What Bitcoin Did - Inflation, Liquidity, the Fed & Bitcoin | James Lavish

Episode Date: September 15, 2025

James Lavish unpacks why the Federal Reserve, runaway debt, and global liquidity cycles are setting the stage for Bitcoin’s next explosive move. From stagflation and deficits to institutional rebalancing and treasury companies, James explains why Bitcoin is unlike any asset the Fed can control. We dig into why policymakers are trapped between inflation and recession, how trillions in debt force them to keep the Ponzi going, and why every rate cut is bullish for Bitcoin. James also explores the role of Black Swan events, how institutions dampen volatility while driving adoption, and why neutral, permissionless money is the only escape from today’s broken system. In this episode: - Are we heading for stagflation? - How $324T in global debt guarantees more money printing - The rise of treasury companies and institutional rebalancing - Why global liquidity is the key signal for Bitcoin’s price - What a Fed cornered by inflation means for the future of money THANKS TO OUR SPONSORS: IREN RIVER ANCHORWATCH BLOCKWARE LEDN BITKEY Follow: Danny Knowles: https://x.com/_DannyKnowles or https://primal.net/danny James Lavish: https://x.com/jameslavish

We're in a period now that appears that we're sliding into stagflation. That is just an absolutely awful position to be in. This is abnormal to see stocks ripping to new highs and gold ripping to new highs at the same time. On a $2 trillion deficit, they still have to borrow. Unless they have inflation run to insane levels, they're still going to run in deficit, so they can't let it get out of control. Keep the charade going. Keep the Ponzi going.

The question is, how hot will they let inflation run? That's the only question that's in my mind. If you have assets, it's great. If you don't, you're toast. The market, the street has just swallowed hundreds of thousands of OG coins that we know of. And the price didn't really move. We hit 150, 180 by the year end. It wouldn't surprise me in the least.

Good to see you, man. How you feeling? You feeling bullish? We're over 115k again. Good to see you, Danny. Yeah, I mean, I'm always bullish long term. If your horizon is long enough, then you're always bullish in Bitcoin. It's funny.

Like, I've been in this thing too long to panic over this, whatever we had, 15% dip. But it was crazy to see how many people were panicking about it. And the one thing that does seem pretty clear is this cycle is completely different to anything we've had before. It's been a complete grind. It really hasn't had any of the euphoria sort of dopamine hit of previous cycles. What do you think is happening? Well, I mean, first of all, people have been frustrated just because I think they're a little bit fatigued. It's just been a long grinding sideways summer, you know.

If you start out in the late spring, we were grinding from 100 to 110, and then we ground all the way through until July, and then we start grinding from 110 to 120, and now we're back around 110. Now, you know, a few days ago, and people like, what are we doing? Is it? Have we hit the high? Is this cycle over? You know, like you said, is there no more cycles? Are there no more four-year cycles? Like, what's happening? And at the same time, you know, you had this a little bit of euphoria around the Bitcoin

Treasury companies, and we can talk about that, but got ahead of themselves a little bit and they pulled back and people were, you know, getting fatigued about that and voicing their concerns about it. And I think that it's just the summer, you know. I mean, this happened so many years in my career, Danny, where we're just sitting here in the summer? It's like, where is it? What is it going on?

And we're hedge funds. We're sitting at our desks every day. And there's nobody in Europe. There's nobody in Australia. Like, everybody's just off on holiday, which is fine, you know, and you should be. And we actually found that they have a robust, robust backup system there because people are forced to go away for weeks at a time. And so, but if you want to trade in July, August, early, September, good luck. There's nobody there. But it's the same thing here in a way,

and that that's when people take off because their kids are off in school and all that. And so you have young executives who are young investors who are taking off, and they're just not, they're not active as much. And so the volumes are way down. So if you look at Bitcoin volumes have been really, really, really, really light, you know, I mean, they haven't been, they just haven't, there's been nothing that has been shocking. And even though they're really light, The market, the street has just swallowed hundreds of thousands of OG coins that we know of. And that they've just like, and the price didn't really move, you know? I mean, a couple percent, maybe.

If you tried to sell 80,000 coins five years ago, what do you think would have happened? I've said it before on the pod. I think that is actually one of the most bullish signals we've had recently, is that 80,000 coins hit the market and basically nothing happened. Like, if you took a kind of U.S. dollar a quarter, equivalent of that in 2021, like, the market is absolutely tanking. Okay, it would no way it could support that. Yeah, but it did just swallow them and just kept going, you know, just stay where it is.

And so, you know, and you had some people that were also at the same time, Danny, they're selling Bitcoin to turn around and buy treasury companies and treasury companies get that capital, but they're not, you know, using it yet, or they're getting capital from private funds like mine and or hedge funds like mine and they're they're not deploying it yet they're not buying the bitcoin yet so capital's coming out of and you know we physically send bitcoin to them or whatever and so that's like um there's there's either selling of of straight bitcoin or just a um a pause and buying of it that that and then because of the m nav situation if if you've got companies that are tap in the MNAV, that tap in the ATM with their market, you know, NAV to Bitcoin over

1.5. And, you know, you're not, you're taking dollars out to buy these companies that would have otherwise probably just bought Bitcoin. So that's another, that's 33% of the capital that's not being used to buy Bitcoin. So it's just, it's been a weird period. But all that said, am I bullish? Yeah. And I'm actually bullish short term, too. I mean, now we're in a situation where all eyes are on the Fed. Like every single thing that happens on Wall Street is kind of centering around these economic indicators that are pointing to the Fed having to ease. And so that's going to, that's, you know, it's priced into the market.

25 base points is priced in. You know, if you look at Fed Fund futures today, you know, you pull them up on Bloomberg, you're looking at a, it's over 100% probability there's a cut next week. what you're saying there about like the market volatility, I think is pretty interesting. Because like obviously all the speculators seem to have gone to these treasury companies. And it's like something that I'm more and more convinced on is it that Bitcoin isn't volatile enough anymore for these like retail nihilist speculators who just want to get like a thousand X on something. Is that kind of lack of volatility in Bitcoin? Do you think that is like we're at market maturation at least to a degree now and we're not going to see the same kind of volatility we've seen.

in the past. No, I still think we're going to see periods of volatility. Extreme volatility when there's market down drawdowns in particular. And then extreme volatility to the upside when there's a when there is a reaction to it from central banks. So I still think there's going to be volatility. But just we're in this period of summer doldrums, just quiet. It's just grinding sideways, waiting for something to happen, waiting for something to move, you know. It's been mostly following expansion of global liquidity this whole time. It just, it just lags by 10 or 12 weeks. One of the guys that I talked to and I really respect his work is Michael Howell of cross-border capital. And he writes these pieces. He's got a great substack. It's expensive. But it's a, to me, it's worth it. And but he has a proprietary model, Danny, that measures how much liquidity.

there is in the globe, you know, around the world. What's important about this is it's not just M2. It's not just the money supply. The M2 is the largest component of it, but it's also just the amount of liquidity that's out there that is attached to things like debt. And so when you have, so he has this measurement and it's proprietary, but, and I don't know exactly what it is, how he calculates it, but it includes, things like volatility of bonds. Because when bonds are very volatile, then your counterparty requires more, they require more collateral because of the volatility of the bond. And so that means that takes liquidity out of the market, right? You have less leverage. So, or lower leverage. So that's,

that's one of the things he does. He, he looks at things like the shadow banking, you know, the private credit and where that is going. So I really, I really do, I really do respect his work and, and follow that, but Bitcoin's been following it closely. Gold's gotten ahead of itself here, according to those measures, but, you know, Bitcoin has been following it. And I think that we're going to continue to expand liquidity here going into the fall and up to the, at least the beginning of next year. So I'm not worried. The only thing that concerns me is some sort of Black Swan event that seems to come every seven to ten years. The 100-year event that comes every seven to ten years now. This episode is brought to you by the massive legends, Iron, the largest

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Is that like Bitcoin tracking liquidity with a slight lag? Is it sort of a 100% hit rate on that? It's not 100%, but it follows it in an extremely tight correlation, meaning if liquidity goes up steeply, Bitcoin goes up steeply lagging it by almost 3%. months comes down if liquidity if liquidity is drawn out of the system it feels it so um it does the same thing and what's interesting about this is stocks do the same thing um equities because people use those as as places to tuck capital in order to protect it against inflation you know they use they use stocks they use gold they use now they use bitcoin so it's interesting it's uh it's really um it's become one of the best uh you know closest correlated assets to liquidity global liquidity over the last couple of years.

And what has global liquidity done recently? Is that now expanding again? It is. It is. It's not rapid, but it's still expanding. But you know, you have these periods. So if you look at global liquidity and Michael's thesis says that every six to seven years, the global equity goes in these cycles, right?

Six or seven year cycle. We're coming to the end of this expansion of this cycle, which means that, and it's supposed to, this cycle is supposed to end at the end of this year, beginning of next year. So if you think that global liquidity starts to tighten, if it's being drawn out, then at the beginning of next year, that would give Bitcoin to somewhere in the spring to summer

to kind of top out all things being equal, you know. Does it follow it perfectly? No, of course not. It's Bitcoin. It sometimes wants to march a different way. But it typically does correlate to it over those long stretches. But are you pretty confident then that the liquidity cycle is going to sort of top out in that kind of time period? Because just on the sort of left end of the bell curve where I like to firmly sit, the thing that seems likely to me is that Trump's going to run things incredibly hot going into sort of midterms, which wouldn't be until like what is that this time next year.

So could that liquidity cycle actually be elongated as well? Well, there's only so much he can do, right? But he can pull back on tariffs. He can, you know, he can sign into executive, by using executive orders, he could sign something into practice with something that would be spending, you know. But it's kind of hard to really change the big budget. I mean, the budget is the budget. He could go on some sort of hiring spree like Biden did through, you know, the executive branch. But, you know, by and large, I mean, of course, he could sign things into legislation like right off all the student loans.

Well, that would be pretty inflationary, you know. That's a lot of loans. It's a lot of capital. But or do things with housing. It's true. He could. But there's how much is that lag and all that? I do agree with you.

And he will put pressure on this. the Fed to be accommodative rather than restrictive. And so that is one thing that he has been doing, and he'll continue to do. I believe that. And he'll get some other people around them to join in and pressure the Fed, too. But look, he's going to have his third appointee here pretty soon. And, you know, the Fed you already had in the last,

meaning you had two dissents, two Fed governors, dissented the vote, and they wanted to cut rates and the rest of them didn't. Well, now you have three. That was already almost unheard of, Danny. You don't have, like, you get majority yes men on the Fed, you know. And so to have two dissents, that was like, whoa. And so now you're likely to have three. And so it's going to be difficult for, for, you.

you'd have three doves on, you know, at least three on the Fed. And Powell is saying, no, we're going to hold strong. We're only going to cut once or whatever, you know. So I think that I do think it's going to continue to expand. Now, your question was, do I think that stops? It just stops. Well, I think it kind of, it slows down. It trickles out.

Remember, all this stuff takes time to play out. So, but I don't know when that is. you know, it's hard to tell. We've got a lot of geopolitical things going on right now, and we do have something different going on, like you suggested this last spring, I'll start with the tariffs. It's just, it's changed the market a little bit,

and people are trying to figure out all these numbers and what they mean and how much impact has had and is going to continue to have. Yeah, it's going to be interesting to see. So this show is actually going to go out on Tuesday next week, which is, I think, the first day of the FOMC meter. Okay. Maybe before we get into what is likely to happen there, we can talk a bit about what happened in Jackson Hole.

Because I know you wrote a big piece on this, and I've not paid that much attention. So explain what Jackson Hole is and then what happened this year. Yeah. So Jackson Hole is, and, you know, I'll bring up my, do you have the newsletter? I do. Yeah, do you want me to share it? Yeah, perfect. Okay.

So Jackson Hall, what's Jackson Hall? Well, you know, used to be way back when, it used to be this meeting. They had kind of like, it started back in the early 80s where you had the Fed, certain people from the Fed, and then they invited some central bankers and bankers or whatever to this kind of outdoorsy, off the street, you know, like out of D.C., out of Wall Street, just kind of kind of sleepy little Jackson Hole, Wyoming town, to just go and have some barbecue and shoot the bull. And it was called the Economic Policy Symposium, right?

And it just gruence this behemoth of, you know, over the past 40 years, it grew into this behemoth of a meeting. It used to be where you might be able to talk to the Fed governor or chairman and get some off-the-cuff comments or something a little bit. less guarded, you know, but it's turned into this thing where you've got this massive, very special invite list to go out to Jackson Hole and talk about the economy and central banking.

And so now it's become something where this last Jackson Hole gathering is this is Powell's last and it's his final chance to give the public, you know, a non-press conference scripted style of send-off to say, I think we did a good job, we've done a good job, we're doing a job, and we're in good shape. And so you kind of expected that from him, right? What people were really hanging on, but now it's become, like I was saying, is it's become so closely watched,

that the comments aren't quite as off the cuff and they're pretty garden. And so it's very deliberate everything he says, you know. So it's basically like an official meeting now. Yeah, it's because there's no podium. I can't remember if there's a podium year or not, but there's no podium and he's just talking kind of in his Western shirt off the cuff, but it's not off the cuff.

So the issue here this year is going into that, going to Jackson Hole, you had over 80% of people, There's so Fed funds showed an over 80% chance that we would be getting a rate cut, right? So, and we had, you know, we had that PPI shock that came out. And so they kind of, they pushed up all the way up to 100% odds because we had benign inflation. Then we had a terrible PPI print that came out. So they went back down to about 80, 85%. But anyways, there's some conflicting data come.

through, so people are like, well, what's it going to say? What are they focused on? And so the most likely thing for him to say was that, look, we're data dependent, but inflation seems to be in check, and we're kind of turning our attention toward unemployment now, or the employment. So you know this. The Fed has two kind of, they have two mandates. And the first one is stable pricing, which is what they have, they've quoted as 2% inflation target, you know, and that's their mandate.

And then the second one is full employment, whatever that is. We don't know what that is. It's just, does it feel like it's full? I guess it is, you know. But that's the second is just try to get full employment, whatever that is. So what that really means is that, hey, be ready with them with the, fire hose with the, you know, the money bazooka if we see an uptick in a steep rise in unemployment because that means that we are in a recession. We got to turn it back around. So he came out and

basically said, he said, you know, we're data dependent, but we're going to, we're more focused on inflation or more focused on the employment side of things right now. And then sure enough, just a few weeks later, we get our confirmation that. that employment is not that great. It does look like it's rolling over. We revised out 900,000 jobs over the course of 2024 to beginning of 2025. The year ends in March when they're measuring that.

And, you know, it was kind of that immediately just said, okay, that's it. We're getting a cut in September, and that's what the market is telling, telling the Fed, telling Powell, that they that's what they expect. And so that's kind of what after that, after that meeting, it was it was more or less cemented that,

yeah, we're gonna get 25 basis points, but not 50. And we're gonna just gonna see where we are after that. Now, it's flash forward to today. We had this, we had a bad, we had a bad meaning, a not a great PPI print meaning prices were not as inflated as people think, which means, it means, uh-oh, the producers can't pass this along. They may be struggling to pass on to the consumer,

which means the consumer is getting tired. And then we had kind of a benign CPI print. Was this in the August data? I think PPI was disinflationary. It was like 0.0.0.1 percent. Is that right? Yeah, exactly. And then turned around this month, and it was, you know, it, so if you look at just a couple days ago, So I'll see if I can pull it up here, the PPI from, let's see, I think it was on Tuesday maybe or Wednesday.

So they were expecting 0.3%, and it came in at negative 0.1%. So that's the one you're quoting. And then they're expecting 3.3% on total year over year, and it came at 2.6%. So people are like, oh, man, that means that they're not able to pass it on. That means CPI is probably not going to be that bad. And it wasn't, you know, it's not great. And it's still inflation. It's still 3% inflation.

But it's not bad enough. It gives the Fed enough cover to go ahead and cut 25 basis points. That's where kind of the market is now. So the market is at 25 basis point cut rather than 50 as of right now. Right. So that's what I was starting to say before is that right now there's 110% chance that there's a cut this next week. So what does that mean? That means that there's, there's, there's a 10% chance that there's a 50 basis point cut, right? So one cut is 25 basis points.

So that means that there's like a 10% if it's 110% chance, it's a 10% chance that's a 50 base point cut. Not going to happen. I just don't see that. You know, unless there's an emergency that happens this weekend, but there's nothing. So we got the unemployment numbers. We've got what we've got. They know what they know. And that's, that's going to be a 25 basis. point cut. So now all eyes are on the Fed, Danny, why? Because you also have an 88% chance that there's a cut in October and a 92% chance there's a cut in December. So people are basically expecting three cuts between now and the end of the year. So what people are going to do now, and here's the important thing for next week's meeting, is you're going to hear Powell. He's

going to say we, you know, we feel inflation is under control. We're headed toward our 2% target. We're not. We're between 2 and 3%. We're going to stay there, I think. And then the second side, he's going to say, but we, you know, employment is, it appears the, the jobs market is softening, you know, slightly or something, you know. And so they're going to get ahead of that.

And they're going to cut. And then he's going to say, but we're data dependent. And we're going to wait for more information to come in to decide what the policy is going forward. We're not going to commit to a series of cuts. We're just not going to commit to it. Because what happens, Danny? Like, here's the issue. And this is why all eyes are on the Fed.

And now we have a situation where you've got people saying, well, there's going to be three cuts to the end of the year. There's going to be four or five cuts. You know, like people are kind of a little bit in between there. But the issue is that what does the Fed do now? Because inflation is still, I mean, prices are still rising. We still have inflation. Well, you know, we were, Danny, we have year over year, the CPI number, the number they use, which we know is problematic. But this is what they're looking at.

It's still 2.9%. That's not 2%. And, you know, this has been actually, if you look back, It bottomed out, and it's been rising since earlier this year. So now it's back up from, you know, 2.4% or 2.3 to 2.4% up to back up to 2.9%. It's the wrong direction, you know? So you can't say that it is headed the right direction. It's actually headed the wrong direction.

But he'll say it feels like it's under control or it's in a range that they're comfortable with or whatever. they're just turning their attention to unemployment, but here's the issue. So people are like, okay, that's great. So now we've got the, we've got prices still rising. The jobs market is softening. And you guys are so far behind the ball that what the heck is 25 basis points going to do to help the jobs market? It's not.

They know that. We know that. But what the 25 basis point cut will do pretty quickly is it will loosen up credit, makes it make it a little bit easier to get some credit, and so that's actually inflationary. Now, I believe that we're above the neutral rate still, so it's not yet accommodative.

I think you're still tightening, but there are structural issues here with inflation. There could be a lot of reasons behind it and around it, which part of it likely tariffs, and how much is being passed on to consumers and how much that's affecting pricing, that's likely part of it. And how long, how many effects it has?

Is it just a one-time thing? No, not really. It will have echo effects on it that we're not sure about. But that's one thing. But, you know, we have, you've got these high interest rates on money market accounts that boomers are sitting on and they're just spending like mad. So if you look at the consumer,

as a whole, you've got the Fed saying the consumer's still strong. Yeah, maybe as a whole, if you look at 100% of them, but if you take out the top 10%, how strong is the consumer really? We don't know. What we do know is that credit card delinquencies are now at 12.3%. I'm sorry, 90-day delinquencies are up to 12.3%. So people have not paid their credit card bill for 90 days. They're just about, you know, they're less than 1% away from the peak of the great financial crisis.

Damn, that's great. That is a red flag. What, like, so I obviously, again, I read the newsletter you did on this. And I saw that the consumer debt is now like 18.5 trillion or something like that, which is absolutely insane. But what would like a normal delinquency rate be? Because I've no idea about that. Yeah, I mean, if you're, if, if you're looking at the, you know, a typical, the typical period that we're not, we're not really rising or falling or we're just kind of, you know, we're kind of just clunking along. I mean, it should be somewhere around five to seven percent is, you know, for credit cards.

Because typically the people use credit cards at lower income and they're using it to bridge a gap of spending. and it catches up to them because, you know, these rates can be 20, 25, 30%, 29.95%, you know, and it kills you. It really destroys you as an individual or consumer. So, but here's the crazy thing, Danny. As that credit card debt is that that 90-day delinquency is rising up toward, and okay, two things. Number one, these are numbers from the New York Fed, But they're from the end of June. Like, we're already lagging. This is second quarter number, right?

So we're already lagging, you know, where we are here. So that's number one. Number two, this also has that student loan delinquencies are up over 10%. So who's not paying student loans? The young people, lower demographic, likely, who already have credit card debt. So how bad would the credit card delinquencies be if they were paying their loans? But these people are just taking a sabbatical on them. They're like, ah, no, the government's not going to make me pay this off.

I'm going to get this for free. I'm not going to pay this. So what happens if they, what happens if they are forced to pay them or they start going bankrupt? Well, they're going to write off their credit card debt. They're going to run. Like, there will be some casualties there. So that's what I'm looking. And really what this says is it doesn't say that the whole Democrat, the whole economy is

bad. This is saying that there are people down there in the lower demographic who are really struggling. Bitcoin is absolutely ripping and in every bull market there's always a new wave of investors and with it a flood of new companies, new products and new promises. But if you've been around long enough, you've seen how this story ends for a lot of them. Some cut corners, take risk with your money or just disappear. That's why when it comes to buying Bitcoin, the only exchange I recommend is River. They deeply care about doing things right for their clients and are built to last with security and transparency at their core. With River, you have peace of mind knowing all their Bitcoin is held in multi-sid-cold storage, and it's the only Bitcoin-only exchange in the US with proof of reserves. There really is no

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the case. People are really struggling. And is the problem they're kind of faced with here that if they do cut rates, it doesn't actually make any meaningful difference to the people, like to jobs and things like that. And instead, it does just cause asset prices to pump and then inflation quite quickly. Well, I mean, our economy is very financialized, right? So you've got to it. So now, so we're getting into the crux of it.

So we're in a period now that appears that we're sliding into stagflation. We don't know for sure, but it appears that that's where we're headed. and where you have rising prices and you've got a softening economy, you've got a softening job market. And that is just an absolutely awful position to be in as an economy and as, you know, the Fed. Like, what can they do? If they lower interest rates dramatically, well, that could create more upward pricing pressure and rising prices and more inflation. and it could lag so much, it doesn't really help the job market yet.

So then you still, you have even worsening price where you've got rising prices, softening job market, and everything is, and that's a really difficult position for the middle class in particular to be in, you know, middle and lower demographics. So we get back in the 80s. I mean, the 80s were awful. I mean, I lived through it. It was brutal. We had to wait in line for.

three hours to get one tank of gas every two weeks because, you know, if your license plate ended in an odd number, then this is your week. And even though next week is your week. And so it was and it was tough, you know, we felt the pinch hard. And we, you know, we weren't wealthy. So we felt it. So that's a terrible position for the Fed to be in. So why do we see what is going on in the market? And that's why you've got gold ripping to new highs and asset prices like stocks and Bitcoin bumbling around or or creating new highs. And so or bubbling around new highs or creating new highs. And so you've got two different things going on.

This is abnormal to see stocks ripping to new highs and gold ripping in new highs at the same time. But it's telling you that there's a there's a strong worry about inflation and stagflation. and at the same time that stocks are saying, we're going to see liquidity here, we're going to see expansion of liquidity and everything's okay, at least for now. So it's kind of a weird place for everybody being. That's why everybody is watching the Fed so closely.

They're trying to figure out what does this mean? So regardless of what Powell may do, because we know he's been pretty hawkish for a long time now, is there anything the Fed could do to try and get this under control? Or is this just a sort of nothing-stop-this-stop- strain narrative and they're stuck between a rock and a hard place. They're really stuck. I mean, okay, so what else could you do?

They've got really, they've got two levers plus quasi levers, which are acronyms. They've got two levers. They get interest rates. You can raise or lower the target rate, a Fed Fund's overnight rate, which kind of keys at least the low end, the short end of the curve. They've lost the long end where they never really had control of it. So it's not really fair to say they lost it. I mean, the long end is the long end.

It bakes in a lot of expectations of long-term inflation or economic uncertainty. And so it's hard to tell where that long end, it's hard for the Fed to do anything about the long end, except when they start doing QE and QT, where they can be buying and selling the long end of the curve to kind of keep it in a range if they wanted to, which is something called yield curve control. But they're in a tough spot here, Danny, because, okay. Okay, so what do they do? Lower rates, you could have more inflation.

Don't lower rates. Keep doing QT and you could have the job market fall apart. Well, we have heard Powell say before that he's more comfortable with that set of problems than the other set, which is what Volcker had to come in and deal with back in the 80s. And you've heard, you know, basically you've heard Powell trying to invoke Volker. to say, I'm going to be like him. I'm not going to be like Burns. I'm not going to let this inflation run out of control.

I'm going to keep a lid on it, even if it means that the job market suffers from it, and we have some casualties there with the job, with unemployment. Why is he okay with that? He's okay with that because he knows he could turn around and flood the market with capital and shore it back up.

And they would rather have a situation where they can, they, they don't let inflation get out of control, rage out of control, which that would just, that would, that would, that would create a problem with the borrowing, the amount of interest they have to pay on borrowing, because they're, you know, the, the government is running out a, on a two trillion dollar deficit. They still have to borrow. And so unless they make, unless they have inflation run to insane levels, they're still going to run in deficit so they can't let it get out of control. So what's the other side of that?

Well, you could do QT or QE. Well, what happens, Danny, if they start printing money and buying bonds in the open market again? You know? Is there any talk of that? Is that even likely? Because I don't hear much about that. No, there's no talk of it yet. But here's the point is that it's very difficult, but he's more comfortable.

He's said they have tools to deal. with that. There's an exact quote. We have tools to deal with that, meaning we could just flood the market with capital like we've done before, like we did the great financial crisis, like we didn't in 2021, 22, you know, they're more comfortable with that because in the long run, just allowing for the expansion of the money supply or pushing for more expansion of the money supply, not just out of creation of debt through banks, but actually going out there and printing money and buying bonds in the open market, that in and of itself means that you debase the currency and you you you make it easier to pay back old debt.

Like, it's a playbook. It's what they want to do. The question is, how hot will they let inflation run? That's the only question that's in my mind. They're going to have to let it run. Just how hot? We don't know. If you had to speculate on that, what would you guess?

Like, do you think anything under sort of 5% they'll be okay with? Anything under 4% I think they're going to be okay with. They start getting really nervous. If it ticks up here, three and a half, three, seven, and they're going to get nervous. But no, I mean, I do think, Danny, that we will get into a situation where the economy will grind lower. And whether we have, it's when do we have the next event? Like, what is the next Silicon Valley Bank?

When is the next, you know, Ukraine that bleeds out into a larger global crisis? this. When is the next, you know, market shock for something that we can't even dream of because that's why it's called a Black Swan? So that's the question. And when that happens, they're not going to just print another $4 or $5 trillion. They're going to be printing, you know, $7, $8, $10, $12, trillion, in my opinion, to shore it up because the leverage is that much larger. It's that we are so indebted. We have $324 trillion of debt out there. The entire world is debt indebted. So that denominator has just created a problem. And so you're going to have to print more. And when you do print more, that just means higher inflation. So what are they going to be comfortable with? I think under

4 percent they would likely be comfortable with. They wouldn't panic. But they're going to create where we're not going to have 9% inflation. We might have 12, 15, 18% inflation for a period of time. It's going to be, and it's going to take some, it's going to be very painful for some people. Is there a really like weird perverse incentive here where they're kind of desperate for the next Black Swan to give them an excuse to do something more drastic? I'm not that cynical, so I hope not. I'm not saying they create it, but like are they looking for an opportunity to do something more drastic? Well, I mean, look, we know the incentive of our leaders is to get reelected.

It's a structural problem in Congress that we have no term limits, Danny. So their only incentive, truly, is to get reelected. And that means to tow the party line, get the party support, and all shore each other up. Whatever that party line is, they've got to say it in order to, you know, get reelected, which is extremely polarizing in this country. but they'll do that. And so that's their incentive. That means that they're not going to cut spending for their demographic.

And it also means that they're likely not going to raise taxes on their demographic. So those are two solutions. They're pretty much taken off the table. They try to trick each other into doing those things, but they don't do it. So those are two solutions to the debt problem taken off the table. The third solution is just allow for inflation and not worry. about it. Just make sure that it's not so bad that it, that people are up in arms over it, you know, and they don't want, they don't want people revolting over it. So that's, that's the true

incentive. So when you ask, do they want something? Well, I think what the Treasury wants is for Congress to figure out how to rein in spending somehow. That's why they keep putting out pieces that are like, hey, look, we can't keep doing this. This is, this is unsustainable. But Good luck. I just described why the incentives are wrong. It's not going to happen. So, yeah. So here's the issue and why they wouldn't want. They don't want a, they don't want to have something catastrophic because when you have something catastrophic, your deficit blows out and it could be multiples of what it was. If you just do the simple math, we spend $7 trillion. dollars most that we're spending on on on programs that are signed into legislation they're

mandatory spending right so social security medicare medicaid and then you've got defense spending which is not going to get cut and you've got um inflate in the your uh your your your debt you have to pay the interest rate on your the interest on your debt and that's over a trillion dollars now so when you add those up you know you're already asked over five trillion dollars you're over five and a half or six six trillion dollars so even if you cut out all the other spending it doesn't leave much left yeah but when you do go into a steep drawdown because we're so financialized and because you you see jobs just get you know the jobs fall off a cliff when you have some sort of black swan driven event that i don't even know if we

could tell we could say the housing crisis of black swan because a lot of people sought. They just, most people ignored it. But when you have something like that happened, you fall into a great recession like that, well, what happens to your denominator? So you've got, first of all, you've got your spending that $7 trillion could go up by somewhere between 10 and 20%. If it's really bad, say it's 20%. Well, now you're spending $8.4 trillion. And then you turn around it and on the revenue side for Congress or for the Treasury, sorry, is $5 trillion. Well, you could have a 10 or 20% drawdown there.

So let's say it's 20%, you get $4 trillion. Well, now your deficit is, you know, what did we just say? 8.4 minus $5, you're at $3.4 trillion. You've almost doubled your deficit on a drawdown. So they can't really have that. Because now you're borrowing over $3 trillion a year, which we're already spending over $2, you know, and those numbers could eat.

easily get out of hand really quickly. And so they can't really have that. And that's why they turn around the money bazooka. And they try to stop that as quickly as they can. But, and that's, and so do I think that they, they secretly tiered on? No, because of that one issue right there. Even a V-drawdown, it is painful. And so they got to hurry up and get money out there in order to monetize their own debt

and make sure that you get more money out into the market and, and keep the charade going. Keep the Ponzi going. I mean, it's insane. Is there almost like a gravity to close to zero percent interest rates here that they're constantly trying to fight? Because it seems like all they have left is really to cut rates. Do you think we'll see sort of close to zero percent interest rates again in like the midterm, like the next five years? I mean, in the next five years, yeah, I could see, I could see it's going all the way back down to one percent or so. I could see that. You know, it depends on the, of course, it depends on the economy and just how it deflationary things like AI start becoming and how many jobs are rearranged, you know.

But their incentive, like, especially when you talk about the interest on the debt payment as part of the budget, like, they need to get that as low as possible. Well, you heard Scott percent last year just absolutely hammering Janet Yellen about not terming out the debt, which meant that he was like, you had your chance to term out the debt and you didn't do it. Okay, what does he mean by that? Well, so she was, she was the, she was the chair of the Fed once. So she knew exactly what was going on when they printed that $5 trillion. Like she knew exactly what would happen, that they would be inflation, that they would have to raise rates, and that would cause a problem for the Treasury. Yet she didn't turn out the debt.

she kept issuing the same levels all along. She could have been issuing longer-term debt at much lower rates, but she didn't do it. And so then Scott saw that the Fed lowered rates by 50 basis points. He was like, oh, here we go. I'm going to be able to get my debt turned out pretty quickly here. And so he started really hammering her and saying, we're going to solve this problem.

We're going to be the ones to solve this problem. And he came in and nothing against Scott, being like this is just the reality of it. The Fed was like, nope, we're done cutting rates. Now that Trump's in office, let's see what happens. We think that these tariffs are going to be inflationary, so we've got to hold off and see what happens. Well, they should have been cutting rates.

If you're looking at the jobs numbers, they should have been cutting rates this past summer, June and July. You know, they should have been cutting rates there. But they didn't, and here they are. So he didn't get his chance, and he's been frustrated. They've all been frustrated. They want the Fed to start lowering rates to do exactly what you said. But here's the issue, Danny.

Like I said, they're not setting the 10-year. What happened when they cut rates by 50 basis points back in the fall of 2024? Well, they cut by 50 basis points, and the 10-year yield went up by 50 basis points. It went the opposite direction. Why did it do that? Because the market knew that it was kind of a political. move here for them to say, yes, we conquered inflation, you know, all's good right before the election. I mean, it was ridiculous. Let's just call it what it is. And then to just stop,

you don't do that. You don't just cut 50 base points and stop. That's not what you do. You cut 25 and wait. Or you cut 50 basis points quickly because you're going to cut another 50 and then 25 right after that really quick. You're going to be on a, you're going to be really ratcheting down. They didn't do that. So it was an odd move. If you go back in time and look at the way the Fed makes their moves, it was odd. So, you know, so that was, the Fed then turned around and said, no, we're going to wait and see if these tariffs are inflationary, we're going to be data dependent here.

Well, now they've got themselves really painted, you know, into a corner. So we'll see what happens. But they should have been cutting already. But the problem is, I think they're really scared about that inflation. We saw it get up to over 9% that they admitted to. Yeah, and realistically, it was probably 15 or more. Well, I can tell you they tried to double my auto insurance this year just because they just tried to. And I was like, I had no speeding tickets, no accidents.

I mean, perfect record. I'm a, you know, middle-aged male driver, which I'm like, I'm the right demographic here, and you're trying to double my rates. Like, this is just insane, you know? So in one year. itself. It's kind of crazy. One of the really interesting things that Scott Percent came out and said, I don't know, this was probably three or four days ago now, was he blamed the Fed on the wealth inequality in the US. And again, like, as Bitcoin, is this something people have been talking about for a long time that we know this? But it was interesting to hear him come out and say it. Do you think that was kind of just political posturing because, again, they just want to ratchet up the pressure on Jerome Powell? Or do you think there is a meaningful, like, demand for change there? There's a truth to it. There is a truth to it. I don't know. I honestly, I don't know Scott well enough. I mean, I don't know him personally to know what his real intentions are on changing the nature of the Fed. But, you know, he's a Wall Street guy. He knows exactly what's been going. He's seen it all his career. He is right. And so whether or not he's trying to really change it, he's right. The Fed manipulating the money supply, manipulating access.

to capital has absolutely caused what's called the cantillon effect, you know. And so, and that comes from this economist cantalon who figured out that those who are closest to the money spigot benefit the most. And so who is that? Those are JP Morgan's and hedge funds of the world, you know, and they really benefit from this. So that, and the people who have capital, the high. the wealthier demographic who have capital that are with those banks. Yeah, assets.

They have assets. It's right. Investments that are with those large banks or with the fidelityes, that they're benefiting from that expansion of the money supply because it goes into their assets and it goes right to their bottom line. It's super interesting. Probably one question that I would have to ask is, like this whole conversation really has been about the Fed.

Do the Fed even matter anymore in any meaningful way, or is it just a signal to the market? Oh, no, sure. They matter. Absolutely. Absolutely. In fact, they matter way too much. You know, they control the overnight lending rate that all these banks are tied to. So that creates a situation where we don't have much, we don't have much capital in the reverse repo anymore.

It's actually drained. but it does, it causes the cost of capital to go up for everything. So, you know, that's one thing. And then actually flooding the market with money or siphoning it out, you're manipulating the money supply. It's like you're going into the middle of it. We're all playing monopoly. We're all on the board.

And, you know, if you already own most of the hotels and I don't own any, and you all of a sudden you put, you, you've, the, the, you flood the market with money, meaning you put more money in the bank, it's just going to benefit you, you know? And so you're just printing more monopoly money. But you take it out, it's going to, you know, it, that's the thing. It's like you're, you're injecting and taking out money in this game and it, and it affects different people, different players in a different way.

If you have assets, it's great. If you don't, you're toast. It just causes rises. of pricing, rising in prices, and then you don't have the money to keep up. And the problem with the lower demographic, right, is that every incremental rise in everyday goods is painful for them because the vast majority of their paycheck is going to those things. It's going to rent and gas and food, you know. And so, and energy, their air conditioning, if they're in a, in the if they're in a hot climate or they're heating,

if they're in a cold climate, and that it's painful for them. Because it means they have no discretionary income to go do anything else or to invest. And so when you have a, the wealthy demographic is like, oh man, the gas is now $4 at the pump, and it used to be two and a half. They're not thinking that.

They don't even look at it. They just pump the gas. They don't look at what the price is. They don't look at their grocery bills that closely. They're like, I don't know. Maybe I spend $1,000 or $2,000 a month on groceries. I don't know. They literally, they just are, it doesn't affect their every day.

And it really doesn't affect it enough to impact the amount that they're investing or have invested. So that's the problem, is that that's, and here's, here's where Scott Bassett is. And this is where Trump's mind is, I believe, is that he needs the Fed to lower rate soon. He wants him to lower rate soon and to get out of the QT business to ease up access to capital because they're worried it's going to start hitting the middle income demographics, so middle class, which there's not a big, like middle class has been hurt really badly here. But if it starts bleeding into middle class, that really hurts a majority of the economy. And so you can't depend on that top 10% anymore to keep going.

And so that's kind of the issue. And that's what they're concerned about. Is it not already hitting the middle class, though? It feels like, I don't know for how long, but for the last five years, maybe post-COVID, probably before, like the middle class had been in a really tough spot. They've been squeezed. Yeah, absolutely. They've been squeezed.

So how it has hurt them is that they haven't been able to invest as much, you know, put as much capital away. And so that's how it is hurting, made them tread water. You know, that's what I see with my middle class friends who are just, they just feel like they're treading water. The two income families, all their money goes toward their rent or their mortgage and their groceries, and that's the problem, is they're treading water. So it has hurt them.

But the lower demographic is really struggling. That's where you're seeing the delinquencies and the credit cards. the just the complete sabbatical on I'm paying their student debt you know so that's that's kind of that's that's definitely the first red flag there's a quote in giji's book um which is taken from alice in wonderland and it's um I think it's the red queen or someone like that who says here you have to run as fast you can just to stay in place and if you want to go anywhere you have to run twice as fast as that and it is like the perfect analogy to this fiat ponzi financial system that we live in This is why you have these two camps here.

You've got gold running to all-time highs, and you've got central banks buying gold. They're not buying U.S. Treasury. That is a structural problem. And we're recognizing that, which is why the stable coin bill is so important to get the ability to tuck in liquidity spots where little pools of liquidity that the Treasury

doesn't currently have access to or has access only through something like Tether, but they want it they want more so um that's that's an issue so you've got gold ripping at all-time highs and uh and then on the other side you've got the markets waiting to see what happens with with the fed um but yeah i mean that's that's kind of what everybody's focused on but also i'm looking at things like if you look at if you look at credit spreads you know from corporate treasuries to to the 10 year they're low you know there's not a lot of angsts there. If you look at the term premiums on the 10-year, they moved up to over 85 basis points.

They're all the way back to 60 today because people are calming down a little bit about the worry about ripping inflation. They're calmed down about that, you know. So, and you look at these things, and then you look at the VIX, and the VIX is, I mean, it's down around today. It's at 1471. I mean, it's bouncing around the bottom here because there's a lot of either completely. license or confidence that we've got, you know, we've got more runway. And so to bring the whole Fed conversation to the end here about the Fed is when the Fed cuts rates, typically they're way behind the eight ball and they cut too late and we're already in recession and you see the markets draw down steeply. But every once in a while, they cut while the market is modestly expanding

and just it's starting to grind sideways though and they get it right. And so that's positive for risk assets for things like a gold and Bitcoin, too, because it's expansionary and that expands liquidity. And then sometimes they'll cut when it's just, it's too early and it rips higher we saw in the 80s. But I think that we're right now in the period that they could start cutting and it's not dire yet. And if they do stay in a program of cutting, it'll keep this thing going for a while. So that's why everybody's eyes are on the Fed to try to figure out what they're going to do next.

And if they're going to continue on this program or if they're going to hit pause and stay back and say, remain political and say, we're going to see what the data says. One of my favorite things about Bitcoin, so this show is going to go out the first morning of the FMC meeting. But you don't even need to watch it.

All you need to do is look at the price of Bitcoin. know what's happened. Like Bitcoin's gone up five grand in the last like three days or something. Cutting. We already know. Like we know what's coming. That's like a real free market dynamic that I love. All right, cool. This has been great. I assume off the back of this meeting, you think that's insanely bullish for Bitcoin if they start cutting rates again. What do you think like the rest of this year will look like for Bitcoin? Look, I've been, I've thought that we could hit 150, 180 sometime this fall for a long time. I'm kind of surprised how hard we bounced off that 120,

1 25 level a few times here. And so does that give me pause? No. Do I think that the four-year cycle is over, bring it all the way back full circle to your question about Bitcoin in the beginning? I mean, I think it's changing. And one of the things that we didn't talk about is because of just a sheer amount of institutional capital

that's coming into the space. And what happens is when you get institutions that decide that they need enough, allocations this thing, they start rebalancing their portfolios around it. And so if they want a one or two or three percent position in Bitcoin, if Bitcoin goes down, they buy some more. If it goes way up, they sell some because they want to keep it at that three percent position. And that does dampen volatility. And that's going to continue to happen more and more and more as Bitcoin is continued to be adopted by institutions. And so, but I still think that we have, like, Bitcoin, it's, it's,

can be extremely volatile to the upside, too. I said people sometimes forget, all they see is those 50, 60, 70, 80 percent drawdowns are like, oh, my God, this thing is volatile to the downside. Remember, it rips higher too. And there was, I don't know if it's true this year yet, but over the last number of years or since the beginning, you had like almost 90% of your returns in Bitcoin could be captured in just 10 trading days a year. Like, it really has violence. moves higher. So that is an interesting thing to remember too. So I still think that we can get 130. If we don't hit 130, I will be shocked. But I still think we can hit 150, 180 by the year end, you know, it wouldn't surprise me in the least. That trading day. I don't really love,

I don't really love price predictions, but you know, I'm super. That seems relatively, that doesn't seem too outlandish. Like I could totally believe that happens as well. It's funny, that stat on like you get, you can capture all the gains in sort of 10 trading days a year. I do wonder how this cycle is changing that because this has just been a grind. Like it hasn't been like previous cycles. Yeah, we haven't had that blast up like you said. We just haven't had it. It's almost not been a ball market yet. I'm ready. I'm ready, James. But this has been great. Thank you, man. I always love talking to you. Anyway, you want to send anyone before we close out. No, I appreciate it, Danny.

Just remind people that I'm the co-managing partner of the Bitcoin Opportunity Fund, and we are investing in the space. So if you're an institutional investment, you want to learn more about it. Just come to Bitcoinopportunity.fund and reach out and we can set up a call or something and see if the fund would be right for you. And of course, I write the newsletter, The Informationist, like you were talking about. And that's just at James lavish.com. there's a free version that you can get each month. And it just simplifies one complicated financial topic every single week. So, yeah.

And if you can part with the Sats, buy it because it's one of the best newsletters in the space. James, thank you, man. This has been good. I appreciate you. It's always good to be here, Danny, and look forward to this fall. It's going to be fun. It is going to be fun. I'm sure we'll speak soon.

Thanks, James. All right, man.