Bankless - Is Trump Trying to Wreck the Economy? | Macro Expert Jim Bianco

Episode Date: March 5, 2025

Is Trump trying to wreck the economy, or is he just ripping off the Band-Aid?  Macro expert Jim Bianco breaks down Trump's economic strategy—tariffs, tax cuts, and shifting focus from the stock market to the 10-year Treasury yield.  We discuss the potential risks of short-term pain, the surprising Crypto Strategic Reserve, and whether this shift could lead to long-term economic stability. Is this the start of a recession or a necessary correction?  Tune in for Jim’s expert take. ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24  https://bankless.cc/spotify-premium  ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax  🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain  ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle  🌐CELO | BUILD TOGETHER AND PROSPER https://bankless.cc/Celo ------ ✨ Mint the episode on Zora ✨ https://zora.co/coin/base:0xe97caeb59d8a7e9b4a4d076d3a432cf9ea440402?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E  ------ TIMESTAMPS 0:00 Intro 5:53 What is Trump Doing? 12:07 Economic Rebalancing 17:37 Crypto Strategic Reserve 28:52 Tariffs 33:39 Trade Imbalances 38:45 Tariffs & 10 Year Yield 48:28 Recession in 2025? 55:04 Optimistic Future 1:01:22 Risk-On Sector 1:05:07 Closing & Disclaimers ------ RESOURCES Jim Bianco https://x.com/biancoresearch   Bianco Research https://www.biancoresearch.com/visitor-home/   ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠  

If you're thinking that I just want to put some coins in my cold storage wallet, I want to buy some ETFs, and I just want them to keep going up 20 to 30 percent every year, that error is over. There's going to be opportunity to make money. It's just not going to be at the beta level, just buy Bitcoin and buy the S&P and watch them, or buy Bitcoin and buy triple Q's and watch them go up. I think that error is now behind us. Welcome to Bankless, where we explored the frontier of internet money and internet finance. And today on the show, we are exploring the future of the U.S.

economy and whether or not Donald Trump's economic policies are trying to bring the economy to its knees. It's been a pretty tumultuous time in the market, especially in the crypto markets, as we have had some wild swings in blue chip asset prices as Donald Trump announces the creation of a crypto strategic reserve, followed by an escalation in the trade wars and communications from Scott Bessent, the Treasury Secretary, about the rebalancing of the U.S. economy away from the stock market and towards the bond market, which, to spell it out plainly, does not bode well for risk assets like crypto. So a crypto strategic reserve, a renewed trade war,

a concerted effort to lowering interest rates at all costs leading to somewhere between an economic recession or the golden age of domestic industry manufacturing and real GDP growth in America. To help me navigate this confluence of conversations, we're bringing on Jim Bianco of Bianca Research, who is one of our favorite macro researcher crypto investor commentators to tell us how he sees it.

And I can confidently say after recording this episode with Jim that I'm feeling much better about the chaos that is ensuing in the market, not because it's inherently bullish and we're shortly to resume up only, but rather that things just make sense. The board is set. Jim Bianco helps me understand the board. I understand how people are moving the pieces. And as an investor, I have clarity about the next steps, all thanks to Jim. Before we get into this episode, Bankless Nation, so you can get the clarity and understanding that I've gotten from my conversation with Jim, you should know that we've opened up. a $9 a month offering for the bankless ad-free premium RSS feed. So if you enjoy the bankless podcast and you want to get it without the ads, it now just costs $9 a month. Now, with that

$9 a month offering, you should know that you don't get any of the other perks that come with a full bankless citizen package. You don't get to be in the Discord with the bankless community or the bankless team. You don't get access to our token hub or our AirDrop Hunter products. But if you just want your podcast ad-free or you just want to contribute to independent crypto media, you can do that for just $9 a month. There is a link in the show notes that you can go if you are peaked by that for anyone who wants to sign up. And if you do sign up, I will go ahead and see you on the premium RSS feed.

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Thanks for having me, guys. I always enjoy these conversations. Yeah, Jim, I think the first very big question, which I'll just drop like a hammer here, is, is Trump trying to destroy the economy? No, I don't think he's trying to destroy the economy. I think he's just got a different approach. Let me, let me back up and let me go back to December. And in December, Chairman Powell gave a speech. And he said, the federal debt situation is unsustainable. Something's got to change. Okay, we're changing it. We're changing it under the rubric of America First. The idea that we're supposed to have a one-year debate about cutting taxes and baseline budgeting and all that other stuff, let me put it pretty bluntly, that shit hasn't worked for 50 years. And it is why we have $36 trillion of debt. And now we're going to try a different approach. And Trump is trying a different approach.

And part of that approach is an America First policy under the idea that we have been getting ripped off because we've got asymmetric. arbitral tariffs. Countries tariff are stuff more going out than we tariff going coming in. And he believes he's got a lot of power in order to rectify that situation. And so, yeah, it's going to be a little bit tumultuous as we get through it. But I don't think he's trying to ruin the country. And I do understand that if you're saying, and I'll go back to something that Ray Delio said, I do understand if you're trying to say, no, this is too much. This is too much. Let's just go back to the status quo. We will blow up. If we see. stay at the status quo. We have to do something about this situation. You're fine to tell me this is

not the right thing to do, but understand going back to status quo, we will blow up. We cannot stay there anymore. One of the comments that people frequently make about the American political system is that few politicians are actually incentivized to reduce the national debt, because it's always very favorable to create money, spend money, like place money in the hands of your constituents. And that's one of the reasons why the national debt has gotten so large. It's not really anyone's problem because the short-term perspectives of our two or four or six-year election cycles doesn't really incentivize thinking long-term. Now, this is Trump's second term, so he will not be re-elected. And it seems to me that Trump is doing the thing, perhaps, perhaps this is one perspective, that Trump is doing the

thing that very few politicians have done before, which is doing the hard thing and actually tightening the belt, which is resulting in fear in the economy, fear in the stock market, but then also perhaps bullishness in the 10-year treasury. Is that a favorable or is that a possible interpretation here? No, that is definitely a possible interpretation because one of the arguments that's been made is that the economy has grown very strong over the last couple of years. What has been a primary driver of that strong economy? It's been government. It's been the deficit. Remember, GDP gross domestic product is us doing economic activity. Well, a $7 trillion government budget and a $2 trillion government deficit is churning out a lot of economic activity.

Now, I'm one and many others would say it's inefficient, bloated, unnecessary economic activity. But if you want to spin the wheels to get, you know, GDP up, you're spinning the wheels to get GDP up. So by him coming in with Doge, with tariffs, and everything, you know, the massive layoffs we've seen of government workers, their perception is we're going to slow that mechanism of government producing GDP in the economy. That's true. We're going to do that. But his argument on the other side is if we cut regulation and we cut taxes and we unleash animal spirits in the marketplace, and one of those of the spirits are trying to unleash is crypto with their favorable of, you know, outlook on crypto as well, that that will be more productive and better GDP spending than

the government and in the long run will be, you know, better off. Now, I agree that this is a sound concept. The devil is in the details. It's in the execution of this idea. And that's one of the You know, things you know about with the private sector a lot, too. Lots of people have really good ideas. And they fall apart not because they weren't a good idea. It's because they weren't able to execute them properly. And so really we have to see whether or not Trump can execute this vision that he seems to be looking at.

And, you know, it's been kind of tumultuous for the first five or six weeks of his administration. Certainly. There's a quote from Scott Besson that's been going around that I'll read and I'll try and get your interpretation on. He read out, he spoke, over the medium term, which is what we're focused on, it's a focus on Main Street. Wall Street's doing great. It's done great.

Wall Street can continue to do fine, but we have to focus on small businesses and consumers. We are going to rebalance the economy. And then the comment here is actually short-term pain is their plan. Can you just read between the lines? What is Scott Besson trying to say here? If you're in the stock market, you're going to take it up the ass. But don't worry in about two or three years, we will have recovered and you will be doing a lot better. And don't complain to me because you had two 20 percent gains in the last

couple of years. If you want me to read between the lines, that's essentially what he's trying to say. We're going to kill you right now, but you've already had big, big profits. And by 2026, 2027, you'll be back in the game. That's kind of the cynical take of what he's trying to say. But I don't think that it's that cynical that he's trying to say that if we have to do something that the stock market finds a little bit unpleasant, we're going to do that. That's why the other thing he said is they're focused on the 10-year yield. Whether they should be focused on the 10-year yield or not, whether or not they can do anything about the 10-year yield, what they're trying to tell you is, we're not gauging our success by the S&P 500. And they've made that very clear. Yeah, this is

something that I saw from your Twitter. The Trump measure of success is no longer a rising S&P 500, which it was in his first term, it is now a falling 10-year yield. And notably, Trump's, Trump tried to align himself with the S&P 500 in his first time. He had that famous tweet where if, like, the Dow Jones drops by a thousand points, then the president should be impeached or something, something like this. He was very, very pro-stock market. And now we are, and then the end. That was yesterday, by the way.

That was yesterday. Yeah, exactly. Yeah. But, yes, the rules of the game have changed now. And notably, after Trump's first term was the Biden administration, which, also had a very strong performance in the equities. And, you know, we've spoken out on bank lists that really it's a difference between asset holders, equity holders, and the rest of the economy.

And the rest of the economy is kind of maybe perhaps loosely correlated with the bond market. And, you know, the bond market, while there's yield, there's also inflation. And so really, it's been equity holders that have really done well, not just over the last eight years, but really over the last, like, 50 years. And, you know, the bond market's been fine. but, you know, it's also suffered from inflation is maybe the interpretation here of what Trump and Scott Bessent and others are trying to do is they're really trying to rebalance between the S&P 500 and the 10-year yield as in the 10-year yield has been losing to the S&P 500 and we want to rebalance. Is that what we are rebalancing here? Yeah, I think when he talks about Main Street, you know, what he means by Main Street is mortgages. And he means that, you know, if we could bring the 10-year yield down, we're going to bring mortgage rates down. And that's really what most people, well, most normies, when you talk to them about finances,

what they really care about is, first, their mortgage rate. Can I get a cheaper mortgage rate so I can buy more of a house? And then second of all, what they care about is maybe is the stock market go up because I own an ETF or some stocks or something like that. But it's really about mortgage rates. And I think that that's what they're really rebalancing to. But here's the issue with this. The stock market is a little bit more clear cut.

It goes up because generally good things are happening and it goes down because generally bad things are happening. We could argue which good things, which bad things. But generally it does that. Interest rates are a little different. They will go up in yields because bad things are happening or they can go up because good things are happening. Strong growth in the economy could produce higher interest rates and that's not necessarily

a bad thing. You know, rates could go down for good reasons. We perceive that there's going to be less inflation is one example, but they could also be going down under fear that the economy is slowing or maybe going into recession. So when it comes to, we're going to target the 10-year yield for it to go down. It's ambiguous as to why it's going down. Is it going down for good reasons? Inflation is going away? Or is it going down for bad reasons because we think that, you know, the economy is going to hit the wall and go into, you know, some kind of recession or,

a serious slowdown. So they've decided that they're going to target something that's a little bit ambiguous because if their argument is, you know, going back to your first question, dropping the hammer, if their argument is we want to get the 10 year yield down. Oh, it's simple. Rec the economy. And you'll see the 10 year yield plummet. But I don't think that's the way that they really want to do it. Yeah, really what I'm gathering from you is that the way that they want to do it is they really want to take the economy off of the fake growth that has been. injected to it by the government, the $7 trillion figure of injection over the last some number of years. And so I think what we're really going for is the GDP number that has come out of the economy

over the last, you know, eight years as we've been inducting these trillions of dollars is like a fake, low-quality number. And we're trying to restore a higher-quality GDP number. Even though that's lower, maybe it's more real because it's coming from true economic growth, true innovation, builders rather than the government actually just injecting printed money into the economy. Is that correct? Yeah, yeah. You know, we're both old enough to remember the election last fall. And what you will remember about the election last fall was there was a point where the Trump, now, excuse me, the Biden administration was trying to say, inflation is coming down. The economy is doing well. Unemployment is very low. All those statistics were true. But then you go and you look at what people say about the economy.

economy and how they're voting. And they said, it's terrible, it's awful. We need a change. Where was that disconnect? I think you summed it up well. It was very low quality growth numbers because it was churned out inefficient bloated government's GDP. The government is doing economic activity. It's not very productive. It's not something we need. It's wasteful. But it churns up the statistics. And I think people understood, yeah, you could tell me those numbers are high, but I can look around and say, this is not a good economy. I don't feel good. I don't feel good. It's not helping me. It's not helping my neighbors is what their, what their argument is. And so I think when you start looking at the economy going forward, I think what they're

hoping to see in the economy going forward is something that is more of a high quality economy. Jim, I want to get your take on the crypto strategic reserve that was oddly announced on truth, social a couple days ago. But before we get there, I first want to get your reaction to the price reaction to the crypto strategic reserve. When Donald Trump tweeted out there, we're going to create a crypto strategic reserve of Bitcoin, Ether, Cardano, XRP, and Solana. Prices went up very big. Like, XRP was up 60%. Bitcoin was up 12%. Ether was up 20%. Salon was up 20%. Talking to you now, all prices have retraced actually down to below the point that they were when the crypto strategic Reserve was announced. I want to get your take on the reaction to it. First, it was very positive,

and then it just came right back down to Earth. What's your reasoning? What's your analysis as to why we were not able to sustain higher prices after the announcement of the Cryptocetric Reserve? Unfortunately, a lot of the crypto market does trade as a speculative asset, and it has a fairly high degree correlation to the NASDAQ or the S&P 500. And what happened Monday after the crypto, Reserve was announced was Trump was very emphatic that, no, we're going to go full ahead on the tariffs on Canada and the tariffs on Mexico. And the stock market, the risky markets, you know, freaked out about that. Corporate bonds went down, stocks went down. And crypto, I think, followed it. And crypto's more of an exaggerated type of move. I know people have tried to nuance it.

you know, why are we putting EDA and why are we putting Sol and XRP into the crypto reserve? We're muddying the water. It should only be Bitcoin or maybe Bitcoin and Ethan, leave it at that. I don't think it was that nuanced as far as the sell-off goes. It was more, here come the tariffs. It's just like we had a month ago when we've had the freak out about tariffs. We had another freak out about tariffs.

And it took down all risk markets and crypto is in the risk market sphere right now. So the interpretation here is that, sure, the, Crypto Strategic Reserve is bullish, and we can unpack the nuances and the controversy around some of the assets that were listed. But what we're really saying is that the macro markets and the focus on the economy just materially dwarfs the price impact upon any sort of bullishness on the crypto strategic reserve. It's just like a smaller deal by comparison to the macro markets. Yes, I would agree. And as far as the reserve goes, I'll agree with half of what you said. I think it's a short-term bullish thing. Short-term could be months.

because you've created a whale and that whale is, you know, we assume, now we're recording, you know, on March 4th and on March 7th, we're going to have this big crypto summit headed by Bob Hines and David Sachs. And they're going to give us detail about this crypto reserve. There is one argument that is going around that the Justice Department through fraud and criminal investigations has acquired Bitcoin Eath. Solana, Ada, and Seoul. And they don't know who the rightful owners of it are. And they've got something like about $12 million worth of this stuff in total, most of it is Bitcoin. And that the

crypto reserve is going to be that it's all in a cold storage wallet and that they're going to have some big ceremony where Pam Bondi, the attorney general hands the thumb drive to Scott Bessent. There you go. We're done. We now have a crypto reserve. There's actually no buying that goes on. That is an argument that is going around. that, yeah, that's what their plan is, not that they're actually going to borrow in the treasury market to raise funds to buy crypto because it gets back to that other argument I said before. That could be perceived as pushing up interest rates and trying to tell a normie, you have to pay higher mortgage rates, but don't worry, we're going to buy all these cryptos.

And in 10 years, the government's going to make all of this profit of these cryptos. That argument is going to fly. It just is not going to fly at all. So that's one argument that should be resolved later this week. Are you actually going to buy or suggest a transfer of what you own? You know, the second argument I would give you is while you're, if they do buy and you're creating a whale that would push up prices in the short term, in the long term, I don't think it's a good idea at all to have a crypto reserve.

Now, the reason I don't think it's a good idea to have it is we all know crypto is a decentralized, permissionless, immutable asset. its production level, at its creation level. But at its ownership level, if you are going to centralize it and you're going to centralize it with the federal government, it is going to lose a lot of those properties. In other words, the federal government will have influence over those assets through its ownership. Maybe the production of them will become, you know, will still stay immutable and decentralized. But their ownership will, and then they will have the ability to, to dictate upon the crypto space what it wants.

Now, you could argue this is a benevolent government that we've got with Scott Bessent and Paul Atkins at the SEC and they like crypto, but they're not going to be that way forever. You know, there isn't vision out there in the future that we have an AOC president. Maybe it's not 2028, but it comes out there and we return to a Gensler type of mentality about crypto, and then you've given the government more power over it. And the last thing I would say about it is, as I've tried to say to some of my crypto friends, what's the point of crypto? Why did we create it? You know, remember the memo and the Genesis block in Bitcoin about the minister thinking about second bailout. This was supposed to be an alternative financial system,

an alternative currency, an alternative meaning of exchange. DFI is supposed to be the alternative financial system. It is supposed to be something different. It's supposed to be a disruptive force. If it gets partially swallowed up by the government, it will never be that. It will, you know, this is, this is like the argument that it was made was that in its infancy, blockbuster video offered to buy Netflix for $50 million when Netflix was still just a service that would mail CDs to you. If that had happened, do you think that, we would have a $250 billion streaming classes today? No, they would have buried all of that innovation and all of that disruption.

And that's what you risk by having a reserve and putting the government as a major player in this space is that whatever you think it's supposed to be, whether you're the $13 million forecast that Michael Saylor has in Bitcoin in 20 years or the promise of what Defi is supposed to be, all of that's put at risk if you have the government at the ownership level owning this stuff. And that's why I think in the long term, it's a very dangerous game. And I hope that they don't do it or if they do it, they do it in some kind of toothless way. Yeah, I 100% agree with your take. I think this is the big conversation that's going around the crypto industry in this present moment. I think we can all maybe accept that maybe a Bitcoin

strategic reserve can we can be okay with that. But there are some additional asset that were that were listed. Cardano, Ripple, Solana. These were not. strong favorites to be included in the crypto strategic reserve. And it's really given the crypto community pause about the potential for like bias, corruption, and just grift because it materially warps the incentive for crypto companies to reallocate their attention, kind of like what you were alluding to with the blockbuster analogy, reallocate their attention away from innovation, away from building products, and spend all that energy and effort towards lobbying and influence.

Because if you can influence and lobby your way into becoming part of the crypto strategic reserve, that's probably the highest ROI thing you can do for many, many crypto companies out there. And the idea that crypto companies are going to go to the government and cozy up to the government in order to increase value for their crypto asset is completely antithetical to the rationale and the reasoning as to why crypto was here in the first place. And so from the crypto side of things, it's create a lot of disillusionment as to like what we are even doing here as an industry and what our values are and what we really want to see done here. Right. And I would conclude with the other idea that the word reserve has a specific meaning when it comes to financial assets.

Typically what that means is that it is owned by the central bank, the federal reserve, and it is used to be to back the currency. We have, we have a gold reserve. We still call it a gold reserve. Though technically, technically it is not because prior to 1971, each dollar bill was worth or $35 bill. you could take them, if you were another central bank, individuals couldn't do it. But if you were the Bank of France or the Bank of England, you could take your dollars. And each one, for $35, you can exchange it for gold. And they would actually, the central bank would deliver your gold because it backed the dollar, the dollar head of backing. In 71, when we went off the gold standard, we became a pure fiat currency. So when we use the word reserve, I've heard other people talk about, we're going to back the dollar by Bitcoin or this crypto reserve.

Well, no, that would have to be at the Federal Reserve owning it. And that could only happen if an act of Congress was passed to say that we are going to reorient the financial system. So we use reserve where it's a misnomer. What we really mean is this sovereign wealth fund is it's just an asset within the sovereign wealth fund, which further goes to the point of why the government is just becoming a D-Gen, right? They just want to own it because they think it's going to go up 50-X. That's Cynthia Lomas's argument.

She says she wants them to buy one million Bitcoin. because she thinks in 20 years it will go up so much they'll be able to pay off the national debt. So it's just the D-Gen argument then at that point. Yeah. And I think it's buying one million Bitcoin, it's just a big reminder out there. There's 21 million Bitcoin. So buying one million of them is such an incredible share. And I think it's also good to remind us that just buying something has no guarantees of its future price appreciation.

I think there's this just understanding that Bitcoin just goes up forever. But sure, it has done that for its 15 years of lifespan, but, you know, this next 15 years can be completely different. It goes up because of what it's attempting to do, right? This is the Heisenberg principle. You know, it goes up because it's trying to be an alternative to the financial system. It goes up because of the development and the new ideas that are coming. But you lop in a billion coin buyer in terms of the federal government, its mission changes. because of the government being there.

It's mission changes, as you pointed out. Now we're going to spend all our time lobbying. We're going to spend all our time in all of these other unproductive things. Then the promise of where crypto could be in 10 or 15 years changes, specifically because they stepped in and bought it. So that's what you have to be very careful of. I want to turn back, Jim, to the conversation of tariffs. Just this morning, Ontario, has announced that they are issuing a 25% export tax

on their electricity to the United States. And this is just one Canadian Providence, giving a tariff to just one commodity, which is power, energy. But I think it illustrates the growing tensions that are happening. I think there's even more aggressive language between China and the United States. So as we were talking about Trump's alignment with the 10-year treasury, Trump's alignment with bringing manufacturing home, can you talk about how tariffs are relevant here? And what's your just analysis on the current size and magnitude of the trade war that's happening? Well, you know, tariffs have, according to Trump, tariffs have two purposes. They are a revenue source, and he's, you know, quipped that he would like to create an external revenue service to collect tariffs to go with the internal revenue service, which collects income taxes. And tariffs are leverage. You know, to get somebody to do something. And the great example of that leverage came with the first tariff scare a month ago when Mexico agreed to put 10,000 troops on the border to stop the flow of illegals in fentanyl. And even this past weekend, Mexico in an effort to head off the tariffs said that they would, Mexico would put 10% tariffs on products coming into Mexico from China to say, okay, we'll do this.

Will you back off? And Trump said no. And so this is really where he's trying to go. His argument is as the system is currently constituted right now, the U.S. gets a bad deal. And the argument there is that the tariffs that our companies pay to ship product into Mexico, to ship product into Canada is higher and more disadvantageous to us than the other way around. And he wants to use these tariffs as leverage to try and rectify the playing field. Look, I think, you know, like a lot of things, he's probably factually correct on some of those points.

And he needs to correct the playing field. And he's talking to Argentina with Malay as an example about a free trade zone, meaning no tariffs either way. Zero tariffs coming into Argentina, zero tariffs going out of Argentina. And that, you know, he's showing his, he's not wedded to tariffs. He just wants to, you know, level the playing field. Now, doing that is ugly. Doing that, you've got, you know, Ontario talking about raising tariffs. you've got Shinebaum in Mexico.

She's the president of Mexico saying that they were going to deploy countermeasures by Monday. We'll see what they have in mind. But Trump's argument would be for all the wobbliness in financial markets that we've seen and for all the hand-wringing we've seen here, it hurts China and it hurts, I'm sorry, it hurts Canada and Mexico a lot worse than it hurts us. Hold the line. They will come to us and we will find an agreement. agreement. And that's why I think markets, while they're a little bit wobbly on this stuff,

you know, if you really thought tariffs were coming and coming in a big way, they would be way, way worse because the auto industry is a good example. So many of the components that go into an American car, first they're made in Mexico, and then they're shipped to the United States and there's put more parts on them, then they're shipped back to Mexico, then they're shipped back to United States, then they're assembled in the car. Every time they cross the border, are we going to stick a tariff on them? We're going to like double the price of an American car by the time we're done with this. But if we could level the playing field, we could bring down the price overall of American car. Again, like I said, I don't think he's wrong in what he's trying to do. It's in the

this is so much of life, right? We all have good ideas. But it's, that's not enough to have a good idea, have to execute on it. You have to make the good idea happen. A lot of times in our efforts to have good ideas happen, we wind up blowing him up. And that is the risk that we have right now with Trump is that the argument that it's unfair trade, I don't think anybody would disagree with it. How do you remedy it? Maybe he's got a bad idea for a remedy. Somebody's got a better idea of how to remedy it. You know, let's hear what it is. But it has exacted a toll on the United States. because of this unfair trade with the way we've hollowed out our manufacturing industries because of these tariffs that's made it unfair for American companies to compete.

And Trump is trying to correct that. Can you actually go into that a little bit more? What is the argument as to why the trade is unfair? What's the argument for why the trade is actually imbalanced against America? There's basically two big arguments. Argument one is our two biggest trading partners are Mexico and Canada. And when you look at the, when you look, two things that are happening there, when you look at the trade and the tariffs, and you can throw Europe in on this too, they tariff our products right now before Trump came into office. They tariff American products going into their markets more than the Americans tariff their products coming back to this country.

And so that's the unequal balance that we've seen that he wants to correct. Yeah, why do they do that? What's the rationale behind why they can do that? They've always done it that way. And we have never really, we've landed on the argument of free trade and that we've never really pushed back against that. And so it's kind of creeped to that period over a longer period of time. We've just slowly acquiesced to them just charging us more money. And we haven't really had a good reason for that. And as a matter of fact, Mario Draghi, the former head of the European Central Bank and prime minister of Italy at one point, put out a report about competitive. in Europe. And his argument was, forget about American tariffs on us. We tariff ourselves far worse, meaning what there's actually within the Eurozone, if you make a product in France

and you send it to Germany and then you send it to Italy, they tariff each other. That's like twice as much as they tariff, you know, stuff coming into the U.S. So this system is built up over a long period of time that's made trade unfair. But the other big thing that Trump has been pushing back against, which goes to why he talks about Canada being the 51st state, wants the Panama Canal back, wants Greenland, is he says, look, we got $36 trillion to debt. Where did most of that come from? Most of that came from over the last 80 years, the U.S. spending an enormous amount on the defense of the world in the post-World War II period. Our navies have kept the shipping lanes open. We fought communism. We are fighting terrorism. We have spent trillions in trillions and trillions

and trillions of dollars doing that. Canada, Mexico, Europe, their military budgets as a percentage of GDP are a fraction of what the U.S. is said to be. They have enjoyed a free ride for a long time under our security umbrella. His argument is now they have to pay for the security. And that's what he's been arguing about with Canada being the 51st state. He says that Canada has got a problem because with global warming, there's shipping lanes that are opening up in the north of Canada, you know, up in the Arctic. You know, there's now shipping lanes. Who's largely using those shipping lanes is the Chinese and Russian navies are using those shipping lanes to get to the Atlantic Ocean a lot faster. Canada should be patrolling or, you know, securing those shipping lanes.

They don't have the ability to do it. So it falls on the U.S. to do it. And we're going to have to spend billions and billions of dollars to do it. And even though it's Canada's territory and the Canadians don't have to spend any money on it. And that's where that's kind of the argument that you see written large is that the security arrangement is what they start are going to have to pay for. That's why Trump has insisted on Mexico putting troops on the border to stop the flow of illegals and fentanyl. It always falls to the U.S. military. How about you guys start paying for this stuff right now?

So these are the arguments. Again, I don't think he's wrong. he's factually correct in what has been happening over many decades. The question is, does he have the right approach to fix it? He has an approach to fix it. It can work. Or like I keep saying, in the execution, it may fall apart. If somebody's got a better idea on how to correct these imbalances, you know, let them raise

their hand and tell us, what are we supposed to do? The U.S. spends $900 billion a year on defense. that defense is a security umbrella for the entire free world. Why doesn't the rest of the world start spending on that defense? Europe is saying that they're going to step up now. They're saying that they're dramatically going to increase their defense budgets and create a federated European army that can actually do more so that the U.S. could do less and presumably reduce its defense budget.

So these are complicated issues that have just been going on for a long time that I think at the end of the day have led to a lot of frustration and anger among the American public. And that's why we got Donald Trump, President 1.0, and now Donald Trump, President 2.0. Because I think in concept, the American public has been saying, we got to do something about these imbalances

and this unfairness. And everybody else, other than that's not named Trump, doesn't really want to do anything about this. He does want to do something about this. And that's what we're at right now. Okay. So we've talked about the tariffs. And that was very, very helpful.

And we started this conversation talking about the 10-year yield versus the S&P trying to lower interest rates at any cost possible, hopefully for good reasons, even potentially for bad ones. Do these two conversations relate between tariffs and the 10-year yield? Are these like mostly siloed, independent things that Trump is interested in parallel? Or do these relate somehow? They do relate. And I think the market is struggling to figure out how they relate. You know, internally, we've been having this joke for the last two days, you know, that I'm old enough to remember last month. And last month, when we talked to being, I guess at this point it would be January, December.

When we were talking about tariffs, the argument was tariffs were inflationary, and that was bad for the 10-year yield and it would go up. Now here we are in early March, and the argument is tariffs are recessionary, and that's good for the 10-year yield. It will drive prices, bond prices up and yields down. Okay, what's it going to be next month? Is it going to be stack inflationary? We're going to go back to inflation. So the idea that we've already seen one major shift in what tariffs mean for interest rates, from them being an inflationary thing, they raise prices.

That's inflation. More inflation bad for bonds. They slow the economy. And that's good for bonds because usually in a slower economy when risk assets fall, like we've seen, everybody rushes to the relative safety of like a Treasury security. And that's why those prices rally and yield. fall. So we're still trying to figure out what they exactly mean. We don't know. And I think the reason we don't know what they mean is twofold. One, they have multiple meetings, right?

They could be both leverage. You know, they're the big stick that Trump uses to get other countries to do what he wants. Witness like what when he started his deportations and, you know, and Columbia, the country of Columbia said, well, we're not going to take this plane load worth of deportees back because we haven't had a chance to inspect the American military plane that they're coming in on. And Trump said, fine, 50% tariffs on, 25% tariffs on, on Columbia starting on Monday, and they'll go to 50% in a week. And then six hours later, they said, okay, the plane can come back in. So that's an example, another example of leverage that we could use these tariffs for. And we also know Trump is fond of saying, like he said yesterday, the tariffs are going to go into

place tomorrow, effective tomorrow, no chance to change that. This is Trump. There's always a chance to change. There's always a chance. Yeah, you know, and nothing is ever permanent. So as much as he says, we've got these permanent tariffs and they're going to go in a place and you can't change it, anytime somebody could call up, you know, Justin Trudeau, a prime minister of Canada or Shinebaum, the president of Mexico, they could call them, have a nice polite chat with them on the phone. And we're going to take them off again. So at any moment that can happen, or maybe it doesn't. And that's the other thing we have to try and struggle with, too. So we're talking about what do tariffs mean for the economy? What do tariffs mean for the markets? How long are they going to last? Are they going to last until

Thursday? Are they going to last for three more years? That's the unknown that we have with this as well, too. Okay. So my interpretation of your answer is, yeah, they are absolutely connected in the same way that, you know, of course tariffs and the bond market are connected. Finance is connected. Finance is a connected concept. Are they any more or less connected than any other two parts of finance? Maybe not. Are they, is it, is it a bullish relationship that they have? As in like, maybe tariffs are good for the economy or is it going to be the economy? We don't know. And that is just kind of the current question of the times. Is that, is a fair way to summarize your response? Yeah, I think that that definitely is. And the way you summarized it is good because it's not a straightforward, if a, then be relationship between

tariffs and markets or tariffs and interest rates. It's an evolving one because the way we're using them is a little bit unique than the way that historically tariffs have been used. Okay. So we have this goal of reducing the 10-year yield, and that's the goal. That's actually saying fixed. And then what we're talking about is the strategy to get there. We are trying to navigate and discover the best most optimum strategy where, you know, hopefully we don't cause a recession. Actually, hopefully, you know, we can find the most optimum solution where maybe equity holders aren't wrecked. And also bondholders do very, very well in the economy. ends up just fine. If we can navigate that path, if we can play our cards, right, and if we can get that outcome, then everyone can be happy. But we are all kind of looking as to like how possible or feasible or likely that even is. Right. And I think one of the things that in the marketplace, we tend to overlook is this idea about the security arrangement. Europe is already talking about that we have to go it alone is what they're saying.

And they're saying that they're going to raise or issue European bonds to the tune of $3 trillion in the next decade to improve their military preparedness and readiness, their ability to protect themselves. Arguably, you could say, okay, well, if they're going to spend $3 trillion on world security and European security, we have. 60,000 American troops that are permanently stationed in Europe. Maybe we could go down the 40 or 20,000. Maybe we could cut our military budget by one or two trillion dollars over the next decade. That's a lot less bonds we have to issue. That could help lower the 10-year yield as well.

And this whole security arrangement thing is really what is driving us. Look at what all the tension is with the Ukraine, right? Is that Trump wants to sign a rare earth's mineral deal with them. And why does he, you know, why does you want to sign a rare earth mineral deal? I think there's twofold. One, we need to find more sources of rare earth like lithium and stuff like that that we can control ourselves instead of relying on Russia and China to deliver that stuff to us. So there's a bunch of that that can be developed out in the Ukraine. And number two, if nothing else, keep it out of the hands of Russia because we don't want them to have an even bigger share of this stuff. But his bigger point is we're not going to come to Ukraine's rescue.

because we have no vested interest. Well, we signed a mineral steel. Now we got a vested interest. We got mineral rights there. We want to bring American companies in and help to develop and mine those minerals, those cobalt and lithium and everything else that we need. And in order for us to do that,

we need to cut a security agreement with Russia so that they're not going to be getting in the way of us doing that. No, by the way, a lot of those mineral deposits that we're looking at are on the border with Russia and Ukraine. So where are we going to draw the line for some kind of peace agreement? Probably pretty close to where it was before the war started because those minimal rights are very close to the border. In other words, an economic interest. That's what he's saying. You want me to help you? Give me an economic interest because right now

I don't have an economic interest in helping your country. And that's part of the whole America first thing. And all of this, if executed properly, reduces the deficit, puts our trade balance better in line, we issue less bonds, would naturally bring down interest rates over a period of many years. It can work. Of course, will it is the big question that we all have to figure out. Imagine a world where your day-to-day banking runs on a blockchain. That's exactly what mantle is building, powered by a $4 billion treasury and poised to become the largest sustainable on-chain financial hub. As part of their 2025 expansion, Mantle is introducing three new core innovation pillars that bridge traditional finance with decentralized technology. First is their

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Cello leads the way for other EVM-compatible layer ones to follow. Follow Cello on X and witness the great cello happening where Cello cuts its inflation in half as it enters its layer two era and continuing its environmental leadership. Jim, I want to kind of summate all of everything that we've talked about so far into this one question. And this is something that you tweeted out

just a few hours ago before we recorded, which is a picture of Polymarket. And the question is U.S. recession in 2025 question mark. And it's spiked up recently in last few days all the way up to 40%. So polymarka is currently giving 40% odds that there will be a U.S. recession in 2025. And you tweeted out, there's a question, buy, sell, or hold, as in is 40% correct? Is it too high? Is it too low?

Obviously, I don't really think anyone can really know the answer here. But really just how do you interpret that question to begin with about the likelihood of a U.S. recession? If we, is it really just going back to the idea of, well, if we can navigate this, these problems correctly, then there's a less chance of a recession. And if we can navigate these problems not so well, then there's a greater chance. So how do you even think about the question? Oh, well, you're right about that. A lot of the navigation matters. But I also think that, you know, let's put a definition on what is a recession. They, Polly's definition of a recession is two consecutive negative quarters of GDP growth. You know, so we're going to, we're going to

get the first quarter numbers at the end of April. The first quarter ends the end of March, end of April, we'll get the first set of numbers. Are we going to get two of them in a row negative? If we do, then the polymarket settles at 100. So that's what we're betting on. And I'll sell. I'll sell 40. And I'll sell 40 for the following reason. What is a recession? There was an economist in the 1970s at MIT named Rudy Dornbush. And he coined a famous line within the economic community. Economic expansions do not die of old age. They're murdered. In other words, the natural state for capitalist economy is to grow 90% of the years since World War II, the U.S. has had positive growth. Only 10% of them, like about eight or nine years in the last 80, have we had negative growth

for the entire year. That's a recession. What causes a recession? The hint is, don't ask an economist, because no dissection of the payroll report or retail sales or the inflation report or durable goods or any of the other economic numbers we look at is going to tell you we're going to go in a recession. What a recession is is it is an event that scares the hell out of everybody. And the last event that scared the hell out of everybody was the COVID shutdown and sending everybody, shutting down the global economy, losing 14 million jobs in a month. That changed behavior. The one before that was the financial crisis, was home prices got unsustainably high, home

crisis broke. It scared the hell out of everybody. We had a recession. The one before that was 9-11. You know, slamming planes into the tower and killing 3,000 people scared the hell out of everybody. They changed their behavior, and we had a recession. Now, what an economist can tell you is looking at the data, we could grow below potential. We could grow at our potential. Potential is perceived to be about 2, 2.2% for the U.S. economy, we could grow above. So we could do that. But we're still in positive territory. So the reason I'm selling a recession is, did we murder the economy? And a lot of people might be screaming of me, yes, with tariffs. Yes, with Trump's wild and unpredictable behavior. We're murdering

the economy. That's a valid argument. Maybe that is the argument that we are murdering the economy. But I would argue, no, we're not doing that. So could we grow below trend? You know, like one point something? sure. In fact, I suspect that's exactly what we're going to do in the first quarter. But will we go completely negative? I'm not so sure we're going to do that. And give you two other quick things. The last time I thought that we were going to have one of those murder weapons for the economy, just so people got the right idea how to think about this, was two years ago this month. It was when Silicon Valley Bank failed, followed by signature bank, followed by Republican Bank, followed by Credit Swiss Bank and Pack West and all those other ones had to run to the arms of a larger player to get merged.

And I was like, we're going to have a financial crisis. This will lead to a recession. It's a right way to think about it. But two years ago, we didn't have a recession. But that could have been a murder weapon. So the question is, is this tariff talk, is Trump's unpertictable behavior that murder weapon? I would say, no, it's not. Now, the last thing I'll point out why everybody's gotten all jazzed about a recession,

is the Atlanta Fed puts out a GDP tracker. And it's a, you know, like a guess as to what the economy is doing. I would argue if you want a metaphor of what the GDP tracker is, it's like taking your marathon time at the 10 mile mark, figuring out your average mile split, and then saying, okay, if you run the same pace for the next 16 miles, what is your finishing time? That's essentially what a GDP tracker is doing.

It's taking all the data we've gotten through January and February that go into the, into the GDP calculation, what's its average mile time, and then projecting what the GDP will be at the end of the quarter. Bearing in mind, the trend can change. You could speed up or slow down, and there's a lot of other data we haven't gotten yet as well. And that dove real hard in the last couple of updates. The reason it collapsed so hard is imports in January and in December surged. exports stayed the same. So the trade deficit got bigger. Why does that matter? The way that the calculation of GDP goes is anything that is made overseas. So a car that's made in Japan is considered

lost production, lost GDP. We didn't make the car here. We didn't produce all the economic activity here. We just brought it in, put it on a boat and imported it into this country. So when imports surge, that is negative. That declines GDP. And that's what drove it down. Why did import surge in December and January? Because everybody knew Trump was talking about tariffs. So they frontloaded all of their importing purchases. Get that stuff into the country as quickly as we can before the tariffs come. And what's going to happen after that? Well, March, April, May, there's going to be a decline in imports because it's already here, the stuff that we need. That will bounce back that GDP calculation. And so if people are buying that polymarket at the, up to the 40 because this Atlanta Fed GDP number has gone down, understand the quirk of why it did, and it could very well bounce back in the next few months. Jim, as a result of this conversation, I can't help to feel a small modicom, small smithms of optimism about some of the outcomes here.

It's been a classic crypto talking point of so much of the economy is just bolstered by spending by the government. We're borrowing free money. We're printing free money that's creating this GDP. That's why you have to buy assets because inflation, needs to asset price inflation, and that's the best way to get out of the trap of inflation in your like 9 to 5 job. And I'm actually seeing some of that philosophy baked into Trump's decision making, where we need some level of belt tightening. We need the government to get out of

the economy. That's going to cause some short-term pain. If we can navigate this correctly, if we can balance the trade, maybe I could see a world where the stock market in the future, Once we get through this uncertainty, this is definitely a new paradigm of sorts. This is a new paradigm in policy and global geopolitics. If we can get through this successfully, if we can navigate these waters, there's reason to be optimistic because the quality of GDP growth is actually high quality rather than low quality numbers just pumped in via fake inflation. So I, while we are certainly, I can go look at my crypto portfolio and I can go look at the SAP and I can see some scare. I can see some uncertainty. I think there's reason to,

to be optimistic about the medium to long-term outlook here if we can play our cards right. How do you feel about it? Absolutely. Absolutely. I do think that that is. And I think it's a bullish story for the following reasons. We look at the markets and we become obsessed by markets. But let's remember, 25% of the U.S. workforce works for a company of less than 20 employees.

Something like 40% of the workforce works for a company less than 50 employees. And, you know, only like about 9% of the workforce is employed by an S&P 500 company. There's three million of these small companies. I'm one. My company's less than 20. I'm one too. Bankless is probably less than 20 as well, too. 18.

Yep. And, you know, as you start looking at the economy, what Trump's trying to say is he wants policies that are going to help us, our businesses, as opposed to goose the stock market with let's just print money and let's just do some endless bailouts of banks. to help goose the stock market. How's that going to help me get a job? And that process is going to be a little bit of bell tightening, and it's going to be a little bit of churning about.

The crypto space, here's my big complaint about the crypto space. I have been all in on the crypto space for many years on the idea that we're building an alternative financial system, whether it's a store value, meaning of exchange, or defy. I've also argued most of the world needs it. you know that if you go through southern Asia, Latin America, Africa, the Middle East, they have rickety currencies, they have unstable banks, and that if an 80% to 90% of even lesser developed countries, people have cell phones. They can download an electronic wallet.

They can hold a stable coin. They could use some kind of an app to either borrow or lend or exchange money. And that this is something that the rest of the world needs. And that's why I've been so excited about crypto as a disruptive force for the current financial system. But along the way, what happens is we get all sucked into all of this gambling stuff. You know, the last one was NFTs. The current one is memes, meme coins right now. And we lose the focus of what we're trying to do. Are we trying to build an alternative financial system?

Are we trying to build an online casino? And that's what's been happening on the Solana blockchain with the $7 million. That's the number I've seen. if you've got a different number, there's been something like 7 million meme coins that have been created in the history of the Solana blockchain as well. And I think we're at a period where if we do go through this change and maybe we get the crypto space back to core development

of building an alternative financial system, that's good in the long run. By the way, one other quick fund stat for you. If you look at Solana and if you look at Bitcoin and a lot of the other ones, their peak was January 21st. What was that? That was the day after the inauguration, but that was the,

that was the, within three days of the issuance of the Trump coin. And I think that the Trump coin was the bell that they rang at the top, that it was, that was the, remember we were talking that weekend about that Trump's founder holdings was like worth $50 billion in 36 hours and all that other stuff, that that was when we went,

we went completely over our skis. And I think we're at the process now of deflating the whole, meme point mania and we're going to continue. I think that's a good thing and I think that's one of the reasons why Solana is taking it on the chops a lot worse than ETH or Bitcoin because that was the home of all the, and it remains the home of all of the meme coins. And the sooner we get that speculation out of the way and the sooner we get to the idea of what is the purpose of crypto? Let's build an alternative financial system as opposed to a, you know, a more fun casino know, we will be better off in the long run. And, you know, and with these changes that we're doing

in the economy and with that, everybody could win if we could do this properly. Yeah, I couldn't agree more, Jim. I think there's been, there's been some funny comments about the relationship between the Federal Reserve's monetary policy and meme coins, whereas, like, when this meme about some ridiculous internet meme pumps to a billion dollar market cap, and we look at the Fed, like, yeah, maybe we should actually be increasing interest rates, not decreasing them. Right. And I've been one who's tweeted that out, you know, when Fartcoin hit two or three trillion billion dollars in market cap, you know, hey, Jay, you still want to cut interest rates again. Because we're, you know, again, that's great and, you know, and stuff as a, as a gambling type of sidebar. But your company,

my company, the other three million, three million companies, what are we doing to help us try, you know, expand our businesses and hire more people? You know, let's, let's stop with this and let's start getting more towards that kind of thing. I couldn't agree more. Maybe just one last question for you, Jim, before I let you go, as a crypto investor, how are you feeling for the outlook of the Trump presidency and just the economy for the next two, three years? I know your ideology is to return back to fundamentals, so like grow real businesses, but just crypto is the risk on, the riskiest of risk on assets out there. How are you feeling about just the risk on asset sector? In general, I think what we're going to do is we're going to go

through a period of turbulence, both crypto and, say, risk on markets like the stock market. had an incredible run into January. There are going to be a period of indigestion. Now, I use that word carefully because I'm not necessarily calling for full-blown winter or a bare market in stocks or anything like that. But there's going to be some period of sideways churn in chop and hopefully taking speculative froth not only out of crypto, but, you know, we've got way too much, you know, zero DT,

that's zero-daste expiration trading and in the stock market and, you know, and leverage DTFs and all of that stuff that maybe that, we'll see the peak in some of that stuff as well. And the market will eventually start to readjust towards the idea of growth, towards the idea of trying to pick things up. Along the way, I do think, though, that interest rates are going to stay up. And even though Besson says he wants interest rates down, one of the other things I tweeted out was a famous quote by the political strategist, Jim Carville,

that when I get reincarnated, I don't want to come back as a form. 400 hitter or something like that. I want to be at the bond market because the bond market, no one can control it and it could scare the hell out of everybody. Scott Bassett knows that. No one can control the bond market, not even him or President Trump. And it could scare the hell out of everybody. So one of the things I think we're going to see over the next couple of years is these markets

churn about in this, you know, reorientation. It's not going to be a bad thing. It's just if you're thinking that I just want to put some coins in my cold storage wallet, I want to buy some ETFs and I just want them to keep going up 20 to 30% every year. That error is over. There's going to be opportunity to make money. It's just not going to be at the beta level, just buy Bitcoin and buy the S&P and watch them or buy Bitcoin and buy triple Q's and watch them go up. I think that era is now behind us.

It's going to be a little bit more nuanced in order to make money to go forward from here. But I also think that their interest rates are going to stay sticky high. Inflation is going to stay a little bit problematic around 3%. to 4%, not 8th-Zimbabwe inflation, but 3-4% to 4% inflation is going to keep interest rates in the 4-5% range. And maybe even if we overheat a 6% handle in the next couple of years, three, four, five years on interest rates. The problem every time I say that, I notice this on financial Twitter, is I say,

look, I still think, you know, or later this year, the 10-year yield could go to 5 to 5-5. Oh my God, five to five and a half. That's not a big deal. It is not a big deal. thinks it's a big deal because they're still trapped in that QE zero interest rate, money printing period that we need to get interest rates all the way down to make money free. And if it's not free, we're too over leveraged, we're too indebted, the whole system is going to implode on itself. I think we're changing this system now. It won't implode on itself, but we have to get used to

this idea of higher interest rates, even though Scott Bessent is insisting that they're going to be able to keep interest rates down. I don't think they can, but I don't think it's necessarily a bad thing. But you know what? This is Trump. You know with him, the 10 years are focused. The 10 years are focused with 10 years yields going up. Look at the S&P. Look at the S&P. He will change on a dime with this kind of stuff. Jim, it is certainly a tumultuous time in the markets, but I really appreciated this conversation. I feel a lot more at ease. Not necessarily like this, of course, it's not going to be a bullish day tomorrow. But nonetheless, I feel like I am quite in actually about what the stakes are and how we are going to navigate this for the next few

weeks, months, quarters, and eventually years. Jim, thank you so much for coming back on bankless to share your wealth of information. Thank you. Enjoyed it. Bankless, H. You guys know the deal. Crypto is risky. You can lose what you put in. But nonetheless, we are headed west. This is frontier. It's not for everyone, but we are glad we're with us on the bankless journey. Thanks a lot.