What Bitcoin Did - The Myth of the Dollar Collapse w/ Joe Carlasare

Episode Date: June 11, 2025

Joe Carlasare is a Commercial Litigator, a long time Bitcoiner, and macro commentator. In this episode, we discuss the U.S. sovereign debt debate, why the doom loop narrative might be missing the bigger picture, and how rapid advances in AI and automation could unleash a wave of productivity strong enough to reshape the fiscal outlook. Joe argues that the real risk isn’t a collapsing dollar, but instability in the Treasury market - the backbone of the global financial system. We also get into why growth, not austerity, is the most likely political path forward, why the Fed’s power lies more in perception than action, and how Bitcoin wins. Follow: Danny Knowles: https://x.com/_DannyKnowles or https://primal.net/danny Joe Carlasare: https://x.com/JoeCarlasare THANKS TO OUR SPONSORS: IREN: https://www.iren.com/ RIVER: https://river.com/wbd ANCHORWATCH: https://www.anchorwatch.com/ COINKITE: https://store.coinkite.com/promo/WBD BLOCKWARE: https://mining.blockwaresolutions.com/wbd

You can believe in Bitcoin number go-up technology. You can believe it should be part of a portfolio. But then when you actually look at, wait a second, could this play a larger role? Could this be an alternative to the sovereign debt, which is really the backbone, the collateral and underlying reserve of our system? Yes, it can. That's like really exciting. Like this could be huge someday.

This could be the alternative to sovereign debt that our system really needs, the collateral underpinning the entire credit system. If our productivity expands, nobody's going to be cared about debt. We're going to be figuring out how can we spend more money. And in a dynamic where how can we spend more money, Bitcoin shoots up and echoes exponential. Bitcoin is designed to take advantage of the fact that the system as constructed needs to expand. I think you're moving into the era where you're going to have a very different Bitcoin market. Be prepared for Bitcoin to bore yourself all the way to a million dollars.

I honestly think that's the path. The thing that I struggle with at first is like in part of myself in the conversation rather than just being like question, question, question. And like for these ones, it will be that because I don't know about macro. But when it's like on the Bitcoin. Well, hang on a second. So we can do this on the show. But I mean, you file the stuff like religiously. I've talked to you about this over the phone when we were trying to set up things with Peter.

And I mean, you seem like you know a lot. Like I think it don't give yourself credit. Like anybody, I think a lot of Bitcoiners know 10x the amount of macro than the normal person. I think that that might be true. But then I guess maybe it's because I'm comparing myself to the people that come on the show. So like if I have Lynn on the show, it's like. How am I going to try and tell her where I may disagree because she clearly knows a thousand times more than me? Yeah.

But like compared to the normal person, I know an okay amount. It's funny because, you know, obviously I'm a lawyer and I have people argue with me about the law all the time that are not lawyers. And I'm like, it's kind of a specialized field, you know, about the law. And like, that's interesting. Like, you know, I would never take it upon myself to argue with a doctor. Exactly. Right. Because it's like I'm not a doctor.

It's like I'm not going to put my blood test into. at AI and then argue with the doctor. Yeah, not going to do. Although I am actually going to put my blood test into AI. Because I was talking to Eric Yakes yesterday, and he said he was getting, like, really fatigued, and he had his bloods done, and his testosterone was really high, but there was some other hormone that, like, blocks it actually getting into your, like, receptors or whatever. Oh, interesting.

I didn't know that. And he was getting, like, no real help from the doctors. They were trying to put my antidepressants and stuff because he was like, I'm getting super fatigued in the afternoon. And he was like, I'm not depressed. I'm just getting tired. And he put it into AI and it gave him like a program, just like natural things to take to help suppress that. Exactly.

And like zinc and things like this. And he said he's like feels like he's 21 again. Yeah. Like it's unbelievable. I believe that's the future, right? Like instead of this broad, I mean, how many times we read articles about like this broad like this is what you need to take for your condition? When in reality it's like particularized. It should be for your unique system, your unique genome and genetic factors, et cetera.

And I mean, I've spoke to Jeff Ross about this. His job is basically gone to AI. Yeah, I know. I've heard that a lot, especially like I was reading an article about urgent care facility, like urgent care centers that are like all using AI for patient notes and everything. And there's so many like, you know, administrative hurdles they have to go through. And then if they can automate that, hopefully you get more time to actually practice medicine, actually talk to the patient and gather more information.

And it's like getting on a plane, though. Like, I don't want just AI to do it. No. But if it can help a doctor, like, understand something quicker or better than perfect. This is the problem because we have this, you know, we have this dynamic where people think it's all or none. Like, I don't want to just give it all up to the AI, like in the law, right? Like, I would never allow an AI to just draft a brief or something like that. However, I have seen examples where AIs will give you arguments and different ways of approaching a problem, a legal issue that you have not thought of, that the case law doesn't envision.

You can ask it to be creative to solve legal issues. And then you could take that as some sort of, you know, impetus for going a different route. investigate a new way or the way of rewarding the contract, etc. So you wouldn't use it for like a first draft of something? No, I personally would. Even if you were going to like personally review it and change things and no, no, because first of all, like in my setting, like I usually have the associate do the first draft, which that's the, the problem I have, and this is really the biggest challenge of AI,

is not that the content isn't good, is that when you're working in a team setting, you need to give those early associates chance to flex their muscles, right? There is a virtue in them doing the first draft and thinking through the issues and analyzing critically. If you deprive them of that, which I was given to when I was coming up as a lawyer, as a baby lawyer, then they never learn, right? Then they just become so dependent that they can't walk without the AI doing the first draft. And to me, you need that early draft. However, you know, what I have done is I take an early draft drafted by an associate and I've compared

it to an AI draft. And what I can do is I can say, look, here's what a computer is doing versus what you're doing. you need to step up your game. And it's actually a really good motivator for young lawyers. Yeah, that makes sense. It's like that's where you earn your stripes and you learn the trade. Yeah. It's funny.

Is it true? I don't, I saw this like on Twitter or something, that chat GPT can pass the bar with like 99%. Yeah. That's wild. Yeah. Yeah.

Well, because the bar, first of all, the bar doesn't really teach you, in my opinion, how to practice law. Okay. The way I think about, at least in the United States law school is it,

law school teaches you how to, I think, think like a supreme. court justice or think like an appellate court justice. You need to like be able to analyze issues. You need to spot problems. You need to be able to apply precedent, et cetera. But the actual practice of law, if it's done correctly, I think is very different from that. Advocacy is having to deal with your client, having to deal with the judge, having to deal with the judge that doesn't follow the law. I would very much like to see, I've never actually played with it, but it's on the list of

things to experiment with how you deal with judges that just aren't applying the law. What what happens to the computer because the computer thinks like this is the correct analysis. And, you know, setting expectations, like a tremendous amount of my job is trying to figure out, you know, risk and tolerating risk and what individuals are accustomed to. I will tell you, there are clients I have that are far more accustomed and far more prepared, particularly corporate clients, to go to the mat on litigation than maybe a first-time actor who, you know, had their Bitcoin stolen from them. They just want to get out of this mess.

They're in a very tricky spot. They need to figure out how do I get from the point where I've lost everything to maybe recovering something, right? And they're far more emotional. I just, you know, obviously machines can do a little bit of that. I've seen experiment and dealing with emotions. But, you know, my job, I think, is far more, it's not as academic as the bar is, right? The bar is more of an academic exercise.

And my world is more dealing with humans and personalities and expectations. That makes sense. Are you, I couldn't be a further from a lawyer. these questions might be really done. No, no problem. But are you a lawyer that will go up in court and testify and speak to the judge? Litigator, yes. Litigator. I'm a litigator. And you've been doing that your entire career? Yes. I mean, I do do regulatory work, but the vast majority of my practice is litigation. Litigated matters, disputes, both, you know, suing people. And most of my work is actually defense work when individuals are sued or entities are sued. So, you know, we're constantly up against

it, right? Because I practice in a lot of very plaintiff-friendly jurisdictions. So the plaintiffs have a whole lot of leeway to get discovery and go through the whole process of taking depositions. So, you know, while you're correct, I do stand up in court and argue motions and dispositive motions and occasionally the trial, both a bench trial in front of a judge or a jury trial, frequently what I'm doing is really just taking discovery, trying to figure out what are all the facts, trying to take depositions and defend depositions, you know, putting up a corporate representative and having him answer, him or her answer questions that get into the weeds of business operations. that's not something that, you know, the company would like there to be out in the public domain and

for a variety of different reasons. So the discovery process is the vast majority of what every litigator does, which is just gathering all the facts. And then we decide, is this really the type of case where we want to try it or is the type of case where we think we should position it for resolution? Okay. And what is your background? Is it in corporate law? I've done the full gamut during the course of my career, but yeah, mostly commercial litigation, so representing corporate entities. Okay. And now, like, obviously, I don't know how long you've been at Bitcoin. You've been around for a good while now. 2015. Okay. And so how much of that work is now, like, Bitcoin-specific? The majority of it now is. So, yeah, so I have a ton of that work. And, you know, I'm very blessed

because I have a big team. So I have deputies that work on the non-Bitcoin, non-crypto work. And then I have assistance that help me on the more, you know, straight, you know, Bitcoin, litigated disputes, exchange disputes. I represent a lot of Bitcoin miners, small, big, and large. And I love it because it's such a fast-growing area of law. And although the legal principles, the litigation principles are the same, despite whatever litigation you're doing, being able to get in the weeds and having to go in front of a judge and explain how Bitcoin works.

And then I've had some jury trials where I had to explain Bitcoin, right? We always have these theoretical conversations where, you know, explaining Bitcoin or pulling somebody. But it's very different when, you know, huge amounts of money on the line. And you have to explain to a juror. with not a whole, you know, they have jurors that average level of education is 10th grade, 12th grade. Is that right? Not even a high school diploma.

And you have to explain this stuff and you don't get a ton of time. I mean, I've actually shown examples of like how a Bitcoin transaction works because in my view, showing someone how it actually works is far more, you know, effective. It takes all like the magic out of it. It's just like this just goes from here to here. Yeah. I think it adds the magic. Well, possibly.

Maybe what I mean by that is it takes like it seems this very complex thing that you can't wrap your head around. And then if you just see, like, you just send a transaction. Well, right. I mean, it's a classic interview. I don't know if was the Today Show or whatever, where they're talking about the internet. And they're like, what's that symbol there? What's the internet? Yeah. I wish they would have someone to just interrupted and said, like, okay, here's the internet. Here's how we move information. Here's how you can join a chat room. Here's how you can send an email. Here's how you can buy stuff on, you know, Amazon.com when it was first getting started. That shows you the magic of it. And when you go through and experience it, it's very different,

I think then, you know, theoretically talking about how private, public key cryptography works. I mean, it's just like, people are just lost at that point. Yeah, they're just like, what are you talking about? I turn on the TV, it works. I turn on the computer, it works. Simplicity is really the beauty of what I think gets people attracted to Bitcoin and having to see, like, okay, there's a little bit of nuance here with the public key, private key, but beyond that, beyond that, it's pretty simple. Yeah. You know, they have those old stories about how they were sending Bitcoin across the table at, you know, in Silicon Valley at dinner parties.

Like that stuff's really cool. I wish people would start from there. You want to talk about Bitcoin? Before we talk about price or how high it's going, let's just mess around. Let's just send some transactions. Let's just let me give you some stats. The one I always find is when people are trying to, like,

if people come up to me and be like, what is this Bitcoin thing? The thing they always want to understand is mining for some reason. And it's like, we can explain that, but it's, you don't need to know right now. Like learn the basics of it first and maybe if you're interested, get there. I think it's because they want to acquire it through some other means than paying for it. Yeah, that's probably true. Like the ones are like, how can I mine? How could I mine Bitcoin?

And, you know, we've all gone through that. I mean, I mined in my basement. Back, I was mining with S-9s in 2016, 2017. Nice. My wife at that point with my girlfriend, she hated it because they're so loud and noisy and threw off so much heat. But it was cool. Like, it was exciting to join at the time, Slush Pool and mine and have some modest Bitcoin

that I never sold. And I love it. I love the experience of it. And I think more people need to approach it like that. They need to approach it from the standpoint. Like, let's invest. to get this technology. It's like such a magical technology. Yeah, 100%. So you're obviously a lawyer by trade, but in Bitcoin, you're a macro guy. I love macro. I mean, so I went to school for philosophy,

economics, and political science. I did all three. So when I was going through it, I realized, first I first I started with political science, which I found to be very frustrating because at the core of political science, you have underpinning philosophy. And then if you get to philosophy, as applied in a real world basis, I think the underpinnings of most philosophy have a huge economic component, especially when we talk about how we are to order our lives. So I kind of like went down this path

where by the end of college, I was debating, you know, going further and getting like a PhD in economics. I loved it. I love the discipline. Economics, you know, drives everything. The study of scarcity, economics. That's the first thing I'll teach you.

So I really got into the weeds of it. And actually, you know, I've been involved in financial markets. trading on a custodial basis since I was 15, 16 years old. My dad had to give access to the account to let me, you know, mess around and went the whole gamut. Traded through the tech boom, had a huge account, you blew it up, lost all the money. Like, like, no way to learn. Yeah, learned a ton of great lessons. And, you know, by the time I came into Bitcoin, right, I had gone through law school. I had a very, I think, decent knowledge of financial markets and economics. And then what my approach to it was,

okay, from an economic, political, and philosophical standpoint, how do I tear this thing apart? That's just how my mind works. I try to like attack it from a variety of different angles. And the frustrating thing I had with Bitcoin is when I went up against it, I couldn't undermine. I couldn't figure why won't this work? Why won't this make sense in our financial system? And, you know, when you stick around financial markets for a long time, I don't necessarily think that you have to become a what I would call a dumer, you know, thinking the system's going to collapse. But you do sort of get jaded, I think, by some. of the problems with the system.

Yep. You know, like Glenn would say, the broken money aspect of the system. And for me, like the intriguing thing I found about Bitcoin is like, okay, aside from the investment thesis, which is a whole separate part, right? Like you can believe in Bitcoin number go up technology. You can believe it should be part of a portfolio. But then when you actually look at, wait a second, could this play a larger role? Could this be an alternative to the sovereign debt, which is really the backbone, the collateral

and underlying reserve of our system? I was like, yes, it can. That's like really exciting. Like this could be huge someday. This could be the alternative to sovereign debt that our system really needs, the collateral, underpinning the entire credit system. So, yeah, I went down that path and I never stopped. And, yeah.

So, you know, when you're a lawyer, clients won't appreciate you going out and talking about their cases all the time. Of course. So I could do that, right, if I had permission, but I don't often. So when I go out publicly, I will comment on the law and legal aspects of it. But I really publicly talk a lot about more macroeconomics. Just from being a market participant for so many years and trying to study it, that's what I, you know, most of my Twitter fandal,

you'll see me larpying about macro issues just because that's what I study in my downtime. I love it. It's a hobby of mine. I couldn't be more excited about where we're going with Bitcoin at the heart of it all. I 100% agree. And just before we started recording, I asked you who your favorite sort of macroeconomists were. And Jeff Snyder was one of them. Yeah, I love that.

Jeff's been on the show a few times. I really like him. He's always struggled to, like, get over the Bitcoin hurdle. And his issue with it is the inelasticity, which to Bitcoiners is like, that's the strength, not the issue. But what's your take on that then? If you align with him on a lot of his sort of macro thoughts, how do you kind of rationalize that part of the argument?

But just to make it simple for folks that aren't familiar. So the idea is that when the system seizes up, okay, when there's a pandemic that shuts sound the economy or natural disaster or economic crises that was unforeseen, some sort of black swan event that couldn't be anticipated. You need elasticity of money. You need someone to come in a big actor to supply that lubrication for the economy to get things going again because what he would say, and I think he said this on the podcast when he was interviewed is, you know, the story of hard money in these hard currencies is that because there's a lack of elasticity, the system seizes up and then you have very painful economic downturns and recessions.

Now, obviously, that objection from Jeff is a theoretical one, right? He's basing it, I think, with some historical examples, but he's not really basing it in a Bitcoin world, nor could he, because we don't have a similar example of it. What I would say to him is that the elasticity component, I think, is going to be reconciled from the standpoint of if a government actor had Bitcoin and that government, actor had the rainy day fund necessary to provide that lubrication, provide that elasticity, to inject that capital in a moment of crises, that would, in my view, overcome his objection, right? The the the the the thesis that he has is that you need someone to come in and quote unquote

print. He wouldn't call it printing, but he would say effectively provide liquidity to the marketplace so that the system would keep running. My view is that this would make it even more important for governments and actors to have Bitcoin set aside to restart the action to whether it's and again, you know, it doesn't, he doesn't write off the fact that you could have taxation, right? I think many people in Bitcoin, for some reason, they get to the conclusion that you can't tax Bitcoin, that we can't have some sort of effort to tax. I think mostly because of how you can't take it, but you can't voluntarily give us. But voluntarily and most people in a society, I think if they thought, well, you know, we have, we have to get the, uh, the economy moving again, but for the fact that, you know,

we're going to go into a deep, prolonged depression. So, you know, yeah, we'll, we'll pay a, you know, one time freedom tax, whatever it is, so that we can stimulate growth. And that's the real objection I think he has. And I think he just, from his standpoint, he's 90% of the way there. He just needs to understand that the governments will reconstitute themselves to be more responsive to what I think a hard money standard would be. This episode is brought to you by River. the best place for Bitcoiners and businesses to buy Bitcoin. With River, you can set up zero fee recurring buys, making stacking stats effortless. And while you're waiting for the perfect buying opportunity, River lets you earn daily interest

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and free electricity for every hosted miner purchased. So click the link in the description or head over to blockware solutions.com. Could you also take the other side of that argument, maybe take natural disaster out of it because that's a bit different, but that we wouldn't have such big boom and bus if we were on a Bitcoin standard. And instead, you'd have a smaller cycle of boombuss rather than these huge, like 2008 great financial crisis. Yeah, I mean, that's another issue and way overcoming. I've heard people argue that too. And the reality is we don't really know. Um, you know, a lot of, a lot of economics, uh, is really theory. Yeah. And, and we, you know, we had this theory, um, for many years that higher interest rates, just to give you an example, that that was

going to somehow crush growth. And, and we saw very strong nominal growth, uh, after the Fed went on in their hiking cycle. We've had a theory that in, uh, you know, an era where you just raise up interest rates and choke off the money supply that that's not going to be enough. to keep consumption going. That's going to pull back inflation to target. Again, a theory. We don't know. And when we see it realized, right, we've seen periods where you can make an argument, I think, over the last couple years, that higher rates have actually been stimulative. They're actually pumping out higher deficits, right, which are going to the top, you know, 20 percent who have a ton of fixed income and they're getting, you know, their cheap bills paid at four or five percent interest rates.

And what do they do with that? They go off and spend. Yeah. So I think economics in practice and economics in theory is very different. That's one thing you will learn and there's a lot of, you know, you have a complex and dynamic system. There's a lot of difficulty in analyzing how exactly would this work in practice. So, you know, with going back to your example, like if we did have lower rates of consumption, we had lower credit impulses, you know, smaller credit impulses, I think arguably you could say, yes, we're not going to have as many painful booms and bust. It's just, now, the flip side of that is that if you don't have a rapid credit expansion, you might not see as fast of growth. So we don't really know. I would say one of the things that we should be focused on is like trying these things and trying to analyze them in such a way with humility. In complex and dynamic system, we really don't understand every aspect of what could

be impacted by a system like Bitcoin. And then there's another hard question in that as to like what is real growth and what's artificial growth. And is growth at all costs actually a good thing? Well, of course it's not. I mean, of course, there are a situation where growth at every cost, you know, you could think of countless examples of destroying the planet, right? Strip mining, things that I think most people would say that's not good growth, right? Now, the question of, you know, real growth versus nominal growth, I think from a market participant standpoint, it matters, right, because it's about your investment allocations, but from a actual, like, let's appreciate the world, let's understand

the facts in front of us, I think you have to look at nominal. That's why I, you know, I sent over some stuff before this podcast. One of the things I talk about quite a bit is the key debt service issue, which is a nominal, it's solely nominal, right? Your nominal growth rate versus your nominal interest rate. And if you're, what over 180 examples of history and examples of sovereign debt crises, they will show you that when your nominal growth rate exceed your nominal interest rate, that is stability, right? You're effectively on a glide path because your nominal interest rate is the additional debt that's being accrued versus the additional growth. And one of the things that frustrates the heck out of me, Danny, I just can't,

I can't stand it, is you'll see this chart where they'll show you debt of the United States, and they'll say it just goes parabolic straight up, okay? But that's, That's like saying, you know, let's look at your personal finances and only look at your credit card and mortgage debt. Let's not even look at your income. The United States has massive productivity. The United States has been one of the most productive country, the most productive country in the history of the world. We're growing at a faster rate than many other peers, especially for developed countries. So you have to look at debt against your income.

That's why people look at debt to GDP, right? And even that is misleading to some extent, right? I was going to say because isn't that debt's GDP in the U.S. is still rising, right? Well, it's rising now, right? But the ratio, if you pull up a chart, debt to GDP, and in fact, check me on this, any viewer wants to look at this, the debt to GDP, despite, you know, those massive trillion dollar deficits that everybody talks about all the time is lower than it was in 2020. Okay. So it's slightly gone down, right, still significantly high. Is that because the Treasury has basically stopped playing in the bond market?

No, the debt to GDP picture, again, you're talking about your overall growth trend versus your overall debt trend. Yeah. Okay. And it's, it's been a steady, you know, upward path, right, for a long time. We're eclipsing World War II levels, right, where we have a significantly high debt to GDP. However, in the last five years, it's slightly declined for the simple reason that our growth has accelerated. Okay. We've been actually seeing what the Fed or Reserve we call above trend growth.

So, you know, again, we can take. talking about whether that's fleeting, whether that's going to be gone, you know, whether the growth trend is going to return back to the long run target for developed countries of 2%. But the reality is, if your debt is not growing as fast as the economic growth, that debt-to-GDP ratio will naturally decline. So there's been a lot of news recently from Secretary Bessent, Treasury Secretary Besson, where he said that, well, we wanted to run hot. We want the U.S. economy run hot. What he's effectively saying is we want our growth rates to run at a fast clip than the debt rates.

So if you think, like, say we're, you know, just giving an example right now, most economists will say that, you know, let's just round up, okay, the, the, the, the measure of inflation or PCE, they're in the twos, right? You know, CPI, 2.4, 2.5, some of theirabouts. And we are growing, okay, on a nominal basis, also in the, or in a real basis in the twos, right? So if you take those out, if you just say, what's our nominal growth? because real effectively is discounted by the inflation rate.

We're roughly 5%. Nominal, okay? So if the economy in nominal terms, we're not talking about inflation, just in nominal terms is growing at roughly 5%. And our interest rates on all the maturities of the U.S. debt is less than that. Then that means our economy is growing faster than our interest rates is growing, which means that you're actually seeing a slight decline in the debt. to GDP. Now, the real key factor is, how are we going to project out 10, 15 years for U.S. growth?

There are many people that will say that you're going to have an explosion of productivity. That productivity is going to grow far faster than what we're historically used to because, as we talked about in the earlier, AI, we're going to be far more productive. We're going to be able to do more, we're going to be able to teach more. We're going to be able to offer more goods and services. And if that productivity starts to trend higher, if our interest rate stays constant, the debt to GDP will actually decline. Yep. But going back for a second, one of the interesting things is, you know, if you study economics,

they will tell you that debt to GDP, you don't want it to become too high because effectively at some point it becomes unsustainable. Now what we see in practice, and that's the Boston Consulting article, and there's some charts you could throw up during the podcast for the listeners. I'm pretty sure Lynn Olman's talked about this on the show, being like 140%, I think, is kind of like seen as the key number in that, right? Well, no, because they're, I mean, look at Japan. I mean, people don't like the example of Japan.

Are they not a bit of an outlier, though? Perhaps. Is the United States an outlier, though, too? I mean, that's the question. We don't know. There is no macroeconomists, and I have a great respect for Lynn and others that have come in this podcast, but no one will be able to tell you when suddenly, you know, an alarm bell goes off, and that's it.

We can't take 159% that GDP, the system starting to collapse because that's not the way it works, right? At its core, what you need to have the system functioning is the treasury market. Yeah. The treasury market is the core of everything. And what happens, again, for listeners, what happens when there aren't buyers for enough treasuries at 4.5 percentages? What would you say? The bond market collapses, the Fed steps in principle. No, no. When just... Is that a stupid thing to say? No, it's not a stupid thing to say. I think a lot of people think that. When there aren't, there's an old saying, I represent some bond traders and some hedge funds, and they will remind me this all the time. They will tell the phrase that there are no bad bonds, they're only bad bond prices.

Okay. Okay. So again, there are no bad bonds, they're only bad bond prices. And what is it meant by that? What is meant by that is that if the U.S. debt right now is not a good deal for people at 4.5%, which you and I, having Bitcoin exposure, we'll say that's a terrible deal. Yeah. double deal. What practically happens is the yield curve should it should sell off, yield should go higher.

Yeah. So if we're at 4.5% tenure, which by the way, I mean, historically, 4.5% if you would go back, you know, several decades, they'd be like, that's really low. Now it's not low for our debt right now, which is sort of another question. But the cure for that, the fact that they're on bidders at 4.5, is 5%. And if there aren't bidders at 5%, 5.5. And if there aren't at 5.5, 6. What should happen in the bond market is that if at whatever demand is not there for the current yield,

the yield should go higher. And this is no different than in the corporate sector, right, if you're a risky company and we think, you really don't have a good handle on your business outlook, we think it's skewed to the downside. The risks are really high. we're going to demand 9, 10, 11%, okay? We're going to demand really high rates.

Now, what most people that argue the collapse theory will tell you is they'll say, well, you know, United States, we can't have, you know, 6% treasuries. We can't have 6.5% treasury. And when they say that, the reason they say that isn't because there aren't bidders. It's not because there aren't people that would love to have U.S. government-backed treasuries at 6.5%. I mean, I could tell you scores of people, pensions, is. The reason is because they think the fiscal picture will look so bad that the government won't tolerate it. And so the Fed will step in, even if, in your opinion, they may not have to.

Your question is, will the Fed step in? Okay. What is the Fed's goal? The Fed's goal is to prevent systemic risk to keep stable prices, okay? And at the same point, the labor market. So they have the two, the dual mandate is really the labor market and stable prices. implicit for both of those is financial stability. If you don't have financial stability, you can't have stable prices and you can't have,

I think, a stable labor market. But your question is, when the yields go higher, why would they step in? Because their job is not to bail out the Treasury. I mean, that's almost a self-correcting thing, right? There are people out there like Treasury Secretary Besson, who's not the Fed. He's supposed to be separate. I know that they've been increasingly tied over time. But he will tell you that, you know, the Fed is supposed to be, you know, this sort of bureaucratic, administrative, apolitical agency, even though they are political, we all know that.

But you cross a chasm, really, you cross the Rubicon, it really is the phrase, when you start to say, we're going to bail out or step in to prevent your yields from going up too high. That's a very different Fed than I think anything we've seen since post-World War II. You know, there have been periods where the Fed did yield curve control in the past, right? But it was very different. Okay, it's a very different dynamic. Here, if the Fed were to do that, I think you would basically, I think the international investors would start to lose confidence in the underlying treasury market. So I don't think that's a reality. I think from their standpoint, they'll say, look, the higher yields are a warning sign to the fiscal authority, which is the Congress.

you need to get your act together with the spending. Now, Lynn will say, well, nothing stops this train, right? We're going to keep going on and nothing's going to. That may be true. The problem is, I think, from the standpoint of the fiscal authority is, can you go to the voter and can you say we're going to spend and spend and continue to spending at this clip with these higher interest rates knowing that hurts regular consumers? There's a famous bond trader.

It's called the bond king. He's on CNBC a lot. His name is Jeffrey Gunlock. And he thinks that over the next several presidential elections, it will increasingly become an issue where voters will be demanding austerity, where voters will be demanding stopping spending because of the simple reason that when you and I go get a mortgage in the United States, we have to deal with a tenure that is very high. So at some point, he thinks that there will actually be a political impetus behind austerity

and cutting the debt. And you started to see some of this with the doge and. Yeah. But is that not a bit of like a rock and a hard play scenario? Because they tried austerity in the UK for quite a good amount of time and it was absolutely not politically popular. Yeah. I mean, it is.

I mean, it's not politically popular. And you're right. It's very difficult. And I tend to agree with Lynn's views on this that I don't think you're going to be able to get these rates down. But again, all of this is sort of secondary to the growth picture. because if you can grow at a faster clip, we shouldn't even be talking about debt. You understand why?

Yeah, no, I understand what you're saying. Yeah, yeah. Yeah, I mean, like, like, so all of these projections, the CBO, and Lynn and Sam Callahan released this report, and I talked to them about it, like, you know, after it came out, because the one thing I thought that it should develop a little more in future articles and work that they do is this idea of productivity booms. Because there have been periods in our history,

in the United States history and other countries history where you enter a really rapid growth spurt where growth is running far above trend. If we were to get to, for example, 7% or 8% nominal GDP growth, if you could get that. And our country has seen that in the past. China was running at 8% real for a period of time.

Not nominal, real they were running in the early 2000s. If you got to that level and you got interest rates at 4, 5, even 6%, your debt to GDP. is declining. It's going straight down because you're growing with faster rate. So to me, like anybody who wants to talk about debt, tell me what your projection is for growth over the next 20 years. And unless you're an AI expert and can understand all the nuances of that, I don't even know how you model it. I mean, the Fed can't even model the tariffs, right? Just think about that. Yeah. One of the reasons they can't model is because the tariff policy is all over the place

and changing daily, right? But how could you, I mean, I think AI could, could, would, well-be, along with Bitcoin, one of the most transformative things we've ever seen. 100%. And how do you model that? I mean, I think the smartest people in the world, the smartest AI tools in the world could model how that's going to affect when every single person has access to all the world's best thinkers and greatest writers and greatest, you know, systematic approaches to analyzing data at their fingertips.

And even to add to that, like the robotic side of it, literally when I was coming down to get you out of the elevator. I was reading Elon Musk tweet and he was saying that he thinks there's going to be more robots than people on the world. Like what does that do for productivity as well? It sends it through the roof. So, so, I mean, I just, I don't understand, this is going back to sort of the issue. One of the issues I'm sort of known for is that I don't understand the dumer argument. Yeah. I honestly don't. Every day I go on Twitter and I hear very respected smart people and I would never say they aren't, arguing that we're on the verge of a sovereign debt collapse. Yes.

And this is like a very Bitcoiner argument. Almost every person I have on here talking about macro will talk about the sovereign debt, like doom loop essentially. But how? I mean, so next time you're on with them, ask them about productivity. Ask them what their target for productivity is over the next 20 years. That's the core question. Tell them if they can explain and even crunch the numbers on what these tools and these technologies are going to do. I mean, the fact that we don't even need, we're not, we're going to be whole industries.

We're not going to even need people anymore. You're going to, you're going to absolutely need, I think, at one point, to move to more stimulus, right? You're going to need to move to UBI. I think those are baked in the cake. It's just a question of when, not if. I completely agree with you. And if you do that, okay, then the question becomes, well, where does Bitcoin play in all this? Bitcoin, I think, is a bet on the system continuing, not exactly, but closer to where it is now

than departing and systems, governments falling apart and collapsing because of the simple fact that if our productivity expands, nobody's going to be cared about debt. We're going to be figuring out how can we spend more money. And in a dynamic where how can we spend more money, Bitcoin shoots up and echoes exponential. So is this really the crux of the issue in why you disagree with a lot of Bitcoin is on Twitter because they're missing the productivity part of the argument? I think productivity is everything. I think they also, well, it's the most of it.

The other big part of the thing is the uniqueness of the role of the dollar. Okay. And people will make these arguments. I've been reading in this thesis since the early 90s, literally grade school, Danny, where people talk about the collapse of the dollar, that this system's going to replace it, that this market's going to replace it. The reality is that in the current construction of the system under Basel and other regulatory requirements, There really is no substitute for treasuries as the collateral.

When you think of reserve asset, okay, when you think of the backbone of our system, and you try to think what could replace that, is it going to be Chinese bonds? Is it going to be the sovereign debt of the BRICS countries, which, you know, they can't even agree on a currency, let alone some sort of sovereign debt market? I mean, the whole, you know, Jeff, you've had him on. He will tell you that the network. of the dollar is really driven by the Eurodollar system. Yep.

Which is briefly for your viewers. Eurodollar system is a system of offshore dollar liabilities, okay, where it's basically ledger money. It's basically banks that do not actually have dollars that can write dollar denominated debts that can credit accounts that can use treasuries to collateralize that and extend and supply liquidity where it needs to be extended. Now, the key aspect of this is that this is not in the Federal Reserve system. It is outside of the Federal Reserve system in a Euro dollar.

Euro doesn't mean the Euro, okay? It means a system of dollars outside the United States. And the key part of that whole inquiry that I think people mistake is that they can supply liquidity and credit without having the underlying, which is really remarkable. And they can write loans that are denominated in, you know, whatever. It could be denominated in dollars and actually settled in yen. And the reason for that is because there's this demand for dollars because there are more dollars. owed outside the United States than owed in the United States. That's remarkable when you think about it. So because of that system and back to the Bitcoin element of it, right, you need some underlying,

you know, reserve. And there's nothing that can satisfy that right now other than I think Bitcoin potentially and U.S. Treasury markets. And, you know, every year you'll hear it, you know, constantly about the dollars collapsing. All these countries are trying to move away. But then the market says, as of recent data I read, you know, last month that more transactions were denominated in dollars than at any point in human history. Despite the Russian seas of four X reserves, despite all that, you remember years ago, they said this is going to be the end. This, you know, really well-respected macro people said this is going to be the end.

People are going to move away from the dollar. We see more dollar transaction and activity than, you know, we saw in the previous years. So would you be more aligned then with like Brett Johnson? I had him on the show. I really liked him in the sense that the dollar is not going to get weaker. is actually just going to get stronger, and all the other sovereign currencies are probably just going to end up being the dollar. Yeah, because if the world's awash in debt and the debt is denominated in dollars, how is that paid for? It's paid for by debasing and printing your local currency, and then you see that giant sucking sound of liquidity towards the dollar.

And the thing that I think is, just as an aside briefly from the macro discussion, the thing that I think is really frustrating for me is someone who's really cares about Bitcoin and really passionate about it, is that I don't want, I want the world to adopt Bitcoin. And I actually view it as counterproductive when people that are very bright and smart, and I won't, again, I won't say they aren't. But they go out there and say, buy Bitcoin because of the life raft and the government in sovereign debt crisis and it's all going to go to hell. And, you know, we're going to be under a bridge eating cat food and you better have your Bitcoin.

Otherwise, you'll be doomed. Like, I don't, I don't believe that. Like, I don't think that's the world we're headed for. I think the world we're headed for is one where incrementally, you'll have more and more of a have and have not society, you have governments trying to step in and spend a lot more money. Governments will be having to deal with these rapid productivity increases, which will further concentrate wealth into the top echelons of society, who thereby have a vested interest in keeping the status quo. And the biggest concern I always have is not an economic one. It's not a sovereign

debt crisis. It's political instability. It's a turn towards, I think, you know, socialism in some countries because people are going to be so they're going to feel like they're shot out of the system. We already see sort of that appearing in the United States quite a bit. Yep. That's the bigger issue. It's not that we're not going to be able to pay our bills and the dollar is going to go to zero. It's funny.

Like as a Bitcoin, I mean, I find the macro stuff really interesting, but you almost don't need to pick aside because in either of those situations that you're laying out all the kind of the people who think the dollar's doomed out, Bitcoin wins. Yeah. No, I mean, Bitcoin is designed to take advantage of the fact that, The system as constructed needs to expand. And Bitcoin, although it is expanding at a very small rate, right, it's programmed to be finite. So you're going to get some inflation with modest Bitcoin mine every day.

But it's getting smaller and smaller. And you have this finite asset against a system that is designed to expand. It will benefit no matter what happened. Okay. To get a little less theoretical for a minute. What has been your take on kind of the Trump admin and Scott percent and everything that they've been trying to do, especially, let's talk about tariffs as a part of this. Yeah, so I think that the United States recognizes that they have several issues with respect to

the debt, the deficit, and not to say they're catastrophic imminent issues, but even Jerome Powell will say that the U.S. debt is on an unsustainable path. He says that frequently. I heard him say it at the Economic Club of Chicago. Just quickly, do you agree with that, taking into account all the productivity stuff we just talked about? I think he's guessing based on current productivity trends. They have models, again, and all economic models are wrong, right? Eventually. Yeah.

He's guessing based on a projection of growth saying relatively where it's at or lower. Again, we don't know. Yeah, growth could change. So I don't think he's necessarily wrong. He could be right. But I don't have as high of confidence as he does, given what I've seen from AI and what I think it will do. But the bigger question, which is back to the tariffs, the United States has this issue with debt and deficits, which is not to be ignored.

It is serious, but it's not imminent collapse. And then at the same time, he's got a mandate from whole swaths of the country, whether it feel left behind, and they want manufacturing jobs here. Now, you and I, I think both know that many of those jobs will never come back here because, again, AI and robotics will take them even if they come back. Yeah. But politically, something needs to be done, I think, to, for options. optical reasons to say, look, we need to do something for the average guy. And to do that, you need a tax bill. Now, the Senate in me will say that if you're going to pass a major tax bill that's going to blow up, you know, even further to the deficit, you need some other source of

revenue. And I think the tariffs are that. The tariffs are an idea we have provided security for the world. We've promoted stability. So because of that, we need to effectively levy a tax on the rest of the world, which tariffs are tax, and we want to have some additional revenue, which is not going to entirely offset, but at least optically, it'll say we've done a little bit on the budget deficit issue to try to make it more palatable for the big beautiful bill, which is the big expenditure bill. Yeah. So that's my idea. I think the way the president negotiates, and I appreciate a lot of things he's doing, but when he approaches it, I think he starts from the standpoint, I want shock and awe, I want to have a lot of bravado, I want to go in there and

and set a very high base of negotiation. I think that was what Liberation Day was all about, is this sort of shock and awe moment, and then he negotiates off that. It's funny because I see that all the time in litigated matters. Okay, Danny, I can't tell you how many times where I've had a huge case, where the other side will come in and either they'll anchor very, very low, they'll say $50,000, nothing.

And I'm like, this is a multimillion dollar case. Or alternatively, when I'm defending someone, they're being sued, they'll come in with $25 million, and then the case will settle for a million bucks, something like that. It's anchoring, right? You're trying to send a message with your starting position that you mean business. When in reality, I don't even think he knows with particularity exactly where he wants to end. He's just saying, I want a better shake for the American people, and I'm going to start really aggressively, and I'm going to see what deal I can get. And so when he came in and did this, so for a long time, you've kind of faded this recession narrative.

Yeah. And then when he came in, and issued the initial tariffs, which have obviously changed since then. You kind of change your tune on that recession thing, I think. Yeah. Where are you at with that now? And maybe give us some context around that. Yeah. I mean, if the tariffs, so, so that, again, what we're all reacting to is not hard data. And this is one of the things I always have to remind myself of. And I'm guilty of it just like everybody else. We live in this constant 24-hour, 24-7 news cycle. And we start projecting things out based on the current. state of negotiations. So I admittedly thought when they came out with Liberation Day that these things were going to actually stick, that they weren't going to be a negotiating point. There were very smart people telegraphing at the administration, people that I respect and listen to, they were saying, no, he really means this. This is his view. He's talked about sheriff since the 1980s. He's not going to move off these numbers. And they were very high. So my view was that if the current tariff rate stuck, I thought you'd get a recession. Now, clearly,

when he's given the reins over to Besson to lead some of these negotiations, and he's shown a willingness to move off of the original numbers, which, again, was a big question mark in my mind, whether that was going to be the case. I think it's very clear now what their strategy is. Their strategy is get the best deal, but we're not going to go so far. It's not going to be so draconian that it's going to actually be enough to sack growth. So, yeah, I'm not in the recession camp. So with where Tyrus are at right now, do you think there are a positive thing

to the U.S. Well, positive in the sense that I think they're going to bring in some revenue, negative in the sense that I think they're going to raise some prices in the short run. Yeah. But it will be a, I think personally, I don't think it will be a persistent raise of prices. I think, you know, manufacturers, importers are going to bake in those numbers. You're going to see a bump. And really, inflation, which, again, this is the biggest thing that I think regular people

that don't have a background in economics struggle with is that inflation is not telling about the price level. You know, we're not going back to the prices pre-pendemic. And when people think, well, we need to bring inflation down, I think your regular person, my mom, my family members, they want to go back to, you know, when they went out to eat and it wasn't $150 for a meal, right? They want to go back to what it was pre-pendemic. I don't think that's never coming back. Never coming back. It's a, it's permanently, the price floor is permanently shifted. Yeah. What we're talking about with inflation is, will the rate of change continue at a high clip, or will it go back down or will it settle? My view is, I think it's settled. My view is, I think it's

settles in the higher twos for the foreseeable future, mostly because of shelter prices, real estate, which we can get into. But with respect to the tariffs, I think you push them up, you know, maybe, you know, from 2.5 to 2.7 for one or two quarters, but then they settle back down to 2.5. So I think you get this bump from the tariffs while they're all actually felt that tax revenue comes in. You get some stimulus effectively through the tax cut bill, and you're not going to have a recession, but you're going to have sort of a slowdown because of that. initial hit because when consumers get hit with higher prices, right? You tend to see lower demand. And but on the reshoring narrative, you would fade that.

100%. If even if the US does manage reshore, it's all going to be automation, not actually works in factories. I don't think we're going to bring as many jobs back, anywhere near the amount of jobs back as we've lost over the last several decades. And even if we could, that's a 10-year process. By the time we were actually bringing those back, I just I just think those jobs are going to largely be automated. And then the other thing is that, you know, a lot of the critical components, the things we need to build here, um, I, I think that you get some of those here, uh, but they're not going to be, it's not going to be like a return to the steel belt, you know, the rust belt, you know, they're not going to go to that area. There's going to be high end

precision. They, they talk about chips and things like that. Yeah, yeah, those aren't going to be jobs that, uh, I think you, you're, your middle class workers that have been displaced because of, uh, trade are going to be falling into, you know, those, this will be people. with degrees and yeah highly specialized yeah totally agree and then one of the big narratives around the tariffs has been that it's the u.s trying to weaken the dollar is that something you believe in no um because i don't think that u.s can weaken the dollar okay i think u.s again and you you brought him up but i i do appreciate work brentz's work to your dollar oh okay this is the dollar milkshake yeah the brent the the the okay so people know and that you look at bitcoin uh that you're

supposed to zoom out, right? Don't look at every little dip in a dive of the dollar. Look at the overall trend. The overall trend is that the dollar, despite QE1, QE2, QE3, despite trillions of dollars, despite 120 percent deficit GDP, all the things we talked about at the beginning of this podcast, the dollar is stronger today than it was, you know, 15, 20 years ago. Why is that? It's because of what Brent talks about, that the dollar obligations outside the United States are going to continue to drive the basement outside the United States, which will in turn funnel liquidity, you know, that's the milkshake straw. It's sucking that liquidity from the rest of the world to bid the dollar. And when you say debasement outside the United States, obviously there's

no one that can print dollars outside the United States. You're talking about like credit creation outside the United States. Well, credit creation, but they can print other currencies, you know, like the yen, the borrowing currency of the world. When you borrow, and I mean, that's the N carry trade. I assume your audience may be familiar. with that, but, you know, borrowing in foreign currencies and then taking and investing in U.S. assets. Yep. You know, we saw how U.S. markets reacted to the unwind of the uncary trade in August of 24, right?

They sell off because leverage players have borrowed in a foreign currency and they've pushed it into U.S. assets. Do you know, Danny, the asset you need to buy before you can buy the S&P 500 in the United States? Dollars. Dollars. You need dollars. Of course. You need to have dollars.

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I find this really interesting because I get very different answers from you the most of the people I get on the show talking about these things. So I just did a long show with Lynn about the trade deficit. How do you look at that? And do you think that's a sort of systemic issue for the US. Well, systemic in the sense of long run, is it an issue? Yes, like the persistent trade deficit the US has had to run. And this kind of gets into Triffin's dilemma and things like that.

Yeah. I mean, the idea behind the trade deficit is that we have to primarily continue to export our dollars. Okay. But the issue is, and I'd be curious where Lynn falls on this, because I actually haven't heard her talk on it recently, is when you're exporting dollars, you will have to necessarily export more dollars and continue on in this cycle. And we've largely been operating in that paradigm for decades now. So, you know, the question becomes, when does that become systemic, as you put, are unsustainable? And I can't see a reason on the horizon when it would.

Is Lane arguing that for some imminent reason we can no longer have a trade deficit? She's not being like extreme in that sense saying this is like an imminent problem. But it's just like it. She usually doesn't talk like that. No, she doesn't. She's very sort of balanced. But I guess it's more long term. Is it unsustainable to have the US as the world reserve currency and do we need to move to like a neutral reserve asset? Well, I would agree with the latter part. Yes, I would love to move to more neutral reserve asset. In terms of its instability, what the export of dollars, what the trade deficit does is ultimately, I think, causes instability globally, which requires more intervention from central planners. So what should you expect, given that that has been the state of affairs for the last several

decades, you should expect that on a going forward basis, you require more and more intervention, which will inject more and more fragility into the system. But again, you know, like when that becomes quote unquote unsustainable, I would argue, you know, systemic risk is not some, it's not an event. Systemic risk. It's like long term erosion rather than a single event. Well, I mean, there's always systemic risk. There's always systemic risk in our system. I mean, there was systemic risk in March of 2020, right? If there hadn't been actions by the central planners, I think the system would have seized up. And it would have, you know, had a great depression level event. Yeah.

So I kind of, I'm really confused sometimes by the rhetoric on this because people argue, well, you know, there's going to be a blow up and then the policymakers will react. And my response is like, yeah, duh. That's like, that's, isn't that always what happens? Like, that's their job. Their job is to react to be the, you know, I always find it fascinating in March of 2020, before the Fed bought a single high yield bond, right, the market had bottomed. Why do you think that is? Because they stepped in.

Or because they knew they were going to step in. Yeah. I think it's the latter. One of the things I like to say is that it's not necessarily reality, but the perception of reality. Yeah. And what I think the implicit... So this, I think I understand. So this is like what Jeff Snyder always says, where it's like the Fed doesn't actually do anything.

It's just the signal they give the market. He's called QE and these things a psychological manipulation. Yeah. It's kabuki theaters, another phrase he uses a lot. And it's really fascinating because it's one of those things where, you know, Jerome Powell can go out there and he could say there's going to be pain, right? Like he said there's pain, going to be pain in August of 2020. The market sells off. He has the ability to, and other central planners, not just him, Treasury Secretary.

The market bottomed in, I think, October of 2022 when Janet Yellen says she was worried about liquidity conditions. Like, when these people talk, it moves the markets. There's a, I can't remember his name, but there's a famous Fed official who worked with Bernanke when he was Fed Chair. I think it was Alan Binder. He said that Fed politicians. is 90% talk and 10% action. And I think it fits perfectly with what Jeff talks about,

which is basically, you know, if you can manipulate these markets, if you can drive long rates down or drive them up depending on, you know, you're talking, your jaw boning, right? That's your power. That you sit there on a pedestal and you give these speeches where if you're wearing a purple tie that's supposed to symbolize something and the market moves off of. And how many times have we seen these wild, FOMCs where they literally just go out there and he reads a prepared speech, word for word, very

carefully and it sends the market shooting up or down like two or three percent. That's the power. That's the power of the, it's like the man behind the curtain, the Wizard of Oz, right, that use whatever metaphor you want, but it's the ability to cajole the market in the direction you want it to. If he were to go out, for example, tomorrow and he were to say, I think we're on the verge of a recession. If he were to say that, what does he's crash? What do you think we have some markets? He doesn't have to do anything. They don't have to change a single policy.

They don't have to change short-term interest rates. He crashes the market. If he goes out there and says, I think inflation is going to be around for a very long time. I think we're seeing data that supports higher rates of inflation. You're going to send bonds just in a tailspend. They're going to sell off so hard and yield to skyrocket higher. That actually makes the kind of dynamic at the moment between Powell and the Trump admin even more interesting. Super interesting.

Because they're obviously trying very hard to push him out. Whether they can actually do that or not, we'll see. But they're trying to make that job untenable for him. Did you see the Supreme Court opinion on this? No, what happened? So there's a, I tweeted about it. You can find it on my, my, my, my, my, there was an opinion.

So there's a case that was pending, went up to the Supreme Court about firing various agency heads. One of the arguments they made was, well, if you allow the Trump administration to fire certain agency heads, this, this is the litigant made this argument. They said, well, that potentially puts in jeopardy members of the, the FOMC and the federal. Reserve that they could be fired. And the Supreme Court went to rather interesting lengths of issuing

a portion of their opinion in dicta. They actually comment on this argument regarding the Federal Reserve. So dicta for non-lawyers is basically sometimes when they're issuing an opinion, they'll comment on things that aren't directly involved in litigation. It's not part of the ruling or holding of the case. It's an opinion in dicta, right? So it just means a discussion. Does that mean it ends up in any kind of legal precedent? Like what's not a problem? It's not a legal precedent because it wasn't decided in the case. It's just a discussion, dicta. You know, it's like a discussion of a related issue, okay?

So why do they do that? That's the question. Why did they feel the need in dicta to comment on whether the president could fire members of the FOMC or discharge, you know, Jerome Powell? And my only conclusion is that they wanted to sort of telegraph that if this issue ever came about, we would feel the need to support the Federal Reserve. So ultimately they said, they said in dicta, no, the Fed is a quasi-private entity. And I think most people don't think of the Federal Reserve as a private entity. The Supreme Court says the Fed is a quasi-private entity and the president doesn't have that authority. So they suggest this.

They go out of their way in Dicta to make this suggestion, which I'll just say as a lawyer is kind of unusual. There's a principle called judicial restraint where when a court is deciding something, they typically don't reach issues that aren't. you know, immediately to be decided. The reason you do that is, don't want to do that is because you don't want to hamstring some future court that had to analyze the issue. And now you've got this dicta here that maybe doesn't make sense or doesn't apply to the current facts and maybe misleading the litigants. Well, they went so far as to do it in this case, which to me tells me that they really wanted to send a very clear warning signal. If you had any effort to fire members of the FOMC or fire. You're bringing this to court. I don't think this is going to be going to go well for

of Trump administration. Interesting. So anyway, that was a recent news. It was widely followed in financial circles. But to your point, Jerome Powell, you know, I think he, he's on his way out, right? He, although his term extends beyond May of next year, that's when he's up as the chair. You're going to get a new chair in. And I think it's fascinating because, like, what is the president want the new chair to

rapidly cut rates? Some of the leading contenders for the job, at least being publicly floated, are actually very hawkish. Oh, interesting. Yeah. So I don't quite understand that. Is it people that are hawkish that he thinks he can influence, though? Maybe.

Maybe he thinks he can influence him. Maybe they're loyalists. Again, he appointed Jerome Powell. I mean, he probably thought he could influence him. Yeah. He's appointed Supreme Court justices that have now openly, you know, ruled against him in certain cases. Once you get in there and you're protected from the administration, it's very difficult for you to, I think in your mind you want to do the right thing, for whatever reason. Are any of the floated candidates, people, I would be aware of.

of? I don't think so. They're sort of Fed insiders and, you know, other Fed presidents from the various district banks. But the fascinating thing for Powell is, right, you got an economy that's humming along, fine. Contrary to what people will suggest on Twitter, we're not on the verge of some economic collapse. You have inflation that, by their own metrics, they tell you that Fed thinks that inflation is going to trickle up higher, you know, it's going to go a little bit higher by the end of the year, why are you going to be cutting? And then the most important thing, I think, really, that people aren't talking about. His Jerome Powell, you know, he's gone through multiple terms, two terms, well, one and a half terms under Trump and a term under Biden. And he's got a legacy

to think of. He's got, you know, he wants to go out and write his books and do this things. And if you're him, would you rather leave the job having cut interest rates and potentially not stamped out inflation because it's still tricking higher, trickling higher. Or would you rather say, look, when I left things over to my successor, economy is running fine. Inflation was relatively stable. I had interest rates in the fours, you know, pretty solid for somebody wants to come and stimulate and cut. Because if you cut too much, you take that ammo out of the gun for future stimulus. Yeah. So I think to me, the legacy factor is huge. Like he's saying, And this is when people always say he wants to be like Volker, right?

Yeah. He quotes it all the time. That's like his, you know, revered figure, Paul Volker. And, you know, his hiking cycle, correct me from wrong, but I think it lasted longer than Volker's. If not longer, it was very close. So you take the infamous Volker hiking cycle compared to the Powell hiking cycle before he cut last summer. It was actually, I think, relatively similar in time, which is remarkable, right, given the levels of debt. So to me, I think the legacy thing is weighing on his mind.

He wants to say, look, I handed this off to my successor. I navigated us through the slowdown in 2018. I navigated in 2019. I navigated us through COVID. I navigated us through the post-COVID era of high inflation, the highest inflation in 40 years. And the one black eye he has an overall fairly solid record is that transitory comment. Yeah. And do you want to be known as making the same mistake twice?

Or would you rather err on the side of saying, look, we're just going to let the data tell us if we need to come? It's interesting because like if Trump got his way here and rates get dropped, like it's going to be good for Bitcoin. But at the same time, the idea of the president having that power seems wrong to me. Yeah. I mean, it is. I would agree. The question though is I always think it's fascinating. Would you rather have an economy that's doing very well and there's no need for a cut? Do you think that's better for Bitcoin or do you think cutting rates are better for Bitcoin? Maybe that's a short term versus long term argument because I think short term if rates end up getting slashed down to put. close to zero again. I think Bitcoin goes through the roof. But I don't know what happens after that. Completely agree, Danny. But, you know, in the interim, right, if they're cutting rates now,

I think that's usually in response to some, you know, all those horizon unemployment, economic weakness, things are not stable. You have to, you know, the Treasury market needs some support, whatever reason. In the short run, I view that as largely negative for Bitcoin. But in the long run, you're correct. I mean, if you cut it down to zero. And presumably you think that's negative for Bitcoin because they're doing that in response something and then we may have recession or something like that down the line. Usually when the Fed is cutting rates is not a great time for for assets. They're usually cutting because something's weakening or struggling, you know, but. So we're running a little low on time. You've got to get on

stage soon. But there's a couple of things I want to talk to you about first. One is Scott Bissent, because he came in after saying that he wanted to start issuing debt on a long, long duration. And he's not done that. He's been issuing everything on the front end still. Yeah. He was criticizing Yellen for years. Yeah. Publicly and privately about how she, she issued just short-term paper. And so maybe it'd be worth explaining the issue with short-term and why that's more money-like, and then why he didn't issue on the longer-term. And I assume that's just down to demand.

Yeah. Well, in terms of the short-term, I think that the real, the big problem with the short-term debt is that if you don't term out, if you don't return to this historical pre-historical, uh, tenor of where, this much long term, this much short term. Can I just ask you a really quick question on that? Historically, what is like average duration and what is it now? Like how much has it changed? So we lost about a year and a half. Okay.

Okay. Because there still is some longer dated instruments on, but it's nowhere near is where historically it would be. So as you continue to roll a lot of short term paper, what I think you're doing is I think you're actually suppressing yields of the long term. You know, this is where Michael Howell and others say it's not QEQE, QE. What you're doing basic supply and demand, right? If typically we're used to X amount of longer dated maturities coming to market and we don't see as many of those longer dated maturities, the amount that's out there, the supply is decreased and the demand does relatively stay constant.

There's pensions and life insurance companies and other entities that want to buy. So, you know, one of the big tells, I think, of where long end yield should be, I think, is the agency-backed mortgage securities. And George Robinson makes this point quite frequently. he talks about, okay, you've got Danny the agency mortgage securities, which are well above 6%. Those have the full faith and credit of the United States government and they're 30 years, their longer day paper, but you've got a 30 year treasury full faith and credit of the United States government at 5%. How does that make any sense? And that spread typically doesn't widen as much it as it has. This tells me that widening of the spread, you can bootstrap effectively that the

real long-dated interest rate should be higher if they would have kept up at the normal clip of issuance, basic supply and demand. They haven't. And one of the reasons why I think is because the president came in and he wanted to get mortgage rates down. They want the 10-year down in, I think the trade policy, they were saying, like there's a put on the bond market that we want to make sure the bond market still stays relatively stable. People are really struggling. And, and, and And also, you got to remember that the single biggest driver of the CPI basket for the last several years has been shelter. Yeah. What is shelter responsive to?

Mortgage rates. Mm-hmm. Even if you don't own, okay, somebody owns it. Yeah, somebody rents that. You got to cover that mortgage rate. You can cover it. So they wanted to bring that down. So if Besson would have come in and you would have said, well, we're issuing a ton of long-dade paper, we're going to term out the debt at very high interest rates.

Um, arguably you would have pushed those yields higher. Who knows how much 50 base points, 100 bibs. It doesn't really matter. it doesn't help the affordability picture from the housing standpoint. So I think from their standpoint, it's very easy to be critical and say, why don't you do this? Why don't we term out the debt? But even during, you know, when Janet Yellen was there, you know, this is the argument I always hear, well, why didn't she term out the debt when it was 1%, 1.5%, what you got to remember is that when interest rates are that low, it was basically the bottom of the pandemic, 2020, 2021, and they were

worried about a recession. Yeah. Like they always are, right? When interest rates are very low, that tends to be a sign of economic weakness, not economic strength. Yeah. So if you were to inject in, you know, a lot of extra issuance, if you were to put out a ton of 20 year, 10 year at that point, you would have sent interest rates higher, which would have potentially hurt demand, right? So that's the, that's the relationship there. It's very easy to say, well, you could have just turned it out when, you know, the country was very weak, but they were kind of trying to do the opposite. They're trying to stimulate. That's why rates were at zero because they're trying to stimulate that, not, not deprive liquidity.

and just for people's benefit. This is one thing I always struggle to understand. When you look at treasuries and you think, oh, well, what's the deal? If they're issuing all the short-dated paper, you know, three-month, six-month a year, why isn't that akin to the 30-year? And the reality is that if you have, from a balance sheet perspective, just the mechanics of the balance sheet, it takes about seven times as much balance sheet capacity to hold a 30-year versus a two-year. So just the mechanics, the big whales who are buying these instruments, right, they don't have as much capacity for the longer data maturities.

If you're buying short-term paper, they're basically a cash equivalence. They roll off a mature. You get your coupon and you get the principal back. It's very easy to recycle that. That makes sense. But does that changing dynamic? Earlier in the show, you kind of faded the idea of the Russian treasuries being frozen as being like, I think Luke Gromon calls it the shot heard around the world or whatever. But we know that the dynamic of the people buying the bonds has changed.

Like the sovereigns are buying less. U.S. hedge funds essentially are picking up the slack and buying more. Is that part of the dynamic in where you can issue the bonds? As in, I guess the question to... Yeah, the buy. So there's a chart in the packet I sent over to you can pull it up. I'll put it on the show, yeah. Yeah, put it on the show.

Who owns the majority of U.S. bonds, bonds bills, notes. Who owns the majority of it? China? No. United States. This is what, I actually knew that. This is where you see the chart. It's like the Cayman Islands is the highest because it's where all the head funds are.

Yeah, but even beyond that, if you take the, the Federal Reserve, you take the U.S. holders. Yeah. It's like approaching two thirds is held by, and again, that's rough numbers, but two thirds is held domestically. Yeah. And you've got a third held by foreigners. Mm-hmm. Okay. So let's say that third continues to shrink and we're not getting as much demand.

Mm-hmm. You still got the overwhelming majority of it that's held domestically. So that, you know, yes, U.S. buyers have to pick up the slack. You need the big whales in the United States, the pensions, and you need them to buy. Yeah. That's the, but why are we spending such an inordinate amount of focus on, you know, China is not buying as much of our debt or Japan? Yes, I will fully concede that that is a longer run issue.

It's lack of demand. Okay. But there are other avenues for demand coming in, right? Most don't really stable coins. We didn't even talk about that yet, but they're trying to create new sources of it. And then from a demand picture, again, demand is always equal to what? Demand is equal to not only the amount of supply out there, but also what the yield is. So, you know, what does demand look like from foreign entities at 5% versus four and a half?

I would argue as the yield goes up, demand increases. We've seen data to support this. I mean, you had some data. I tweeted about this one too. We had record purchases from foreigners in general. not including the Caymans or any of that record purchases in 2024 of bonds. So, you know, you have, I think, metrics to look at that are, I think, always, you always focus on the negative.

We have this tendency on X to focus on the negative. Like, yes, this one country is not buying as much. We need another marginal buyer to service it. But if we don't have an marginal buyer, what that will do practically is it will send yields higher, which will mean, hopefully, more demand comes in. Yep, makes sense. You know, you might say, well, we never buy, you know, treasuries at 5%. Would you buy them at 6?

Would you buy them at 7? What about 10? Like at a certain point, some buyer won. Some point there's a buy going to step in. Yeah. Yeah. And to me, what I always think is crazy is people say, well, there's a lack of demand for treasuries.

In this interest rate environment where I think we all agree that the CPI is underestimating actual inflation, right? 100%. We all agree on that. I don't dispute it at all. Then why are there people? lined up to buy four and a half, 4.5%, 10 years. The only answer that I can think of is that they assume inflation goes down.

Would that be right? Or stable or relatively stable? Yeah. Or maybe there's just not a lot of supply like we talked about. I mean, it's complex. All I know is that if there was truly a lack of demand, you would see that 10 year yield soaring higher. Yeah.

You see it at north of five, five and a half, six percent. When that starts to happen, when you get, when people are out there and nobody's buying 10-year treasuries at six and a half percent. I'll believe that when I see it. Then I will fully concede, yeah, we got a real problem for a marginal buyer. I've really enjoyed this, Joe. There's so many questions I've written down that we've not managed to do. We're going to have to do this again at some point.

We've got like five minutes, so we're going to speed run this last question. But with everything that we've talked about there, what do you think the next 12, 18 months looks like for both markets and Bitcoin? Well, I'm very bullish on Bitcoin, of course. And one of the things that I'm excited about Bitcoin is that I think that from Bitcoin standpoint, I think you're moving into the era where you're going to have a very different Bitcoin market. I've gone on record saying that I don't believe these boom and bust cycles that we tend to be very

familiar with are going to continue. I expect slow, steady, more like S&P 500 type growth where you could have year over year growth of, you know, 20, 30, 40 percent going forward because of the institutionalization of the asset. Can you have pullbacks of 30, 40, 25%? Of course, that can happen all the time. We get those routinely even in bull markets. But from my standpoint here, I love the stability you're seeing from Bitcoin.

There's just not a lot of willing sellers. And then there's buyers that are coming in. They're buying very differently. They're buying in a more systematic, sort of calm, level-headed way than the FOMO buyers. I mean, a lot of us who came of age in 2015, 2016, even 2017, we saw like everybody their grandma buying a coin base and just smash buying regardless of price. These buyers just set the bid and they just wait for the price to come to them. And you know, you saw that even with the recent price action, like we would dip below 80K

and then it would get bought up. Yeah. Just get completely smashed. So I really love the way Bitcoin's trading. I know people are calling for the God candles and they want the two or three or four X, but the slow, steady upward climb I think is so much more interesting. And it also is more credibility. it enhances credibility with institutional.

For sure. They have to answer quarter by quarter. So it's very difficult for them. I mean, hodlers can sit through an 80% drawdown and wear it as a badge of honor, but the institutional class, they lose their jobs.

Yeah. So to me, I could not be more bullish of that. To me, with respect to the overall... Just quickly, do you think the cycles may have changed then? And do you think we may be past the 80% drawdowns?

I mean, you never say never. Could we see an 80% drawdown? What I refer to is that the predictable four-year cycle. Yeah. Okay. I think it's becoming more muted because of the, you know, the halving's not as big of rule. A lot of the coins are, you know, while they are, you know, still churning out with 3.125, whatever it is now. Yeah. It's not as big of an issuance as it was earlier. So to me, I think the having is muted. And I think that the institutional buyer is here. I think it's going to continue to accelerate. And I just expect, just be prepared for Bitcoin to bore yourself all the way to a million dollars. I honestly think that's the path. I think we're going to bore ourselves to a million dollars. People are going to slowly and steadily climb higher over the years to come. But with respect to the broader market, right, I actually think there's some signs that you could see a reacceleration in nominal growth moving to the latter part of this year. We're still running very huge fiscal deficits, which, again, stimulus.

People don't want to point that out. But what is the single biggest driver of the deficit right now? What is it? Don't know. Tell me. Interest. Okay. Interest is the single biggest driver of the bigger deficits, right?

You're going to get a tax bill and you're also getting interest payments. When people get paid interest, that goes into spending, right? And when you have a society, a lot of boomers are loaded up to the kills with T-bills, money markets. They basically get a check from the government every month or every quarter, whatever, however, it's distributed. And they're spending like crazy. Yeah.

You know, this is why it's very hard. I try to be optimistic about things and I understand there are people suffering out there. I don't mean diminish their suffering. I can recognize their suffering again. I also say, I get it, but there's a whole bunch of people that have built up these massive, huge nest eggs of money over the last 40 years because they benefited from the fiat debasement. And they want to spend it. They want to live life.

They want to go on vacations. They want to go into restaurants. I can't tell you how many times my wife and I go out. We can't even get a table because the restaurants are packed with the silver tsunami of boomers retire. And, yes, you're always going to have industries that are slow. going down and you have this K-shaped economy. I totally get all that.

But when consumption is analyzed in an aggregate way, you're looking at everything, weakness over here is not enough to pull down the really strong, robust growth over here. So I expect that to reaccelerate. To me, the big question is going to be if asset prices really start to rip and you have a resurgence, not up to 4 or 5%, but you have inflation tricking back up closer to 3. at that point does the market start to get spooked again and maybe that could put in the top or at least a short term top. But for the foreseeable future, I'm very optimistic. I mean, I would fade all this recession talk. I don't see it. Yeah, I love this. Joe, honestly,

that's one of my favorite shows I've made in a long time. It's nice having a completely different perspective on all these things. It's quite refreshing. Well, yeah, no, I love it. And if you ever are interested, I think we should have sort of a macro round-tie. I'd love a chat with some of these guys, too, because, you know, you, you, we all listen to the podcast, we all hear, but sometimes it's fun to have discussions where we, we kind of like have a difference of opinion. I'd love to do that. Let's set something up. Yeah, I, I, I enjoy doing that.

Like I say, respect all the people you bring on this show. I think it's high quality all around and I'm honored to be here. No, thank you, Joe. Well, you got to get on stage, so we'll leave it there. But thank you so much. Thanks again.