What Bitcoin Did - America’s Debt Problem Is Bitcoin’s Bull Case | Andy Constan

Episode Date: September 28, 2026

“The things they need to do to bring inflation down are just too painful for them.” Andy Constan returns to discuss why he thinks politicians will keep running large deficits, how inflation can shift the cost of America’s debt onto savers and future generations, and why that creates a bull case for Bitcoin. We also get into how institutions decide whether to own Bitcoin, why its volatility and weak correlation with gold keep Andy on the sidelines, and whether a US debt collapse is inevitable. Andy explains why bonds look more attractive to him today, what it would take to bring inflation down, and whether AI could change America’s debt outlook. THANKS TO OUR SPONSORS: LEDN - Explore Bitcoin-backed loans and get 0.25% off your first loan. SWAN - Buy Bitcoin, Build Wealth. Discover Swan’s Bitcoin products for individuals and businesses. ANCHORWATCH - Insured Bitcoin custody, security & inheritance. Book a consultation: BITKEY - Get 10% off the new Bitkey wallet with code WBD. CAPE - Get 33% off your first six months with code WBD. FOLLOW: Danny Knowles: https://x.com/_DannyKnowles Andy Constan: https://x.com/dampedspring

The fact that the volatility has come down both daily, weekly, monthly, annual, all volatility are falling, makes it more likely that I want to own it. No one has a lot of confidence in our policymakers. They haven't had confidence for as long as I can remember. So it's not a new thing that suddenly central banks have a credibility concern. But it's getting worse. And the question is, what's next? Is it going to get worse or better?

If it gets worse, that's good for Bitcoin. Some future point, we're not going to be able to afford what we're going to be able to are committed to providing our citizens and inflation is going to drag down our purchasing power. That's inevitable. And as long as they continue to make choices like they've made, we're going to get the outcomes we're going to get. And frankly, that's a bullcase for Bitcoin. Andy, it is great to see you again.

You're a star of one of the more controversial shows I've done that we did with Lynn Alden probably about a year ago now. But how have you been? Yeah, it was last summer 2025. I love that one. It was so much fun. And I had, you know, it turned out prescient to many levels, but I also learned a ton when we moved from DATs to stable coins. So that's interesting.

And it's becoming more topical regarding, you know, the need for the Treasury to do its financing. So it's lots of interesting stuff at this stage. Yeah, absolutely. So we're going to get into some more macro stuff today. I've got a fun idea, a little thought experiment I want to run through with you. But for the audience, I think it's very relevant that they know your background before we do that. So do you want to just tell everyone, you know, what you've done for the last 30 years of your career? Sure. Well, I'll start when I started, which is, gosh, it's now 40 years ago, started at Solomon Brothers in 1986 as a corporate finance analyst, and then moved to the trading floor after I was assigned to work on the Brady Commission that investigated the stock.

market of 1987, and that's when I fell in love with markets. And that anniversary is coming up. I guess it was a few years, a few months, a month. Anyway, I became a convertible bond trader, then became a rant, started to work in equity derivatives, then took on many management roles, and ultimately left Solomon as the head of the global equity derivatives business. Where I started own hedge fund with some fixed income partners. We didn't work, it worked out great. We built a great company, but then our partnership sort of fractured. And by 2008, we had closed down ahead of the financial crisis, and I was starting to launch another fund. And that really never got off the ground, because, frankly, when you're trying to raise money in 2008, every allocator, institutional

allocator, isn't really interested in giving out money. It just wants all its old money back from all the other hedge funds. Couldn't have been a worse time to try and do that. It was a bad fundraising environment. But I thought about retiring at that point, and then I realized that what had been missing in my career had been an understanding of macro, and I had the great fortune of joining Bridgewater Associates in 2010, worked for them for a number of years in their research area in their portfolio construction area and contributed and had a great time learning macro from, I think, the best macro fund in the world. After that, I decided to go to another macro house that was, instead of entirely systematic, was entirely discretionary. And that was Brevin Howard.

Brevin Howard actually became quite active in crypto during that period of time when I was there and still are. And so I got some exposure to the things that we tend to talk about when we're, you and I are together from those guys at that time. And that was very early on in the whole institutionalization of crypto. At the time, it was primarily Bitcoin. So after four years, the fund broadly had sort of struggled for a number of years, and the number of traders had fallen down. And I was a resource to those traders as the chief strategist. And Alan said, hey, I want to spin you off into your own company.

I'll be your biggest client. I'll sponsor you. But you should do that. And I said, sure, you know, it fit me well during that. And so I started damp spring in summer of fall of spring of 2019. And I've been doing that ever since. It's a macro strategy and research firm that primarily services the biggest macro hedge funds in the world. And all of the pod shops, as well as some other large institutional investors. And I also provide that insight to whatever insight I have, which may not be much, but whatever insight I have, I provide to a variety of smaller clients. And I'm quite active on Twitter in the community and on Substack, providing as much of passing forward as much of my understanding of markets as possible to a wide audience. Yeah, I see you there sharing the information and getting in the occasional fight. I do get in fights.

You've had a massive, hugely successful career. And one of the things that I think is interesting in Bitcoin right now is we've been saying, really, I think probably since Michael Saylor first bought Bitcoin, everyone's always been saying the institutions are coming. And they certainly have to a degree, like obviously the most clear example of that is BlackRock issuing the Bitcoin ETF, which is the most successful ETF in history. Like that's huge. But we don't see like every hedge fund in the world buying Bitcoin yet. And as a previous hedge fund manager, I kind of wanted to walk through how you would assess Bitcoin if you were in charge and someone at the firm wanted to look at Bitcoin.

Because I know you know about Bitcoin, but you're not a Bitcoin. at least last time we spoke, you didn't own any Bitcoin. So given today's macro environment, can you walk me through how you would assess Bitcoin and whether it was worth an allocation? Sure. I've gotten, since I last spoke, I think I did buy some Bitcoin. I did buy, I think it was after we spoke. I bought some Bitcoin at the meme 69-420 level, sold it at 84,000, and have since been Bitcoin-less.

but let me describe how I think about, so there's how I think, I think your question is, you know, how does an institution think about adding a new asset for them to trade? Yeah. And to sort of, you know, put myself in the shoes of a person who's doing that.

And I think the first thing is to define what investment strategies there are. And I think the, you know, you mentioned BlackRock, BlackRock's investment strategy, ETFs guys generally, is not investing. It's just converting something into something they then can sell to an ongoing end investor. And so BlackRock is just an intermediary. They have absolutely no opinion on the, they don't need to have an opinion on the direction of Bitcoin. All they need to know is that they can sell Bitcoin to an end investor, who is an ETF investor.

Yeah. So they're not at, so that's an easy, if you think about an institution's role in Bitcoin, that's an easy one. You pass on all the exposure at the price they buy it, and you have an ETF. Saylor had a, we spent a lot of time on that, Saylor had a different thing.

I think that has reached its inevitable end, such that it's essentially becoming ETF right now with some leverage on it. But that's a that's that's again, you're passing through ownership. Let's come back to that bit later. Let's come back to say a later. Yeah. Yeah. That's not how investors who are investing other people's money or their own money in a discretion, in a discretionary or systematic way, think about investing. They're not trying to pass on exposures. They would think there's a reason to own the asset as either part of their portfolio or as a way of making money in markets. And so, gosh, it was, I think, I don't remember exactly

when I was, I think it was the winter of 2020, four, when everyone was, well, sailor in particular, The whole community was focused on getting Microsoft and others to begin holding Bitcoin as a core asset. Yeah, it got brought up in one of their shareholder meetings, and Michael Saylor did a very short video about why they should adopt Bitcoin. I think it was 2024, winner of 2024, and they rejected it. Fine, but that's his. But that's one way an institutional investor thinks about it. They think about an allocation to their savings. So I'll come back to that. That's one.

That's investor one. Investor two, sorry, and what I mean by that, there's cash savings. It's not to protect them from, you know, it's to use their cash in a way that isn't necessarily for big returns. It's for safety. And so, my. Microsoft has math had, they're spending it now on AI, but had massive amounts of cash, and they needed to manage that cash. They weren't, they weren't benchmarked against the S&P 500 or anything like, not super risky.

They just wanted to manage their cash in a good way. So there's that pool of institutions. There's a second pool that is, hey, I want to manage my client's money in the best possible way to generate, I'm long only. I want to generate the best possible, long only returns possible. And so to do that, you have to think about all the possible, let me just get out of the sun a little bit, all the possible assets one can own with cash to generate the best portfolio. Okay.

Then there's institutions that are in the business of, so that's two, then there's institutions that are in the business of market timing, buying cheap, selling rich, short selling rich, buying cheap, and speculating on the direction of an asset. So that's three. And then four, there's arbitragerers that look at assets and say, I don't really have a view on the asset, but I think it's rich to that asset. And they use the two assets as a pair or part of a portfolio of things that they're trying to extract. They're not betting directionally on any one of the things. They're betting on a portfolio. So that's the sort of four seats that I see that you could explore.

Is there one that you particularly want, or should I go through each? This show is brought to you by our lead sponsor, Ledin. I've taken out multiple Bitcoin back loans with Ledin, and I think they're an awesome company. So if you do need dollars for a business expense, a tax bill, you just want to stack some more Bitcoin. Whatever the reason is, Leiden lets you use your Bitcoin as collateral instead of selling it to raise the cash. And with Leiden loans, your collateral's held in custody, and it's never lent out to generate interest. They give you all the tools you need to manage the loan as the Bitcoin price moves, so you'll get alerts. There's an optional auto top-up, which automatically adds Bitcoin's,

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the screen. Download the app, download BitKee, use code WBD and get 10% off. I think we should go through each. The ones that I'm less interested in are sort of three and four, the ones that are using this as just a trade. It's really the people that are taking like a directional play on Bitcoin here. Long term, long only holders. Yeah. Yeah. I think that's frankly where the value is. Like you can trade anything. And so just to put those aside, to trade something, you have to have to have an edge. I mean, listen, casinos earn a lot of money. Betting, prediction markets earn money, draft kings earns money. The people in those places, even if the casino wasn't extracting money from every bet that's placed, the people in that, they're just trading with each other.

And, you know, some are sharp, some aren't sharp. Some are just there for the drinks. and entertainment. And so Bitcoin is one of those, just like Nvidia, the S&P, the 10-year treasury, they're just one of those. And you have to decide whether you have the ability to beat the people you're playing. And so that's a, by the way, if you do, then you include, if you're an institution, like Brevin, institution, believe they could beat the market.

and so became a long short trader of that thing. But I think you're right. Most of us are in the business of long-term savings, and so you have to consider whether any asset you pick helps your portfolio. And so the way I think about that is in a framework I mostly learned from Bridgewater, But even that framework had stood on the shoulders of a lot of prior frameworks, in particular, Harry Brown's permanent portfolio framework that he wrote a book in the late 70s during the inflation scare, not scare, the inflation experience, about how to build a portfolio that is capable of earning returns throughout all environments. And then just holding it. And so when I think about that, I come from that framework and say, what is it about an asset that makes me want to include it in that type of portfolio? So a couple of things.

One, it should have a reason for it to have a long-term risk premium, meaning somebody who sold it to you wants to. your money and knows to get your money, they need to compete. And they have to compete with stocks and bonds and all the other assets in the world, businesses, anything that generates a return and they know they have to compensate you for your money because they want it now and you have it now. And everybody's competing for your cash. no one has cash. That's what they want. And so you need a risk premium, ideally. I don't think there exists a reason that Bitcoin has a risk, that pays a risk premium. Similarly, I don't think

gold pays a risk premium. Can you explain why that is, why you don't think it has a risk premium? Well, there's no person who is selling you Bitcoin. There's only 21 million of them. Everybody who has them has them for the same reasons, by and large. And when they sell it, sure, they may need money, but it's not like an issuer who's taking that cash and putting it into a business project, a, a, physical investment. It's just cash. Like the euro doesn't have a risk premium versus the dollar. Because people don't really care about how they hold a cash like asset. So anyway, that doesn't mean I have to exclude it from my portfolio. I own 10% of my portfolios in gold.

I own it for the other reasons. And those are twofold. One is, and by far the most important one is diversification under certain economic scenarios. And so, for instance, one owns stocks and commodities because they do really well when the economy grows rapidly, above expectations. And they do really poorly when the economy doesn't do well. Bonds, which are doing terribly lately, because the economy is doing so great, do really well when the economy does poorly. Both of those things, so owning both stocks and bonds allows me to own more stocks and have a risky portfolio that's better than owning just

stocks alone because I own some bonds. And so that's general portfolio theory, how diversification makes a higher risk-adjusted return. But so can I just ask a quick question on that part? Because I know sort of historically the 60-40 portfolio between equities and bonds was, was like the common thing. Is that still the case, considering how badly bonds have done for the last six, seven years, however long it's been?

I mean, I just wrote a substack that is free on substack that describes the case for 6040, and I called it the 6040 strikes back with the Empire Strikes Back meme. Holy moly, a 6040 portfolio, any portfolio that has held bonds

since what I call the bond bubble of summer of 2020 burst is a disaster, just a disaster. Now, wind back the clock. We had another bond, massive bond sell-off in the 80s, late 70s, 80s. But even if you wind the clock back to the 70s, early 70s, where you experience that terrible outcome for bonds in the 80s, bonds basically matched the S&P 500 for 50 years leading up to that bond bubble. And in fact, on a risk-adjusted basis, which is, you know, if you is on a sharp ratio basis, outperformed stocks.

So a modestly leveraged bond portfolio outperformed stocks. But even better, a modestly leveraged combination of stocks. stocks and bonds out at the same risk level outperform both of those things. And so that's the proof. Now, one thing I think the lesson is, is so let's wind back the clock to the summer of 2020. The economy was closed. The 10-year bond yield was at 65 basis points down from a peak of 16%. and currently 5.2%, 5.15%, could be 5.2 by the end of this episode, that yield was a bubble. If you looked at that bond at the time, and we all did and said,

what is the potential for this bond to earn positive expected returns over its life, had to be close to zero. But people own them. And financial advisors who are, there's a wide range of the skill set of financial advisors. Some are super sharp, but even they are ill-equipped for some of these conversations. But most are not super sharp. They're just doing what they're told by their...

They just read that script. They just read that script. And they didn't get anybody out of bounds. And so, yeah, at this stage, geez, six years. six years of terrible returns, I can't imagine the financial advisors are going to be pitching to their clients. Hey, you really should keep the bonds that have cost you all this money. And certainly the financial climate, the investment, you know, the sentiment out there is

that bonds, you can't own bonds. And the fact is, they're much better than they used to be. They're nowhere near a bubble. They have, this is the most important thing. When in 2020, if the economy had grown, had instead of recovering from COVID, had continued to get worse, your bonds would have had limited to no appreciation potential, which is why you owned them in the first place, because you needed them to balance your equity exposure to, Today, if interest rates could fall 200 basis points in the next year, if the economy weakens, you're going to make a piss load out of bonds in that case. Now, that's not the current sentiment. The current sentiment is growth is going to just go forever, but that's already in the pricing.

So any disappointment, you're going to seek capital appreciation. And so that's why I want to own bonds in my portfolio today. Not backward-looking. No, that was terrible to all of them. But today, looking forward, they actually provide a decent balance. And let me hold equities at a desired risk target without being fearful that I'm going to get caught in a growth slowdown, because my bonds will protect me. So I get to own equities, and I don't have to puke them when the growth does disappoint, which it inevitably will. So anyway, circling all that back, gold is an interesting asset in that it does very well when currencies are being debased, when cash is trash, essentially.

Now, a lot of people say, well, it's supposed to be an inflation hedge. Not entirely. It does help, but during inflation, interest rates tend to be lifted by, central banks, and that can hurt the relative value of gold versus other things that are like gold, like tips. So it doesn't work as an inflation hedge, but it really works in a monetary debasement. So I want to have that. I want to have, and so anyway, that's an asset I want to have because I have confidence in a debasement environment. It'll deliver while other assets may not, particularly bonds in that case.

And so what I'm trying to get at is that if you're a long-term investor and you have to consider all the assets, you need a reason to have at least one reason to have them. And one, the first reason is that they have a positive risk premium. The second reason is they offer a balance to your portfolio. and gold had been, prior to Bitcoin, had been, and maybe Swiss francs and certain other currencies are like gold, but had been a unique asset that responds to something that no other asset responds to.

And so, as I said, gold doesn't have a risk premium because there's nobody that, it's like a currency. It doesn't need a risk premium because people just swap it for goods and services and assets. It's like a currency. That's what a currency does. They don't carry risk premiums. They're just a spot thing that people swap. And so it doesn't carry a risk premium.

I don't want it. But because of its unique properties and long history and relatively low volatility, and it really behaves the way it should. All of those things make it an essential part of my portfolio. Because what you're talking about there essentially with gold is that it's protection, it's the debasement trade. Would gold and Bitcoin not make more sense to have like a small, maybe it's a smaller allocation for you, but a allocation to Bitcoin in that sense?

So I am very excited to one day replace some of my gold with a diversifier like Bitcoin. And today is not that day. And not even at the margin. And I'll describe why. And listen, this is just my reason. And you ask me how I think about it. This is how I think about it. It's too volatile.

It's too correlated to something I already own, which is NASDAQ. And it's not correlated to gold, which is the thing I want to replace it with. Like, I don't need any more NASDAQ. I just don't. I got plenty. So that part makes sense. Like, I do understand, like, it has been incredibly correlated to the NASDAQ. I think at some point that will change.

Who knows what the actual catalyst for that is? I think it's actually going in the right direction. Like, when I look at Bitcoin and the recent experience, and I've paid a lot of attention to it, the last few years, particularly because of my interest in the debt companies, but, you know, just growing as a person and looking at these sort of things. And I like the fact that it had this long period of low volatility and low correlation with the NASDAQ. So it's becoming less correlated to NASDAQ, which is a good thing for me. And it's becoming lower vol, which is a good thing for me. Yeah, that's what I was going to ask you about. Because this bare market, like Bitcoin

and drop 50%, whereas previously it's always been 80%. And the difference, like, I think people don't understand fully, the difference between 50% drop and an 80% drop is another 50% after 50% drop. It's a huge difference. Like, when you see that, does that start making you a little more interested? Yeah, 100%. I think it, the vol is, the fact that the volatility has come down both daily, weekly, monthly, annual, all volatility is.

are falling, makes it more likely that I want to own it. And the reason is, the reason is, is I don't think it has a risk premium because there's no fundamental need for anybody to part with Bitcoin to get some other, to get U.S. dollar cash beyond what normal currency exchanges do, and meaning spot consumption. And because of that, volatility. idiosyncratic volatility on no expected return is a real disaster. Right? So you need the vol to come down.

It's coming down. I think that's good. The correlation has broken with NASDAQ, which is good. Unfortunately, and this is a problem for me, and as everything's going in the right direction for me to add Bitcoin as a replacement to gold. except the fact that its correlation to gold is going down. And that's, and it's practically uncorrelated to gold over the last three years. That's not a great fact pattern for me.

It makes me wonder whether, so again, let me step back and say, I'm thinking about Bitcoin as a debasement asset, an alternative fiat, a hard currency, all of those sort of things that gold are like. And that's my bias. That's the only thing I see its value as. If there's something else, it's possible it could have that, for instance, correlates well with growth or correlates well with inflation in either direction, up or down. I could find myself using it.

But no one's made a good case for me beyond hard money. And so, again, that's my limitation. That's why I'm comparing it to gold. If you told me, hey, you should compare it something else. And you could prove that it's better than something else, that it carries a higher risk premium so that it has a higher expected sharp ratio and behaves like something else that I already have in my portfolio. I'd happily consider it, but that's not where I'm my head's at.

So I'm just comparing it to gold. and for that it needs to act like gold at much lower volatility. And then it'll go in my portfolio, for sure. To be fair, the lack of correlation with gold over the last couple of years has surprised me as well. You know, obviously all the fast money has been in AI the last couple of years. So Bitcoin didn't have the crazy boom like it normally does in a bull market. But at the same time, gold was ripping Bitcoin was sideways and down. Do you have any theory on why that might be?

Yeah, I'd just be. I mean, I know why I have a feeling why gold and equities have behaved the way they are, very strong growth and very easy monetary policy, which are both good for equities and the monetary policy is good for gold, and suppressed long-term interest rates and heavy fiscal. All those things are pretty good for gold and pretty good for, really good for stocks. And so those assets have acted the way the economic climate has developed. So then you have to say, why didn't Bitcoin?

That's outside my jurisdiction. I don't know. It's curious that it hasn't. But if I had to guess, it's because there's still a shitload of people who use the asset for things not what I just described. For speculative trading, for, or leveraged speculative trading. Not, listen, stocks are used that way.

Gold is used that way. But I don't know. Again, outside my jurisdiction, I think it's because it was a speculative frenzy for that started in, well, there's been many, but started in early 2021 and peaked by some by 2025 into this nonsense about Trump. You know, oh, you pick it.

There's lots of net. It's outside of my jurisdiction, but it didn't act the way it should. Every bitcoins eventually has to answer one question. If something happened to me, could my family access my Bitcoin? Would my children inherit what I've spent years stacking? That's why Anchor Watch builds Bitcoin custody solutions designed to protect you and your family against real life, accidents, errors, kidnappings, and even death. Every solution includes their inheritance protocol designed to help your Bitcoin reach the people you intend it for.

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And it kind of lost the narrative to AI in that sense. I don't think it lost any narrative that's real to Bitcoin. Plus, I think AI actually has a better fundamental story. Like the Bitcoin fundamental story, I buy. I mean, it's a hard currency. I buy the, and look what's happening to the world. But man, AI is just fundamentally not only just hot money, it's fundamentally a hotter, a hotter faster horse.

Yeah. Just one last question on this, how you would assess Bitcoin before we get onto some macro stuff, is you said one of the reasons that you wouldn't do it is the volatility. But can volatility not be solved by sort of position sizing? Sure. But the reason why I don't like the volatility is because I don't like the expected return on the risk. Like, I don't mind volatility. I love volatility as long as I'm compensated for it. I don't see the, I don't see the compensation that I'd get for owning Bitcoin, but that gold doesn't provide at a much lower volatility.

Now, and I can lever my gold to have the same volatility as Bitcoin. If I like volatility, if I like Bitcoin volatility, whatever it is, 50, 60, 70%, and gold's at 20, 30%. I can buy twice as much gold on leverage and have the same vol. But I'm more confident about the expected return on that risk. And so, vol to me, is the numerator on this thing. And the denominator, sorry, the denominator and the numerator just isn't great for the given the size of the denominator. And so I want the, unless the expected return increases dramatically,

which there's no reason for it too, right? Because when you think about markets, expected return is fully what's priced. Like everyone expects a return, but they're not going to get it necessarily. But the denominator, if it comes down, it makes the asset more attractive, full stop. It doesn't make it less attractive. It only makes it more attractive. And I think people miss that. They think, chase the thing with the high vol because it has the high return.

Well, does it? Or is it just vol that's not compensated for? And for me, Bitcoin is vol that's not compensated for, adequately compensated for. So I don't understand that. And like, none of this is me trying to convince you. I'm just trying to understand the way you look at this. But, you know, over the last 10 years, Bitcoin's gone from $1,000 to right now, like $80-something,000. How is that not enough compensation?

Because it's in looking backward. It was a great trade at a thousand. Wow, fantastic. The risk-adjusted return on Bitcoin in the rear of your mirror was fantastic. Full stop. Hasn't been for many other points. Like, what is it going forward? What's the expected return?

What drives the expected return on Bitcoin that gold doesn't provide? And why should I get a lot of, oops, sorry, sorry. I should get a lot of investment return for going forward. And I think what you need to get more investment returns on Bitcoin is certain conditions to occur. And those conditions could occur, and you're going to make money on your Bitcoin if those things occur. The question is, is there a way to make more money on something that has the same

involved, and for now, I think it's gold. And when you... That could be wrong. When you say certain conditions need to occur, what are you talking about there? Are you talking about sort of slashing interest rates, money, like quantitative easing, your cur control, like these kind of extreme scenarios? Well, I mean, it's a combination of things like just the expectation that the central banks are going to not fight inflation.

For instance, not that they cut rates. just say, you know, if tomorrow they announced the inflation target went from 2 to 3%, I would expect Bitcoin to do very well, even though nothing happened. Nothing changed in the economy, but, you know, that would be good. If Bessent, sorry, not Besson, Warsh, hard to distinguish who's who, Warsh had decided not to hike at the last meeting, I would expect Bitcoin to have done very well. If the Fed decides to use RMPs, which increased the size of the balance sheet, which they did in December, I bought gold. I didn't buy Bitcoin, but I was very bullish on Bitcoin. Gold did great. Bitcoin didn't. So there are many conditions in which a hard currency should do well. I think we know

all of them. Some of them are actual things, and some of them are confidence in our policy makers shifting. Let me just be clear. No one has a lot of confidence in our policymakers. They haven't had confidence for as long as I can remember. So it's not a new thing that suddenly central banks have a credibility concern. But it's getting worse. And the question is, what's next? Is it going to get worse or better? If it gets worse, that's good for Bitcoin. And what is your take there? What do you think is coming next. Do you think it is going to get worse? I hope not. And I hope not for not because I am bearish or bullish on assets or Bitcoin or anything. I don't like inflation. I don't think it's good for society. And so I hope they, they, I don't think they, they haven't shown evidence that

they're willing to. I think there's a lot of hope that inflation will magically come down. and all of the prior sins of money printing, easy financial conditions, asset prices, all the things that we know have happened get reversed without any pain being felt, and somehow inflation comes down. And so I think it's been 66 months of that, and it's not coming down. And so I hope they do what's right. I don't think fiscal policymakers, both here and abroad, but particularly here, are trying to solve the inflation problem in a way that is a fundamental demand destruction. They want to solve it by capping diesel prices, which they chose not to do, or tacoing on tariff.

or to to to totoing on the war in Iran, or manipulating treasury bond yields, or buying mortgages. None of those are root causes, and many of them, many of the policies they've done, because the deficit continues to be 6%, are not helping inflation come down.

And, the things they need to do to bring inflation down are just too painful for them. They are increased taxes, reduce spending. Neither party likes that. One likes to reduce spending. The other likes to increase taxes. Neither of them agree. And so we do both. We don't increase taxes and we don't cut spending. And that's inflationary. And so no one is willing to take the pain. And I think it's a I think it's sad and shows no leadership in the country or the world to not have dealt with inflation, because it really does create outcomes that are difficult for people. While everybody's standard of living may have grown over the last few years, the pace at which

they grow hasn't been great, and some have not grown. And so I think that's policymakers making choices. And as long as they continue to make choices like they've made, we're going to get the outcomes we're going to get. And frankly, that's a bullcase for Bitcoin. And is that partly driven by the four-year political cycle? I mean, really, two years before you have midterms anyway. Is it just politically unpopular to do those things, therefore they can't really risk their career on it? I wish to say it was partisan or political.

These guys for as long, ever since Richard, Nixon decided to abandon Brenton Woods and get off the gold standard. Every politician has done the same thing. Increase the deficit. Yeah. Bill Clinton got lucky. Sorry, increase the national debt. Bill Clinton got lucky that he happened to be constrained by the Newt Gingrich and the Tea Party

to reduce the deficit. Was that in 2001 the last time it was a surplus? Not the two party. Not the two party. Gingrich in 94, we had a surplus in 97 and 98. And the reason why we had a surplus is they slashed spending, and we had a productivity boom of the internet. And so we went from a deficit to a slight surplus.

But every political party since then, certainly, has grown the deficit and grown the debt. And it's bipartisan. And it's not going to change. Gridlock keeps the status quo. It doesn't make any changes. And so the status quo is roughly to 6% deficit to GDP. That's not going to go up or down in a particular way unless somebody leads and no leadership

has said, we're going to do what it takes to get the deficit down. Besson came up with his 333 plan, 3% deficit target. they've done nothing. Doge didn't work. Tariffs have been, were implemented in a way that made them illegal, and so they didn't work. And the reason why they couldn't be done legally is because the Congress was in, was unwilling to legislate tariffs. Status quo is just going to get the same outcome, which is increasing our national debt. So what would you do, Andy?

Like, let's say tomorrow you get the keys to the kingdom, you're in charge of the Treasury and the Fed at the same time, and you're not allowed to say you'd quit. What would you do? So I've said this a number of times, and I think Warren Buffett said it before me, and Ray Dalio said it in some form. I heard him say it at work, and he's said it in the press. And I think it's right. I've raised taxes on every single dollar of revenue that we collect. I'd... take $1.3 instead of a dollar. Just write on the tax code in some way. No, it's not a dollar, it's $1.3 and hand it over. So I'd raise taxes by 3%. I'd also cut spending on everything, every dollar that goes out of the treasury.

That dollar that goes to a social security, a poor social security elderly, take three cents back from her. The same money that goes to building bombs, take three percent back. The only thing I can't take three percent back is interest rates, but frankly, my plan, not my plan. Buffett, you know, this is not rocket science,

would lower interest rates, so that would work. And so that's what I do. And it would be a disaster. Oh my God. Would this be full-blown recession, depression, It would be very bad for the economy. Very bad. So it's not going to happen.

Yeah. But you ask me what I'm going to do? Oh, by the way, I'd cut interest rates to offset it. If I were, because I'd run the Fed too. Fantastic. I do that. I do everything I can to offset it. But it would be painful.

The reason it's painful is that, Every single person in America today, at some point, certainly anybody that's lived more than 30 years, I would say, has had their assets go up. And if they're an employee, their company, which is the overall employer base of America, has done great, which means their job has been more secure. Now, obviously, people lost jobs, but in aggregate, the massive levering up, when you transfer $40 trillion of debt from savers to spenders, you get an economic outcome, a robust above-trend outcome. That's what debt does. And so we've had a debt cycle of 50 years.

We thought it might be over in the GFC. And so after the GFC, what did we get? Very mediocre growth. And then COVID. And so that whole debt cycle, what could have been a very long-term, barely painful period post-GFC, that could have lasted decades.

right back on the track. And so here we are, every American, no matter what place on the economy, has probably gotten more money spent on them from government programs, better wages, more secure job,

and for anybody who had any capital, unbelievable investment returns, where did that come from? Some future point, we're not going to be able afford what we are committed to providing our citizens, and inflation is going to drag down our purchasing power. That's inevitable. That bill will be paid. It'll be paid by some future generation that doesn't vote that isn't even necessarily alive. And it's inevitable. It's inevitable. Now, does that mean the world's going to be like, so whenever I talk about standard

of living. It's like, okay, so let's say our standard of living improves by 3% a year. We could, the pain and should have improved by 2% a year. So we're accruing a bill of 1% a year that somebody's going to have to pay in the future. Oh, that doesn't have to happen all at once. It's just the future standard of living improvement. It's going to be flatter than the past standard of living improvement. And so to me, I'm like, man, we really took advantage of this. Everybody today that votes took advantage of this future voters. We should give a little back.

And so a little pain. Let's just try something. Hey, all I'm saying is 3% more taxes, 3% less spending. Let's see how it goes. Let's get our house in order. Let's take a little pain ourselves instead of greedily just feed our, you know, feed ourselves and, you know, see what the outcome is. And of course, there's no party that represents me, nor most economists that would say that's a good idea. It's a terrible idea.

It's going to be bad for a lot of people very quickly. When did the world more broadly, but I guess America, as we're talking about specifically here, just forget about the idea that market cycles happen and you have to go through some periods of pain. Like, obviously, after the GFC, there was a lot of pain, but there was the tart baylight outs. There was a lot of money printed to try and paper over those cracks. COVID was that on steroids. And who knows what really happened in COVID, but there was obviously a lot of people struggled, but they quite quickly tried to paper over that by, again, just printing an absolute shit ton of money. Like, why did they give up on the idea of you do have to go through periods of recession?

Yeah, I mean, that's a good question. Part of that is, well, that's a good question. I don't have an answer to you. The first thing I heard when I heard that is, should we have done 2008 differently or 2000 and should we allowed 2000, should we have done 2020 differently? I think the answer is maybe, but not really.

Like those were legitimate, painful crises that were worth offsetting. But once you've offset the pain, it's the removal of the accommodation. After the GFC, you'd hear the Fed go up to Capitol Hill and say, you know, all the politicians would say, we're seeing mediocre growth.

The Democrats would blame, the Republicans will blame Obama. The Democrats eventually would blame Trump. We're getting suboptimal. turns, the fiscal has to do its part. And, sorry, and the central banker would say, well, we're doing our part. The fiscal isn't. And that's true. The fiscal was actually fairly responsible after the financial crisis. They didn't spend and increase the debt massively. You could argue whether the bailouts were a good idea. I think they probably were. I wish some more people had taken the heat for that. But, you know, saving the financial system, that was a point. I was a

good outcome, I think. And they didn't create massive inflation by doing all the spending. You can blame, I think most people rightly say the cusp of the overdoing of COVID was the Biden-era stimulus. Like, that was just, that was $2 trillion you didn't need to do. Probably right, But, you know, the pork that went to the Republicans during the prior stimulus informed, there had to be some evenness to that, perhaps. Not a good reason, to be honest, and I think that was a mistake. But we overdid it. The Fed over did it?

Why did they buy mortgages? There was no housing crisis. It was the opposite. Lots of mistakes. But the big problem is since 20, 2020 when we have this bond sell-off and stock market sell-off, there's been no willingness to buy either party or the central bank to actually withdraw the stimulus. They think they had every, you know, you'd get a little wiggle down and they think they'd have solved the problem. Here we are today.

Same old problem. And it's just a matter of taking the pain. Why since 2022 has. So I think the. The simple answer your question is it was going okay. It wasn't great. Like, but there was pain in in 87, in 91, in 95, four, five, in 98, in 2000, in 2001, in 2004.

You know, I lived through a lot of pain. 2008, plenty of pain. And then there was mediocre growth for 10 years after the GFC. 2020 is where we were ready to take some pain. We had overdone it. We were ready to take some pain. And both the central banks and the fiscal failed us. So I think it's a much shorter story. And so why is that? I don't know. Could be massive divisiveness. It could be a rise of populism. It could be a rise of nationalism. Listen, I think back in 2020, this whole idea of de-globalization, and which, you know, which, you know, which, you know, drove a tremendous amount of nationalism. Those were relevant events. They changed society a little bit, and the politicians grabbed onto those things and used them as their political motivation to appeal to the populace.

It's such a mess, and it doesn't seem like there's a clear way out of it. Like you say, maybe there is a clear way out of it, but it doesn't seem like anyone's actually going to do that. In sort of Bitcoin land, there's a lot of talk around sort of debt crisis, and this is going to, you know, at some point, whether that's in a decade in 50 years, who knows, the debt is going to become totally unsustainable, the system is going to collapse. Do you think that is a potential outcome?

Of course, it's an potential outcome. Is it a likely outcome? No, it's an outcome. I'm likely as we keep soldiering on and doing the same old thing. What probability would you put on sort of full-blown collapse? Gosh, I have no idea. It was less than 50, greater than five. So you think they're just going to be able to keep kicking this can down the road.

I presume you imagine debt's still going to continue to grow, debt to GDP is going to continue to grow, and they're just going to have to do more intervention to keep this system running. So I actually have this. in a conversation last night in a big macro dinner I had. I think people under either don't appreciate or underestimate or don't understand or whatever it is, the levers that governments have. I think an important thing when you take all the world's national debt.

The U.S. has a lot of it and it's owned by a lot of, some of it's owned by foreigners. It's sort of irrelevant. Most of the debt is owned by Americans, right? The government borrowed from Americans and needs to pay back Americans. So they can choose. So there are people that own the debt, and there are people that have benefited from the spending that the debt's paid for. And if you want to honor the debt, you're going to have a credit.

crisis where the people that don't have own the debt have to live under austerity. Because you're going to have to devote a lot of resources that you could otherwise use on spending to paying back the debt, to paying interest on the debt, to all those things. But you don't have to. You can inflate the currency, and that hurts the people that own the debt. That's a choice. That's a choice. And the government has all the levers it needs to make those choices.

Because really, so the government, this is a topic that I find frustrating. People think of the government as a corporation. All the government does has two principal functions. One, it does certain things, well, three, I guess. One, it does certain things that nobody else can do. that literally the private sector cannot do. And then, two, it probably does a bunch of things that the private sector would do better, but, you know, that's where politics, that's all politics stuff.

Like, you need the things done. Maybe the private sector would be doing better. Maybe they wouldn't, different parties would think differently about those things. But the primary function that is to reallocate wealth, to tax from some sets of people, to spend on others, to inflate the economy at the cost of one cohort for the benefit of another cohort, to deflate the economy, presumably to the opposite, to grow labor, to grow capital. All of those things are the transferring of wealth amongst the cohorts of the society. And the government just has a lot of ability to do that through laws and policy.

And so, yeah, I think they can kick this thing down the road a long, long time and have outcomes that are not the destruction of society. Which, like, no matter how well Bitcoin does, I don't want to see the destruction of society. And so, like, if there are two options. good. That's good. And there are people, there are people that do. Yeah, I think that's crazy, though. Like, no one's going to be proud of being really rich when the world's burning down around them, I don't think. Trust me, I've always thought about this. And by the way, people ask me, do you own physical gold or, firstly, I'm not going to tell you. But secondly, in that dystopia, I don't have, I don't have enough guns. Somebody's going to come and put a gun

to my loved one's head and say, surrender your physical gold, or for that matter, your cold storage tokens. And I'm gonna. Yeah. Yeah. Having Bitcoin in a zombie apocalypse is not the future I want. But, oh yeah, and then there's the electrical grid during that situation. So, you know, what I want to see, so when I think about gold and Bitcoin, I don't think

about the end game disaster, dystopia. I think, which way are we heading? Are we heading to more debasement or less? Are we having, are our central bankers trying to control or are they trying to expand the monetary supply? That's what I care about those things. Dystopia, I don't have enough guns. Yeah. And I'm old.

One of my good friends, Matt O'Dell, has been in Bitcoin for a long time and he obviously He stacks Bitcoin for every good scenario, but for the zombie apocalypse, he's stacking ammo because that's more likely to be the currency in that situation. That won't work either. There's always a bigger guy with more ammo. I think he's talking about trading with it, though. And by the way, by the way, by the way, it will be the government. They will take all your stuff.

Yeah, I mean, that's clear. They're going to do everything they can. So let's forget about the absolute worst case scenario. Mario, in the things that they can do, inflate the death's way being one, you know, 3% inflation or whatever we're at now, that's going to take a very long time. Do you think, is it likely that we see inflation go a lot higher

in the next sort of decade? Good. If they want it to, it will. If they don't want it, it won't. It's a policy choice. It's always been a policy choice. It always will be a policy choice. It's just a policy choice. And so are you asking me,

do I think they're going to choose to continue to do what they've been doing. I don't know. We'll see. Inflation's a hot button topic. I think, you know, the horseshoe of populism that people talk about, this is way out of my jurisdiction, way, way out. And macro guys and options guys and guys who have no business talking to this, talk about this all the time, and I'm uncomfortable talking about it. But it is true that, that populism from the left and the right has a lot of similarities. And so in order to get anything done to get elected, you have to have these two guys fighting against each other on some unrelated issue to the things they actually care about.

And our politicians have been very successful at doing that for the time being. One day they may not. And if they don't, that's a fairly dystopian sort of outcome. but, you know, you could have a very significant political revolution of some sort, either armed or not. So those are possibilities, again. We're way outside of where I spend my time. Well, to maybe go back to more your wheelhouse,

it seems like what they're trying to do at the moment or looking to do is grow their way out using AI. Like, AI is the big opportunity that's not been there in the past. Do you think they have any chance of doing that? Yeah, so again, like understanding the future of AI is something that is, I can't claim expertise on. I can tell you what does matter, which is there's going to be a impact on labor, which, depending on how it goes, is going to have an impact on the way, governments allocate resources. They could tax AI and pay that to displaced workers, to retrain them, and to rehire them, and all those sort of things. It could be, it could be, you know, we could have the robots make all of our stuff and do, and all we are is, you know,

leisure. You know, that's, and you have a UBI sort of situation, though it's a possible outcome. When I think about this, I don't think in those sort of, and I've, again, not, there's so, everybody's, smart people have said lots of things about the future of AI and, you know, doom probabilities of 100 to zero. I, I don't know. What I do know is that AI is very computer intensive and computers cost, compute costs a lot of money. and a lot of investment is being placed to make compute and being borrowed from savers, and its returns are uncertain.

And at some point, and there are also other constraints, physical constraints like data centers, NIMBY is not something I care much about, but it's political, but energy consumption, all the resources, copper consumption, all the resources, those are constraints. And I think we could have some bumps along the way to whatever outcome it is.

And at the same time, gosh, I've been using algorithms, generally ones that are statistical algorithms, from regressions to neural networks to machine learning for my whole career. And AI is just an extension of that. and really, really good, and cool, and I use it every day, and it's really cool, and it's fantastic and all. But it's not that new.

It's just accelerating at a very rapid pace. And so to me, yeah, I think it's an incredible tool and is gonna change the world and has changed the world, and we'll change the world further. And along the way in my very narrow window of, how do I make money in markets, I suspect there's gonna be some bumps along the way.

It's like everything you've laid out here, Andy, makes me think you need to own some Bitcoin. Whatever that percentage might be. I think one day in the next few years, you'll come around and you'll be on TV. I owned it briefly, you know, and I have a bid at, in this case, 42069 with 42069 is my new meme level. I think I may never get hit on that bid. Yeah. I may never get hit.

It's actually, you know, it's actually going pretty well. I like the path that's going on. Maybe. I do love that you just buy the memes. I don't think you'll get hit on that one, but I think when we have this conversation in the year's time, maybe things will change, but maybe not. But I really appreciate your perspective on all this.

It's been super interesting. I'd love to do it again at some point in the future. And I'd actually, I'd really like to get someone, like the person that springs to mind is Parker Lewis to come on and have this discussion with you. Because I think he would be able to make the case for Bitcoin to you in a way that I couldn't, I couldn't. So maybe we should do that at some point.

But really appreciate the time, Andy. And tell everyone where they can go to find your substack, everything you do, your Twitter. Sure, it's all at DampSpring, DampSpring, Twitter, dampspring substack, and Dampspring.com if you're interested in a client relationship. Perfect. Thank you so much for the time. Thanks, Danny.