed do? So, okay, well, to fund that,

we're just going to let the banks give us their underwater paper, their mortgages, their treasuries, and we'll give you back dollars. But that doesn't solve the issue that the difference between what the banks can afford to pay, which let's call 1% on deposits, versus what the federal government is giving on an overnight basis, which is 4% or 5% is too large, right? The banks can't make money. Small banks cannot make money, borrowing short and lending long. We saw this with the inverted yield curve.

You know, 2 year versus 10 year, 2.3 versus 30 year at, you know, before this crisis broke out. 100 basis points negative, essentially, massively inverted, which is telling you the banking system cannot make money. And as students of financial history, the central banks know that if your banking system and a fiat economy and this leveraged business cycle that we have, if your banking system is not sound, your economy can never be sound. And it's been evidence time and time and again, right? Japan, 1989 crash. economy's flatline for the past 30 years. China tried to go after its property market. Banking system was about to collapse. They've relaxed some things a bit,

but China's on path for another 20 to 30 years of essentially, if you look at the real numbers, zero growth, right? Because the banking system needs to allocate these losses. The U.S. did, well, some people will say the smart thing in 1930s, very painful. They allocated losses in the 1930s. Cause a great depression.

However, that was all expunged, that the GDP was my money. much lower when they came into World War II versus Europe, who didn't do that, and they benefited from it because they took the pain. This situation, we don't take the pain. We extend it out further, but the pain will get paid by just below trend or zero growth. And so this is what happens when the baking system can't make money, and everyone requires a loan to expand output. The small banks cannot make money if the Fed funds rates at 4%. Even if they give their treasuries to the Fed, great. They've solved the bankruptcy issue. Everybody gets back their money, but the bank cannot make money.

The bank is just going to accrue losses. So these stocks, even if they're not in zero, they're dead money. Why would you invest in these things? These small banks can't make money, especially if the yield curve is, even if the yield care goes positive, the shorter rates are still too high relative to their blended costs of where they originated these initial loans. They can't pay 4% on Fed funds. So while the Fed has solved the issue of everybody getting their money back, who's a U.S. bank, who holds treasuries, they haven't solved the issue of, I'm a small bank. I cannot power the American economy because I can't issue loans because I'm losing money and their interest rates are too high at the short end for me to pay depositors something that's going to attract them to my bank so that I can lend money to the small business or a single proprietor. So they've solved those very small issue. I mean, it's massive impact in terms of liquidity, but they still haven't solved the real issue, which is the banking system is broken.

They can't make money. They can't make loans. And the U.S. economy, and I would see most of the developed world economies are on track for a nasty business cycle credit-induced recession because the banks can't make any money with short rates this high. Uniswap is the largest on-chain marketplace

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So get on the Phantom wait list and be one of the first to access the multi-chain beta. There's a link in a show notes or you can go to phantom. Dot app slash waitlist to get access in late February. Yeah, okay. So I think this really pivots us now from talking about what's happened to what is going to happen, going from the past and present into the future. So there's a couple of different threads we can pull on. There's the recession thread.

It's like, okay, so I think you actually kind of just illustrated that this is what's next is at best non-growth, at worst, a recession. But then also I want to talk about, because like what's going on on the other side of this content sphere is Bologi's insane prediction that Bitcoin is going to hit a million dollars inside of 90 days because all of this money printing, all this QE is coming into this world. And I'm wondering, what's your take on that?

And so we'll talk about the recession. We'll talk about how this relates to crypto assets and what we all need to do about it. But let's actually start with crypto assets. Because we have this bank term funding program, we have a bunch of new injection of liquidity and money into the economy. What does this do to crypto? And what does this do to just or risk assets in generally speaking? Right.

So let's separate risk assets. So I spoke about the end of my article. I think it's Perry. I forgot his name. This is professor, I think, Cornell, Columbia. Inside money, outside money. Inside money is money where you're a liability. on somebody else's balance sheet, right? Inside money is a U.S. dollar. Inside money is

Japanese, Euro, C, you know, a yuan, whatever. Inside money is stocks. Inside money is bonds, right? These are all things that exist in the financial ecosystem. You can't utilize these things without interfacing with the Fiat financial system and the people deputized to act in it. You have outside money. Outside money is not a liability on somebody else's balance sheet. That would be gold. That would be your real estate, your apartment, or your house. That would be Bitcoin, obviously. Outside money doesn't care what happens to the banking system. Bigacism goes bust. Outside money still works. You still can live in your house. You still can walk around with a bar or gold. You still can use the Bitcoin blockchain, regardless of whether or not J.P. Morgan or City or First National or SVB, or any of these banks are in business.

Right. And so there's risky assets in both of those buckets. But if we're talking about essentially this is the end game where the explicit. implicitly, the major central banks are now in the business of cashing the checks of the government. That is, by definition, the road to hyperinflation. It doesn't mean you're going to get there, but you're putting in place the prerequisites to get there. Then do you want to own inside money? Because inside money is going to get deflated because there's going to be way more fiat money out there. You want to own outside money. You want gold.

You want property. You want Bitcoin. You want vintage cars, whatever it is, right? And so that is the setup, right? If we believe that the authorities are committed to saving the banking system, and saving the banking system essentially means guaranteeing that no bank can ever go bust, which means that banks that buy government debt can do it as much as they want, and we're going to give them par, whatever the value of the debt is, par meaning 100% or face value of that debt. At a certain point, the money supply expands infinitely, and I don't want to have claims on this system. I don't want to be an outside money. I don't want Bitcoin, right?

And that's where this trope of Bitcoin 1 million comes from. Now, while Belagia, I think, is doing a very great marketing campaign in this bet, and I don't know how much he's going to lose if he actually loses the bet. Probably nothing in a percentage of his net worth. Do I think Bitcoin's going to a million dollars in 90 days? No, I do not. Do I think Bitcoin could go to a million dollars in this cycle? Absolutely.

In this cycle would be the next two to three years, for sure. And the reason why is, is, okay, yes, and I and others say this is quantitative easy and this is money printing, this bank term funding program. But right now, all this is doing is guaranteeing the depositors get their money back. This isn't inflationary as long as depositors keep their money in the banking system, because what's going to happen? If all I'm doing is taking my deposit from Silicon Valley Bank and putting in a JP Morgan, and Silicon Valley Bank, whoever buys it, can't originate any new loans. GP mortgage is not going to

origin any new loans. GP mortgage is going to stuff in interest interest on excess reserves at the Fed. They're not lending any of this money out. So there's not any credit creation happening. I'm just guaranteeing losses. So for the time being, this is all a dead

money. The banking system can't expand because it's underwater, because short-term rates are too high. But because I've put this facility in place, either the Fed starts cutting at the next That's the next meeting. I don't think every way they will, but they could.

Or a nasty recession forces them to cut anyways in the near future that I believe is my mental model's Fredica that's going to happen. Once those rates start dropping, you have all this dry powder that's here. And then if you're like, yes, okay, baking system sound, yield curve is steep again or not inverted, game fucking on. I'm buying everything under the fucking sun. and banks start lending, people start buying ship, and that's when you get the massive inflationary impulse. And that's when you start seeing the real gains in Bitcoin.

So while we've had this move from 15,000 to close to 30,000 and 100% off the lows, I think that's just telling us the direction of travel. I think that the path to get there is going to be quite rocky. Because let's say the Fed comes out tomorrow and they say, or by the time this airs, and it's 25 or 50 basis points hike, right? And essentially they're going to melt down the rest of the U.S. banking system by doing that over time, then you could see a risk-off scenario and Bitcoin could get impacted and give up some of these gains. You could see Bitcoin run from 28 down to 25,000, right,

and not going to this million dollars that everybody's talking about. So the path is uncertain. We know the result. The result is the Fed either hikes and crashes the banking system or cuts, saves a banking system. Either way, they're going to be cutting it eventually. And the money that they've created in this facility has created in an infinite guarantee, which I think will expand it even further as they see more and more of these small banks. And one tangent, the facet of the American political system is even these flyover small bumble-fuck states have two senators.

Right. So they still have power. And if mama pop is banging on their senators door, like, why the fuck are you letting my bank fail? and these motherfuckers in New York are having bonuses at J.P. Morgan, guess what's happening? There's going to be a nationwide guarantee in all bank deposits. It's just politically in a post-degreeing economy

where you still have a lot of power in these smaller states that aren't really connected to New York and Silicon Valley, there's going to be political pressure to extend this guarantee to everyone. It's just going to take a banking crisis and some more banks to fail for them to get there, but they'll get there eventually. But it's setting the seeds for

when things really take off, they're going to take off even bigger than before because the pile of money and the guarantees that have been put in place are essentially guaranteeing an infinite amount of money printing. As much debt as a government can print, can issue, the banks are there to buy it because the banks don't have any risk anymore. That's the point in making. But we're not there yet. And so, yes, okay, Belize she's making this, but I don't think it's going to happen. My mental model is it's probably, we're probably, you know, we'll chop here. Maybe we get the 30,000 and, you know, don't break through whatever. I still see some medium-term choppiness before we really get lift off. We really need the Fed to

really break the banking system. Now, maybe they're going to back away from the precipice and not hike. I don't know. I think I'm still missing a link here between how there's enough total money creation to send Bitcoin, even to a million dollars inside of two years. The numbers that you put in your article is that the bullishness, if you will, because of money issuance is bullish for risk assets. You're saying that the

bank term funding program is implicitly printing $4.4 trillion, and that is just what I'm understanding to be the delta between the actual value of these underwater treasuries and what they will be valued at their full term loans. Is that delta is...

No, so I'm basically saying the amount of U.S. Treasuries and mortgage-backed security is held on U.S. banking system balance used an aggregate is $4.4.4 trillion. And that's been guaranteed. If you want to go in 10-0-0 to the Fed, you can get $4.4 trillion. Now, it's up to you or you're deposited

what you do with that money, but essentially the entire deposit base, $4.4.4.000 can be exchanged for cash using these security. That is quantitative easing, by definition. What you do with that cash determines how financial markets deal with it. Right? And the next question is, okay,

$4.4. trillion is about $300 billion more than what happened during COVID in terms of the rise in the failed balance sheet. That still doesn't get us to a million even if we extrapolate on a one-for-one basis. How do we get to a million dollar Bitcoin? Well, the next situation is, okay, well, a lot of small banks, and the ones are really getting punished right now are the ones that don't, that didn't lend to the government. These are the banks that lent to the multifamily, like the condo builders. Either the banks that lent to the person building and office building.

These are the banks that lend to mall operators. These are the banks that lend to small mom and pop businesses. They originated all these loans. These are not eligible at the Fed. This is their predominantly what their loan book is handled. But everyone says small bank bad, big bank, good. I want my money back. And they go, fuck, well, we can't give this bond to the Fed because they're not accepting it.

So we've got to sell it. Who's buying it? Nobody. No one's buying these bonds. These market's dead. Black Rock has a real, I forgot the name of the real estate fund. They've gated withdrawals. This market's fucked.

Nobody's going to. out, right? And so this is why the stress is not going to, it's going to be on any bank that the majority of their loan book is non-U.S. Treasuries and mortgage-backed securities because those are not guaranteed right now. And that's where the pressure is going to come. And so once we see one of those banks fail, and I haven't done the analysis, and I don't know the names of the banks that are more heavily in that bucket, but if you're looking at banks and you want to say, okay, this is the bank that I think it might be a good short. Those are the banks. The loan book is predominantly. non-treasuries, non-markets,

because those are not guaranteed. So when the deposit leaves, that bank goes bust until the government comes in and says, actually, every single loan originated on a bank balance sheet regulated by the FDIC, wherever the regulator is, is now guaranteed.

So what is that in the U.S. has about like $18 trillion of deposits. In essence, the entire banking system. That's where they have to go to because the market's going to say, okay, well, cool, you got treasuries? we're not fucking with you. You've got loans to commercial real estate, malls, businesses. Yeah, we're fucking with you. Right. And so those are the people that are going to feel the pain.

And I think eventually they're going to get bailed out too. Because, again, they're the ones that power economic growth. They're in states that have two senators and they can apply political pressure to get what they want. And so I think that's the massive travel. So that gets us to 18 trillion of implicit guarantee. Now, the real coup de grace for this program, and I think which is super elegant, and what they did is the real problem is not the immediate problem of the banking system. The real problem is after the debt ceiling gets raised, July, August, September, whenever it is, the U.S. government is fighting wars all over the world and not just, you know, fuck them up, shoot them up wars. It's war on climate change,

you know, all these esoteric, you know, non-defined concepts that we're fighting a war on, right? And so these are expensive because you're spending a lot of money. You have the inflation reduction act or whatever bullshit name they came out with. And they're just handing out money to preferred industries to do stuff. Right. It's expensive. And it's not as if tax receipts are growing. They're actually falling.

And so there's going to be deficits that need to be funded in the single digit trillions. And it's going to keep growing year after year after year. Who's going to buy these bonds? like the U.S. banking system post-COVID could be counted on to buy government bonds because they had a great spread on them. And the Fed said inflation is transitory. There's no more inflation. It's dead, blah, blah, blah. You don't have to worry about interest rate risk.

The bank said, okay, my regulator is telling me you don't have to worry about interest rates. I'm not worried about interest rates. I'm trying to get paid here. And so they piled in. But you've just taken that away. They just blew up because the Fed blew them up by raising interest rates so high on their U.S. government securities. So how do we get the banking system back in the business of buying the debt that we have to issue? Well, we guarantee that if they ever get into problems, we can't give them back

dollars that we printed. And from a technical standpoint, the Federal Reserve, from an optics perspective, is not cash in the checks of the government, which in classical economists says hyperinflation, hyperinflation, we need to sell bonds. It's the banking system buying the bonds of the U.S. government because they're guaranteed to get money whenever they need it from the Fed. And if the Fed reduces interest rates or low enough rate where the curve goes positive again, long-term rates greater than short-term rates, it's profitable for the banks to have deposit base by every single issuance that they can of U.S. government debt. And if they ever need to give their depositors back money, they give the debt to the Fed.

The Fed gives them dollars, right? And so we go this little barrier around. U.S. government gets stuffed bonds down the throat to the banks, and everybody's happy. And that's what I think the real endgame is, and that's how you get to Bitcoin 1 million, because that is yield curve control. That is the central bank cashing the checks of the government. A few steps removed, but it's the same fucking thing. And that is where I think this program is beautiful in terms of how beautifully sinister, but beautiful in some respect, and how it accomplishes this goal. People aren't going to think about it until it exists.

And, you know, obviously they have this, oh, it's going to end next year. There's no way it can end next year. Why would I hold a banking stock if I know that they've got all this debt that they can't tend into the Fed? They have the same problem. The problem hasn't gone away. So are we going to crash the banking system again March next year? Are we just going to keep doing this again and again and again? No, they're going to extend it.

And once they've given infinite extension, then the bank says, okay, cool, with regular so that I can use this program. Oh, government's selling a bunch of 30-year debt at... It doesn't matter what the fucking interest rate is. It's positive spread. I get to make money I'm on a deposit. I'm there. Take it all that shit. Oh, I need my customer wants to take that out the money and I don't know.

Go buy something. Cool. Fed. Here are these bonds. Give me back 100%. I'm still making money. Great. So that's the $1 million Bitcoin.

But that doesn't happen immediately. It's a path there. And I think it's not entirely straightforward. But that's where I see it going. and I think Bitcoin eventually will discount that future. It's not going to happen before June to help Belagia out. But I think as we start seeing the slow motion evolution of everybody getting a bailout, the guarantee expanding, expanding, expanding, and expanding as more holes are poked in,

well, why did he get a bailout and I didn't get a bailout? Right? That's the question. It's the unevenness of the response. Some people are getting a good response and some people are getting a bad response. And it's only to do with what they hold on their balance sheet, and there's nothing else to it than that. And so I think as we move down this path, that's how we get to $1 million Bitcoin. But it's not an immediate thing.

It's going to happen in overtime. Right. Okay. So implicit in your model of the future is just an increasing scope of the bank term funding program. So the bank term funding program is constrained in the assets that are eligible to access the facility. and it's also constrained in scope in that it expires, according to the Fed, inside of one year. And what you're saying is that both of these variables are going to expand just because of the political interests, the political forces that will inevitably be placed on the Fed.

And the market forces. Okay, the Fed just bailed out two banks, the depositors of these banks. And if we, you know, take the media narrative at face value, it is the most toxic sector of the banking system. one bank lengthed to the crypto bros, the other big went to the tech bros. I couldn't think of two worst constituents in American politics right now if they want to bash on. Right? So we're starting from a real good place. The management got bounced and equity holders got a donut.

Okay. But the deposit has got their money back. So expand that, right? If they're willing to do it for them, why aren't they willing to do it for, you know, X, Y, Z, Bank and Bumblefuck flyover country America who lends to farmers. And we all know the farmers have a lot of power because of how the political system is set up between Senate and House and the executive branch. And so I think the politics is going to dictate that you can't bail out the banks on the coast

and that bail out the banks in the heartland, right? And that's, it's this state versus federal, you know, continuing, you know, clash if you want to call it that, that exists in all countries with a similar sort of political setup. Because how do you politically allocate the loss? That's the question. The politicians have to tell us, okay, well, there's a loss. We know there's a loss in the banking system. Who takes the loss? Is it the small bank over here? Is it the large bank? Is it the central bank? Is it the federal government? Is it the state government? That's up to the politicians to decide. And so, and if you're not able to clearly allocate losses in an objective manner,

then you just get to bail out everybody. And so that's where I think we're going to go to you, because there is no reason why I should bail out a treasury bond, but not the bond for the commercial real estate project. Why that one, not this one? Right. So, Arthur, who loses here? Because you're painting a very, I think, rosy, optimistic picture? oddly because eventually you're saying that everyone, everyone's getting all their money. Banks are going to be able to take free risk. Bitcoin's going to a million dollars in two to three years. Who takes the L?

The L is anyone who holds, you know, dollars, right, inside of the system, right? So if you, if, okay, if Bitcoin's a million and oil is $500, right? Or if Bitcoin's a million and it costs you, you know, a family of four could feed themselves for $10 and now it's $50. right and they didn't own any Bitcoin and they didn't own any financial assets outside of the system that's who loses the inflation just goes nuts yeah you can get your money back we'll give you all the dollars you want those dollars just don't buy real stuff anymore hey I need I'm an older person and I need health care right and you know the health care worker instead of it's a you know to get a nurse and it's $200,000 you're now it's half a million to get a nurse and so health care costs go up right there's all these things that the average person needs that the government can't print. And if they're just going to not allocate the losses for all this debt, which is essentially debt is, I'm going to take the future and I'm going to spend it today. Right? So we spent the future. There's no more future, right? We have to pay for it. And so if you have money inside of the system, you will pay for it. And it's an implicit tax in anyone who saves in things that don't go

up as fast as the amount of money printed. And so that's the game. It creates a financial speculator out of everyone, even if you don't think you're a speculator, you are a speculator, because now you need to determine, okay, I know my family's cost of living is going to go up. I know my health care is going to get more expensive. What can I buy that's going to help me, you know, accomplish those goals with an accepted amount of risk? The answer is nothing. You become a speculator. You're speculating on stocks. You're speculating on property. You're speculating on crypto. You're speculating on everything because you're spending all your time thinking about how do I provide for my family when the currency that I hold is being devalued constantly.

And that's who loses. Everyone loses. They just don't think they lose because, yes, I got my money back in nominal terms. But the cost of things that are outside of the baking system that I need, food, energy, health care, are all going up exponentially. So this sounds like something crypto people are all too familiar with it. there in paying attention to the world of inflation. This has been a big crypto narrative for a long time.

And Bology in our recent podcast with him said, yeah, America is the new Argentina. There's new rampant inflation. And so I think this is what you and Bollogian. I would say it's not just America. It's the whole Fiat banking system. Because while America is the worst example of this, it's in Europe. It's in China. It's in everywhere.

Capitalist, communists, wherever the fucking ism you want to say your country, everybody said, I'm going to borrow from the future to fund stuff. today because that gets me elected or that keeps me in power. And it doesn't matter how you get elected. That was the game. Everybody played the game. Future's over. Okay. Unless we're going to discover, as I said in the article, some new sorts of energy that's extremely dense and it's going to power the next path for it in human evolution of society, then we got to pay this this debt. And it's going to come in the form of inflation and zero to no growth for a very, very long time. So the answer to the question, who's taking the L is not just the U.S. dollar, but it's the

entire fiat regime. Exactly. Okay. Wow. That, but that, the, the Argentine economy. And we know this is the case. And we know this is the case because what did the Fed do last weekend or whatever it was. They said they didn't, they didn't come out and say, oh, we're going to bail out the small banks in Iowa, Nebraska, who lent to real American businesses. Oh, no, we're going to bail out every single friendly central bank whose banking system all had the same trade on. Because once they guarantee that if you hold the U.S. Treasury and you're a U.S. bank, you get your money back. as a depositor, why the fuck would I hold my money in any other bank?

Right? U.S. government, most powerful government, U.S. dollar reserve currency of the world. If a bank held U.S. treasuries, my money is good. Back by the government. And if I have a foreign account, if I'm abroad and I have a foreign account in the U.S. where I can stuff my money, I'm dumping euros. I'm dumping yen.

I'm dumping everything. I'm buying dollars and I'm putting it into the bank because I know I'm safe. Because guess what? Every other single banking system did the same trade. print money in 2020, 2020, jack fucking industries up to 2020. Massive losses, right, undeclared losses. Every single banking system has the same trade

to varying degrees. Everybody knows this, and now we've just called bullshit on the banking system. And so the Fed had to bail out every other one of their foreign central banks who are friendly by saying, hey, we're going to have unlimited swap lines for you guys. So what's the trade for them?

It's, okay, I have treasuries or whatever, client says, I want my dollars, they get the dollars from the Fed, they pledge whatever they need to pledge. And so that was a bailout of the entire world euro dollar market over the weekend that the Fed

did because they all have the same issue. And until they all move to the same sort of deposit guarantee, then they're going to see the sucking sound of deposits from their system to the United States, and the swap lines sort of solve that issue. So it's given time for the ECB,

the BOJ, the B-O-E, the RBA, and all the different central banks, to enact a similar sort of guarantee on deposit. It's coming everywhere. The American is just the worst example of it. But everywhere in the Fiat world, this is going to be the name of the game. Because guess what? They're all educated at the same schools. They all believe the same stuff.

And they all want intellectual cover. So if the Fed and the Treasury have started the bank term funding program, they'll change the fucking letters, put the Google Translate on, and they'll make it sound whatever native thing they need to make it sound like, so it doesn't sound like the bank term funding program. It's the same fucking shit. And it's going to happen everywhere. Okay, so the Federal Reserve and the dollar obviously is like the epicenter.

And what you're saying is that like this gravitational pull is pulling in all the other central banks along with it. Can you unpack the swap? What's the swap thing? Because that's the really the thing that connects to all of this. Can you just do that one more time? Yeah. So if I'm a local bank in Europe, say I'm Credit Suisse. And everyone's like, oh, fuck.

Credit Tis is fucked. I want my, I want to put my money in dollars, right? So I'm going to don't, I want my Euro deposit is gone. I'm going to FX them into dollars. I'm going to put them into the U.S. bank branch, right? Where the dollars is going to come from? The banks have to sell something, right? What the U.S. government does not want is all these foreign banks dumping treasuries

to get dollars to pay the deposits back for the dollars that go into the U.S. banking system. Because then the treasury market blows up, right? They've got all these fires we wear it, and they're trying to piecemeal packs them up. They don't want the trade market dysfunction. foreign banks owns United States treasuries. That's a common thing. Absolutely. And so this is the ammo that they have to fire into the market to sell. But you're saying the United States Fed can't, that's untenable for them. Exactly. So they don't want people, you know, indiscriminately dumping treasuries to get dollars back to pay back their depositors with those dollars coming back in the U.S. anyway. So they said, hey, guess what? Swap lives are open. You know, so it's National Bank, ECB, B-O-E, don't sell your treasuries. why don't you like take those treasuries on your balance sheet we'll give you dollars don't worry about that

give it make sure your banks are cool right so you don't have a dollar funding problem anymore you can get all the dollars you need to satisfy deposits just please please please don't sell treasuries right that's you don't want that to happen keep them where they are so here's a swap line so we'll print the money and give it to you that's essentially what they're doing and they and again you know the point I made is it's America like every other country in the world, domestic politics is very xenophobic. If small bank in Nebraska ain't getting bailed out, why the fuck is Credit Suisse and UBS and Deutsche Bank and Barclays

and all these motherfucking foreigners getting their dollars and I can't get my fucking dollars. And that's what they're playing. They're not saying this, but that's why you do a swap line where people doing where the fuck a swap is, right? Because it's a very, you know, to most people's an esoteric concept taught in business school and it has no bearing on their day-to-a-life.

it's a bailout of the foreign banking system that most people aren't going to notice. So, Arthur, what's the punchline here? A few punchlines are the Fiat regime's going to zero. Dollars are going to inflate aggressively. Maybe, I don't know if you'll use the word hyperinflate, but it sounds like we're at least trending towards that. Crypto and hard assets that are, quote, outside the system are bullish and hedges against all of this.

How would you really just summarize what is next for this world? because this seems to be a phase change in the world of money and finance and global economies that we haven't seen since 2008 and maybe even bigger than 2008. What's the punchline here? Well, the punchline is that the banking system is being primed globally to be the buyer of last resort of all government debt. And so if we think about the trillions and trillions of dollars of government debt, and if you want to add in like unfunded liabilities, which I would say is health care for the baby boomers, globally, right? Hundreds of trillions of dollars that need to find someone to buy it at a

price that makes sense, right? There is a price. You want to let the free market operate in a 30 year at 10%? Great. A bunch of people are going bankrupt, right? But a bunch of people don't, we don't want them to go bankrupt. But the loss is there. There is no escaping the loss. Now we're, as a society, going to politically determine who bears the loss, right? And instead of saying, you know, financial institution, A, B, C, D, you bear the loss. We're going to say the entire global population in the Fiat world is going to bear the loss via inflation. And if you don't get your money into an asset that outperforms inflation in the Fiat term, it doesn't necessarily have to be hyperinflation. You will lose out on real terms. So you better

fucking understand what's going on and become a speculator. Because everybody's a speculator now. Now, I believe that Bitcoin's a great asset. You might not believe that. You may think it's gold. You may think it's car ratio. I don't know the fuck. Doesn't matter. But again, in your mind, you're now a speculator. Everyone needs to understand that because this isn't, yeah, they got bailed out, you get your deposit back, hunky dory, but the end game is the banking system must absorb all the government debt that is coming due to pay for all this stuff, to pay for climate change, to pay for the richest generation in the world, dying and spending a lot of money on end-of-life care as they perish, right? These are the things

that must get funded, and we have less people with money to fund them. Therefore, there will be inflation. And so I think this is just a clever way to stuff it in a place where people aren't necessarily going to associate with hyperinflation, because what you don't want to have happen is a mental shift of the average person saying, my currency is fucked. I get paid at, 12 o'clock on Friday at 1201, I need to have bought everything I'm needed to buy. Right? That's Weimer, Germany. That's Zimbabwe. That's, you know, that's hyperinflation, where you need to dispose of your currency as soon as you get it because you're worried that the real good is going to be gone or is going to be in a much higher price in the immediate future.

And so that is the end game. And so that is why everyone is now a speculator. I believe that Bitcoin is one answer to this. There's all sorts of different answers. But that is the end game. Is another way to say everyone turns into a speculator, perhaps another way to illustrate this, is that the denominator is uncertain, as in it's no point denominating dollars anymore when they're all just losing their value. And so you need to change up your denominator. And that is a source of chaos as the world tries to figure out, all right, we're not using the dollars at the denominator anymore. We need a different denominator. What's that denominator? nominator going to be. Is that another way to say this? Yeah, exactly. What is, is it goal? Is it

oil? Is it natural gas? Whatever, right? It doesn't matter what it is. But it's not as easily mentally to think, oh, yes, I get a dollar. I know on a year that dollar is going to buy me a loaf of bread. And I don't have to worry about that. Now a loaf of bread is $2. That just adds an extra level of angst and anxiety into the average person that now they have to worry about all of this. And what do they do? They say, oh, okay, fuck it. I'm going to buy everything I need to buy today right now because I don't know what the dollar is going to be worth. I don't know what the yen is going to be worth. I don't know what the euro is going to be worth, right? I don't know. And so in the face of that uncertainty, I should just hoard as much as I can today.

And that's how you get these insane, you know, price rises, price falls and everything has become super, super chaotic. And you have all this volatility. And that's what, you know, central banks are there to do is to suppress volatility. And now it's going to explode in their face. that's what they're worried about. So, Arthur, what are you doing? What's your denominator? My denominator is essentially like, okay, oil, right? That is the master energy resource.

And so, okay, what, obviously, you can't just own barrels of oil and, like, you know, go and, like, scoop out a bit and use it wherever you want, right? You need to have something that is an abstraction of that. Bitcoin is pure energy money because I burn energy to do work to create this system. and it's capped at 21 million, right? And most importantly, it's invisible and weightless. I could have as much Earth's little Bitcoin as I want, and nobody knows I haven't. And so in a system where the average person is worried about how they're going to afford their next meal,

you can't be driving on the street in a Bugatti flashing yellow, that motherfucker gets killed, right? And so, ostentatious shows of wealth in places that are experiencing hyperinflation is a very dodgy position. to be in. So if you think that you're going to hold all your money in some very obvious form, then you're going to find out that you might be relieved of that sense of security very soon. And so that's why I think Bitcoin is very beautiful in that no one knows how much anyone has of it. And we can transact purely over the Internet. And we know it's firmly based in spending energy to do work, that it is pure money. Purely worth us at the same time and purely worth everything at the same time. And that's why it's such an elegant concept.

And I believe that it's going to be for a certain percentage of the population very well sought after. But the time is now. Because, again, if money leaves a system, then that loss gets recognized. As long as you stay in the system, as long as you own inside monetary assets, then you are subject to be inflated out of your money. But if you take your money today and you move into an asset outside of this system, then now they can't take your money away from you. They can't inflate you away, right?

And so you're going to see it become harder and harder and harder to own these things. Now, I don't think they're going to outright ban things because, you know, with the Internet and to the general level of information out there, I think people would take that as a very signal that the game is up. But, you know, they can heavily promote, you know, ETFs and all these products that live inside the baking system that supposedly give you access to price moves, but they don't actually give you the thing itself. And so I think people need to recognize that. And it's very subtle. And unfortunately, it's very annoying.

Like you have to think about these things. But if you want to have outside money, make sure it's actually outside of the system. And make sure you get out as soon as you can get out because it's just going to be like a vice closing in. And you're option to get more constrained as things get more down the line if this path continues away. I think it will. Well, Arthur, I think this is, like you said in the beginning of your article, we didn't know how we would get. here, but this has been the destination that Bitcoiners have been saying that we would arrive to for a very long time now. So thank you for writing the article and guiding us through this piece

of content here today. I really appreciate the guidance and the articulation. If there's anything, any topic that we've missed or anything further that you have to add that I haven't asked about, has anything come to mind? No, I think this is great. Arthur, thank you so much. Where can people read your stuff? Where can people find you? How can people follow along? Yeah, so Medium Crypto Hayes. That's my handle there. Blog.com, all the articles are published there. So you can subscribe to either one of those mailing lists and you'll get my articles or

at Crypto Hayes on Twitter. I post them there as well. So, yeah, stay tuned. It's going to be, you know, a crazy wild ride and we're only just starting. But this was definitely a momentous occasion in terms of, you know, financial markets and what's going to happen over the next, you know, three to five years. Yeah. to put on the crypto perspective,

this seems to be kind of more or less what we were training for, perhaps, and at least we have your writing to guide us all along the rest of the way. Arthur Hayes, thank you so much. Thank you. Pekos Nation, you know the deal. Risk and disclaimers, ether is risky,

crypto is risky, Difi is risky, but so is the entire Fiat regime, and perhaps it's more risky, but, you know, capital is flighty it, no matter what, you can lose what you put in, but we are headed west. This is the frontier. It's not for everyone,

glad you are with us on the bankless journey. Thanks a lot.