I know, already. Lambos are pretentious. Bugatti is not meant to be driven. Porsche for the engineer, but Ferrari, .... for the heart.

HowardA.btc

@AschwaldHoward

·

6h

https://podcasts.apple.com/us/podcast/lyn-alden-broken-money/id1534519469?i=1000633004608

Great discussion. First time I've heard her contigency planning around bitcoin transition period. Military strategist in me says 100%. I am pro USA, but history has much to teach. Have scenario plans, stay relaxed and maintain readiness.

Lyn Alden - Broken Money

The Bitcoin Matrix

Technology

This suit only applies to situations that fall under the fair credit reporting statute. Are there are statutes with this kind of wording? EPA and wetlands "takings" come to mind.

https://www.zerohedge.com/political/supreme-court-rules-biden-administration-must-face-false-debt-reporting-lawsuits

Oil free vegan salad dressings. How long can they last in the refrigerator? Add some citric acid to extend time?

https://plantbaseddietitian.com/oil-free-dressings-and-sauces/

Worth investigating. No change to consensus, no opcodes needed. Will it work? If Bitcoin is to be the internet of information and value, eventually all worthwhile (and junk) projects will get built on top of it. The alts that need real security and prove valuable will migrate to Bitcoin. If BitVM works as advertised, it's progress. The market will sort out the future Pets.com. Bitcoin Layer 1 will continue to operate with or without BitVM.

Hi Preston. Congratulations and well-deserved. Quite the team you have joined. I am looking forward to hearing more about the projects your group decides to back. Egodeath.capital is a power name for right action. Awesome.

Warfare seems to be the default mode for settling existential human disputes. Perhaps you can reach out to Major Jason Lowery of Softwar to speculate on how Bitcoin and hashpower could reduce the need for physical warfare in the Israeli and Hamas power struggle.

Love it. And on a lighter note .... will an IRS agent AI bot send a tax bill to an AI bot with a wallet that has profits from its Sat transactions? Check out Ian MacDonald's River of Gods SF novel to get a sense of the evolution of AI bots. Great read.

I have to repost Arthur Hayes latest article as Medium took it down. It's a very good piece. Worth the read. How can Medium censor this? Sad.

The Denominator

BitMEX9 May 2023

(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)The economics of nightclubs and national banking systems have a lot in common. Patronising a nightclub is a lot of fun. You get to listen to good music, hang out with your friends, and for some, find a mate. However, after all the fun is had, there is always a bill to pay – and sometimes it can be quite substantial. Absent an agreed upon set of rules on how the cost should be allocated, the conversation as to who pays and how much can get quite heated.“I was only there for a little bit.”“I only had one drink.”“I didn’t bring any girls to the table.”Your scrub friend (you know the one) will always use excuses to avoid being part of the denominator of people who must split the bill. Early on in my banking career, my tight group of friends (we call ourselves the Fam) had a chat one day at work to codify the “bottle rules.” The bottle rules determined whether or not a member of the crew was a part of the denominator and thus had to pay an equal share of that night’s bill.The rules were simple:Girls don’t pay.If you have one drink, you are in for the whole bottle.If you bring one girl to the table and she drinks, you are in for the whole bottle.If you bring a friend who is male, and he has one drink, he is in for the whole bottle and you pay his share.If you order champagne, you pay for that entirely by yourself. This rule is crucial. There is one member of the Fam whose ego always gets ahead of his willingness to pay on various occasions. One time a few years ago at 1 Oak in Tokyo, he got the maths wrong and thought a train of 6 bottles of Dom P could be had for the price of one. He ordered the train, felt like a baller, and then – after realising his maths error when presented with the bill – tried to charge the entire group for his folly. He got a stern rebuke from another friend and paid for it entirely on his own in the end.If you order a bottle at the end of the night right before the club closes, you pay for that entirely on your own. (The same champagne friend is frequently guilty of this infraction, too.)And now to the more pressing issue of how banking systems allocate inevitable losses.Nations love robust banking systems. A good banking system allows the savings of the citizens to be aggregated and lent out to the government and productive companies. In an ideal world, this lending creates economic growth.However, banking systems get into trouble quite often because they are fractionally reserved – i.e., they lend out more than they have on deposit. Their willingness to lend out money they don’t have frequently lands them in situations where they are unable to fulfil all of their depositors’ withdrawal requests, particularly during times of stress. These situations usually arise after some combination of political pressure, profit motives, and/ or poor risk management cause the banks to suffer massive losses, typically stemming from poorly underwritten loans or loan losses driven by rising interest rates. A bank run ensues, and then the government has to decide who is responsible for paying the bill to drag its glorious banking system back into solvency.Should some combination of depositors, shareholders, or bondholders bear the cost of bailing out the bank? Or, should the government print money to “save” the defunct bank and pass on the cost to the entire citizenry in the form of inflation?The most well-run banking systems establish an agreed upon set of rules governing these types of situations before any crisis occurs, ensuring that everyone knows how a failed bank will be dealt with, eliminating any surprises. Because banking systems are believed by the financial and political elite to be so integral to a well-functioning nation state, it’s safe to assume that in almost every country, banks will always be bailed out. The real question becomes, which schmucks get included in the denominator responsible for paying to recapitalise the bank? Regardless of what division of costs has been agreed to prior to any bank failure, once a bank actually collapses, every stakeholder involved will always lobby the government to avoid being part of the denominator.Bianco Research published a truly epic chart pack clearly illustrating the current and future disaster that is the US banking system. A few of their charts will be presented in this essay.United States of America or United States of ChinaThe US government is at a crossroads and has so far been indecisive about the kind of banking system it wants for Pax Americana. Does it want a decentralised system of small- to medium-sized banks who lend locally (i.e., the US banking system pre-2008)? Or does it want a centralised system of a few mega banks who primarily lend to the national champions, super-duper rich people, and Jeffrey Epstein (i.e., the Chinese banking system)? Post the 2008 Global Financial Crisis, the pencil pushers in charge of banking regulations decided that they would create a two-tiered system. Eight banks were determined to be Too Big to Fail (TBTF) and given an unlimited government guarantee on their deposits.JP Morgan leads the pack, holding 16% of all US deposits. There is no risk in depositing to these mega banks. If a TBTF bank fucks up, the USG will print the money needed to make sure all depositors get their money back. Essentially, these 8 banks are state-owned enterprises for which the profits are privatised to shareholders, but the losses are socialised to the citizens. In return for this sweetheart deal, these eight banks were given a fuck-ton of new rules to follow. These mega banks then spent hundreds of millions of dollars on political campaign donations to help tweak those rules and achieve the most favourable set of restrictions possible.Source: Open SecretsEvery other bank must weather the rough-and-tumble free market all on their own. All deposits are not guaranteed – and because of the risks involved, you would think that depositors should be clearly informed of exactly how these banks are lending out their money. Instead, depositors are left to decipher the banks’ purposely obtuse and misleading financial statements and arrive at their own conclusion regarding whether a given bank is well run.All banks cater to different types of customers. The TBTF banks are geared towards servicing large corporations and super-rich individuals, and they are pros at securities lending and trading. TBTF banks are also conduits of the Federal Reserve (Fed) and US Treasury’s monetary policy, and they support the USG by buying lots of the country’s debt.The non-TBTF banks, on the other hand, power the real engine of the US economy – that is, by providing loans to the small- to medium-sized businesses and loans to individuals of more modest means. They take the scraps the TBTF banks discard from the proverbial table, filling their loan books with commercial real estate, residential mortgages, car loans, and personal loans (just for example). Take a look at the next two charts that depict how integral a robust network of smaller non-TBTF banks are to the US economy.While both cohorts of the US banking system are exposed to different types of credit risks via their respective loan books, they share the same interest rate risk. The interest rate risk is that if inflation rises and the Fed raises short term rates to fight it, the loans they underwrote at lower rates are worth less. That is just bond maths. (I discussed this phenomenon at length in my essay “Kaiseki”.) When 3 banks failed within one week this March, the Fed and US Treasury hastily concocted a bailout scheme called The Bank Term Funding Program (BTFP). Under this plan, any bank that held US Treasury bonds (UST) or US Mortgage-Backed Securities (MBS) could give them to the Fed and receive 100% of their face value in newly printed USDs.Given that the fiat-based fractional reserve banking system and the financial system of Pax Americana in general is a confidence game, the powers that be do not react kindly when the market calls bullshit on their antics. The financial markets rightly saw through the BTFP and recognised it as a thinly disguised way to print $4.4 trillion to “save” one portion of the US banking system. The market expressed its displeasure with this inflationary move by ramping the price of gold and Bitcoin. On the political front, various US elected officials did their best acting and cried foul at these banking bailouts. Con artists never like being called out, and the Fed & US Treasury realised that next time a bank(s) needed to get bailed out, it couldn’t be so obvious about what they were up to. That meant any tweaks made to the BTFP would need to be implemented surreptitiously. The tweak we are most interested in is related to the type of collateral that is eligible for the BTFP program. From 11 March 2023 when the BTFP was announced, gold is up 5% (white) and Bitcoin is up 40% (yellow).But first, it’s important that we understand what precipitated this tweak. The TBTF banks – as well as any bank that held a large percentage of its assets in UST or MBS securities – benefited from just the announcement of the BTFP. The market knew if and when these banks suffered deposit outflows, they could easily meet their cash needs by giving the eligible bonds to the Fed and getting back dollars. But the non-TBTF banks were not so lucky, because a large percentage of their assets were ineligible for BTFP funding.In less than one financial quarter, the market saw through the BTFP and put stress on the non-TBTF banks. The market wondered, “who is going to pay the bill for the interest rate losses on their loan books if they can’t access the BTFP?” And that led them to ask themselves, “why would I own equity in a bank that can’t receive implicit or explicit support from the government?” That question is especially important as the recent First Republic bailout demonstrated that he “price” for the FDIC arranging a shotgun marriage between a failing non-TBTF bank and healthy TBTF bank is a complete wipeout of equity and bondholders. As a result, equity owners started dumping their stakes in the regional banks … a 99% loss is better than a 100% loss. Whoever sells first, sells best.First Republic was the first post-BTFP casualty, and the way in which it was wound up gives us more clues as to who is in and who is out of favour with the USG. The politics of bank bailouts is toxic. Many plebes are pissed off that they lost their house, car, and/or small business in 2008, while the large banks got hundreds of billions of dollars-worth of support from the government and paid record bonuses. Therefore, politicians are loath to support optically obvious banking bailouts, especially since America is (in theory) a capitalist society where allowing companies to fail is supposed to be part of the system.I’m sure US Treasury Secretary Janet Yellen got reamed out for the BTFP and was told that under no circumstances could the USG be seen bailing out additional failed banks. I imagine she was told the private market must find a solution for managing a non-TBTF bank failure – meaning that a tweak to the BTFP that would make any and all banking assets eligible for funding was off the table. A while back, US President Joe Biden told Jerome Powell – the Chairman of the Fed – that stopping inflation is his number one priority. Not wanting to go against the President’s wishes, the Fed could not lower interest rates enough to help stem the deposit outflow from these shaky banks while inflation was still at 5% (I will expand on this later in this essay). The two major financial arms of the government (Fed & US Treasury) could not alter their policies to effectively deal with this banking crisis for political reasons.“I ran for president because I was tired of the so-called trickle-down economy. We now have a chance to build on a historic recovery with an economy that works for working families. The most important thing we can do now to transition from rapid recovery to stable, steady growth is to bring inflation down. That is why I have made tackling inflation my top economic priority.”US President Joe Biden in a WSJ op-ed from May 2022The Federal Deposit Insurance Corporation (FDIC), the US government body in charge of winding up failed banks, tried its best to bring together the TBTF banks to do their “duty” and purchase the loser banks. Unsurprisingly, these profit-motivated, government-backed enterprises wanted nothing to do with bailing out First Republic unless the government was willing to chip in even more. That is why, after many days and a stock price drop of 99%, the FDIC seized First Republic in order to sell its assets to meet depositor liabilities.Note: A bank’s stock price is important for two reasons. First, a bank must have a minimum amount of equity capital to back its liabilities, aka skin in the game. If the stock price falls too far, then it will be in breach of these regulatory requirements. Second, a bank’s falling stock price prompts depositors to flee the bank for fear that where there’s smoke there’s fire.In the 11th hour, just before markets opened on Monday 1 May 2023, the FDIC offered JPM, the largest TBTF bank, a sweetheart deal, and it agreed to purchase First Republic. The deal was so good that JPM CEO Jamie Dimon cooed on a shareholder call that the bank would recognise an immediate $2 billion profit. JPM, a bank with a government guarantee, refuses to buy a failed bank until the government gives it a deal so favourable that it makes $2 billion instantly. Where is Jamie’s patriotism?Don’t let the numbers distract you from the important lesson of this bailout. The First Republic transaction illustrates the pre-conditions for getting nationalised via a purchase by a TBTF bank. Let’s walk through them.Condition:Equity holders and bond holders get wiped out. A donut … A bagel … A goose egg. Capeesh?Response:If your bank has interest losses on its loan portfolio (which every single bank has), and these loans are ineligible for the BTFP, you must sell that stock IMMEDIATELY! You don’t want to get deaded by the FDIC. Short sellers are not responsible for the collapse in these dogshit bank stocks. It is long holders selling for fear of a 100% loss of capital if and when the FDIC steps in.Condition:A TBTF bank with a government guarantee must purchase the failed bank by assuming its assets. The TBTF bank will only do this with additional government assistance provided by the FDIC.Response:In the First Republic situation, JPM got cheap loans from the FDIC, and the same agency bore 80% of any losses on the loan book. Essentially, it appears the government will only expand BTFP-eligible collateral if a TBTF bank buys a bankrupt bank first. This is clever, and most politicians and their constituents won’t realise that the USG expanded their support of the banking system without formally declaring it. Now the FDIC’s balance sheet will be bloated with potential losses from failed bank loan books and low interest loans to TBTF banks. Therefore, Powell, Yellen, and the Biden administration cannot be easily accused of printing money to bail out a bank.The Critical AssumptionIf you believe that, when push comes to shove, US policy makers will always do what it takes to save the banking system, then you must agree that all deposits in federally chartered banks will eventually be guaranteed. If you don’t agree, then you must believe that some bank depositors will suffer losses.To assess which side is more likely to be true, look no further than the banks that have failed so far in 2023 and how they have been dealt with.BankSeized by FDICEquity HoldersDepositorsSilvergateNoMight get value from bankruptcy100% Made WholeSilicon Valley BankYesWiped Out100% Made WholeSignatureYesWiped Out100% Made WholeFirst RepublicYesWiped Out100% Made WholeNote: Technically Silvergate was not seized by the FDIC as it declared bankruptcy before failing completely.In all circumstances where the FDIC seized the bank, depositors were made whole. Thankfully Silvergate, even though it declared bankruptcy, was still able to make depositors whole as well. Therefore, even if you are in a non-TBTF bank your money is most likely safe. However, there is no guarantee that if the FDIC seizes the bank a TBTF bank will swoop in and make depositors whole; there is also no guarantee that if a bank declares bankruptcy it will have enough assets to fully cover all deposits. Therefore, it is in your best interest to move all your funds over the insured $250,000 limit to a TBTF bank who has a complete government deposit guarantee. This will inevitably drive large deposits from non-TBTF to TBTF banks and further exacerbate the issue of deposit flight.The reason US Treasury Secretary Yellen cannot offer a blanket deposit guarantee to all banks is that it requires an act of the US Congress. And as I argued above, there is no appetite for more perceived banking bailouts by politicians.Deposit OutflowsNon-TBTF banks will continue to lose deposits at an accelerating rate.First, as I argued above, in order to be 100% sure your deposit is safe, you must move your money from a non-TBTF bank into a TBTF bank.Second, all banks will lose deposits to money market funds, which deposit money with the Fed and/or invest in short-term US Treasury bills. Think about it – you can earn almost 5% in a money market fund, or 0.50% as a bank depositor (see the above chart). If you could move your money and almost 10x your interest income using your mobile phone within the time it takes to consume a few TikTok videos, why would you leave your money on deposit at a bank? Even if you can’t be arsed to figure out what a money market fund is and want to just leave your money in the bank, there’s no reason to do it at a non-TBTF at this point. The TBTF banks can lose deposits and you don’t have to care, because at the end of the day, the USG explicitly guarantees you will always get your money back. Non-TBTF banks are just plain fucked, and deposit outflows will continue to drive failures.If inflation, interest rates, and banking regulations remain as they are right now, there is no scenario where every single non-TBTF bank does not fail. There will be a 100% failure rate. Guaranteed!Ok … maybe that’s a bit aggressive. The only banks that would survive are those that operate in a fully reserved model. That means they accept deposits, and immediately deposit those funds with the Fed on an overnight basis. This is a super safe way to do banking, but unfortunately the Fed no likey this type of banking. They have denied applications for banks wishing to employ this business model for unknown reasons.The DenominatorIf my prediction about the ultimate fate of all non-TBTF banks is correct, then how much larger can the US money supply get? That is the real question. With the BTFP, we know that the potential expansion is at least $4.4 trillion (i.e., the amount of UST and MBS on US banks’ balance sheets which can be exchanged for cash at any point). We also now know that the preferred sleight of hand of the Fed, US Treasury, and banking regulators is to heavily insist that a TBTF bank assume the liabilities of a failed non-TBTF bank. The TBTF banks undertake this public service by receiving cheap capital and loss absorption paid for with government-printed and American taxpayer money. Therefore, the money supply will in essence be expanded by the total amount of loans of non-TBTF banks, which is $7.75 trillion.Note for Ned Davis Research subscribers: I encourage you to look at the report ECON_51 to verify my $7.75 trillion number. As a reminder, the reason why these loans must be backstopped is because deposits fled. As deposits flee, the bank must sell loans for much less than face value and realise a loss. The realisation of the loss means they fall below regulatory capital limits and, in the worst case, do not have enough cash left over to pay out depositors in full. The only way all non-TBTF banks don’t go bankrupt is if one of the following things happens:The Fed cuts rates such that the yield of the reverse repo facility or three-month T-bills drops below the 2% to 3% range. The 2% to 3% range is an estimation of the blended yield of the banks’ loan portfolio. The Fed might cut rates either because inflation is falling, or they want to prevent further stress on the US banking system. Banks can then raise deposit rates to match or slightly exceed what money market funds can offer, and bank deposits will grow again.The BTFP eligible collateral is expanded to any loan on a US bank’s balance sheet.Option 1 loosens financial conditions and risk assets like Bitcoin, gold, stocks, real estate, etc., all pump. This is a decline in the price of money.Option 2 enlarges the amount of money that will eventually be printed. And again, this is only supportive of risk assets that are outside of the banking system. That means that gold and Bitcoin pump, and stocks and property dump. Stocks drop because bank credit disappears and companies are unable to finance their operations. Property is outside of the financial system, but it is so expensive in nominal dollar terms that most buyers must finance purchases. If mortgage rates remain high, no one can afford the monthly payments, and prices fall. This is an increase in the supply of money.Either way, gold and Bitcoin are going up because either the supply of money increases, or the price of money decreases.But what if the price of money continues to increase because inflation refuses to slacken and the Fed continues raising rates? Just last week, Sir Powell continued stressing that the Fed’s goal is to slay the inflationary beast, and he followed it up by raising rates by 0.25% in the midst of a banking crisis. In this case, non-TBTF banks will continue going bankrupt as the spread between money market funds and deposit rates grows which causes depositors to flee, and that results in bankruptcy eventually leading to their loans being backstopped by the government anyway. And as we know, the more loans the government guarantees, the more money must eventually be printed to cover losses.The only way the money printer doesn’t go brrr is if the USG decides it will let the banking system actually fail – but I have full confidence that the US political elite would rather print money than right size the banking system. Many readers might think to themselves that this banking issue is purely an American thing. And given that most readers are not citizens of Pax Americana, you may think this does not affect you. Wrong! Due to the USD’s reserve currency status, most nations import American monetary policy. More importantly, many non-US institutions such as sovereign wealth funds, central banks, and insurance companies own USD-denominated assets. Like it or not, the USD will continue to depreciate against hard assets like gold and Bitcoin, as well as useful commodities like oil and copper. You are in the denominator too, just like a red-blooded Jane Doe American schmuck.Boom Boom BoomIf inflation stays high and the Fed continues raising rates – or even just keeps them where they are today – then more banks will fail, we’ll see more TBTF bailouts, and the government will continue to support the creation of larger and larger TBTF banks. This would expand the supply of money and gold, and Bitcoin would rally.If inflation falls and the Fed cuts rates quickly, eventually, banks would stop failing. But, this would reduce the price of money, and gold and Bitcoin would rally.Some may ask why I didn’t consider the outcome where the banks survive long enough for their low interest rate loans to mature, and be replaced by loans underwritten at a much higher yield. Depositors are not going to wait 12 to 24 months earning basically 0% at the bank vs. 5% in a money market fund. Tap tap, slide slide, and in less than 5 minutes your deposit base is gonzo, courtesy of your slick mobile banking app. There is just not enough time!You just can’t lose owning gold and Bitcoin, unless you believe the political elite is willing to stomach a complete failure of the banking system. A true failure would mean that a large swath of chartered banks fold. This would stop any and all bank lending to businesses. Many businesses would fail, as they would be unable to finance their operations. New business creation would also decline in the absence of bank credit. House prices would plummet as mortgage rates spike. Stock prices would dump because many companies gorged on low-interest debt in 2020 and 2021, and when there is no longer affordable credit available to roll over their debt they would go bankrupt. Long-dated US Treasury bond yields would surge without the support of the commercial banking system buying bonds. If a politician reigned during a period in which these things happened, do you think they would get re-elected? No fucking chance! And therefore, while the various monetary authorities and banking regulators may talk a big game about no more bank bailouts, when the shit really hits the fan, they will dutifully press dat brrrr button.Therefore, it’s Up Only! Just make sure you are not the last sucker in the Western financial system when the bill comes. Get your Bitcoin, and get out!

If Medium just retracted an article by one of my favorite writers, Arthur Hayes, I will repost it here so that it doesn't get pulled from other controlled platforms. This should not have been censored by Medium - I just renewed my subscription ... The article is opinionated, but so what?Repeat after me …

“I Will not be exit liquidity!”

Being someone’s exit liquidity means you’re one of those schmucks who is buying or holding when the smart or connected folks are selling. In the context of this essay, exit liquidity refers to the unfortunate plebes who have been – and continue to be – on the losing side of the economic arrangement that is the US dollar’s reserve currency status.

The debate over whether the USD can be replaced as the global reserve currency is a heated one. On the one hand, some vocal elites of Pax Americana are incredulous that any country could step up to the plate and hold the world economy on its shoulders (America, Fuck Yeah!). On the other hand, there are increasing signs that certain corridors of trade are de-dollarizing, and actually have been for some time.

LNG deals between France and China invoiced in CNYBrazil and China to trade with each other using no dollarsBRICS explores creating new currency

Even the mighty French are tired of being America’s towel garçons and mademoiselles. French President Macron recently said that he believes his nation needs to reduce the “extraterritoriality of the US dollar.”

Reserve currency status comes with benefits, but it also foists certain costs upon the host nation. The primary benefit is clear – the host nation gets to print currency at will to pay for real goods. But that benefit is not distributed equally amongst the citizens of the empire. Though it has maintained its status as the wealthiest nation in the world, America’s levels of wealth inequality are currently among the worst in the developed world – and the situation continues to get worse and worse. The costs of being the reserve currency are felt acutely by the vast majority of the population that owns little to no financial assets. Below are a few distressing charts from Pew Research.

While even some former vampire squids are starting to acknowledge that the country’s role as the issuer of the global reserve currency is weakening the country overall, the most common retort to their concerns is, “well, who or what could possibly replace the dollar?” Many might erroneously suggest that China is itching to promote the CNY / Yuan / Renminbi as the dollar’s replacement, given that it’s the second largest economy globally. But, those who are skeptical that anyone besides the US can handle the gig will respond by trotting out some hard truths about the Chinese economy, including the fact that the country’s capital account is closed, and that the vast majority of trade is still priced in dollars – with no signs of slowing. “What can you buy with the Yuan?” those skeptics will ask.

This debate raises a few highly pertinent questions that deserve further exploration, including:Is de-dollarization actually underway, and to what extent?Is the dollar’s role as the global reserve currency good for the majority of Americans at this particular time in history?Does China actually want to be the issuer of the global reserve currency?What currency or currencies will eventually replace the dollar, given that history has taught us that all empires come to an end eventually?

These questions are critical to predicting how financial policy around the globe might develop as the influence of Pax Americana continues its natural decline. You’ll be shocked to hear that I think crypto is a key part of the conversation, too – but more on that in a bit.

Forming a view on whether de-dollarization is a thang is extremely important, as it should drive how you save your wealth. This is especially important if you are a citizen of the West. Even if your country issues its own form of fiat toilet paper, you are still an American vassal, courtesy of your flag’s military and economic alliances. Your capital is at risk of being expropriated as the American financial elites struggle to stay in power while their empire crumbles beneath them. Do you really want to fuck around and find out what a rabid dog will do when cornered? Are you going to let yourself become exit liquidity?

Maybe after reading this, you’ll think to yourself, “well, I’m actually a card-carrying member of the financial elite, so this doesn’t really apply to me. In fact, this arrangement will probably benefit me!” That might be the case in the short-term, but ask yourself this … would you want to be a noble in King Louis XVI’s court on the eve of the French Revolution? Does the political situation between the polarities of political power in America point to cohesion, or is there seething rage lurking just beneath the surface, ready to explode when handed the right match? Your meticulously coiffed head is probably feeling mighty heavy on those shoulders of yours, but don’t fret – I’m sure some righteous woke or proud boy warrior would happily remove it for you.

Before I get to the end game, though, it behooves us to understand the simple economics that underpin the ongoing discussions around de-dollarization. Many people do not understand how the flows of capital and trade work, and thus are driven to the wrong conclusions. So bear with me, as I’m going to start by going deep on the fundamental economics that support my assertions. And if your TikTok-addled brain can’t focus for 30 minutes, I suggest you save yourself the trouble and just open up a new tab, Google “ChatGPT-4,” and ask our future AI overlords for a summary of this essay.Mirror, Mirror on The WallA currency is said to be the global reserve currency when the majority of international trade is priced in said currency. To help us better understand the economic impacts of a global reserve currency, I am going to present a simplified global economy of two actors: the US (global reserve currency issuer and consumer of goods) and Asia (which is composed of China and Japan, who produce goods).

Europe, and specifically the UK, isn’t a part of the conversation because it destroyed itself over the course of two world wars (from 1914 to 1945). America picked up the pieces and quickly became the richest nation globally. It opened its markets and allowed countries outside of the Soviet Union’s sphere of influence to sell it stuff.

China and Japan (aka Asia) are lumped together because they both pursued the same mercantilist economic policies to achieve growth. Asia financially repressed savers so that heavy industry could get cheap capital to build manufacturing capabilities. Asia then undervalued its currencies vs. the USD and suppressed workers’ wages so that goods would be extremely cheap for Americans purchasing them with dollars. This strategy was easy for Asia to implement because, well – let’s just say that if you’re thinking about trying to start a workers’ union in China or Japan, I wouldn’t recommend the “fuck around and find out” approach. Following WW2, these policies made Asia so rich that it became the largest economy globally.

In this simple model, the US buys stuff from Asia in dollars. Asia uses those dollars to buy energy and raw materials from the rest of the world, so it can produce more stuff for the US. Asia now has a lot of excess dollars that it earned from selling stuff, and it can do two things with those dollars:

Option 1: Buy dollar-denominated assets.Option 2: Sell dollars in exchange for local currencies and give some of the earnings back to workers in the form of higher wages.

Option 1 keeps Asia’s currencies undervalued from a purchasing power perspective and allows Asia to keep on making and selling cheap stuff. Option 2 is desirable for the workers in Asia, who would be able to consume more because they would have higher wages and/or could buy imported goods cheaper. But, Option 2 does not favor Asia’s large corporate industrialists, because if the prices of their goods approached American price levels – driven by increased labor costs and an appreciating exchange rate – then they would sell fewer goods.

The post-WW2 global economy would not be in its current shape (that is, with America running a trade and capital deficit vs. Asia) without the following being true:

America has an open capital account. That means anyone with dollars can buy assets inside America in any size they like. A foreigner can buy US-listed stocks, US-incorporated companies, US real estate, and US government debt. If this weren’t the case, Asia would have nowhere liquid enough to invest its large amount of dollar income. If Asia wasn’t allowed to invest its dollar income in the US, then Asia’s currencies would appreciate and wages would increase. That is just maths.

America has little to no tariffs on imported goods. No country practices truly free trade, but America has always made it a priority to offer as close to free trade as possible. Without little to no tariffs on Asian stuff, Asia would not have been able to sell things to Americans for cheaper than American companies could produce domestically.

As trade rose after WW2, Asia needed an increasing amount of dollars, irrespective of whether the domestic American economy required a larger money supply. The more stuff Asia sells, the more commodities it must buy (in USD). If America is unwilling to provide more dollars to the world through its banking system (e.g., via loans from its private sector banks), then the dollar skyrockets in value vs. all other currencies because there are not enough dollars around to facilitate the increased level of global trade. For those who are perennially short in dollars due to their USD borrowings, a supercharged dollar is the kiss of death.

This presents a very big recurring problem in American politics. Having the global reserve currency means that the Federal Reserve (Fed) and Treasury must print or provide dollars by whatever means necessary whenever the global economy demands them. However, increasing the amount of dollars globally can stoke the fires of inflation, which hurt voters domestically.

In whose interests do the domestically elected politicians typically act? The foreigners who need cheap and plentiful dollars, or the Joe-six packs who want a stronger dollar to repel the terrible effects of inflation? As much as the politicians want to help the average American, the health of the entire world’s economy – along with America’s desire to remain the global reserve currency issuer – typically take precedence. So, when asked, the dollars are almost always provided. And if not, a global financial crisis ensues.

To give two recent examples, consider the Mexican Peso Crisis of 1994 and the Asian Financial Crisis of 1998. In both circumstances, US banks that were flush with deposits – many of which were from foreigners with lots of dollar earnings – lent to foreign countries in order to earn more yield and fully deploy the insane amount of capital they had on deposit. The sheer volume of dollars that needed to find a home caused malinvestment abroad. But the music was playing, so err’body had to get up and two-step.

In both instances, the Fed started raising short-term rates because the US economy needed tighter monetary conditions domestically. The rise in rates caused the banks to slow down lending abroad. Many of these loans were of dubious quality, and without a continuous flow of cheap dollars from banks, the foreign borrowers became unable to service their debts. Trade faltered as companies who depended on this dollar funding started going bankrupt in Mexico and Asia, respectively. The banks had to recognize their bad loans, which put their solvency at risk.

The Fed and Treasury are now facing a hard decision. The domestic economy needed tighter money, but putting the American people first would also put US banks in harm’s way due to their international loan portfolios. Y’all already know what happens when financial policymakers face a choice between supporting the people or the banks, so you can guess the rest – the Fed and the Treasury eventually caved and lowered rates to bail out the US banking sector. Of course, there were some elected officials that hooted and hollered about how unfair it was to their constituents to bail out banks that gave bad loans to foreigners, but the American economic model necessitated this policy response.

American banks will always have a deposit base larger than the domestic lending opportunities because foreigners flood the banks with cash earned by selling stuff in dollars. Banks will always lend too aggressively and sacrifice tomorrow to boost earnings today. The Fed and Treasury will always bail out the banks because they must in order to prevent a financial crisis that makes the dollar more expensive and lowers its supply globally. When banks contract dollar lending en masse to repair their balance sheets, it removes dollar credit globally, which in turn pushes up the price of dollars and lowers their supply.

So, we just walked through the impact that the dollar’s role as the global reserve currency has on the American banking system. But what about American financial assets?

Asia doesn’t just deposit dollars with US banks. They also buy stocks, bonds, and property.

The wealthiest 10% of Americans own 90% of all stocks. The global reserve currency arrangement benefits them significantly. The Fed will never let the banking system go bust, which means it will always print money to fill holes bigger than Sam Bankman-Fried’s legal bills. This printed money causes financial asset prices to increase. The wealthy also benefit because foreigners provide constant buying pressure in the stock, bond, and property markets.

If the 10% benefits, what about the other 90% of Americans?

For-profit American companies must do everything they can to maximize revenue and minimize costs. For companies that make real stuff (as opposed to software), labor is one of their biggest costs. Sir Elon recently binned 75% of Twitter’s work force and the company’s software continued working. Imagine if General Motors fired a similar percentage of its staff. How many cars would make it off the factory floor?

But remember, this is America – so manufacturers have to find some way to keep juicing those margins. Wouldn’t it be great if American companies could relocate their factories outside of America to capitalize on cheap labor in Asia, which intentionally undervalues its currencies and suppresses the wages and negotiating power of its labor? And wouldn’t it be great if those companies could then produce all their products cheaper abroad, and then sell them back in America at a cheaper price with no import tariffs? Surprise, surprise – that’s exactly what happened. Corporate profit margins went up, and union membership declined in tandem with the decimation of the American manufacturing base.Chart on the Effects of GlobalizationGlobal Trade and Services Volume (white) S&P 500 Index (yellow) Case Shiller US National Home Price Index (green) Manufacturing Value Added as a % of US GDP (magenta)

As you can see from this chart, financial assets like stocks and property received a significant boost from globalization. The more the world trades, the more dollars need to be recycled into the US. US labor did not receive the same benefits, though, as evidenced by the lone falling purple line, which represents the share of manufacturing value added as a % of US GDP. Basically, if you’re an American, you’re much better off learning financial engineering than how to engineer the actual making of goods.

This historical chart from NDR clearly shows that US corporate profit margins are at the highest they have been since the 1950’s. However, in the 1950’s, the US was the world’s workshop (since everyone else was destitute after the ravages of WW2). In 2023, China occupies that role – and yet US companies are still enjoying profit margins that are similar to those experienced during the height of the US’ manufacturing prowess.

Corporate executives are rewarding themselves with generous stock options packages. These chieftains are also rewarding shareholders (which includes themselves) with stock buybacks and dividends, all the while decreasing CAPEX. This has resulted in CEOs making 670x more than the average worker, on average. Take a gander at the below charts for a fuller understanding of the pay distortion of American firms.

The good manufacturing jobs vanished, but hey – now you can drive an Uber, so no harm, no foul, right?! I’m being a bit flippant, but you get the point.

This outcome is guaranteed to continue – and likely worsen – so long as America continues to covet its role as the issuer of the global reserve currency. In order to maintain its seat on the currency throne, America must always treat capital better than labor. It must allow Asia to invest its dollars in financial assets. Capital invested in the stock market demands a return. And capital will demand that executives continue to raise profit margins by reducing costs. Reducing costs necessitates replacing expensive domestic labor with cheap foreign labor. If America does not treat capital this way, then there is no incentive for Asia to sell goods in dollars (since it wouldn’t be able to buy or invest in anything with those dollars).

If America resorted to pro-manufacturing mercantilist policies, then America / Asia trade would need to be conducted in a neutral reserve currency. And by neutral, I mean a currency that isn’t issued solely by one country. Gold is an example of a neutral reserve currency.

The current trade arrangement has benefited the financial elite who run America, but it has also been a boon to the general populations of Asia, who have been rebuilding their countries after a devastating global conflict. Which brings us to the next important question – is there any reason Asia would want to change this relationship?AsiaIn some respects, China and Japan have very similar cultures and economies. They are collectivist – i.e., the wellbeing of the community is considered more important than the individual’s. The stated goal of both Chairman Mao and the post-WW2 Liberal Democratic Party (LDP) that ran Japan was to rebuild their respective countries. The message to the plebes of both nations was essentially, “bust your ass, and we can get wealthy together as a country.” That is a gross oversimplification, but the end result was that these two countries became the 2nd and 3rd largest global economies in under a century.

These countries got rich, and the average Zhou / Watanabe enjoyed a much better standard of living than pre-WW2. Of course, labor in general did not receive the full benefit of the countries’ rising overall productivity, but again, the goal was never for the individual to flourish at the expense of the group.

So, as Asia looks at how far its current economic arrangement has gotten them, and then looks at the US’s precarious current position, they have to be asking themselves, “is being the reserve currency issuer even something we should be striving for?”Does Asia want to have free trade?No. Asia wants to raise the standard of living of its locals by selling stuff to rich Americans. It doesn’t want money flowing out of the region to purchase imports. The whole reason Asia got rich is that it restricted foreigners from selling things at an attractive price to locals. On paper, Asia is a member of the World Trade Organization and is committed to free trade. In practice, there are a variety of ways in which Asia constrains the ability for foreign products to compete domestically on an equal playing field. America is perfectly happy to turn a blind eye to this, because the financial elites that control the country are the same cohort that own the companies that benefit from cheap goods and labor from abroad.Is Asia for sale?China’s capital account is closed. Foreigners are allowed to invest in a very limited subset of Chinese assets. There are specific quotas for the level of foreign ownership in the stock and bond market. Majority foreign ownership of most companies is not allowed. Even if you had a bunch of CNH (offshore Yuan or CNY), you couldn’t buy anything with it in size like you can in America.

Japan’s capital account is open – or at least, that’s what they claim. Japan has very polite ways of discouraging foreign ownership. Companies place a bigger emphasis on social stability – i.e., providing jobs for more people than they need – over turning a profit. There is also a high degree of cross-company ownership, which restricts the ability of minority investors to influence corporate direction. As a result, returns on Japanese equities are much lower than in the US.

As readers know, I love skiing in Japan. A foreign property owner there told me that during COVID, while the foreigners were away due to travel restrictions to enter Japan, one town passed a policy lowering the building density allowed on undeveloped land. This lower density regulation makes it practically impossible to build a hotel or large apartment block. This primarily impacts foreigners, who bought land in hopes of developing hotels and selling high-end condos. The locals will be perfectly happy if no additional visitors come and ruin their bucolic ski fields. There are more than enough hotel beds for the domestic Japanese visitor. Capital wants in, but society says no.Bubble GumThe US, China, and Japan are all grossly indebted. If you count the present value of future mandatory entitlements (US Social Security and Medicare), all three nations sport debt-to-GDP ratios of over 200%. The difference between the US and Asia is that a large part of US debt is owned by foreigners, whereas Asia is largely indebted to itself. This does not alter the likelihood that the debt will be repaid, but it does influence the speed at which the reckoning occurs.

US Adj Debt / GDP

2022 Entitlement Spending (tn)$4.13530-year Treasury Yield3.63%Present Value of Entitlements over 30 Years (tn)$42.6122022 Debt (tn)$24.257Total Adj Debt (tn)$66.8692022 GDP (tn)$25.06Adj Debt / GDP266.82%

When debt must be repaid quickly, a financial crisis ensues. If the debt is primarily concentrated at the sovereign level, this accelerated repayment of debt leads to outright default and regime change. You can look at the history of Argentina to better understand how this tends to play out politically.

China and Japan know they are overleveraged. However, because capital cannot come and go freely, the authorities have a lot of latitude in determining who bears the losses and how quickly those losses are realized. Japan experienced the severe bursting of a property and stock market bubble in 1989. The policy response was to financially repress savers using quantitative easing and yield curve control, and that remains Japan’s policy to this day. Its banking system and corporate sector has deleveraged over the past 30 years. There has been little to no growth over that time period, but there has been no social upheaval, either, because the costs of the bailout are being amortized over a longer period of time.

China’s property bubble has kind of burst. Real Chinese growth is likely between 0% to 2%, not the advertised 6% to 8%. The communist party is now undergoing the painful political process of assigning who bears the losses for a gargantuan amount of malinvestment and its associated debt. But, China is not going to have a financial crisis so severe that it shakes the people’s faith in the party and causes them to seek the overthrow of Xi Jinping. That’s because China will do the same as Japan and subject the population to decades of little to no growth and financial repression. They can do this because there is low foreign ownership of their debt, and capital cannot come and go freely from China.

Even after 30 years, Japan is still mired in debt. China tried to tame its property market, but the financial stress brought on by that policy proved too great to bear, forcing them to revert to their original plan of “extend and pretend.” Given the current state of both countries, Asia will not open its capital accounts and allow foreign hot money to come and go, since it would only serve to further destabilize China and Japan’s financial systems. Take note – trapped Asian capital is the exit liquidity that pays the price for over indebtedness (since it experiences financial repression and little to no growth).

A note about financial repression: I define financial repression as the inability to earn a rate on savings via government bonds that meets or exceeds the rate of nominal GDP growth. For example, if government bonds yield 3% but the economy is growing at 5% then savers are financially repressed to the tune of 2%. The citizens lose income that the government gains. And these gains are used to inflate away government debt.ChecklistI confidently assert that Asia does not want to be the issuer of the global reserve currency. Asia is unwilling to accept the necessary pillars of a global reserve currency:

Asia does not want to allow foreigners to own any assets they wish in any size they like.

Asia does not want to disenfranchise labor to a significant extent vs. capital.

Asia wants to deleverage on their own time scale, which means foreigners cannot be allowed to own a large amount of government debt or other financial assets like in the US, nor will foreign capital be allowed to come and go as quickly as it pleases.

But just because Asia is unwilling to enact the policies needed for it to become the issuer of the global reserve currency, doesn’t necessarily mean that Asia wants to keep accumulating and trading dollars.Regime ChangeDe-dollarization is getting a lot of reps in the current conversation around the future of the global economic arrangement. However, the concept of de-dollarization is not some new phenomenon. I have a couple of charts from Joe Kalish, the chief global macro strategist for Ned Davis Research, to illustrate my point.

Remember my simple global economic model: Asia earns dollars by selling stuff to America. Those dollars must be reinvested in a dollar-valued asset. US Treasuries are the largest and most liquid asset that Asia can invest in.

2008 was the apex of dollar hegemony. Right on schedule, the American banking sector spawned yet another global financial crisis. The response, as always, was for the Fed to print money to save the US dollar banking system. Holders of US Treasuries don’t like being shat on repeatedly. The amount of money printed in the ensuing decade was so egregious that holders of Treasury bonds started dumping en masse.

What did the producer countries start buying instead? Gold. This is an extremely important concept to understand, as it gives us a big clue as to what asset is most likely to dethrone the dollar as the future currency for settling trade and investment flows between countries.

Gold as a percentage of emerging market (EM) central bank holdings bottomed in 2008 – i.e., at the same time the dollar was at its mightiest. Following the financial crisis, the global South decided it had had enough of being exit liquidity for Pax Americana and started saving in gold rather than treasuries.

Together, these two charts clearly suggest that de-dollarization began in 2008, not in 2023. Huh – now that I think about it, Lord Satoshi also published the Bitcoin whitepaper in 2008… what a coinkydink.

Understanding the top-level economic movements of the last 15 years allows us to understand why and how China and Japan changed their behavior. When your entire economic model is predicated on selling stuff to – and investing the proceeds in – America, you lose financial independence. Like it or not, the People’s Bank of China (PBOC) and Bank of Japan (BOJ) import the monetary policy of the Fed. That may seem bad enough on its own, but trillions of dollars of Asia’s wealth also depend on the good graces of American politicians. As Russia recently found out, rule of law and property rights are not ironclad.

I will focus this next part of my analysis on China, because Japan is a dutiful ally of the US. Just as one example, the US recently told Japan to increase their defense spending, and they obliged. Japan also hosts a large US military presence (even if the general population wishes the American GI’s would get the fuck out). As a result of this alliance, the BOJ and Ministry of Finance typically do what they are told when the Fed and/or US Treasury make strong suggestions about Japan’s monetary policy.

China, on the other hand, is in a bind. China still earns hundreds of billions of dollars per year exporting stuff to the US (and the world in general). China also holds trillions of dollars’ worth of US Treasuries and other dollar-denominated financial assets. Even though China owns a significant chunk of America, she is still listed as a strategic competitor of Pax Americana. But, China can’t just ditch the dollar, because China doesn’t want a bunch of foreigners flush with CNY to destabilize its financial system. Nor can it just market sell its treasuries, as it would get a terrible price for them.

As a result, China must work through a multi-step process to safely de-dollarize – not to replace the USD with the CNY as the global currency, but to simply lower its economic reliance on the US. The process goes something like this…

The first step is for China to start paying its major trading partners in CNY. As Saudi Arabia’s largest customer of oil, it makes sense for China to pay in CNY – and the same is true for all of its purchases from large energy exporters. If the energy input to the Chinese economy is priced in CNY, it requires China to “save” fewer dollars, which it previously used to buy energy. China has already begun to implement this step.

From there, the energy exporters can spend their CNY on Chinese manufactured goods. After almost 50 years of modernization, China is the workshop of the world, and it produces just about everything a country might need.

If there is a large enough imbalance in trade between China and its trading partners, the difference can be settled in gold. China has a very liquid physical gold/CNY market located in Shanghai. If you don’t want to hold CNY, you can purchase gold futures contracts for physical delivery. This is super important because China allows the gold market to soak up any trade imbalances. If this gold link were absent, China would have to permit greater ownership of CNY denominated stocks and bonds. I explained earlier why China does not want to allow foreigners to own Chinese financial assets in size.

To further incentivize its largest trade partners to invoice in CNY when trading with China or Chinese companies, the PBOC will begin to aggressively roll out the e-RMB, a central bank digital currency (CDBC) that it has been testing since 2020. The e-RMB will allow instant, free, and zero-risk payments across the global South, which will replace the USD as the “hard” currency in places like Africa. Why fuck around with the intrusive banking system of your former colonial oppressors and slavers, when you can use a currency sponsored by a nation that just wants to trade and not get involved in your politics?

The goal of the e-RMB is to replace the USD in trade with China’s largest non-aligned trading partners. China doesn’t need or want to convince staunch US allies to drop their use of the dollar. China will still trade in dollars, but the size of China’s dollar earnings abroad will fall dramatically. With fewer dollars to invest, China can reduce the need to engage with the Western financial system. As China’s treasury holdings mature over time, China can sell these dollars and acquire gold. A recent disclosure points to an already steady rise in the official gold holdings of China.Political RiskOne of the reasons investors previously favored “developed markets” – and especially the US – was the absence of political risk. Political risk is the risk that when power shifts from one ruling party to another, the incoming party jails the opposition, and/or changes rules and regulations enacted by the previous regime just because they are of a different party. As an investor in countries with volatile politics, you can’t focus on the merits of one asset vs. another when your attention is fully centered on political power dynamics. Rather than engage in this risky exercise, investors instead chose to place their capital in an environment with a stable political arrangement. Previously, that was the US.

Power has seamlessly transferred between Democrats and Republicans since the end of the American Civil War in 1865. American presidents are no less crooked than any other heads of state – but for the sake of the system, the elites have managed to pass the baton between themselves without much in the way of sour grapes. Former President Richard Nixon was impeached for breaking laws while in office, and his replacement President Gerald Ford pardoned him.

For many years, capital has had nothing to worry about with regards to American politics. That has changed. Former President Trump was indicted by a court in New York City for a variety of alleged crimes. Trump might be a born-and-bred New Yorker, but the city has no love for him. Whether or not there is merit to his charges isn’t important. What’s important is that half the country voted for him, and the other half did not. A political flashpoint has been created that will be extremely divisive. Regardless of whether Trump wins or loses, half the country will be upset and believe the system is corrupt to its core.

2024 is an election year, and as you know, the number one job of any politician is to get re-elected. If you thought Trump owned the media airwaves before, then this public trial is only going to cement him further as a permanent fixture in the 24-hour news cycle for $free.99. News about this trial is everywhere. It doesn’t matter where you are in the world – the mass market news media are talking about this story. Politics is always about name recognition, so if Trump decides to run for president, it’s nearly a guarantee he will be the Republican party nominee.

President Biden’s house is made of glass as well. Allegations about shady dealings of his spawn Hunter Biden might lead one of Trump’s acolytes to indict Hunter for something. It doesn’t really matter for what – the narrative is that Hunter is crooked and his daddy is protecting him. Following such a move, each side would have the other’s king in check.

Again, the question (at least for those looking to trade on the future of American politics) isn’t whether Trump or Hunter is guilty or innocent. The question is, will the American public sit idly by and watch their hero be impaled by their political enemy? Will the 90% of America that has watched their good jobs go to Asia and their cost of living skyrocket be docile in the face of yet another affront? Or could this political instability be the match that ignites them to start asking the hard questions about why the wealth of Pax Americana hasn’t flowed to their household? Keep in mind that this is a relative discussion. It is not about whether Americans are richer on average than a family in Sub-Saharan Africa. It is a question about how a family in Flint, Michigan bathing in toxic water feels vs. a family in Manhattan that shops at Whole Foods.

Are the leaders of the Democratic and Republican parties concentrating on protecting their respective Lords, or investors' capital?

As a steward of your capital, you must ask yourself – “do I want to continue to hold assets in a regime with these political and financial issues? Or would I rather ride it out in the (relative) safety of gold and or crypto?”The Financial BalkansThe future will feature various currency blocs, but no global reserve currency hegemon. Trade with the West will continue in dollars, trade with the rest will be in CNY, gold, rupees, etc. When the blocs have imbalances between them, they will settle in a neutral reserve currency. Historically, that has been gold, and I don’t believe that will change. Gold is a great global trading currency if you can transport bulky, heavy items. Governments are good at these kinds of logistics – it’s a bit more difficult for the average person to lug their gold savings around.

As the global financial system balkanizes, there will be less demand for US financial assets. Mohamed ain’t buyin’ no 57th street penthouse in NYC when he just saw how Yevgeny got his assets stolen for sporting the same passport as Putin, the “devil' incarnate. The global South, which used to produce stuff to sell to the world in exchange for fiat toilet paper dollars, will begin accepting other currencies instead. Without the foreign demand for stocks and bonds at the margin, prices will fall. The biggest impact will be that, without a new bout of money printing, US bond yields will need to rise (remember: as bond prices fall, yields rise).

The West cannot allow general capital flight from its markets to places like crypto or foreign stock and bond markets. They need you, the reader, as exit liquidity. The colossal debts accumulated since WW2 must be paid, and it's time for your capital to be eviscerated by inflation. A capital flight would also definitely spell the end for the USD’s role as the global reserve currency.

As I mentioned in Kaiseki, the West cannot easily enact draconian capital controls because an open capital account is a prerequisite for the type of capitalism it practices. Even so, if the West starts to sense that a mass exodus of capital is on the horizon, it will almost certainly make it more annoying and difficult to pull money out of the system. If you believe my thesis, then you should start to see many of the world powers’ recent financial policy changes in a different light.

The West is making it harder to buy crypto and store it in a private wallet. You can read about Operation Choke Point 2.0 and the Wall Street Journal to get a better understanding of this dynamic. President Biden’s administration keeps hinting that they may try to block US investors from investing in various sectors of China. Expect other such restrictions on investing abroad so that capital can stay at home and get disembowelled by persistently high inflation created by aggressive money printing.

Since 1971, investing in dollar assets has become such a no-brainer trade that many investors have forgotten how to actually do financial analysis. Moving forward, gold and crypto will be in focus. They are not tied to a particular country. They cannot be debased at will by a central bank desperate to prop up their financial system with printed fiat money. And finally, as countries start looking out for their own best interests rather than serving as slaves to the Western financial system, central banks of the global South will diversify how they save their international trade income. The first choice will be to increase gold allocations, which is already underway. And as Bitcoin continues to prove it is the hardest money ever created, I expect that more and more countries will at least start to consider whether it is a suitable savings vehicle alongside gold.

Do not let the financial media present this as an either/or decision between the dollar and the yuan. Do not let the lap dogs of the empire convince you that due to certain “deficiencies” in the Chinese economy, there is no currency ready to dethrone the mighty dollar. They are playing at misdirection – in the coming years, the world will conduct trade in a multitude of currencies, and then save when needed in gold, and maybe sometime in the near future, Bitcoin.

by Arthur Hayes @cryptohayes.Arthur Hayes, Co-Founder of 100x

The tribalism is already underway. People are being forced to choose a side. During the French revolution, it was the moderates in the middle that got disproportionally executed. Social disorder and chaos invite a strongman to restore order through mass violence - Napoleon, Hitler, Stalin and Mussolini to name a few. The losers were pacified and eliminated.

Bitcoin is economic Plan B, but hedging personal risk needs to be evaluated. There is a reason that more than 22 billionaires (including Zuck) have places on Kauai. New Zealand is also popular. Larry E owns an island with 4,000 residents. Not saying .... but, it's nice to have a big ocean as a buffer.

I like that good AI is here and getting even better. My take is that competing AI systems will "fact check" each other through almost real time filtering systems to screen and flag what you see/read. Let multiple AI systems validate content for those that want freedom from AI driven propaganda control systems. Humans won't be able to do it on their own.

AI systems anchored in Bitcoin security would be a great way to protect these systems from becoming exploited and corrupted by human power structures. We already see this dichotomy in the outputs from Google's Bard and OpenAI's ChatGPT. Just having one powerful and neutral Bitcoin anchored AI system may keep the government and private sector AI's more honest.

The near term looks precarious because of how easy it is for things to seriously go off the rails. I am a tech optimist for 10 years out. There will be huge progress in multiple fields which will combine with modernized institutions to create a more durable social structure. It's just the next few years that are going to be dicey imho.

@JasonPLowery

This

is going to get me in trouble, but here it goes. The reason why I didnt

"go dark" is b/c i got word of the OPOTUS 30% miner tax proposal.

This is just the beginning of a targeted ESG FUD campaign. Next week, NYT will

follow with a PoW hit piece & introduce the concept of "marginal

emissions accounting" to spread more #Bitcoin ESG FUD. Once you guys are ready

to admit that #SOFTWAR is exactly the right argument to

make at the right time, and that hashing should indeed be protected under the

US 2nd amendment, i'll be waiting & ready to go. Until then, good luck

trying to battle ESG FUD. You can try all you want to talk about how efficient

BTC's electricity usage is, but it's a sisyphean task. Here's the argument that

will actually win: People have the right to **physically** secure the property

they value, regardless of whether it's using electric power or kinetic power.

And it would especially be unethical to deny free people the right to

physically secure their property using non lethal means like electricity.

Moreover, PoW represents a revolutionary approach to cybersecurity &

digital-age warfighting. Not supporting PoW would be a national strategic

security hazard. We are at a turning point in history, and we have to support #Bitcoin sooner and faster than our

adversaries do. And the clock is ticking... It's all in this thesis. You just

have to have to courage to use it. https://a.co/d/9MwnGkV

My first post on Nostr. Given predicted hit piece from NYT, I want to credit Major Jason Lowery for his preemptive strike against the Enforcers of the Current Power Hierarchy.